20100212final_order_no_31005.pdf

Office of the Secretary
Service Date
February 12 2010
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
APPROVAL OF ITS AMENDED AND
RESTATED ENERGY SALES AGREEMENT
WITH HOKU MATERIALS, INC.
ORDER NO. 31005
CASE NO. IPC-08-
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.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.
On March 16, 2009, the Commission issued an Order approving Idaho Power
special Energy Sales Agreement ("ESA") with Hoku. See Order No. 30748. On May 28 2009
Idaho Power submitted a Motion for a Commission Order authorizing a delay in the
commencement of its ESA with Hoku.On June 23, 2009, Idaho Power submitted a
supplemental filing seeking approval of an Amended and Restated Energy Sales Agreement
implementing the changes described in the Company s prior Motion to Delay the Start Date of
its ESA with Hoku and Letter Agreement.
On July 9, 2009, Commission Staff issued supplemental comments regarding the
Amended and Restated Energy Sales Agreement. On July 24, 2009, the Commission issued an
Order approving the Amended Agreement. See Order No. 30869.
On November 24, 2009, Idaho Power advised the Commission of its Letter
Agreement with Hoku to temporarily waive Hoku s minimum billed energy charge.
Commission Staff reviewed the Company s filing and consulted with representatives of Idaho
Power regarding the proposed billing change.
ORDER NO. 31005
ORIGINAL ENERGY SALES AGREEMENT
The original ESA entered into between Idaho Power and Hoku dictated that Idaho
Power will sell and Hoku will purchase in excess of 25 000 kW. Application at 2. The parties
entered into a special contractual arrangement that comports with the requirements outlined in
Commission Tariff No. 101. Id. Idaho Power agreed to construct, at Hoku s expense, certain
interconnection facilities necessary to enable delivery of electrical service to Hoku s facilities.
Id.
The original effective date ofthe ESA was June 1 2009, and would conclude on May
, 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 ESA stipulated that if the effective termination date occurred 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- T rates until a replacement contract is approved by the
Commission. Id.
Under the terms of the original ESA, Hoku s demand would vary during the summer
and non-summer seasons. Id. Hoku s peak demand during the term of the ESA would not
exceed 82 MW. Id. The parties have agreed that Hoku s scheduled load demand for the summer
of2012 is contingent upon Idaho Power s ability to integrate "major transmission and generation
projects" into its system. Id.
The parties 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. Id.
The second block rates, 25 MW or more, are consistent with the Company s approved Schedule
19- T rates. Id.
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
ORDER NO. 31005
to release its energy demands as well as the Company s ability to "manage and supply
commitments to serve Hoku s load.Id.
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. Id.
Idaho Power s Application stated that it was seeking an effective date of June 1
2009, to coincide with the effective date of the parties' ESA. Id. The Application asked 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 stated that the
ESA will become effective only if all of its "terms and provisions" are approved by the
Commission "without change or condition.Id.
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.
AMENDED AND REST A TED ENERGY SALES AGREEMENT
In its initial Motion to Delay the Start Date of its ESA with Hoku, Idaho Power
submitted a "Letter Agreement" describing various modifications to the terms and conditions of
the parties' ESA and informed the Commission that it was involved in an ongoing process with
Hoku to draft a more formal document incorporating the provisions outlined in the Letter
Agreement. The Letter Agreement revealed that the parties mutually agreed to the following
changes to their original Agreement:
1. Delay the start date of the ESA until December I , 2009;
2. Hoku will receive service between June I , 2009 and November 30, 2009
as a Schedule 19T customer;
3. Hoku will limit its demand to no more than 5 MW during July 2009;
MW during August 2009; and no more than 25 MW for each month
thereafter until November 30, 2009;
ORDER NO. 31005
4. During the June through August 2009 time period, Hoku will coordinate
with Idaho Power to schedule appropriate times to impose any large loads
associated with the testing of its production equipment;
5. The termination date of the ESA will be extended through November
2013;
6. Hoku will reduce its contract demand levels during the summer of2012 to
43 MWs from June 16 to August 15 and 67 MWs from August 16 through
September 15; and
7. Hoku will incur additional Energy Efficiency Rider charges to its first-
block energy usage beginning on December 1 2011.
In its supplemental filing, Idaho Power advised the Commission that the parties have
formally amended the ESA to incorporate the changes outlined in the Letter Agreement. A copy
ofthe new Agreement was included as an Attachment to the Company s supplemental filing.
PROPOSED BILLING CHANGE
As mentioned above, in November 2009 Idaho Power submitted a Letter Agreement
with cover letter to the Commission. The Agreement reached by Idaho Power and Hoku requires
that Idaho Power temporarily waive the minimum billed energy charge in the Hoku Special
Contract. The temporary waiver would begin December I 2009 and remain in effect until the
month when the contract load factor first exceeds 70% of the total contract demand or March 31
2011 , whichever occurs earliest. The rationale for the requested waiver of the minimum billed
energy charge is related to the current business environment and is discussed in more detail in
the confidential Letter Agreement.
STAFF ANALYSIS AND RECOMMENDATION
Staff viewed Idaho Power s current filing as being equivalent to a Tariff Advice.
Idaho Power is requesting the waiver of a rate in an approved contract. Staff reviewed the
waiver from the perspective of Idaho Power s other customers. Hoku is contributing all of the
fixed delivery costs associated with supplying power to its project. If Hoku does not take
minimum service under the contract, Idaho Power may have to unwind positions that are long in
two of 16 months in the waiver period. Unwinding the long positions could prove to be a net
cost or benefit to other customers as the cost or benefit flows through the PCA. Because the long
positions are relatively small, Staff believes the impact on other customers will be insignificant.
Staff recommends that the Commission approve the Letter Agreement. The unwinding costs are
ORDER NO. 31 005
unknown but estimated to be small or non-existent. Staff believes that the waiver will benefit
Hoku and should assist them as they work to bring the facility into production.
COMMISSION DECISION AND FINDINGS
The Commission has reviewed Idaho Power s request to temporarily waive the
minimum billed energy charge for its special contract customer Hoku Materials , Inc. as well as
Staffs review and recommendation. The Commission finds that the proposed waiver is
reasonable.
The Commission herein acknowledges Idaho Power willingness to again
accommodate Hoku s concerns by delaying the full implementation of the ESA as Hoku
attempts to establish a firm footing amidst the current adverse business climate. As part of its
deliberations on this matter, the Commission is aware of and has duly considered Hoku
potential to become a relatively large employer within the State of Idaho. However, such
proposed actions do not eclipse the Commission s statutory duty to ensure that Idaho Power
rates and charges are fair, just and reasonable.
Specifically, the Commission must verify that the costs associated with the delayed
implementation of the ESA are borne primarily by the contracting parties and not Idaho Power
remaining customer base. To that end, the Commission commends Staff for its vigilance and for
adhering to its regulatory role by verifying that the proposed changes to the ESA between Idaho
Power and Hoku will not unduly harm Idaho Power s remaining customers.
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 Idaho Power Company s proposed billing change
(Temporary Waiver of the Minimum Billed Energy Charge) for Hoku Materials, Inc. is
approved.
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
ORDER NO. 31005
after any person has petitioned for reconsideration any other person may cross-petition for
reconsideration. See Idaho Code 9 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this J..
day of February 2010.
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. -D. KE PTO IDENT
ARSHA H. SMITH, COMMISSIONER
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A \&\1JMACK A. DFORD, COMMISSIONER
ATTEST:
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D. Jewell
Commission Secretary
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ORDER NO. 31005