20230815Comments of the Commission Staff.pdf

MICHAEL DUVAL
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE,IDAHO 83720-0074
[phone]
IDAHO BAR NO.11714
Street Address for Express Mail:
11331 W CHINDEN BLVD,BLDG 8,SUITE 201-A
BOISE,ID 83714
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER )COMPANY'S APPLICATION FOR APPROVAL )CASE NO.IPC-E-23-18OFASPECIALCONTRACTUNDERTARIFF)SCHEDULE 34 TO PROVIDE ELECTRIC )SERVICE TO LAMB WESTON,INC.)COMMENTS OF THE
)COMMISSION STAFF
COMMISSION STAFF ("STAFF")OF the Idaho Public Utilities Commission,by and
throughits Attorney of record,Michael Duval,Deputy AttorneyGeneral,submits the following
comments.
BACKGROUND
On May 23,2023,Idaho Power Company ("Company")applied to the Idaho Public
Utilities Commission ("Commission")for an Order approving a special contract under Schedule
34 between the Company and Lamb Weston,Inc.("Lamb Weston")(the Company and Lamb
Weston referred to collectivelyas "the Parties").
On or about August 25,2022,the Company informed Lamb Weston that service under
Schedule 19 would no longer be possible once the power consumption for the premises exceeded
20,000 kilowatts ("kW").At that time,Lamb Weston informed the Company that it expected to
exceed 20,000 kW as soon as July of 2023.The Company stated the Parties then came to an
STAFF COMMENTS 1 AUGUST 15,2023
agreement and filed this case as soon as possible.The Company did not expect the Commission
to issue an order in this case before July of 2023.Should Lamb Weston consume more than
20,000 kW before a final order is issued in this case,the Company stated that it would continue
to provide Lamb Weston with power under Schedule 19's rates unless otherwise directed by the
Commission.
The Company stated that each special contract is tailored to the consumer.To
accomplish this,the Company reviews total usage,time of consumption,capability of the
system's connections,and several other factors.
The Parties have agreed to adjust the amount of power required by Lamb Weston's
contract (on a monthlybasis)based upon Lamb Weston's continued need.Lamb Weston
expects a peak of its steady state of production to be around 32,000 kilowatts ("kW").It expects
that it may need as much as 34,000 kW in March of 2024.Lamb Weston plans to expand its
facility to increase its power consumption by approximately 14,000 kW.
The Company stated proposed Schedule 34 would service Lamb Weston under the same
rate as Schedule 19 for the first 20,000 kW.The price for electricityconsumed beyond 20,000
kW would be based on "(1)capacity cost per kilowatt,recovered through a monthlyContract
Demand charge and a monthlyBilling Demand charge ("Block 2 Demand"),and (2)energy
priced at a marginal cost-based rate,recovered through the Block 2 Energy Charge ("Block 2
Energy")."Application at 8.
The Block 2 Energy under the proposed Schedule 34 would be 0.058694per kW hour
effective through May 31,2024,if approved.
The Company proposed an initial power factor adjustment for capacity up to 20,000 kW
at a 90%power factor;the Company also proposed a 95%power factor for usage above 20,000
kW.The Company proposed this initial power factor run through April 2024.
The Parties negotiated a provision whereby the Company would be able to reevaluate
compensation of Block 2 Energy after the proposed Lamb Weston special contract ("Special
Contract")has been in place for five years.
STAFF REVIEW
Staff supports approving the Special Contract and Schedule 34.Staff believes the Special
Contract and Schedule 34 are reasonable because they include provisions to protect the Company
STAFF COMMENTS 2 AUGUST 15,2023
and other customers from liability and because the proposed charges are based on the cost caused
by Lamb Weston.This conclusion is based on our review of the Application,the Special
Contract,Production Request responses,and identification of potential issues with the Special
Contract and Schedule 34.
Special Contract Provisions
Staff reviewed the Company's Application,the Special Contract,the proposed Schedule
34 tariff,and the errata submitted to correct the billingdemand calculation error.The Special
Contract contains terms and provisions that are consistent with other special contracts between
the Company and other parties.Under the proposed Schedule 34,Block 2 Energy is priced at a
marginal cost-based rate which includes attributes similar to other special contracts such as
Hoku's Materials ("Hoku")in Schedule 32 and Schedule 20.
The Special Contract outlines Lamb Weston's gradual contract demand ramp projection
beginning July 2023 of 23 MW to March 2024,when it expects to reach a steady state of
production.Lamb Weston has an initial annual contract demand of 34,000 kW starting in March
2024,which is consistent with the Company's request for the Agreement to be effective on
March 1,2024.Application,Attachment 1 at 5.Staff reviewed the Company's request and
believes it is reasonable due to the demand not reaching a steady state until March 2024.
If Lamb Weston intends to increase its total contract demand,it must notify the Company
six months in advance of the first day of the month when the increased contract demand becomes
effective.If Lamb Weston intends to decrease its total contract demand,it must notify the
Company three months in advance of the first day of the month when the decreased contract
demand becomes effective.Staff believes these provisions ensure the Company can reliably plan
and serve Lamb Weston.
Additionally,the Parties entered into a Construction Agreement dated September 30,
2022.This Construction Agreement ensures that the Company will perform the necessary
upgrades needed to serve Lamb Weston's expected increase in load and that Lamb Weston will
reimburse the Company for the work associated with such upgrades.The Special Contract also
details how the Construction Agreement will be performed in addition with Rule H work.Staff
'Rule H is a tariff that specifies the Company's requirements for substation upgrades.
STAFF COMMENTS 3 AUGUST 15,2023
believes the Special Contract along with the Construction Agreement accurately describes the
necessary deliverables for the Parties.
Pricing Structure and Charges
Staff reviewed the Company's proposed pricing structure and recommends approving the
structure as proposed in the Application.Staff believes the proposed structure and methods for
determining the charges are reasonable because it is based on embedded costs and cost-of-
service ("COS")and incorporates attributes from approved special contracts.Staff's review
focused on:(1)the overall pricing structure;(2)the Block 2 energy charge;(3)the Block 2
energy update and evaluation;(4)the Block 2 demand charges;and (5)the Power Factor
Adjustment
Overall Pricing Structure
Staff supports the proposed two-block pricing structure and the Block 2 marginal energy
charge because it ensures Lamb Weston pays the full price of the next increment of energy
needed to serve them instead of onlypaying the embedded average cost of energy.This is
important due to the Company's current system constraints and to avoid upward pressure on the
embedded average cost of energy for all other ratepayers.
The Company's proposed pricing structure is based on a two-block pricing structure.The
first 20 MW of power requirement falls into the Company's Block 1 and is priced at current
Schedule 19 energy and demand charges.Schedule 19 rates are based on embedded average cost
determined in the last rate case.Load greater than 20 MW is considered Block 2 and the Block 2
energy charge is based on marginal energy cost determined by modeling the expected
incremental load from Lamb Weston.The Block 2 demand charges are based on a COS method
using embedded capacity costs to determine the demand charges.
The proposed two-block pricing structure in this case is similar to pricing structures
included in the Hoku and Brisbie special contracts,which were both approved by the
Commission and based on two blocks using embedded and marginal cost rates.2
Block 2 Energy Charge
2 See Case Nos.IPC-E-08-21 and IPC-E-21-42.
STAFF COMMENTS 4 AUGUST 15,2023
Staff reviewed the method for determining the Block 2 energy charge and believes it is
reasonable to use for setting the Block 2 energy charge.The proposed method for determining
the Block 2 energy charge is consistent with most of Staff's criteria provided to the Company as
part of the Company's requirement from Order No.35428 to evaluate and compare methods for
determining a marginal cost of energy for Schedule 20.One of Staff's criteria was that marginal
cost rates should have enough granularityto reflect the time difference value of Marginal Cost
within the Company's system in order to provide accurate price signals.However,the Company
in this case is proposing a single Block 2 energy charge that is not time differentiated.
Through response to Staff Production Request No.2,the Company stated they did
contemplate time-differentiated Block 2 energy charges but did not include them in Block 2 due
to the prospective nature of Lamb Weston's load forecast and the inclusion of time differentiated
rates in the Block 1 charges.The Company also stated that in the future,if the Special Contract
is modified,they will evaluateif time differentiated charges should be included.
Staff believes it is reasonable to use the Company's non-time differentiated Block 2
energy charge because:(1)the largest portion of Lamb Weston's load is time-differentiated in
Block 1;(2)the Company will evaluate if time differentiated rates should be included when the
contract is modified;and (3)a comparison of Lamb Weston's expected load shows similar total
Block 2 energy charges when using the proposed single energy charge and seasonally time-
differentiated charges.Staff compared using the proposed single Block 2 energy charge to
seasonal time differentiated charges for Block 2.The comparison used Lamb Weston's load
forecast for 2023 and 2025 to determine the total charges for both energy charge methods.Both
methods resulted in similar total charges for 2023 and 2025.
Block 2 Energy Update and Evaluation
The Company proposed to submit an annual update to the marginal energy price for the
Block 2 energy charge that would become effective June 1.Application at 10.In addition,the
Company includes a provision in the Special Contract to allow Lamb Weston to request the
Company to reevaluatethe source of the Block 2 energy charge after 5 years.Application,
Attachment 1 at 7.Staff believes the proposed annual update,and the provision to reevaluatethe
Block 2 energy charge,are reasonable.
STAFF COMMENTS 5 AUGUST 15,2023
Staff supports the proposed annual update due to the marginal energy price being based
on a forecasted model result.Since the marginal energy price is a forecasted result that is not
trued up to actuals,Staff believes frequent updates are necessary to ensure the marginal energy
price reflects current conditions.The proposed annual updates should be sufficient to have the
Block 2 energy charge reflect current conditions on the Company's system.
The provision to reevaluate the source of the Block 2 energy charge after 5 years is
reasonable because it establishes a period when the Company can consider moving Lamb
Weston to charges based on embedded cost like other customer classes.The Commission has
approved the Hoku special contract includinga provision to transition from marginal cost to
embedded cost.3 Staff believes that,with the current capacity constraints in the Company's
system,a 5-year period before the basis of the Block 2 energy charge can be reevaluatedis
reasonable.
Block 2 Demand Charges
Staff reviewed the Company's proposed method for determining Block 2 demand charges
and recommends approving the charges as proposed in the Original Sheet No.34-4 included in
the Errata to Application provided as Revised Attachment 2.Staff believes the proposed demand
charges are reasonable because the methods used to determine the charges are similar to other
special contracts and are based on COS.
The method for determining Block 2 demand charges starts with the most recent COS
study from Case No.IPC-E-11-08 and allocates Lamb Weston's forecasted loads to determine
the appropriatecharges.These charges are adjusted to account for all of the Commission
approvedrevenue requirement increases and decreases that have happened since the 2011 Rate
Case.Application at 9.Staff supports the demand charges proposed by the Company because
they are consistent with past approved special contracts and appropriately recovers Lamb
Weston's capacity-related demand cost.
Staff requested the electronic workpapers used to determine the demand charges through
Staff's Production Request Nos.1 and 2.In preparing the Company's response to Staff
Production Requests,the Company found an error in the calculation of the Monthly Contract
Demand Charge and provided Staff with corrected workpapers.Staff reviewed the corrected
'See Case No.IPC-E-08-21.
STAFF COMMENTS 6 AUGUST 15,2023
workpapers and believes the updated Block 2 MonthlyContract Demand provided by the
Company in the Original Sheet No.34-4 included with the Errata to Application is the
appropriate demand charge to be used for Lamb Weston.
Power Factor Adjustment
Staff reviewed the Initial Power Factor Adjustment included in the Special Contract and
Schedule 34 and believes the adjustment is reasonable because it includes a limited period and
because it allows Lamb Weston time to make adjustments to meet the 95 percent power factor
required by other special contract customers.
The Initial Power Factor Adjustment allows Lamb Weston Block 1 load to meet a 90
percent power factor requirement until the end of April 2024,which is consistent with Schedule
19 customers.All Block 2 load must meet the 95 percent power factor requirement that is
usuallyrequired for special contract customers.If Lamb Weston's actual Block 1 or 2 power
factors fall below the requirements,their Billing Demand is increased to reflect the lower actual
power factor.After April 2024,all Lamb Weston load will be required to meet the 95 percent
power factor requirement and any power factor adjustment will be based on the 95 percent power
factor requirement.
Accounting Treatment
Staff recommends that the Special Contract be approved along with the proposed PCA
accounting treatment,as it prudentlyallocates costs for serving Lamb Weston's increased
demand and is consistent with other special contracts with similar structures.This
recommendation is based on Staff's review of the Application,the Errata to the Application,the
Special Contract,and the construction agreement.
The proposed PCA accounting treatment is consistent with other Commission approved
special contracts with two block pricing such as the Brisbie special contract,Schedule 33.Block
1 sales are to be included in the PCA each year,which will protect customers and the Company
from liability due to fluctuations in power costs.Block 2 energy sales,which reflects the
marginal cost of energy,will be included in the PCA as surplus sales--offsettingNet Power
Supply Expense.Therefore,Block 2 energy sales will be excluded from the Sales Based
Adjustment Rate.The PCA will serve as a mechanism of cost recovery for the Company or
STAFF COMMENTS 7 AUGUST 15,2023
revenue sharing for the customer.If power costs for the Company are more than revenues,then
the Company will be able to recover the excess through the PCA.Conversely,if power costs for
the Company are less than revenues,then the Company will share the excess through the PCA.
STAFF RECOMMENDATIONS
Staff recommends that the Commission:
1.Approve the Special Contract provided as Attachment 1 of the Application;
2.Approve the proposed annual update to the marginal energy price effective June 1;
3.Approve the proposed Schedule 34 tariff provided as Attachment 2 of the
Application with the modification to replace Original Sheet No.34-4 included
with Attachment 2 with the Original Sheet No.34-4 included in the Errata to
Application provided as Revised Attachment 2;and
4.Approve the proposed PCA accounting treatment.
Respectfullysubmitted this 15th day of August 2023.
Michael Duval
Deputy AttorneyGeneral
Technical Staff:Michael Eldred
Kimberly Loskot
James Chandler
Travis Culbertson
i:umisc/comments/ipce23.18mdmekljetnc comments
STAFF COMMENTS 8 AUGUST 15,2023
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 15th DAY OF AUGUST 2023,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF TO
IDAHO POWER COMPANY,IN CASE NO.IPC-E-23-18,BY E-MAILING A COPY
THEREOF,TO THE FOLLOWING:
MEGAN GOICOECHEA ALLEN CONNIE ASCHENBRENNER
LISA D NORDSTROM PAWEL GORALSKI
IDAHO POWER COMPANY IDAHO POWER COMPANY
PO BOX 70 PO BOX 70
BOISE ID 83707-0070 BOISE ID 83707-0070
E-MAIL:E-MAIL:[e-mail]
[e-mail] peoralski idahopower.com
[e-mail]
[e-mail]
SECRETARY
CERTIFICATE OF SERVICE