20070102Decision memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
FROM:DON HOWELL
DATE:DECEMBER 26, 2006
SUBJECT:IDAHO POWER'S APPLICATION SEEKING APPROVAL OF A
TRANSFORMER SHARING AGREEMENT, CASE NO. IPC-06-
On November 14, 2006, Idaho Power Company filed an Application requesting
that the Commission approve a Spare Transformer Sharing Agreement ("Transformer
Agreement") with nearly 50 of the nation s other electric utilities. The Transformer Agreement
provides that in the event of a deliberate act of terrorism disabling one or more utility
substations, the participating utilities may be called upon to provide/sell spare electric
transformers to the affected utility. Application at 1-2. In essence, the Transformer Agreement
creates an industry-wide pool of spare electric transformers that can be transferred from one
utility to another utility in the event of a terrorist attack upon the nation s electric infrastructure.
The Company requested that this Application be processed under Modified Procedure.
On November 28, 2006, the Commission issued its Notice of Application and
Modified Procedure. The Commission invited interested persons to file comments regarding the
Application no later than December 19, 2006. The Commission received two comments: one
from a customer and the other from the Commission Staff.
BACKGROUND
On July 18 , 2006, the Edison Electric Institute (EEl) on behalf of more than 40
participating utilities filed an application with the Federal Energy Regulatory Commission
(FERC) seeking authorization for jurisdictional public utilities to engage in the future transfers of
transformers. Order on Application for Blanket Authority for Transfers of Jurisdictional
Facilities and Petition for Declaratory Order 116 F.RC. R 61 280 at 'tI 3 (September 22
2006), hereinafter the Declaratory Order.In its FERC application, EEl indicated that 43
DECISION MEMORANDUM
entities 1 have executed the Transformer Agreement. EEl stated these participating utilities own
more than 60% of the interstate bulk-power transmission system. Id. EEl asserted that the
Transformer Agreement is "a prudent approach to making efficient use of the industry s existing
spare transformers and fairly allocating the responsibility to acquire a limited number of
additional spares, while minimizing duplicative purchases of the these costly assets.Id. at 't( 4
citing Application at 8-
THE APPLICATION
Under the Transformer Agreement each participating utility is required to maintain
and if necessary, acquire a specific number of transformers in each voltage class in which it
participates. At present, the Agreement designates 20 classes of transformers. The Agreement
requires participating utilities to sell their spare transformers to another participating utility in its
voltage class if there is a triggering event. Idaho Power anticipates that it will commit 400
megavolt-amperes (MV A) of spare transformers to the sharing pool in the 230 kV-138 kV
equipment class. Application at't(7.
Idaho Power asserted that participating in the Agreement will lower its overall future
costs to maintain spare transformers in its inventory, thereby benefiting ratepayers. Idaho Power
will receive the benefit of access to transformers in a national emergency without the added costs
and risks of buying and carrying large surpluses of spare transformers in its inventory. Id. at't(6.
Although Idaho Power believes the risk of having to sell a spare transformer under
the Agreement to be very low, the possibility of such a sale would require this Commission
approval under Idaho Code ~ 61-328. This section provides in pertinent part that no electric
utility may sell or transfer "any property located in this state which is used in the generation
transmission, distribution or supply of electric power and energy to the public or any portion
thereof. . . except when authorized to do so by order of the public utilities commission." Before
authorizing such a transaction, the Commission must find that: (1) the transaction is consistent
with the public interest; (2) the costs of and rates for supply and service will not be increased by
reason of such transaction; and (3) the transaction will not adversely effect the financial ability of
Idaho Power to operate and maintain its facilities. Idaho Code ~ 61-328(3). The Commission
may condition its authorization with such terms and conditions as in its judgment the public
convenience and necessity may require. Idaho Code ~ 61-328(4).
I A vista Utilities is one of the signatories to the Agreement.
DECISION MEMORANDUM
Idaho Power stated that because the possible transfer and sale of transformers is
executory, "appropriate bookkeeping entries will be made at the time of any future transfer and
sale" of transformers. Application at't(9. At this time, the Company does not seek approval of
any ratemaking treatment for the Transformer Agreement fees and any new inventory required
by the terms of the Agreement. Id.
THE COMMENTS
The Commission received two timely comments in response to its Notice of
Modified Procedure. Peter Humm fully supported the Company s request to participate in the
Transformer Agreement. He suggested that the Transformer Agreement should be expanded to
include the shared pooling of other transmission equipment including phase shifters, tower
structures, conductors, insulators, etc. He indicated that the Company s participation in the
Agreement would assist Idaho Power in making quick repairs to its transmission network in an
event of an outage.
The Staff also recommended the Commission approve the Transformer Agreement.
The Staff maintained that the pooling agreement reduces the risk of long-term outages due to
transformer shortages. In essence, this Agreement would provide for a more timely restoration
of service in the event of a terrorist attack. Staff Comments at 3. Echoing comments provided
by Mr. Humm, Staff recommended that the Company participate in all classes where it can
appropriately mitigate risks and the length of outages. Id. at 5. Finally, Staff concluded that the
Transformer Agreement meets the criteria of Idaho Code ~ 61-328. Staff stated that the
Transformer Agreement is in the public interest and will not increase the cost of providing
service because the Company does not seek any ratemaking treatment at this time. Moreover
FERC has authorized single-issue ratemaking for the costs of participation. Comments at 5;
Declaratory Order at't(43.
COMMISSION DECISION
1. Does the Commission approve the Transformer Agreement?
2. Does the Commission find that the Idaho Code ~ 61-328 requirements are
satisfied?
Don Howell
bls/M:IPC-O6-27 dh2
DECISION MEMORANDUM