20040505Reply Comments.pdf

MONICA B. MOEN, ISB # 5734
BARTON L. KLINE , ISB # 1526
Idaho Power Company
1221 West Idaho Street
O. Box 70
Boise , Idaho 83707
Telephone: [phone]
FAX Telephone: [phone]
RECEIVED 0FILED
Z(WIt MAY -4 PH 4: 42
FU13LIC
UTILITIES COM~1ISSI0N
Attorney for Idaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR APPROVAL)
OF AN AGREEMENT FOR SALE AND
PURCHASE OF ELECTRIC ENERGY
BETWEEN IDAHO POWER COMPANY AND
THE J.R. SIMPLOT COMPANY
CASE NO. IPC-04-
REPLY COMMENTS
COMES NOW, Idaho Power Company ("Idaho Power" or "the Company
by and through its attorneys, and hereby replies to the comments of the Commission Staff
filed on April 16, 2004.
Background
The J.R. Simplot Company s Pocatello facility is a PURPA qualifying facility.
Idaho Power has continuously purchased the output of Simplot's Pocatello OF facility, on
both a firm and non-firm basis, for eighteen years. During that eighteen-year period, there
have been several iterations of the purchase agreement between Idaho Power and
Simplot. The Firm Energy Sales Agreement ("the Agreement") presented to the
Commission in this proceeding is one more in this series of contracts.
REPLY COMMENTS , Page
While the Simplot Pocatello facility has a nameplate rating greater than 10
, Simplot has advised the Company that under normal operating conditions, the
generation from the Simplot Pocatello facility will average approximately 8 MW. In its
comments, Staff notes that Simplot made the same representations in 1991 when the prior
agreement was submitted , but in actual practice Simplot has generated more than 10 MW
on many occasions. Idaho Power has no reason to believe that Simplot is not accurately
representing that generation above 10 MW will not be the norm. In any event, Idaho
Power believes that the Agreement reasonably prices the energy delivered by Simplot
even if Simplot does generate above the 10 MW level.
The Purchase Rates in the Simplot Pocatello Agreement Are Reasonable
In many respects, the Firm Energy Sales Agreement between Idaho Power
and the J.R. Simplot Company at issue in this case is very similar to the Firm Energy
Sales Agreement the Commission recently approved for the Renewable Energies, Inc.
PURPA project. Under both contracts , energy deliveries up to 10 000 kilowatt-hours per
hour are priced at the Commission-approved avoided-cost rates for projects smaller than
10 MW. In both contracts, deliveries of energy in excess of that amount are priced lower
with the resulting average rate falling below the Commission-approved avoided-cost rate
level.
Under the Agreement, if the Simplot Pocatello project generates more than
000 kilowatt-hours in any hour, the purchase price for the kilowatt-hours greater than
000 will be either 85% of the Mid-C spot market price, or the Commission-approved
avoided-cost rate, whichever is lower. Therefore, if Simplot does generate more than
REPLY COMMENTS , Page 2
000 kilowatt hours in any hour, Idaho Power s customers will purchase the additional
energy at below-market prices. In addition , because of the pricing structure in the
Agreement, if Simplot generates excess energy, the average cost for all kilowatt-hours
from the Simplot Pocatello facility will, in all likelihood, be lower than the current
Commission-approved avoided cost rates.
Staffs comments accurately note that Idaho Power did not utilize the
computer modeling methodology described in Order No. 26576 to determine the rates
contained in the Agreement. Both the J.R. Simplot Company and Renewable Energy, Inc.
approached Idaho Power at approximately the same time seeking contracts for OF
projects under PURPA. For both the Renewable Energy, Inc. and Simplot Pocatello
Agreements, the Company utilized the Commission-approved avoided cost rates as the
starting point for contract negotiations, rather than utilizing the AURORA model to set
rates.
The Company s concerns with its ability to utilize the AURORA model to
compute long-term avoided cost rates for the Simplot Pocatello facility are identical to the
concerns the Company described in its Reply Comments in the Renewable Energy, Inc.
proceeding. Idaho Power requests that, in its deliberations in this case, the Commission
take administrative notice of the Company s Reply Comments filed in the Renewable
Energy proceeding.
Staff's Recommendations Are Unreasonable
In its comments, Staff recommends that the Commission reject both the
Agreement and, presumably, the two short-term extensions of the prior Simplot agreement
REPLY COMMENTS , Page 3
that preceded it. Staff also states that if the Commission is inclined to approve the two
extension agreements and the Agreement, the Commission should order Idaho Power to
treat all three agreements as voluntary, non-PURPA contracts, thereby denying the
Company full recovery of its costs in the PCA. Idaho Power believes that Staffs approach
is unnecessary and unreasonable for the following reasons:
Short-Term Extensions. The prior Commission-approved contract
between Idaho Power and Simplot expired before the parties could complete their
negotiations that ultimately led to the Agreement that is the subject of this proceeding.
address this problem , Idaho Power and Simplot agreed to extend the prior contract while
the two companies completed negotiation of this Agreement. Staffs comments correctly
note that the purchase prices under the two extensions were lower than the currently-
approved avoided-cost rates.
Staff argues in its comments that the extension contracts should be rejected
because the Company did not follow the proper procedure. Staff argues that the correct
procedure would have been for (1) Simplot to accept non-firm rates in the interim, or (2)
the parties should have formally filed each of the two short-term extension agreements
seeking a separate Commission order authorizing approval of the agreements for rate
making purposes. Both Idaho Power and Simplot believed that they would agree on a
new contract in a relatively short period of time and filing multiple formal applications for
approval of short-term interim contracts would not have been an efficient use of the
Commission s time and resources.
Because the purchase prices in the two extensions were lower than the
current Commission-approved avoided costs, Idaho Power does not believe that the two
REPLY COMMENTS , Page 4
short-term extension agreements have disadvantaged customers in any way. The
Company requests that the Commission reject Staffs proposal that the Company be
ordered to treat the two extension agreements as non-PURPA agreements and allow the
Company to recover its costs for these PURPA agreements.
Lonq- Term OF Aqreement.Staff recommends that the Commission
order Idaho Power to purchase energy from the Simplot Pocatello facility based on the
rates, terms and conditions contained in the Agreement. However, Staff recommends that
the Commission include a condition in the order requiring the Company to treat the
Agreement as a voluntary contract and not as an involuntary PURPA contract until the
Company resets the rate to be paid to Simplot using the AURORA model and revises the
Agreement with Simplot. Section XXV of the Agreement provides as follows:
This Agreement shall become finally effective upon the
Commission s approval of all terms and provisions hereof without
change or condition and declaration that all payments to be made
to Seller hereunder shall be allowed as prudently incurred
expenses for ratemaking purposes.
Staffs proposal that the Commission order Idaho Power to enter into the
Agreement as a voluntary contract would certainly be a "change" or "condition" placed on
the Agreement by the Commission. Idaho Power does not believe that such a
requirement is reasonable or necessary. As previously indicated, the rates contained in
the Agreement are beneficial to customers.
Idaho Power requests that the Commission approve the Simplot Pocatello
Agreement for the same reasons it approved the Renewable Energy, Inc. Agreement. In
both instances , the agreements contain rates that will be less than the Commission
current approved avoided-cost rates.
REPLY COMMENTS, Page 5
Idaho Power acknowledges that it used the Commission-approved avoided-
costs as the starting point for negotiating the Renewable Energy and Simplot agreements
to avoid delay and because it was not confident that the AURORA model should be used
to set purchase prices in a long-term fixed rate contract. To a great degree , Staffs
comments simply gloss over the fact that there is a critical difference between (1) using
AURORA to compare alternative resource streams , and (2) using AURORA to set long-
term purchase prices in a contract. While Idaho Power still has some reservations , in the
course of finalizing the 2004 IRP, Idaho Power has continued to refine the AURORA
model and now commits to the Commission that it will use the AURORA model to set rates
for all future contracts with OF's with a capacity larger than 10 MW.
DATED at Boise, Idaho, this 4th day of May, 2004.
BARTON L. KLINE
Attorney for Idaho Power Company
REPLY COMMENTS , Page 6
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 4th day of May, 2004, I served a true and
correct copy of the within and foregoing REPLY COMMENTS upon the following named
parties by the method indicated below, and addressed to the following:
Scott Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington Street
O. Box 83720
Boise, Idaho 83720-0074
---1L Hand Delivered
S. Mail
Overnight Mail
FAX [phone]
David Hawk
R. Simplot Company
O. Box 27
Boise, Idaho 83707
Hand Delivered
x U.S. Mail
Overnight Mail
FAX [phone]
CERTIFICATE OF SERVICE