20140328Comments.pdf

Peter J. Richardson ISB # 3195
Gregory M. Adams ISB # 7454
RICHARDSON ADAMS, PLLC
515 N. 27th Street
Boise, Idatro 83702
Telephone: [phone]
Fax: [phone]
peter@richardsonadams. com
greg@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
: i . I?i ,. 1.... l S
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO.IPC.E.13.23
J. R. SIMPLOT COMPANY'S
COMMENTS
COMES NOW, the J. R. Simplot Company ("Simplot") and pursuant to Order No. 32984
issued in the above captioned docket by the Idaho Public Utilities Commission ("Commission")
on February 25,2014 and hereby provides its Comments on the terms and conditions of Idaho
Power Company's ("[daho Power") proffered special contract with Simplot. The two unresolved
items with regard to the special contract are the proper base rate applicable to this new customer
and the proper language to address limitation of liability. As explained in detail below, although
Simplot initially proposed in its Answer a compromise base rate of 4.197 cents per kilowatt-hour
("Plkwh"), Simplot now relies on newly available information to propose an altemative base rate
of 3.699 llkwh. That rate would appropriately place Simplot's Idaho Project on the same
footing as Idaho Power's other special contract customers and allow Simplot to receive the
benefit of reduced electricity rates that should be associated with a switch from primary to
transmission level delivery. Additionally, Simplot stands by the position made in its Answer
with regard to the limitation of liability issue and reserves the right to respond to any comments
of Idaho Power or any other party on that issue.
L
BACKGROUND
In the fall of 2013, Simplot and Idaho Power commenced negotiations for a special
contract for the provision of electric service by Idaho Power to Simplot's, currently under
construction, Idaho Project. The Idaho Project is a new potato processing plant utilizing state of
the art, highly efficient technology. The Idaho Project will have sufficient processing capacity
such that Simplot's existing processing facilities at Caldwell, Nampa and Aberdeen will be
closed and the production at those facilities shifted to the new Idaho Project, located adjacent to
the existing Caldwell facility. The Idaho Project's total electrical load will exceed twenty
megawatts on a consistent basis, which requires Idaho Power and Simplot to enter into a special
contract as the load exceeds the limits for entitlement to rates under Idaho Power's large power
service schedule (Schedule l9).
In the negotiations, ldaho Power presented Simplot with a proposed rate design that
would have resulted in an overall base rate of 3.937 l/kwh consumed. With the exception of
objectionable limitation of liability language, it appeared that all contract issues were settled. On
December 4,2013,Idaho Power filed its Application, asking the Commission to approve the
special contract containing its proposed limitation of liability language. The proposed contract
was included in the Application as Attachment One. Attachment Two of the Application
contained Idaho Power's proposed Schedule 33 Tariff for the tdaho Project. The rate in the
Company's December filing is 4.243 p/kwh, or 7.8Yo higher than the 3.937 P/kWh rate discussed
in negotiations in the fall of 2013.
J. R. STMPLOT COMPANY COMMENTS
IPC-E-13-23
PAGE 2
During negotiations, Simplot had retained the services of Dr. Don Reading to aid in
understanding the basis for Idaho Power's proposed base rate of 3.937 p/kwh. Idaho Power
provided Dr. Reading with the spreadsheet it used to calculate the 3.937 p/kwh rate used during
negotiations. That rate used the IPC-E-I l-08 cost-of-service study but also incorporated adders
to adjust for the intervening events that have resulted in upward rate adjustments. The
adjustments include adding Langley Gulch in rates, OATT changes, depreciation rate changes
and an update of the Boardman Balancing Account. These adjustments to the old cost-of-service
study were then applied to Idaho Power's Schedule 19 rate elements to arrive at the 3.937 plkwh
rate used in negotiations. Simplot took the position in negotiations that Idaho Power should run
a whole new cost-of-service study rather than updating only certain aspects of the study in a
piece-meal fashion, but at the time of negotiations Simplot was willing to accept Idaho Power's
proposed rate of 3.937 flkWhto avoid delay and dispute. Simplot was therefore surprised to see
Idaho Power propose an even higher rate in its Application of 4.243 tr/kwh.
On February 5,2014, Simplot filed its Answer to Idaho Power's Application. Simplot
proposed a compromise rate of 4.197 l&Wh. Dr. Reading calculated the compromise rate using
the same components as Idaho Power, except that Dr. Reading substituted the average of the
three existing special contract customers' cost-of-service studies in place of the Schedule 19
elements used by Idaho Power. As opposed to Idaho Power's negotiation rate of 3.937 P/kWh,
Dr. Reading's rationale was that using the special contract customers' cost-of-service as a basis
to calculate the rate more accurately reflects the fact that the Idaho Project will also be a special
contract customer that takes power at the transmission, rather than the primary, voltage level.
The averages of the three special contract customers' rates were substituted into the spreadsheet
J. R. SIMPLOT COMPANY COMMENTS
IPC-E-13-23
PAGE 3
provided by Idaho Power (using the old cost-of-service study) and resulted in the compromise
rate of 4.197 d,lkWh recommended in Simplot's February 3,2014 Answer.
I
CURRENT STATUS
The Parties, along with the Commission's Staff, held an information meeting on the
question of the appropriate rate for Simplot on March 10,2014. The purpose of the meeting was
to allow the Company an opportunity to explain in greater detail how it arrived at the 4.243
p/kWh rate. Idaho Power apparently is motivated by a desire to insure the rate offered to the
Idaho Project does not have any impact on other, existing, Idaho Power ratepayers or Idaho
Power itself. To accomplish that goal, Idaho Power developed arate under which the
Company's current base revenue requirement would not be impacted by the closure and the
replacement of Simplot's three existing facilities with the Idaho Project. [n other words, Idaho
Power's 4.243 d/kVfh is designed to keep Idaho Power revenue neutral. Idaho Power's approach
is to assess Simplot's overall fleet of ldaho plants the same amount in base rates as it would have
if Simplot were not closing three primary-level voltage plants and opening one highly efficient
transmission-level voltage plant. I
The table below shows both the initial rate offered by ldaho Power and the currently
offered rate. Also shown are the rates for the other special contract customers. The rates for the
special contract customers are base rates taken from the Company's most recent filing (2013-
2014 PCA) and do not include adders such as the PCA and the Energy Efficiency Rider in order
I Iduho Power apparently does not believe the ldaho Project is a new customer that would be entitled to an
offer of the Company's marginal cost of energy. Because Idaho Power currently enjoys a surplus of capacity and
energy, the marginal rate would be lower than an embedded rate. The current situation is the opposite of conditions
extant at the time of the Hoku contract, when the marginal rates were higher than embedded, although Hoku did
agree to pay the marginal rate, for at least some of its power needs.
J. R. SIMPLOT COMPANY COMMENTS
IPC-E-13-23
PAGE 4
to match the rate found in the tariff proposed by the Company. The final column in the table
shows the average of the three special contract customers' currently effective rates.
Special Contract Rate Comparisons
4,40
4.20
4.00
=j 3.80
oCL; 3.60
ou 3.40
3.20
3.00
Don Plant DOE Micron
Source: ldaho Power Offer Sheets; IPC-E-13-10, Staff Comments, Attachement D
Idaho Power's offered rates are 15% higher than the average of the three current special contract
customers' rates and l9Yohigher than the rates at Simplot's Don Plant, which has approximately
the same level of power consumption and a similar load factor.
The 4.243 p/kwh rate developed by Idaho Power for its Application is not based on its
current cost structure. Idaho Power's most recent cost-of-service study was conducted using data
from 2010 for use in the last general rate case (IPC-E-11-08). It does not appear that the
Company plans on conducting a new cost-of-service study in the near future and is not
contemplating filing a general rate case, which would necessarily include a new cost-of-service
study. In fact, Idaho Power has publically stated that it is planning on asking the Commission to
extend the revenue sharing agreement beyond its current expiration date at the end of this year.
Simplot acknowledges the limitations of using an old cost-of-service study. The
J. R. SIMPLOT COMPANY COMMENTS
rPC-E-13-23
PAGE 5
3.699
lxl
['i ''ltx:'
L${
3SC
Average
3.8t2
I
3.733
I
3.552
I
4.243
I
Caldwell
Dec.
3J37
I
Caldwell
Oct.
adjustments to the cost-of-service study the Company used to create the negotiation rate of 3.937
d/kwh include many significant changes to its cost structure that have occurred since the last
cost-of-service study was completed in 2011. Because the Company updated the cost-of-service
inputs for just the Idaho Project and no other customer, Simplot would be paying a rate that is
significantly higher than the rates any other special contract customer pays. This inequity in
rates would be embedded in the Idaho Project's rates indefinitely - at least until a new cost-of-
service study is completed for a future rate case that could occur years into the future. Similarly,
as noted above, Simplot's initially recommended rate of 4.197 l/kwh contained in its Answer
was based on the existing cost-of-service study for other special contract customers from IPC-E-
I l-08.
Additionally, last week, the Commission declared that it is inappropriate to use the 2011
cost-of-service study to allocate rates. In discussing how to allocate base net power supply costs
in Docket No. IPC-E-13-20, the Commission rejected a joint Micron/Industrial Customers of
Idaho Power ("ICIP") request to use the 2011 cost-of-service study in allocating rates among
customer classes. At page 8 of Order No. 33000 the Commission declared: "We disagree with
the ICIP/IvIicron approach, and find it would be inappropriate in 2014 to allocate the base rate
increase using the Company's 2011 class cost-of-service study." Applying the rationale of
recently-issued Order No. 33000, neither the Company's original calculation (3.937 plkWh) nor
Simplot's compromise rate calculation in its Answer (4.197 l/kwh) are appropriate because
both derive from the 2011 class cost-of-service study. Thus, Simplot now offers an altemative
approach that arrives at a retail rate that is fair, just and reasonable and which Simplot urges the
Commission to consider favorably.
J. R. SIMPLOT COMPANY COMMENTS
IPC-E-13-23
PAGE 6
III.
RECOMMENDATION
Based on the additional information gleaned in the interim between its Answer and today,
Simplot believes a fair, just and reasonable rate for the ldaho Project is a simple average of the
rates being paid by the three current special contract customers, or 3.699 p/kWh. [t should be
noted that Simplot would also pay the power cost adjustment rates ("PCA") just the same as
other special contract customers. This proposal would place Simplot's Idaho Project in a
comparable position to the other special contract customers, and is therefore superior to Idaho
Power's recommended rate, which has no basis in Commission precedent or rate-making
principles.
Idaho Power's motivation is now clear. tdaho Power's proposed rate in its Application
(4.243$lkwh) is designed not based on any cost-of-service study. Nor is it based on any other
fair rate-making principle. lnstead, Idaho Power's rate is driven by a revenue neutrality goal on
Idaho Power's part. It appears to be based on an incorrect assumption that other ratepayers
would be harmed if overall revenue paid by all of Simplot's Idaho facilities were to decline. But
no other ratepayer will be harmed if Simplot pays a rate lower than that offered by Idaho Power.
Idaho Power's rates will not change until the next general rate case, at which time a new cost-of-
service study will be completed and all of Idaho Power's customers will then have the
opportunity to pay cost-based rates once again. Idaho Power may collect less revenue without its
proposed 4.243llkUih rate, but other ratepayers will not make up the difference. If a problem
exists, Idaho Power alone possesses the ability to fix it by filing a general rate case.
It is not reasonable for Idaho Power to "back cast" by setting a rate equal to the historic
revenues received from Simplot's closing plants. Each of Simplot's closing plants represents a
J. R. SIMPLOT COMPANY COMMENTS
rPC-E-13-23
PAGE 7
separate individual customer. The loads from those three plants were never aggregated by ldaho
Power for purposes of billing, and they have never been treated as a single customer for the
purposes of rate making. The Idaho Project is a new customer and should not be held
responsible for lost revenue due to the fact that other customers are leaving the system. That is
simply not how the regulatory compact works. If it were, then a customer like Hoku would have
ongoing responsibility for making Idaho Power's other ratepayers whole due to the lost
anticipated revenues the Company is experiencing with the loss of that customer.
Furthermore, even if Simplot's entire fleet of plants should be treated as one single
customer for rate-making purposes, ldaho Power's proposed revenue neutrality rate is contrary to
the policy of accurate pricing signals and cost-based rates. Simplot has decided to consolidate its
Idaho operations by constructing a state-of-the-art, highly efficient food processing facility, and
thereby reduced the per unit electrical costs it imposes on Idaho Power by shifting to a higher
load factor, transmission-level voltage facility. Obviously, Simplot could reasonably expect to
receive a lower, cost-based electricity rate commonly available to special contract customers
taking transmission level service, such as at Simplot's Don Plant. Yet Idaho Power's proposal to
maintain its revenue neutrality - as if Simplot were still operating three primary voltage facilities
- would deprive Simplot of the full cost-based reduction in incremental electricity costs. Had
Simplot simply converted to transmission-level voltage at its three closing plants, Simplot would
have paid a lower cost-based rate under Schedule l9 without regard to the revenue impact to
Idaho Power. There is no basis for a different treatment when Simplot opens a new plant. The
Commission should endorse cost-based rates instead of assessing a rate designed to keep Idaho
Power revenue neutral and approve Simplot's alternative base rate of 3.699 P/kWh.
J. R. SIMPLOT COMPANY COMMENTS
IPC-E-13-23
PAGE 8
Iv.
LIMITATION OF LIABILITY
Unless ldatro Power responds to the arguments in Simplot's Answer on the issue of
limitation of liability, Simplot has nothing further to add on this issue. However, should Idaho
Power, or any other party, comment with disfavor regarding Simplot's limitation of liability
language proposal, Simplot will respond accordingly on the Reply date set forth in the
Commission's order.
v.
CONCLUSION
Although Simplot initially proposed in its Answer that the base rate be 4.197 p/kWh,
Simplot proposes an alternative base rate of 3.699 P/kWh that places Simplot's Idaho Project on
the same footing as Idaho Power's other special contract customers. Additionally, Simplot
stands by the position made in its Answer with regard to the limitation of liability issue and
reserves the right to respond to any comments of Idaho Power or any other party on that issue.
RESPECTFULLY SUBMITTED this 28ft day of March 2014.
zuCHARDSON ADAMS, PLLC
Peter Richardson ISB# 3195
Greg Adams ISB# 7454
Attorneys for J. R. Simplot Company
J. R. SIMPLOT COMPANY COMMENTS
IPC-E-13-23
PAGE 9
CERTIFICATE OF SERVICE
I hereby certiff that on 28th day of March 2014, copies of the foregoing Comments of the
J. R. Simplot Company in Docket No. IPC-E-13-23 were delivered to:
Jennifer M. Reinhardt-Tessmer Jean Jewel
Lisa Nordstrom Secretary
Idaho Power Company
1221 West Idaho
Boise,Idaho 83702
(ltrr^lhr'' nf-\
Nina Curtis
Adminisff ative Assistant
J. R. SIMPLOT COMPANY COMMENTS
rPC-E-13-23
PAGE IO
Idaho Public Utilities Commission
472West Idaho
Boise,Idaho 83702