20080804final_order_no_30613.pdf

Offce of the Secreta
Service Date
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
August 4, 2008
IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR AN
ACCOUNTING ORDER AUTHORIZING
THE INCLUSION OF POWER SUPPLY
EXPENSES ASSOCIATED WITH THE
PURCHASE OF CAPACITY AND ENERGY
FROM PPL ENERGYPLUS, LLC IN THE
POWER COST ADJUSTMENT
)
) CASE NO. IPC-E-08-13
)
)
)
)
) ORDER NO. 30613
)
On June 16,2008, Idaho Power Company (Idaho Power; Company) filed an Application
with the Commission for an Order approving a firm wholesale Power Purchase Agreement
(Agreement) between Idaho Power and PPL EnergyPlus, LLC (EnergyPlus). The Company
requests accounting treatment that will allow Idaho Power to include the expenses associated with
the purchase of capacity and energy from EnergyPlus in the Company's Power Cost Adjustment
(PCA). Included in the Company's filing in this case is the prefied direct testimony of Kal
Bokenkamp, General Manager of Power Supply Operations. The Commission in this Order
approves the Company's Application.
The EnergyPlus Agreement replaces an Idaho Power/PPL Montaa contract that wil
expire at the end of August 2009. Reference Order No. 29286, Case No. IPC-E-03-08. In the
spring of 2008, the Company issued a Request for Proposals (RFP) to replace the expiring contract.
EnergyPlus was the successful bidder. EnergyPlus is the marketing ar of PPL Montaa. As a
result, it has access to the generating resources owned and operated by PPL Montana.
Contracting with EnergyPlus is advantageous, the Company contends, because existing
constraints on the west side of Idaho Power's system made power purchases on the east side of the
Company's system preferable. The principal provisions of the Power Purchase Agreement with
EnergyPlus call for a firm power purchase for the heavy load hours, six days a week (Monday
though Satuday), 16 hours a day (6 x 16) in the months of June, July and August (except for
NERC holidays). These are the time periods identified in the Company's 2006 IRP as critical peak
hours. The term of the Agreement is two years, June 1 though August 31 of each year beginning in
2010 and ending in 2011. The quatity of energy purchased is 83 MW per hour. The price to be
paid for this energy is $92.25 per MWh. After adjusting for losses, Idaho Power will actualy
receive approximately 80 MW per hour under the PP A.
ORDER NO. 30613 1
The Company contends that the energy costs of $92.25/MWh are competitive and
favorable when compared to alternative resource options. The Company's heavy load forward price
cures for Mid-Columbia (Mid-C) are slightly above the PP A contract price. The limited duration
of the PPA reduces the risk by dovetailng with the Company's ongoing efforts to develop energy
efficiency programs that target the Company's summer peak loads and with the Company's planed
acquisition of new base load resources in 20 I 2 through its current request for proposals. Cost
comparisons are detailed in the Company's prefied testimony. To give the Commission an idea of
curent market prices, in accordance with the Company's risk management policy, Idaho Power
states it has already purchased heavy load energy for August 2008 at prices between $110 and $120
perMWh.
As consideration for EnergyPlus's agreement to hold the price in the PPA firm to allow
time for Commission review and approval, Idaho Power has paid EnergyPlus a deposit in the
amount of $100,000 that is refudable if the Application is approved by the Commission no later
than August 4, 2008. If the Commission does not approve the Agreement by that deadline, the
Company will forfeit the deposit and either par may terminate the Agreement.
In addition to power costs under the Agreement, Idaho Power states it will purchase firm
monthly transmission service across Northwestern Energy's transmission system to the Jefferson
point of delivery. At curent rates under Northwestern Energy's open access transmission tariff
(OATT), the maximum charge for monthly firm transmission service is $3.42 per kW of reserved
capacity per month. Losses are charged at four percent. After consideration of losses and
transmission costs, Idaho Power will incur a total cost of approximately $101 per MWh under the
PPA.
Idaho Power proposes that costs associated with acquiring firm monthly transmission
service from Northwestern Energy's transmission system be booked in Book Account 565
Transmission of Electricity by Others. These monthly transmission costs wil not flow through the
Company's Power Cost Adjustment (PCA). Idaho Power proposes that the cost for power acquired
through the EnergyPlus Agreement be booked in FERC Account 555, Purchased Power, and that
the costs upon contract approval flow through the Company's PCA. Until the costs of the contract
are included in a general revenue proceeding, any contract costs associated with the Agreement wil
be considered deviation from the base and, therefore, only 90% of the Idaho jurisdictional costs wil
be borne by customers.
ORDER NO. 30613 2
Idaho Power requests that the Commission issue an Order approving the Power Purchase
Agreement between Idaho Power and EnergyPlus and approving Idaho Power's requested
accounting treatment for inclusion of the power purchase expenses associated with the EnergyPlus
Agreement in the Company's Power Cost Adjustment.
On June 25, 2008, the Commssion issued Notices of Application and Modified
Procedure in Case No. IPC-E-08-13. The deadline for fiing written comments was July 24,2008.
Following the Commission's Notice, the Industrial Customers of Idaho Power (ICIP; Industrial
Customers) petitioned to intervene and was granted intervention in Commission Order No. 30594.
The Industral Customers, the Snake River Allance (Allance) and Commission Staff were the only
paries to file comments. Staff recommends approval of the Company's Application. The
Industrial Customers and Allance do not oppose the Application. Comments of the paries can be
sumarzed as follows:
Commission Staff
The PPL EnergyPlus contract replaces a similar existing contract with PPL Montaa for
an identical amount of capacity and energy. After a review of the Company's 2006 Integrated
Resource Plan (IRP), Staff concludes that if the Agreement is not approved, Idaho Power will have
to seek an additional 83 MW to meet planed loads during the sumers of 20 1 0 and 201 I.
Based on forward prices, it appears to Staf that the PPL EnergyPlus contract price is
attractive for the August months, but a bit high for the months of June and July. Staff compares the
contract prices with other options to determine reasonableness including (l) new gas-fired
generation; (2) demand-side management (DSM) peak reduction; and (3) PURPA avoided-cost
rates.
Gas-Fired Generation
To satisfy the 83 MW deficit with gas-fired generation, Idaho Power would have to add
additional generation capacity. Staff believes that new gas-fired generation would be more costly
than the PPL EnergyPlus Agreement.
DSM Peak Reduction
Idaho Power, Staff contends, has already incorporated forecasted peak-hour reductions
from its existing A/C Cool Credit and Irrigation Peak Rewards programs and its other energy
efficiency programs into its IRP. While additional peak load reductions could be realized in the
ORDER NO. 30613 3
Irrgation Peaks Reward program due to futue implementation of a dispatchable option, the details
of such an option have yet to be worked out and Staff contends canot be relied on to displace the
need for the PPL EnergyPlus contract.
PURPA Avoided Cost Rates
The curent avoided cost rates for sumer heavy load hour PURP A purchases for 2010
and 2011 are shown below in dollars per MWh.
June
2010
2011
$48. 16/MWh
$46.34/MWh
July/August
$78.63/MWh
$75.65/MWh
Clearly, the $92.25/MWh rate in the PPL EnergyPlus Agreement, Staf states, far exceeds the
curent PURP A avoided cost rates. These PURP A rates, however, Staff notes assume natual gas
prices of $6. 54/MMBtu and $6.1O/MMBtu, respectively, in 2010 and 2011. Gas prices are based on
the forecasts of the Nortwest Power and Conservation Council (NWPCC). Staf expects the
Council to update its natural gas price forecast later this year.
Furhermore, Staff notes that pursuant to Commission directive in Case No. IPC-E-07-15
(Order No. 30480) generic varable assumptions used in avoided-cost calculations are curently
being reviewed. Staf believes that increased equipment and constrction costs will likely result in
varable changes that will, in tu, cause an increase in .avoided-cost rates.
Recomputation of avoided-cost rates using what Staff believes to be reasonable generic
varable assumptions and curent gas forward prices for 2010 and 2011 (curently $1O.20/MMBtu
and $9.80IMBtu, respectively) produces rates for 2010 and 2011 of approximately $71/MWh for
June and $115/MWh for July and August. Based on these avoided-cost rates, Staff contends that
the $92.25/MWh price in the PPL EnergyPlus Agreement seems reasonable.
Timing/Term of Agreement
Idaho Power is electing to execute a contract now, two years in advance of when the new
contract wil begin. Staf believes it is impossible to judge whether it is better to sign the contract
now or wait until later hoping prices wil go down. Staff believes the Company's decision is not
uneasonable. Given the high price of the Power Purchase Agreement, however, Staff believes that
it was wise for the Company to limit the duration of the Agreement to only the length of time that
ORDER NO. 30613 4
the Company can be reasonably certin that the power wil be needed. A short two-year agreement,
Sta contends, provides flexibilty at a time when prices are uncertain.
Accounting Treatment
Staff agrees with the Company's proposed accounting treatment.
Deposit Forfeiture Terms
Staf is critical of the deposit forfeiture terms and does not believe that customers should
bear the risk of rejection of the Agreement by the Commission or the timing of the Commission's
Order.
Staf believes that the PPL EnergyPlus contract is needed by Idaho Power to meet its
summertime peak loads, and that there are few, if any, other alternatives for satisfying these loads
that are as certain or less expensive. Staff recommends that the Commission issue an Order
approving the Power Purchase Agreement between Idaho Power and EnergyPlus and approving
Idaho Power's requested accounting treatment for inclusion of the power purchase expenses
associated with the EnergyPlus Agreement in the Company's Power Cost Adjustment.
Industrial Customers of Idaho Power
The Industrial Customers do not oppose the Company's Application but respectfuly
request that if the Commission approves rate recovery for the costs associated with the PPL
Agreement, that it apply the natural gas forecast used to justify that approval fot) all of the
Company's other processes that make use of natural gas forecasts, including the setting of avoided-
cost rates and the calculation of cost-effective DSM measures.
Snake River Alliance (Alliance)
The Allance questions whether additional efforts must be marshaled to promote energy
conservation and efficiency measures to reduce the Company's summer peak. To properly
incentivize Idaho Power, the Allance suggests one option might be to allow 90% of the requested
purchase amount in the first year of the Agreement, followed by 80% in the second, etc., and
require the Company to make up the difference through energy efficiency and conservation
measures beyond those the Company has already implemented.
The Allance also contends that it may be appropriate to review how the Commission
and regulated utilties define "cost-effective" energy efficient measures. Redefinition, it states,
might make it easier to devote more utilty DSM fuds to efforts that are not curently considered
ORDER NO. 30613 5
cost effective but in fact are cost effective in the long ru and might also reduce the need for
expensive market purchase contracts such as this one.
Commission Findings
The Commission has reviewed and considered the filings of record in Case No. IPC-E-
08-13 including the underlying Agreement and the comments of ICIP, the Allance, and
Commission Staff. Based on our review of same, we continue to find it reasonable to process the
Company's Application pursuant to Modified Procedure. IDAPA 31.01.01.204.
The Company seeks to replace an existing capacity and energy purchase contract that
will expire in 2009 with a similar contract for the years 2010 and 2011, albeit at a much higher
price. The Agreement provides the Company with 83 MW of firm power for heavy load hours in
the sumer months. The purchase need is supported by the Company's 2006 IRP supply resource
and load projections for 2010 and 2011. We find it reasonable to conclude that without the
purchase the Company wil not have sufficient resources to meet its summer peak load requirements
for those years.
We are also persuaded that in light of existing circumstances, the Agreement price is fair
and reasonable and that good reason exists to limit the contract term to two years. We find the
proposed purchase to be in the best interests of both the Company and its customers. We also find
it reasonable to authorize inclusion of the power purchase expenses associated with the Agreement
in the Company's PCA, an accounting practice that we approved for the existing contract with PPL
Montana LLC. Case No. IPC-E-03-08, Order No. 29286. The Commission accordingly finds it
reasonable to approve the Idaho PowerÆnergyPlus Agreement and the Company's proposed
method of recovery.
The Commission appreciates the comments fied by ICIP and the Allance and
acknowledges the recommendations of each. We encourage the paries to raise their issues in what
we believe to be more appropriate forus for consideration, i.e., avoided-cost methodology and
Integrated Resource Planing workshops and proceedings.
CONCLUSIONS OF LAW
The Idaho Public Utilties Commission has jursdiction over Idaho Power Company, an
electrc utilty, pursuat to the authority and power granted it under Title 61 of the Idaho Code and
the Commission's Rules of Practice, IDAPA 31.01.01.000 et seq.
ORDER NO. 30613 6
ORDER
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED and the Commission does hereby approve the Power Purchase Agreement
(PC A) between Idaho Power and PPL EnergyPlus, LLC. Reference Application Attachment 1.
IT IS FURTHER ORDERED and the Commission does hereby approve Idaho Power's
requested accounting treatment for inclusion of the power purchase expenses associated with the
PPL EnergyPlus Agreement in the Company's Power Cost Adjustment mechanism.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7) days
after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code § 61-626.
DONE by Order of the Idaho Public Utilties Commission at Boise, Idaho this i. of"
day of August 2008.
~u~
MARSHA H. SMITH, COMMISSIONER
ATTEST:
~tD.~i
Je D. Jewell ~
Co ission Secretar
blslN:IPC-E-08-13 sw
ORDER NO. 30613 7