20090316final_order_no_30748.pdf

Office of the Secretary
Service Date
March 16 2009
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
APPROVAL OF A SPECIAL CONTRACT TO
SUPPLY ELECTRICAL POWER TO HOKU MATERIALS, INC.
CASE NO. IPC-08-
ORDER NO. 30748
On October 24, 2008, Idaho Power Company ("Idaho Power" or "Company ) filed an
Application with the Commission seeking approval of a special contract to supply electrical
power to Hoku Materials, Inc. ("Hoku ). On November 6, 2008, Staff submitted production
requests to the Company and Idaho Power submitted written responses to those requests on
November 28, 2008.
On December 3 , 2008, the Commission issued a Notice of Application and Notice of
Modified Procedure and established a 60-day open comment period. See Order No. 30697.
Commission Staff, Idaho Irrigation Pumpers Association, Inc. ("lIP A") and an individual Idaho
Power customer all filed written comments within the established comment period.
THE AGREEMENT
The Energy Sales Agreement ("ESA") entered into between Idaho Power and Hoku
provides that Idaho Power will sell and Hoku will purchase in excess of 25 000 kW. Application
at 2. The parties have entered into a special contractual arrangement that comports with the
requirements established in Idaho Power Tariff No. 101. Id Idaho Power has also agreed to
construct, at Hoku s expense, certain interconnection facilities necessary to enable delivery of
electrical service to Hoku s facilities.
The effective date of the ESA begins on June 1 2009, and concludes on May 31
2013. Id at 3. Under the terms of the special contract, either party can terminate the ESA by
issuing prior written notice to the other party within one year of the effective termination date.
Id The Application stipulates that, if the effective termination date occurs prior to the
implementation of a subsequent ESA between the parties, then Hoku s energy and demand rates
will be equivalent to the Company s Schedule 19- rates until a replacement contract is
approved by the Commission.
Under the ESA, Hoku s demand will vary during the summer and non-summer
seasons. Id Hoku s peak demand during the term of the ESA will not exceed 82 MW. Id The
ORDER NO. 30748
parties have agreed that Hoku s scheduled load demand for the summer of 2012 is contingent
upon Idaho Power s ability to integrate "major transmission and generation projects" into its
system.
The parties have agreed to divide Hoku s demand and energy requirements into "two
blocks for pricing purposes.Id at 4. The first block is equivalent to the Company s "current
Commission-approved avoided cost rates.Id Any change to the avoided cost rate during the
term of the Agreement will not affect the first block energy rate contained in the Agreement.
The second block rates, 25 MW or more, are consistent with the Company s approved Schedule
19-T rates.
Hoku is required to "take-or-pay" a certain amount of energy from Idaho Power every
month but it is also allowed to "request a release of all or part of its first block energy purchase
commitment." Id Idaho Power states that it will "make a commercially reasonable effort to
absorb or resell the released energy and provide a credit to Hoku.Id The amount credited will
depend upon the rate period during which the Company receives timely notice of Hoku s request
to release its energy demands as well as the Company s ability to "manage and supply
commitments to serve Hoku s load.
In addition, if Hoku wishes to procure additional power during the summer rate
period, then Idaho Power is obligated to make the same "commercially reasonable efforts to
obtain proposals to supply Hoku s additional energy request." Id at 5. Hoku will be responsible
for the costs of these "purchases and any associated transmission and ancillary service expense to
transport such purchase to the Hoku Facility.Id Hoku s ability to expand its first block up to
175 000 kW hinges upon the Company s ability to supply and deliver additional power.
Idaho Power s Application states that it is seeking an effective date of June I , 2009
to coincide with the effective date of the parties' ESA. Id The Application asks that the first
block revenues and expenses be treated similarly to wholesale purchases and sales and thus not
be included under the Company s yearly PCA. Id Finally, the Application states that the ESA
will become effective only if all of its "terms and provisions" are approved by the Commission
without change or condition.
In support of its Application, the Company submitted testimony from Ric Gale, Vice
President of Regulatory Affairs. Mr. Gale s testimony explains, in greater detail, the Company
rationale for the specific elements of its ESA with Hoku.
ORDER NO. 30748
COMMENTS
IIPA Comments
lIP A's comments focused primarily on the "large rate of growth on the Idaho Power
system" and what the group characterizes as the "unfair shifting of marginal cost associated with
this growth" to customer groups like the lIP A. lIP A Comments at 1-2. lIP A supports the
proposed ESA between Idaho Power and Hoku and lauds the Company s "efforts to mitigate the
rate impact to existing customers of the marginal costs of adding new load.Id at 4.
Individual Comments
On January II , 2009, the Commission received an e-mail from a resident of Boise
Idaho. This individual expressed generalized support for the contract and what he viewed as
out of the box solutions to energy supply and demand.
Staff Comments
Staff notes that the "first block energy pricing is critical because, at the rates
contained in the Agreement, first block energy charges comprise over 77 percent of the total
value of the contract." Staff Comments at 3. The first block energy price is tied to the PURP
avoided cost rate for a levelized four-year contract with a 2009 online date - currently $61.66 per
MWh. The parties chose this pricing method in lieu of a market-based approach because it
would afford Hoku the certainty associated with a fixed price during the life of the contract.
Staff believes that "avoided cost rates are a reasonable proxy for establishing a rate to be paid by
new customers who place large loads on the utility s system. . . .Id Staff also believes that it
is reasonable for Hoku s second block, equal to 25 MW, to be priced commensurate with Idaho
Power s current Schedule 19- T rate. Staff reasons that "Hoku should be entitled to the benefit of
embedded rates for at least some part of its load. . . .Id at 4.
In its quest to evaluate the reasonableness of the contract rates, Staff asked the
Company "to use AURORA to compute marginal energy prices for a four-year future period
assuming an addition of load equal to Hoku s expected load.Id The results of the statistical
modeling revealed that the overall average price of the combined blocks was lower than the
marginal energy cost estimated by AURORA, $52.69 and $55., respectively.
Staff also considered the transition of Hoku s first block energy rate from "marginal
cost-based rates. . . to embedded cost-based rates at the end of the four-year contract term.
at 5. Staff supports the four-year transition period to an embedded rate for Hoku s entire load
ORDER NO. 30748
embodied in the parties' Agreement because inter alia it allows Idaho Power adequate time to
incorporate the new load into its next Integrated Resource Plan and will likely allow "for at least
one or two rate cases to be processed with Hoku as a customer.Id at 6.
According to Staff, immediately charging an embedded rate for such a large single
new load would likely place enough "upward pressure. . . on rates to cause Idaho Power to seek
an increase in all customers ' rates through a general rate case.Id at 5. In Staffs opinion
existing customers should not have to bear the burden of a rate increase "just because of a single
large new customer.Id However, charging Hoku a marginal cost-based rate forever would be
equally unreasonable" because it would unfairly deprive Hoku of "the benefit of lower
embedded rates that all other customers. . . enjoy.Id at 5-
Staff agrees with the Company s proposal to "treat first block revenues and expenses
as if they were wholesale purchases and sales" and the second block as retail load. Id at 6.
According to Staff, Idaho Power s proposed ratemaking treatment is similar to the authorized
ratemaking approach for a former special contract customer, FMC, served under a similar two-
block (embedded and market) rate structure. Id Finally, Staff believes that the remaining terms
and conditions governing Hoku s ability to either opt out of its first block energy requirements or
request additional power are reasonable. Id at 7.
Staff has reviewed the Company s Application and recommended the Commission
approve the ESA between Idaho Power and Hoku. Id Further, Staff recommended any future
amendments to the ESA as well as "any decision to supply more than 82 MW to Hoku be subject
to Commission approval."
COMMISSION FINDINGS
The Commission has reviewed and considered the filings in Case No. IPC-08-
including the Energy Sales Agreement submitted for approval and filed comments. We find the
terms and conditions of the parties' underlying Agreement to be reasonable. We further find the
mixed pricing structure recited in the Agreement to be a reasonable approach toward enabling
the integration of high load customers such as Hoku into Idaho Power s customer base. We
approve the parties' Energy Sales Agreement with an effective date of June 2009.
ORDER NO. 30748
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Idaho Power, an electric
utility, and the issues raised in this matter pursuant to its authority under Title 61 of the Idaho
Code, and the Commission s Rules of Procedure, IDAPA 31.01.01.000 et seq.
ORDER
IT IS HEREBY ORDERED that the Commission approves Idaho Power Company
Energy Sales Agreement with Hoku Materials, Inc. with an effective date of June 2009.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) may petition for reconsideration within twenty-one (21) days of the
service date of this Order with regard to any matter decided in 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 Utilities Commission at Boise, Idaho this lip
day of March 2009.
"-... ~~~~ ;
MACK A. REDFORD, P
6L~" L~
MARSHA H. SMITH, COMMISSIONER
ATTEST:
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Commission Secretary
O:IPC-08-op2,
ORDER NO. 30748