20140205Simplot Answer.pdf

Peter J. Richardson ISB # 3195
Gregory M. Adams ISB # 7454
RICHARDSON ADAMS, PLLC
515 N. 27th Street
Boise,Idaho 83702
Telephone: [phone]
Fax: [phone]
peter@richardsonadams. com
gre g@richardsonadams. com
Attorneys for the J. R. Simplot Company
IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR
APPROVAL OF SPECIAL CONTRACT
BETWEEN IDAHO POWER COMPANY
AND J. R. SIMPLOT COMPANY
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-8.I3-I7
J. R. SIMPLOT COMPANY'S
ANSWER TO IDAHO POWER'S
APPLICATION
I.
INTRODUCTION AND SUMMARY
LIMITATION OF LIABILITY ISSUES
COMES NOW the J. R. Simplot Company ("Simplot") pursuant to Rule 57(1) of the
Rules of Procedure of the Idaho Public Utilities Commission ("Commission") and submits this
Answer to Idaho Power Company's ("ldaho Power" or the "Company") Application for
Approval of a Special Contract Between Idaho Power Company and J. R. Simplot Company
("Application"). Idaho Power proposes including the following language in the new special
contract for electric service at Simplot's currently under construction state-of-the-art potato
processing facility in
11.2. EACH PARTY EXPRESSLY AGREES THAT NEITHER PARTY NOR ITS
AFFILIATES WILL UNDER ANY CIRCUMSTANCES BE LIABLE UNDER ANY
THEORY OF RECOVERY, WHETHER BASED IN CONTRACT, IN TORT
(INCLUDING NEGLIGENCE AND STRICT LIABILITY), UNDER WARRANTY, OR
OTHERWISE, FOR: ANY INDIRECT, SPECIAL,INCIDENTAL OR
CONSEQUENTIAL LOSS OR DAMAGE OR PUNITIVE DAMAGES
WHATSOEVER; LOSS OF PROFITS OR REVENUE; LOSS OF USE OF MATERIAL
OR EQUIPMENT; OR INCREASED COSTS OF CAPITAL AND FUEL COST;
PROVTDED, HOWEVER, THAT NOTHING IN THIS PARAGRAPH 1 1.2 SHALL BE
CONSTRUED TO LIMIT SIMPLOT'S PAYMENT OBLIGATIONS TO IDAHO
POWER.
I 1.3. EACH PARTY AGREES UNDER NO CIRCUMSTANCES SHALL THE
TOTAL AGGREGATE CLAIMS AGAINST AND LIABILTTY OF THE OTHER
PARTY FOR DIRECT DAMAGES, UNDER ANY THEORY OF RECOVERY,
WHETHER BASED IN CONTRACT, IN TORT (INCLUDING NEGLIGENCE AND
STRICT LIABILITY), OR OTHERWISE, EXCEED ONE HUNDRED PERCENT
(100%) oF THE TOTAL CHARGES PArD BY SIMPLOT TO rDAHO POWER
UNDER THIS CONTRACT UNDER ANY GIVEN CALENDAR YEAR; PROVIDED,
HOWEVER, THAT THIS LIMITATION OF LIABILITY SHALL NOT LIMIT
SIMPLOT'S PAYMENT OBLTGATIONS TO IDAHO POWER UNDER THIS
AGREEMENT.
I1.4. EXCEPT AS PROVIDED IN THIS AGREEMENT, IDAHO POWER MAKES
NO WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING WITHOUT
LIMITATION, THOSE OF MERCHANTABTLITY AND FITNESS FOR A
PARTICULAR PURPOSE, WITH RESPECT TO THE WORK AND SERVICES
PROVIDED HEREUNDER.
Idaho Power's application fails to address the well-settled Idaho legal authority
prohibiting the inclusion of such language in a utility's tariff. Because this proposed exculpatory
language clearly violates Idaho law and this Commission's long standing policy prohibiting such
clauses, Simplot respectfully requests the Commission order Idaho Power to offer Simplot a
contract without such exculpatory language. In addition, such language is discriminatory as
none of Idaho Power's regular tariff customers take service under a similar exculpatory clause in
their tariffs. The proffered clauses also are in conflict with Idaho Power's approved General
Rules and Regulations approved by this Commission. Finally, although some of Idaho Power's
special contract customers do have similar clauses in their agreements, that fact does not provide
justification for inclusion of such a clause in Simplot's contract over Simplot's objection. The
J. R. SIMPLOT COMPANY ANSWER TO IDAHO POWER'S APPLICATION
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Commission should put a stop to such inconsistent and discriminatory treatment of Idaho
Power's special contract customers and not and require it to adhere to this Commission's clearly
articulated policy against such exculpatory clauses.
The rates and methodology for calculating the rates are discussed in Part Eight of
Simplot's Answer.
II
THE IDAHO SUPREME COURT HAS RULED THAT EXCULPATORY
CLAUSES ARE UNENFORCEABLE IN THE PUBLIC UTILITY CONTEXT
The relevant Idaho case law precludes Idaho Power from insisting on exculpatory clauses
in the Simplot contract. More specifically, the Idaho Supreme Court has ruled that a public
utility may not shield itself from liability from negligence claims - evenfrom a customer who has
agreed to such immunity in writing.
The landmark decision on point in Idaho is Strong v. I(estern Union Telegraph Co., 18
Idaho 389, 109 P. 910 (1910). In Strong, the plaintiff requested the defendant telegraph
company to send a telegraph to a cattle buyer setting forth specific contract terms. The telegraph
company negligently altered the terms as specified by the plaintiff resulting in monetary
damages to the plaintiff. The back of the telegraph transmittal sheet contained a disclaimer of
liability for any negligence on the part of the telegraph company in transmitting the telegraph.
The company argued that this exculpatory clause was accepted by the plaintiffand served as a
shield from liability for negligence.
The Idaho Supreme Court engaged in a long and detailed analysis of the related decisions
from other states and concluded that Westem Union was not entitled to immunity by virtue of the
disclaimer. The Court stated:
J. R. SIMPLOT COMPANY ANSWER TO IDAHO POWER'S APPLICATION
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Since telegraph companies are public agents, exercising a quasi-public employment,
carefulness and fidelity are essentials to its character as a public servant, and public
policy forbid that it should be released by its own rules or regulations from damages
occasioned by its carelessness and negligence. It is charted for public purposes; it has the
power of eminent domain; the public are compelled to rely absolutely on the care and
diligence of the company in the transmission of messages, and by reason of those powers
and the relation it sustains to the public, it is obligated to perform the duties it is chartered
to perform with the care, skill, and diligence that a prudent man would, under the
circumstances, exercise in his own affairs, and if it fails to do so, it is liable in damages
for such failure and cannot restrict its liability by rule or regulation which attempts to
excuse it for its own negligence.lt is a public servant and must serve the people
impartially, carefully, and in good faith. We do not hold that the company is an insurer
against mistakes or delays arising from causes beyond its own control, but it is liable for
damages arising from the use of defective instruments or want of skill or care on the part
of operators. A stipulation exempting it from liability for its own negligence would be
contrary to public policy
l8[daho at404.
The foregoing policy statement by the Supreme Court in Strong applies equally well to
the relationship between Idaho Power and its customers, including Simplot. Idaho Power is a
public utility that has been licensed to provide an essential service to the public. The citizens of
Idaho who reside in ldaho Power's service territory do not have the benefit of a free marketplace
where they can choose between competing suppliers of electric power. They are compelled to
rely absolutely on the care and diligence of the Company in the transmission of power. Idaho
Power's proposed exculpatory language shielding it from virtually all liability is a violation of
the public trust under which it serves.
Subsequent to the Strong decision, the Idaho Supreme Court has reiterated its position on
tort immunity for public utilities several times. In Rawlings v. Layne & Bowler Pump Company
93 Idaho 496,465 P.2d 107 (1970), a buyer brought an action against a seller of a pump for crop
damage allegedly caused by the negligent installation of the pump. The terms of the contract
J. R. SIMPLOT COMPANY ANSWER TO IDAHO POWER'S APPLTCATTON
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that the buyer signed specifically stated that the buyer would not hold the seller liable for
damages to crops arising from the negligent installation of the irrigation pump. Although the
Supreme Court upheld summary judgment for the seller stating that generally contract provisions
of this nature were enforceable, the Court noted several exceptions to this rule, including cases
where a public duty is involved. The Court Stated:
On the basis of these authorities, we hold that express agreements exempting one of the
parties for negligence are to be sustained except where:
[] One party is at an obvious disadvantage in bargaining;
[2] A public duty is involved (public utility companies, common carriers)
'Unless in circumstances affronting public policy, it is no part of the business of the
courts to decline to give effect to contracts which the parties have freely and deliberately
made.' Since neither of these two factors essential to impair the validit), of the provision
are present in the case at bar, the provision must be given full force and effect.
93 Idaho at 499-500, citations omitted, emphasis provided. See also Steiner Corp. v American
Dist. Tele., 106Idaho 787,683P.2d435 (198a); Leev. SunValleyCompany 107 tdaho 976,695
P.2d36l (1984). Idaho Power is therefore asking the Commission to approve an exculpatory
clause that contravenes Idaho law.
III
THIS COMMISSION HAS AN EXPLICITLY DECLARED POLICY PROHIBITING
SUCH CLAUSES IN UTILITY TARIFFS
The issue at hand has also been previously ruled on by the Commission in In the Matter
of Advice Letter No. 89-05 of Contel of the West, Inc., Case No. CON-T-89-2. Inthat case,
Contel sought to shield itself from tort liability for injuries resulting from negligence involved in
the provision of 911 emergency reporting services. The Commission originally rejected Contel's
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proposed tariff in Order No. 22616 dated October 27 , 1989. On Petition for Reconsideration, the
Commission agreed with Contel that its previously filed and approved tariff protected it from
contractual liability to third persons or entities but insisted that all of Contel's proposed
exculpatory provisions be stricken from its proposed tariff. The Commission stated:
This order address provisions in the tariffs of regulated utilities limiting their liability to
customers and others in the provision of utility service. We conclude as a matter of law
that we have authority to approve such tariffs. But, we further determine as a matter of
regulatory policy that such tariffs are seldom just and reasonable. They should be
approved only following our findings based upon a factual record that (l) it is in the
public interest based upon a factual record, and (2) there is a substantial likelihood that
the service would not be provided in the absence of limitations of liability.
Order No. 22812 at p. l.
Idaho Power has made no factual claim that it would not provide electric service to Simplot were
it not for the inclusion of exculpatory language limiting is liability.
In In the Matter of the Investigation Upon the Commission's own Motion of the Quality
of Service of Utah Power and Light Company and upon the use of Exculpatory Provisions in its
Tarffs in Civil Action, Case No. UPL-E-89-9, the Commission again declared that exculpatory
clauses have no place in a public utility's tariffs. [n that case, it came to the Commission's
attention that UP&L was using exculpatory language in its Electric Service Regulations as a
defense to one of its customer's small claims court action against the utility. The Commission
cited to the Contel docket, discussed above, noting:
The Commission Staff argues that the Company is not entitled to tort immunity, citing
Idaho's Supreme Court decisions as well as In the Matter of Advice Letter No. 89-05 of
Contel of the West, Inc., CON-T-89-02, where this Commission ruled, in Order No.
22813 that tariff provisions which provide tort immunity to a utility are 'seldom just and
reasonable' and will be approved only where the record established that '[] it is in the
public interest to provide the particular utility service and to encourage the provision of
the service, andl}) there is a substantial likelihood that the service would not be provided
in the absence of limitations of liability. See Order No. 22812 at p. I . In its reply
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comments, UP&L conceded that it cannot satisfy the second criteria...
the issue of tort immunitv.'
The Commission has never reversed that "official policy."
ry.
EXCULPATORY CLAUSES ARE ALREADY ADDRESSED, AND REJECTED, IN
IDAHO POWER'S GENERAL RULES, REGULATIONS AND RATES, TARIFF NO. 29.
The issue of liability to customers for loss or damage associated with ldaho Power's
provision of electric service is already addressed in Idaho Power's tariffs. Idaho Power's
proposed exculpatory clauses would be in violation of Rule J. That Rule entitled "Continuity,
Curtailments and Interruption of Electric Service" provides:
1. Electric service is inherently subject to occasional intemrption, suspension,
curtailment and fluctuation. The Company [tdaho Power] will have no liability to its
Customers or any other persons for any intemrption, suspension, curtailment, or
fluctuation in service or for any loss or damage caused thereby if such intemrption,
suspension, curtailment, or fluctuation results from any of the following:
a. Causes beyond the Company's reasonable control...
b. Repair, maintenance, improvement, renewal or replacement work...
c. Actions taken by the Company . . . necessary or prudent to protect the
performance, integrity or stability of the Company's electrical system...
2. Load curtailment and intemrption carried out in compliance with an order by
govemmental authority. . .
3. The provisions of this rule do not affect any persons rights in tort.
I.P.U.C. No. 29, Tariff No. 101, Original Sheet No. J-l. Emphasis provided.
t Order No. 23299 at p. 6. Emphasis provided. (Note pagination may differ from original as the download order
from the Commission's official web site was not paginated.)
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The limitation of liability provisions in Rule J are limited in scope and explicitly exclude tort
liability. Idaho Power's proposed exculpatory language impermissibly repeals its own
Commission-approved tariff. Idaho Power should be required to follow its own rules in its own
tariffand not be allowed to impose unreasonable limitation of liability clauses in its contract with
Simplot.
Idaho Power addressed Rule J in its Application by stating:
Rule J limits the Company's liability for intemrption of service caused by acts of God
(commonly known asforce majeure provisions) and the Company's "repair,
maintenance, improvement, renewal or replacement work," it does not adequately limit
contract and warranty claims, and explicitly states that "the provisions of this rule do not
affect any person's right in tort."2
While correctly quoting provisions of its own tarifl Idaho Power rejects its applicability with the
simple assertion that, "The current market standard is clear - utilities do not assume the risk for
consequential damages and unlimited direct damages.3" Regardless of what the status of the
'ocurrent market standard," the fact remains that Idaho Power's tariff does "not affect any
person's right in tort." Rule J is a rule of general applicability to all of ldaho Power's tariffs,
including Schedule 19. The proper place to explore whether the current market demands a
limitation of liability clause would be in an evidentiary hearing before the Commission in which
current market experts are called on to explain whether or not a utility must have immunity from
liability in order to provide regulated, monopoly utility service. Although Idaho Power is
unlikely to be successful in making such a showing, but Idaho Power must at least be put to the
test before imposing such clauses on its captive ratepayers.
2 Application atpp.6 -7.
' Id. at7.
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v.
IDAHO POWER'S FOOTNOTE REFERENCES TO OTHER
CONTRACTS ARE IRRELEVANT.
Idaho Power, in a footnote, observes other special contracts that have similar exculpatory
language. It cites to the Hoku contract which contains such exculpatory language.o However, in
the order approving that contract, Hoku did not file an objection and the Commission never
addressed the question of limitation of liability. It was not an issue in the proceeding. Idaho
Power, also observes (not in a footnote) that its contract with the contractor to build its most
recent power plant had similar language. The Company did not provide a copy of that agreement
with its Application so it is impossible to know exactly what is in it, and the Commission
obviously cannot rely on it in resolving this dispute. However, assuming it does contain
limitation of liability language, Idaho Power's contract with a construction company to build a
power plant is an arms-length negotiated contract. It is simply inapplicable to this circumstance.
Idaho Power also cites to the FMC special contract in which similar language appears, but the
issue was not raised in the FMC docket either. tdaho Power also cites to a Potlatch special
contract, but failed to reveal that Potlatch's special contract contains no limitation on liabilit), for
direct actual damages. Because the issue of limitation of liability was never raised in those cases
and is not mentioned in the Commission's orders approving those agreements, the Commission
did not have an opportunity to rule on the question. It is relevant, however, to the Commission's
deliberations that the special contract between Idaho Power and NEL contains no limitation on
direct damagess and the special contract between [daho Power and Micron has no limitation on
a Incorrectly citing to Commission Order No. 30697 asthe order approving that contract. The correct order is No.
30748.
s Applicationfor Approval of Agreementfor Electric Service Between ldaho Power and the U.S. Department of
Energt Case No. IPC-E-06-12, Order No. 30030 (May 8, 2006).
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damaqes whatsoever.6 There is no basis on the record before this Commission to treat Simplot
any differently from Micron, or at a minimum Potlatch and INEL.
Finally, Idaho Power observes that the J. R. Simplot Company has limitation of liability
provisions in the terms goveming its web site and governing the use of its product. However,
unlike Idaho Power, the J. R. Simplot Company is not a state-sanctioned monopoly whose
customers must, by law, only purchase product from it. Idaho Power's reference to private
contracts between Simplot and its customers is irrelevant to the Commission's consideration in
this case. If Simplot's customers are dissatisfied with Simplot's products, those customers can
transact with another party. In contrast here, Simplot must buy its electricity from Idaho Power.
vI.
IDAHO POWER'S INSISTENCE ON AN EXCULPATORY CLAUSE
IN THE SIMPLOT CONTRACT IS DISCRIMINATORY.
None of the three Simplot potato processing plants in tdaho Power's service territory
operate under a limitation of liability clause. Indeed, no Idaho Power customer taking service
pursuant to Commission-approved tariffs have such clauses as a condition to taking service from
the Company. It is facially discriminatory for the company to require exculpatory language in
Simplot's special contract, when the Company has not done so in other special contracts. [t is
also facially discriminatory for the company to exclude such language from all of its tariffs for
non-special contract customers while at the same time including such language for a subset of its
special contract customers.
6 In the Mqtter of ldaho Power Company's Applicationfor Approval of a Replacement Special Contract with Micron
Tec hno logt, I nc. lP C-E-09-35 I PC-E-09-3 5 (February 12, 20 I 0).
J. R. SIMPLOT COMPANY ANSWER TO IDAHO POWER'S APPLICATION
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vII.
ALTERNATIVE LIMITATION OF LIABILITY LANGUAGE
The J. R. Simplot Company respectfully requests that the Commission issue its Order
requiring tdaho Power to remove the exculpatory language from the draft special contract with
Simplot. In place of the offending language Simplot respectfully suggests the Commission order
Idaho Power to offer language that is used in the Micron special contract which reads:
Each party agrees to protect, defend, indemnify and hold harmless the other party, its
officers, directors, and employees against and from any and all liability, suits, loss,
damage, claims, actions, costs and expenses of any nature, including court costs and
attorney's fees, even if such suits or claims are completely groundless, as a result of
injury to or death of any person or destruction, loss or damage to property arising in any
way in connection with, or related to, this Agreement, but only to the extent such injury
to or death of any person or destruction, loss or damage to property is not due to the
negligence or other breach of legal duty of such other party; provided, however, that each
party shall be solely responsible for claims of and payment to its employees for injuries
occurring in connection with their employment or arising out of any workman's
compensation law.7
The Micron language is a standard mutual indemnification clause that is commercially
reasonable and acceptable to the J. R. Simplot Company.
vIII.
CALCULATION OF THE RATE FOR THE SIMPLOT
SPECIAL CONTRACT
Dr. Reading has been working informally with representatives from ldaho Power to
verify the accuracy of the rates contained in Idaho Power's proffered special contract. It is
Simplot's understanding that Idaho Power has not conducted a cost of service study to support
the rates in the contract. Simplot understands that Idaho Power simply updated inputs used to
calculate the Schedule l9 rates to arrive at a rate for Simplot's new special contract. The cost of
7 ln the Matter of ldaho Power Company's Applicationfor Approval of a Replacement Special Contract with Micron
Technologt, Inc. Docket No. IPC-E-09-35, Order No. 31006 (February 12,2010).;
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service study used to set Simplot's rate is vintage 2010 and is out dated. Idaho Power used that
study, for the Schedule 19 class and only updated it for the effects of adding Langely Gulch,
OATT changes, depreciation changes and the update of the Boardman Balancing Account. This
results in an overall rate for Simplot of 4.441 cents.
If no new cost of service study is conducted, Dr. Reading believes it would be more
appropriate to start with the average of the current three special contract customers 2010 cost of
service study and then make the same adjustments for Langley Gulch etc. Using the existing
special contract customers' cost of service study as the starting point more accurately reflects the
Simplot special contract rates because Simplot will be a special contract customer and not a
Schedule 19 customer. Dr. Reading's substitute method results in an overall rate of 4.197 cents.
Although the results of a new cost of service study are not known at this time, if the Commission
chooses not to require a new cost of service study to be conducted, Simplot urges the
Commission to use Dr. Reading's substitute method for estimating Simplot's rates.
RESPECTFULLY SUBMITTED this 5ft day of February 2014
RICHARDSON ADAMS, PLLC
,,tM)rfu
Peter J. Richardson
Of Attomeys for J.R. Simplot Co.
J. R. SIMPLOT COMPANY ANSWER TO IDAHO POWER'S APPLICATION
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CERTIFICATE OF SERVICE
I hereby certify that on the 5th day of September 2014, copies of the foregoing Answer
of the J. R. Simplot Company to Idaho Power's Application were delivered to:
Jennifer M. Reinhardt-Tessmer Jean Jewel
Lisa Nordstrom Secretary
Idaho Power Company
1221 West Idatro
Boise,Idaho 83702
Idaho Public Utilities Commission
472West Idaho
Boise,Idaho 83702
J. R. SIMPLOT COMPANY ANSWER TO IDAHO POWER'S APPLICATION
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Nina Curtis
Administrative Assistant