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HomeMy WebLinkAbout19910430.docx Minutes of Decision Meeting April 30, 1991 In attendance were: Commissioners Joe Miller, Ralph Nelson and Marsha H. Smith and staff members Scott Woodbury, Dave Schunke, Tom Faull, Keith Hessing, Dave Hattaway and Myrna Walters. Topics of discussion were Items 6 and 7 from the April 29, 1991 Decision Meeting Agenda - held from the April 29, 1991 Decision Meeting. 6.  Scott Woodbury's April 29, 1991 Decision Memorandum re:  Case No. WWP-E-91-4 - Empire/Regulus Power Purchase Contracts. Commissioner Miller reviewed the matter. Said the clause (regulatory out) was supported by companies because of the rate (it is slightly lower than on computed basis so there is compensation for this and minimal risk to ratepayers). Also gave them the option of submitting a new contract which they didn't do or to tell us why the clause is okay. Commissioner Smith asked Commissioner Miller if he was convinced? Commissioner Miller said not entirely. Commissioner Nelson said he was generally convinced that with unlevelized contract it would be pretty tough to do damage. Commissioner Miller agreed with unlevelized it was. Commissioner Smith said she didn't have strong feelings either way.  Staff must have strong feelings. Scott Woodbury said Tom Faull is still of the same opinion that there should be liquidated damages.  There are some administrative costs involved.  Whether there are trade-offs is his question.  This is the first time the Commission has had to address this. Commissioner Miller asked what security was being provided here? Scott Woodbury said there is a second lien for a true default but this is the "regulatory out" and as he read it -2- the lien is not an issue for "regulatory out".  That is just a contract right.  The level of damages - don't know we envision that there are some administrative costs incurred by the company in arranging replacement power. WWP says essentially that they feel they will be able to replace the contracts with comparably-priced power assuming that both its and the Commission's estimates as to future costs are accurate.  That matter he didn't think had been entirely thought out and that is maybe where we are somewhat handicapped. Commissioner Miller said we haven't fully thought through the question of liquidated damages or security for this. Scott Woodbury said in his talks with Bart Kline, Idaho Power is of the mind that they think there should be liquidated damaged for these. Commissioner Nelson said they have not negotiated one. Commissioner Miller said he wondered if there should be liquidated damages and additional security for non-levelized contracts?  We start with the idea of liquidated damages because ratepayers had paid out money at the start.  You are really trying to get back money that has already been paid out for what you got in return. With non-levelized rates you don't have that.  So what you have is the possibility that sometime in the future there may be added expense involved in replacing the power that goes away if this terminates. Scott Woodbury said there is no upfront overpayment.  Another factor is how is the company using the contract for the purpose of system planning?  Is it because the projects are small?  If it was a bigger project, would they be as ambivalent? Under the avoided costs methodology we set it up in a manner that they could take their contracts and adjust the avoided cost.  Quoted his last question in decision memo - should they be considered firm resources?  Do you factor it in as a 20-year contract? Commissioner Miller asked Tom Faull what he thought? Tom Faull said it becomes a one-sided contract.  The producer can back out easily. -3- Scott Woodbury said Empire reminds the Commission that it has an obligation to its financiers and it is not going to cease operation unless it was costing more to produce the power than they were receiving for it. Commissioner Nelson asked what are they going to do if they opt out of the contract? Tom Faull said they could negotiate a new contract. Commissioner Nelson asked - and get it approved? Scott Woodbury said if they have a right to opt out for some other regulatory rule that went into effect and rates were higher, would Commission not allow them a contract? Commissioner Nelson said they would have a big level of proof. **Don Oliason and Bev Barker were in attendance at this time. Scott Woodbury said there are no criteria established in the contract.  It puts all the cards in the QF's hands.  It might be difficult to fashion some criteria. Commissioner Miller said being able to assure yourself that timber is available for 20 years is a difficult thing to predict given the possibility of change in environmental regulations.  You have some sympathy for them on that point.  It is a relatively uncertain fuel supply energy. Tom Faull said he didn't have a problem with it per se but think the utility will be damaged to a certain extent if the contract is cancelled. Commissioner Miller asked - do you think it is material damage?  When the ratepayers have gotten power for 10 years at a discount rate, do we know with certainty that the harm resulting from termination will exceed benefit gotten from discounted rates for 10 years? Commissioner Nelson asked - aren't they going to have a financier breathing down their neck to continue producing? Scott Woodbury said that is what Empire suggests. Commissioner Nelson said there is a 15 million dollar investment there. -4- Tom Faull said as long as it is covering variable costs it will continue to operate. Commissioner Miller said they are saying they are willing to risk their investment that fuel supply is available and in the event they are wrong, they only want to lose their investment and not have to provide 10 more years of electricity to fulfill the contract. Commissioner Nelson said just the way these things work, if they decided to opt out, they would have an idle facility for 2/3 years before they negotiate a new contract.  Think they would have to be in tough straights before it would be worthwhile to terminate the contract. Scott Woodbury said they say all they are asking is to be treated as the utility would be treated.  Don't buy that.  The utility has regulatory oversight from the Commission. Commissioner Miller said he guessed Commission should encourage contracts with levelized rates because they are more comfortable from ratepayer view.  Don't think we want to discourage appropriate thermal projects.  Don't know how that blends into this. Commissioner Nelson said think we could put language in the order that if they do take this "regulatory out", that there would be extra scrutiny of an application for a new contract or request for transmission access. Commissioner Miller said - or we could rewrite the contract for them and say rather than give the QF this walkaway right, something to the effect that in the event of regulatory change could apply to the Commission to terminate their obligation. Commissioner Nelson said it is a thought.  Don't know if we can rewrite it better than their negotiation. Commissioner Smith asked - don't you have to disapprove it as is and they would have to do the language change? Commissioner Nelson said he was influenced by the fact that there were 8 years of negotiation.  At some point you have to say we have done everything we can do or they have done everything they can do.  Could not characterize WWP as anxious suitor of the electricity.  So am going somewhat on faith that WWP was a tough negotiator. -5- Commissioner Miller said from what the comments say, this paragraph was not a hotly-negotiated item.  Negotiation was on other aspects.  This wasn't a provision that even Owen demanded.  It was just there. Scott Woodbury said that was his understanding. Commissioner Miller said another way to do it is to approve it and put in language saying it doesn't constitute approval in broad terms (this one paragraph). Commissioner Smith said to base it on lengthy negotiations, the amount of power involved, etc. Tom Faull said - and the fact that the return is slightly below the avoided cost in lieu of some of the damage clauses.  So you don't at least have a pretense of anything in return for the clause. Commissioner Miller said say that our approval takes place in the context that we have not fully developed policy on this for non-levelized rates and we hope to do it sometime.  Asked Tom Faull about that? Tom Faull said he didn't think there is a terrible risk with these contracts that this will be the entrenched way of doing business. Commissioner Nelson asked - do we have to address this again in the Potlatch contract?  Don't know if he would hold this up until Potlatch.  Might say we are considering it in Potlatch. Commissioner Miller asked where the Commission is in the Potlatch matter? **Keith Hessing brought Commissioners up to date on happenings in this case. Commissioner Nelson asked if there wasn't language about it being limiting on its face?  Think we should say that we would accept Empire's interpretation of those terms and that it is fairly restrictive. Commissioner Miller said he wondered no matter how much language we put in it, Potlatch may use that to say - if Empire got it they want it also. Commissioner Nelson said we could counter that in the prehearing.  Say we want to take a tougher look at this. -6- Keith Hessing said it is 41 mills over the life of the contract - from 39 to 48.  It is not a true levelized contract.  Rate does vary. Commissioner Nelson said he thought it went for 5 year blocks.  It is a real hybrid. Tom Faull said if it is 41 mills it is considerably discounted. Commissioner Nelson said there is a balancing feature on Potlatch.  Can't compare the two contracts.  They can make that argument.  The rate is discounted but the rate they are buying it back at is ramped-up.   Scott Woodbury said he won't try to get into an analysis in this order.  We haven't looked at it.  If you are willing to let it slip and say there is the discounted rate, at some point in time would you want to revisit it?  The underlying issue is somewhat of a policy and are there damages incurred by the utility or costs incurred in these types of contracts? Commissioner Nelson said he was sure there were administrative costs. Commissioner Miller said whether there are damages incurred from the termination of the facility, when something ends unexpectedly, costs will incur. Scott Woodbury suggested they have a 20 year contract, it is not as firm with this clause.  Maybe the utility will think twice about including it next time if Commission says you can't use this as a one year contract and put it in on that basis. Commissioner Miller said we didn't pose that as a option when we asked for comments. Scott Woodbury agreed that was true.  In the order the Commission raised the issue as to how can the utility rely on this as a firm commitment for resource planning?  It was not addressed by WWP in their reply comments. Commissioner Smith said it seems we need to either approve it with all these caveats or else have a further proceeding.  Is this the kind of issue that is specific to each contract? Scott Woodbury said it is a generic issue.  You can make this determination in each contract, though. -7- COmmissioner Smith said the way you go at it in individual contracts may vary, though. Commissioner Miller asked if both parties would be willing to proceed with the contract with this paragraph being in abeyance? Scott Woodbury said WWP suggests that they are willing to delete the clause or reconsider as Commission orders, but Empire says it is not willing to go forward if this clause were deleted. Commissioner Miller said argument in favor of these clauses, if developer acts in good faith and ... they do maybe make possible the acquisition of recourses you couldn't get in the absence of the opt-out.  You do need a safety valve in case something goes that bad but you can basically assume they wouldn't exercise that right unless it is a complete disaster.  Can see some value to the provision. Scott Woodbury said it lowers the risk of the QF.   Commissioner Smith said Owen's explanation of opting out is in line with that. Scott Woodbury said if the rate changes, they may alter the way they view other concerns.  You would be a fool not to factor it into your decision. Commissioner Nelson said he thought the greatest risk is if they lose their fuel source.  That would come from a Forest Service Regulation.  That is what he got out of Owen's comments.  They need a way out without having to meet load. Scott Woodbury said it is not a clause crafted just for thermal.  Utility has been using it across the board. Commissioner Nelson said in the Potlatch case there are more resources on Potlatch side to negotiate a clause if necessary.  Just feel like Klau has spent all the money he should spend on regulation absent a real showing of damage. Commissioner Miller said he didn't think it would apply to Forest Service at all.  Thought it applied to Commission on agency jurisdiction over construction, etc.  Seems more like us than anybody else. Scott Woodbury explained why he asked the parties what was meant here? -8- Commissioner Miller asked - do the other clauses in the contract make it clear that a change in rates would not qualify it for opting out? Scott Woodbury said he thought that could be interpreted in that manner.  We are not going to be changing the rates we set for the project, just establishing higher or lower rates ... if in fact we are going to be changing contract rates, we do change the variable portion. Commissioner Nelson asked - are you willing to approve this with that language and take it up in the Potlatch case? Commissioner Miller said his preference would be to approve the contract with the exception of this paragraph and take it up in Potlatch. Scott Woodbury suggested approving the contract and yet holding the decision on 4d, would serve their purpose if the bank feels that clause should be included. Commissioner Miller said if as a result of Potlatch we decided these were not clauses ... we would have contract out there with weird clauses in them. Scott Woodbury said if you don't feel comfortable with it, you could set the matter for hearing.  Maybe it will then coincide with Potlatch.  Maybe you will get some testimony, etc. Commissioner Nelson asked about time line for construction? Scott Woodbury didn't think they were under the gun. Commissioner Miller said the facilities are not under construction yet. Commissioner Nelson said that is a point.  Does seem like part of the negotiation was WWP signed on the basis that they were going to defer construction until a certain point. January 1, 1994 was Tom Faull's recollection. Scott Woodbury said the biggest obstacle they see right now is permitting for clean air. **Don't know what Washington has done on this. Commissioner Miller said - hate to approve it even with all the clauses with Potlatch so soon on the horizon. -9- Commissioner Nelson said guess with the assurances from Owen and it is two projects with 15.6 megawatts, and it is unlevelized and thermal and they need something if they lose their fuel supply it would be okay. Commissioner Miller suggested thinking about this for the moment. Tabled it and went on to next item. 7.  Scott Woodbury's April 26, 1991 Decision Memorandum re:  WWP-E-89-4 - WWP Schedule 51 Line Extension, Conversion & Relocation. Commissioner Smith said she would not reopen.  Would ask them to meet informally and if nothing can be worked out, turn it into a formal investigation.  Would not suspend it. Commissioner Nelson said he would go along with that. Commissioner Smith said it sounded like they want to "bitch" at someone. Keith Hessing said they had better not expect staff to make their case. Scott Woodbury is to contact the Builders Association and ask where they want the meeting. Commissioner Nelson asked if they were specifically on the mailing list? Commissioner Miller said it seemed like their main concern is the number. Dave Hattaway responded to how they got those numbers.  Said it is not that different if they are going to use an average cost.  Think the point to bear in mind is that their point against average cost is a point in their favor. Commissioner Miller asked if actual cost wasn't the way to go? Dave Hattaway said average cost does expedite the process.  Company can give quotes quicker.  Think it reduces the number of complaints also. Bev Barker said it is easier to understand upfront.  The contractors in Idaho Power Company area have experience under their belts.  Don't think WWP customers understand their benefit.  Part of it is that costs were hidden before.  Now it is straight forward and upfront. -10- Dave Schunke said when they met with contractors last fall, didn't characterize their position as unified position.  Couple of larger ones that had been hurt by the change (facing big expenses) but there were a number of other contractors that thought this was a very reasonable approach. The Secretary of the Homebuilders called a month or so agon and talked to him.  Spoke to her about procedure.  Said she just didn't know what to do. Commissioner Smith said she would deny the petition to set aside but wouldn't ignore them.  Would send staff up there to meet with them.  Tell them what was happening in the past and this is how it is now.  Then if they want to file a formal complaint, they can.  They can then sort themselves out. Bev Barker spoke to Paul Anderson about meeting with the contractors.  Thought WWP would welcome a meeting. Scott Woodbury asked about denying it on procedural grounds and establishing schedule of meetings and indicate within the record they did receive notice. Commissioners agreed. Meeting adjourned. Signatures on next page ...................... -11-         DATED at Boise, Idaho this       day of July, 1991.                           PRESIDENT                           COMMISSIONER                           COMMISSIONER ATTEST:                               Commission Secretary 0043M mjw