20140616Answer to Petition for Reconsideration.pdf

JULIA A. HILTON (lSB No. 7740)
LISA NORDSTROM (lSB No. 5733)
Idaho Power Company
1221West ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
Telephone: [phone]
Facsimile: [phone]
ihilto n@idahopower. com
lno rd strom @ idahooower. com
Attorneys for ldaho Power Company
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
APPROVAL OF A SPECIAL CONTRACT
WITH J.R. SIMPLOT COMPANY
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. |PC-E-13-23
IDAHO POWER COMPANY'S
ANSWER TO PETITION FOR
RECONSIDERATION
ldaho Power Company ("ldaho Powe/' or "Company"), in accordance with ldaho
Code S 61-626 and RP 331.05, hereby responds to the Petition for Reconsideration of
final Order No. 33038 issued May 19,2014, filed by J.R. Simplot Company ("Simplot").
I. INTRODUCTION
Simplot has failed to demonstrate that the ldaho Public Utilities Commission's
("Commission") Order No. 33038 (the "Orde/') is unreasonable, unlawful, erroneous, or
not in conformity with the law. RP 331.01. The Commission pursued its authority and
was acting within its discretion. The Commission properly applied ldaho !aw, and its
IDAHO POWER COMPANY'S ANSWER TO PETITION FOR RECONSIDERATION - 1
Order is based upon substantial and competent evidence in the record. Consequently,
reconsideration should be denied.
II. THE COMMISSION HAS AUTHORITY TO SET CONTRACTUAL TERMS
AND CONDITIONS OF ELECTRIC SERVICE
Simplot claims that the Commission lacks the authority to set terms and
conditions of utility service regarding limitation of liability in a special contract. ldaho
Code S 61-305 states that the Commission has the power to:
investigate a single rate, fare, tol!, rental, charge
classification, rule, regulation, contract or practice, or any
number thereof, or the entire schedule or schedules of rates,
fares, tolls, rentals, charges, classifications, rules,
regulations, contracfs or practices, or any thereof, of any
public utility, and to establish new rates, fares, tolls, rentals,
charges, classifications, rules, regulations, contracts or
practices or schedule or schedules in lieu thereof.
Emphasis added. The Commission's authority to set rates for utilities encompasses the
ability to establish contracts or practices related to such rates. Additionally, l.C. S 61-
507 allows the Commission to "prescribe rules and regulations for the performance of
any service...supplied by any public utility." Further, !.C.S 61-520 states that the
Commission has the ability to "ascertain and fix just and reasonable standards,
classifications, regulations, practices, measurements or service to be furnished,
imposed, observed and followed by all electrical, gas and water corporations."
The ldaho Supreme Court noted the Commission's authority to "deal broadly with
existing and future rates, rates schedules and contracts affecting rates" in Washington
Water Power Co. v. Kootenai Environmental Alliance, 99 Idaho 875, 880, 591 P.2d 122,
127 (1979) (emphasis added). Simplot is correct in its assertion that the Commission
has the authority granted to it by the legislature. Simplot failed to acknowledge that the
IDAHO POWER COMPANY'S ANSWER TO PETITION FOR RECONSIDERATION - 2
legislature granted the Commission the authority to set the contracts or practices of any
public utility, including contract clauses that impact rates, such as a limitation of liability
clause in this case.
III. THE COMMISSION PROPERLY APPLIED THE LAW TO FIND THAT
A UTILITY MAY LIMIT ITS LIABILITY
Simplot incorrectly argues that the Commission's Order misconstrues ldaho law,
primarily relying upon Strong v. Western Union Telegraph Co.,18 ldaho 389, 109 p. 910
(1910) and LC. S 61-702 as controlling law. Simplot's reliance on Sfrong and l.C. S 61-
702 is misplaced because neither directly applies to the facts of this case.
Strong is not controlling under these facts. The question in Strong dealt with the
validity of an adhesion contract, printed upon the back of a telegram. Strong at 912
("There appears to be considerable conflict in the various decisions upon the question
of validity of the printed stipulation upon a telegraph blank limiting the liability of the
company for mistakes and delays in transmission of messages."). The telegraph
company did not deny a mistake in the telegram, which set the price for an offer to buy
steers at a price $.70 higher than intended by the sender of the message, and instead
relied upon the limitation of liability printed on the reverse of its telegram to prevent
damages from attaching after such losses had already been incurred. ld. However, in
this case, ldaho Power seeks to Iimit liability in a negotiated contract between two large
companies prior to an event that may lead to damages. The facts are distinguishable
because in this case, ldaho Power seeks to institute limitation of liability terms in a
negotiated contract with a customer six times its size. Negotiated contracts are very
different than contracts of adhesion in that the terms in negotiated contracts are
IDAHO POWER COMPANY'S ANSWER TO PETITION FOR RECONSIDERATION - 3
reached through a process of collective bargaining, such as the negotiations that have
occurred between Simplot and Idaho Power.
Further, if the Commission determines that Strong is controlling law, nothing in
the Commission's Order is inconsistent with its holding. The Court in Sfrong concluded
that if the telegraph company failed to perform its duties, it could not exempt itself from
liability for its own negligence. ld. at 915-16 (.A stipulation exempting it from liability for
its own negligence would be contrary to public policy."). Simplot fails to understand that
a limitation of liability is not an exemption of liability. ldaho Power does not seek to
exempt itself from liability in an adhesion contract. ldaho Power seeks to negotiate
commercially reasonable terms which limit liability of either party to certain types of
damages, except in the case of gross negligence or willful rhisconduct. These limitation
of liability terms protect Simplot as well in the event Simplot's facilities cause damage to
ldaho Power's system or to its other customers through simple negligence (e.9.,
Simplot-owned or operated equipment creates harmonics or low voltage impacting
electric service to others, or causes damage to ldaho Power equipment due to
sustained overload). Such terms are entirely consistent with ldaho law and the
Commission's Order. Absent such liability limitations, the contract price should be
adjusted upward to reflect the unlimited risk of damages beyond ldaho Power's ability to
reasonably ascertain.
Simplot also asserts that !.C. S 61-702 requires that a utility be liable for all
damages it may cause. This section of the code is contained within a chapter that
provides for penalties and enforcement due to prohibited action by a utility. l.C. S 61-
701 et seq. lt does not prevent or prohibit a utility from contracting to different terms
IDAHO POWER COMPANY'S ANSWER TO PETITION FOR RECONSIDERATION - 4
regarding damages. lt provides for a cause of action in instances that are not governed
by contract. See Mayfield Springs Water Co., Case No. MSW-W-08-01 at 10 (2008)
(citing l.C. S 61-702, the Commission stated, "ln comparison, the Public Utilities Law
allows any person injured or damaged by a utility to file suit in a court of competent
jurisdiction."). lt is important to note that the provision of adequate service under l.C. S
61-302 does not mean a utility must provide perfect service. "EIectric service is
inherently subject to occasional interruption, suspension, curtailment, and fluctuation."
ldaho Power Company Tariff, Rule J. Such expected interruptions do not rise to the
level of acts prohibited under l.C. S 61-702 as noncompliance under the law.
Further, Simplot alleges that l.C. SS 61-302, 61-702 impose a duty similar to
common law negligence citing C.C. Anderson Sfores Co. v. Borse Water Corp., 84
ldaho 355, 361-62,372 P.2d 752,756 (1962). Petition for Reconsideration at 8. This
misstates the holding in the case. The C.C. Anderson Court held that the conclusion in
the case was "also in harmony with the duty imposed by statute upon a public utility."
ld. at362. ln C.C. Anderson, Anderson sued the water company for negligence under a
theory of res ipsa loquitur, alleging that a water rupture was an inference of negligence.
ld. a|361. The Court held that the inference of negligence was reasonable and justified
under those facts. ld. Nothing regarding the holding in C.C. Anderson infers that l.C.
SS 61-3O2, 61-702 impose a duty similar to negligence. The Court simply stated that
the holding of negligence under the facts of that case is "in harmony with" the duties of a
public utility, which duties are imposed by statute. ld. at 362. Simplot's assertion that
ldaho Code imposes a duty similar to negligence upon a public utility is inaccurate.
ln order to resolve the issue and due to guidance in the Commission's Order,
IDAHO POWER COMPANY'S ANSWER TO PETITION FOR RECONSIDERATION .5
ldaho Power proposes the limitation of liability clause to read:
SECTION 11 - INDEMNIFICATION. LIMITATION OF
LIABILITY. AND EXCLUSIVITY OF WARRANTIES
1'1.1. lf one of the Parties is negligent related to this
Agreement ("Negligent Party") and that negligence
causes liability, liens, suits, loss, damage, claims,
actions, costs, and expenses of any nature (collectively
"Damages"), the Negligent Party agrees to protect,
defend, indemnify and hold harmless the other party and
its successors and their officers, directors, employees,
affiliates, and agents, from, for, and against any and all
Damages resulting from the negligence, whether actual
or merely alleged, including court costs and attorney'sfees. lf both parties are negligent, they shall be
responsible for resulting Damages in proportion to their
negligence.
11.2. NEITHER PARTY NOR ITS AFFILIATES WILL BE
LIABLE UNDER ANY THEORY OF RECOVERY,
WHETHER BASED !N CONTRACT, TORT, WARRANTY,
OR OTHERWISE, FOR: ANY INDIRECT, SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL LOSS OR DAMAGE;
PUNITIVE DAMAGES; LOSS OF PROFITS OR REVENUE;
LOSS OF USE OF MATERIAL OR EQUIPMENT; OR
INCREASED COSTS OF CAPITAL OR FUEL COSTS;
PROVIDED, HOWEVER, THAT NOTHING IN THIS
PARAGRAPH 11.2 SHALL BE CONSTRUED TO LtMtT (A)
SIMPLOT'S PAYMENT OBLIGATIONS TO IDAHO POWERoR (B) ETTHER PARTY'S LIABILITY FOR GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
11,3. EACH PARTY AGREES UNDER NO
CIRCUMSTANCES SHALL THE TOTAL AGGREGATE
LIABILITY OF THE OTHER PARTY UNDER THIS
AGREEMENT EXCEED ONE HUNDRED FIFry PERCENT
(150%) OF THE TOTAL AMOUNT PAID BY STMPLOT TO
IDAHO POWER UNDER THIS AGREEMENT DURING THE
TWELVE MONTHS IMMEDIATELY PRECEDING THE
DATE OF BREACH. !F TWELVE MONTHS HAVE NOT
PASSED SINCE THE DATE OF COMMISSION APPROVAL
OF THIS AGREEMENT AT THE TIME OF THE BREACH,
THE SUM OF (A) THE ACTUAL AMOUNTS PAID BY
IDAHO POWER COMPANY'S ANSWER TO PETITION FOR RECONSIDERATION - 6
SIMPLOT TO IDAHO POWER UNDER THIS AGREEMENT
FOR THE MONTHS THAT HAVE PASSED SINCE THE
DATE OF COMMTSSTON APPROVAL AND (B) THE
PROJECTED AMOUNTS TO BE PAID BY SIMPLOT TO
IDAHO POWER UNDER THIS AGREEMENT
(CALCULATED BASED ON THE AVEMGE AMOUNT
PAID BY SIMPLOT UNDER THIS AGREEMENT DURING
THE MONTHS THAT HAVE PASSED) FOR THE
REMAINING NUMBER OF MONTHS NECESSARY TO
REACH AN AGGREGATE OF TWELVE MONTHS, WILL BE
USED IN THE CALCULATION !N THE PRECEDING
SENTENCE. THE LIMITATION OF LIABILITY SET FORTH
rN THIS PARAGRAPH 11.3 SHALL NOT LIMIT (A)
SIMPLOT'S PAYMENT OBLIGATIONS TO IDAHO POWER
UNDER THIS AGREEMENT, OR (B) EITHER PARTY'S
LIABILITY FOR GROSS NEGLIGENCE OR WILLFUL
M!SCONDUCT.
11.4. EXCEPT AS PROVIDED IN THIS AGREEMENT,IDAHO POWER MAKES NO WARRANTIES,
EXPRESSED OR IMPLIED, INCLUD!NG WITHOUT
L!MITATION, THOSE OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, WITH
RESPECT TO THE WORK AND SERVICES PROVIDED
HEREUNDER.
This new version of the limitation of liability clause is responsive to the Commission's
Order. lt prohibits limitation of liability for willful misconduct or gross negligence on the
part of either party, and otherwise reflects standard commercial terms in other ldaho
Power contracts, other Simplot contracts, and the industry This proposed
language does not exempt ldaho Power from liability. lt would function to limit both
parties' liability to certain types of damages in the event of ordinary negligence.
IV. DIFFERENCES IN TERMS ARE NOT UNJUSTIFIED DISCRIMINATION
Simplot focuses much of its argument on provisions in specia! contracts with
other large load customers, alleging that terms should be mirrored and rates averaged
from other special contracts, going so far as to assert that the Commission's Order
IDAHO POWER COMPANY'S ANSWER TO PETITION FOR RECONSIDERATION - 7
constitutes unjustified discrimination under LC.S 61-315. As stated in ldaho Power's
Reply Comments in this case, each special contract customer is an individual and
distinct rate class within the cost-of-service study. Direct Testimony of Matthew Larkin,
Case No. IPC-E-11-08. ldaho Power and the Commission have always considered its
special contract customers to be individual rate classes within the Company's service
framework. Special contract customers are uniquely situated and warrant individual
consideration from both regulatory and ratemaking perspectives. Reliance upon earlier
special contracts is not determinative because staggered terms for special contract
customers prevents simultaneous renegotiation to modernize contract terms.
"Not all differences in a utility's rates and charges as between different classes of
customers constitute unlawful discrimination or preference under the strictures of
section 61-315;' Application of Boise Water Corp.,128 ldaho 534, 539, 916 P.2d 1259,
1264 (1996) (citing ldaho Sfafe Homebuilders v. Washington Water Power Co., 107
ldaho 415,420,690 P.2d 350, 355 (1984)). While the court in Boise Water was opining
on differences in rates, differences in other terms of service can be analogized. Lack of
uniformity, whether in rates or other provisions, does not constitute discrimination.
Differences "in the conditions under which rates were put in force" as well as provisions
of a contract, cost of service, and "effect of contract rates on other customers" are
evaluated. Agricultural Products Corporation v. Utah Power & Light Co., 98 ldaho 23,
30-31 ,557 P.2d617,624-25 (1976).
Extending such reasoning to terms of a contract leads to the conclusion that
differences can be, and in this case were, justified. !f ldaho Power were to agree to
accept liability at the terms Simplot desires, the increased risk and increased costs
IDAHO POWER COMPANY'S ANSWER TO PETITION FOR RECONSIDERATION - 8
associated with such risk would be huge. ln the words of Simplot, the "true costs of
this...would be hundreds of millions of dollars." ldaho Power Application at 4. The
effect of placing such risks and the costs associated with those risks on other customers
justifies a difference in treatment for this customer class of one.
V. THE COMMISSION PROPERLY APPLIED THE BURDERN OF PROOF.
MADE FACTUAL FINDINGS BASED UPON SUBSTANTIAL.
AND COMPETENT EVIDENCE
Simplot alleges that the Order improperly applied the burden of proof in its
statement that "ffie do not find evidence that terms were imposed on Simplot or that
any obvious disadvantage in bargaining power existed." Petition for Reconsideration at
1 1 (citing Order at 10). This statement does not reverse the burden of proof; it states
the Commission's finding of fact.
Simplot alleges that the Commission's Order was not based upon substantial
evidence. ldaho Power informed the Commission that Simplot's proposed terms would
create increased risk, and such risk carries with it increased costs. Idaho Power
Comments at 2-4. Idaho Power submitted to the Commission Simplot's own assertion
that such costs would be "hundreds of millions of dollars." ldaho Power Application at 4.
The language proposed above by ldaho Power in response to the Order attempts to
balance the risks and costs associated with providing electric service to Simplot.
VI. CONCLUSION
ldaho Power has proposed limitation of liability language that conforms with the
Commission's Order. However, prior to entering into a special contract, Simplot must
provide ldaho Power with a revised load profiled to calculate the revenue requirement to
serve the new facility.
IDAHO POWER COMPANY'S ANSWER TO PETITION FOR RECONSIDERATION - 9
Simplot has failed to demonstrate that the Commission's Order No. 33038 is
unreasonable, unlawful, erroneous, or not in conformity with the law. RP 331.01. The
Commission's Order No. 33038 is based upon substantial and competent evidence in
the record. The Commission regularly pursued its authority and was acting within its
discretion. Consequently, Idaho Power respectfully requests that the Commission deny
Simplot's Petition for Reconsideration.
DATED at Boise, ldaho, this 16th day of June 2014.
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S ANSWER TO PETITION FOR RECONSIDERATION - 1O
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 16th day of June 2014 t served a true and
correct copy of IDAHO POWER COMPANY'S ANSWER TO PETITION FOR
RECONSIDERATION upon the following named parties by the method indicated below,
and addressed to the following:
Commission Staff
Kristine A. Sasser
Deputy Attomey Genera!
ldaho Public Utilities Commission
472 West Washington (83702)
P.O. Box 83720
Boise, ldaho 83720-007 4
J. R. Simplot Company
Peter J. Richardson
Gregory M. Adams
RICHARDSON ADAMS, PLLC
515 North 27th Street
Boise, ldaho 83702
X Hand Delivered
_U.S. Mail
Overnight Mail
FAX
kris.sasser@puc. idaho.qov
Hand DeliveredX U.S. Mail
Overnight Mail
FAX
X
pete r@ ri cha rd so nad a ms. com
q reg@richard so nad ams. co m
IDAHO POWER COMPANY'S ANSWER TO PETITION FOR RECONSIDERATION - 11