20100709Decision Memo.pdf

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TO:
FROM:
DATE:
RE:
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DECISION MEMORANDUM
COMMSSIONER KEMPTON
COMMISSIONER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
LEGAL
WORKNG FILE
RICK STERLING
SCOTT WOODBURY, DEPUTY ATTORNEY GENERA
JULY 7, 2010
EXTENSION OF A FIRM ENERGY SALES AGREEMENT BETWEEN
IDAHO POWER AND HAZELTON A, CASE NO. IPC-E-89-2
Term Extension Letter Agreement
On June 21, 2010, the Commission received a letter from Idaho Power informing the
Commission that the Company by Letter Agreement dated June 11, 2010, had agreed to extend the
termination date of the Hazelton A Firm Energy Sales Agreement from June 20, 2010 to December
31, 2010, in order to provide the paries time to negotiate a new Power Purchase Agreement. See
attached. Hazelton A is a 9.9 MW hydroelectric project located in Jerome County, Idaho. The
original Agreement was approved by the Commission on Febru 9, 1989, in Order No. 22326. The'
Agreement has a term of20 years from the Operation Date of June 20, 1989. There are no provisions
in the Agreement for extension.
In early June 2010, Idaho Power states that it notified the Hazelton A project of the
pending contract expiration. At that time the project expressed the desire to continue to sell energy to
Idaho Power under terms and conditions of the existing Agreement until December 31, 2010, with the
intention of executing a new agreement with Idaho Power for energy sales prior to December 31,
2010.
Idaho Power states that the project is curent on all requirements within the Agreement
and that the energy prices within the existing Agreement are more favorable than a new PUR A
agreement. The Company believes that it is reasonable to extend the term of the Agreement under its
DECISION MEMORANDUM - 1 -
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existing terms and conditions. The energy prices in the existing Agreement are levelized and are as
follows:
Season 1
Season 2
Season 3
Staff Analysis
Commission Staff has two primar concerns with the parties' Letter Agreement to extend
the termination date. First, the contract paries did not appear to even begin discussions about the
expiring Agreement until early June. The original termination date was June 20, 2010. The Letter
Agreement to extend the original contrt was not signed until June 11, and the Commission did not
receive notification of the Letter Agreement until June 21, the day following the original contract
termination date. Both paries, Staff believes, share responsibilty for managing the Agreement and
clearly should have acted sooner to execute a new contract. The Commission should not be asked to
approve contract extensions afr original agreements have already expired. As more PURP A
agreements expire in the coming year, paries need to be more diligent in dealing with succedent
contracts before the original agreements reach their termination dates.
There ar several options for how ths expired contract could be handled. Extending the
contract for an additional six months is one option, and is the preference of the paries. A second
option is to simply allow the Agreement to expire, and for Idaho Power not to purchase any more
energy from Hazlton A until a new contract is in place. This option is not likely attactive to either
par since it would deny Idaho Power energy at a reasonable price and would cause Hazelton A to
lose all revenue from a project that is otherwse capable of operating.
A third option is to allow the original Agreement to expire, but to require additional
energy purchases to be made by Idao Power under its Schedule 86 non-firm taff until a new
purchase contract is in place. Under Schedule 86, Idao Power purchases energy from PURP A
generators on a month-to-month basis at rates equal to 85 percent of Mid-C non-firm prices.
Obviously, Mid-C prices var on a daily and monthy basis and canot be known with certainty in
advance. Neverteless, forward market prices are available from brokers and are a reasonable
approximation of what spot market prices are likely to be in the coming months.
Staff has made a comparison between the existing rates in the Agreement to the most
recent three month average of 85 percent of Mid-C market prices for deliveries of power in July -
3.489 cents per kWh
5.603 cents per kWh
4.669 cents per kWh
DECISION MEMORANDUM - 2-
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December 2010. The comparson shows that the existing contrct rates exceed the Mid-C prices in
every month. On average, over the next six months, energy payments under the existing contract
rates would exceed estimated Schedule 86 rates by approximately 16.5 percent. Idaho Power (and its
ratepayers) would thus appear to be financially better off to allow the existing Agreement to expire
and to contiue any additional energy purchases from Hazelton A at Schedule 86 rates until a new
contract is negotiated. This option, however, might incent Hazelton A to quickly negotiate a new
contract prior to year-end under current published rates.
A four option is to negotiate a new contract immediately to replace the expired one.
Under a new 20-year levelized contract, the energy prices under present published rates would be as
follows:
Season 1 5.820 cents per kWh
Season 2 9.502 cents per kWh
Season 3 7.919 cents per kWh
Clearly, these rates are much higher than the rates in the expired contract.
Although Staff does not condone extension of expiring agreements as common practice,
the fact remains that Idaho Power and ratepayers will be better off financially by extending the
expiring Agreement to December 31, 2010, and locking in rates for that period of time th if a new
replacement contract were signed immediately.
Staff Recommendation
Staf recommends that Idao Power be permitted to extend the existing Agreement (terms,
conditions and rates) until December 31, 2010. Continuing the Agreement wil tae Hazelton A
through the generation (irrigation) season and permit the reasoned consideration of new contract
terms and conditions.
COMMISSION DECISION
Does the Commission wish to approve Idaho Power's request to extend the term of its
existing Agreement with Hazelton A until December 31, 201 O?~~~
Scott Woodbur
Deputy Attorney General
M: IPC-E-89-02 _rs _ sw
DECISION MEMORANDUM - 3 -
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An IDAORP comp
June 17, 2010
RECEIVED
20-10 JUN 21 AM 8:- l 3
UTl~l~~E~O !Ou~~\ŠS10N
Randy C. Alphin
Senor Energy Contrct Coordinator
Tel: [phone]
rallpbincgdahOJowe.com
Jean Jewell
Commssion Secetar
Idao Public Utilities Commssion
POBox 83720
Boise, ID 83720-0074
RE: Haelton A, Project Numbe 31715128
Dear Ms. Jewell:
Attaced is a copy of a signed letter exteding the termation date of the Haelton A Fin
Energy Sales Agrent dated Januar 18, 1989 (Agrent) to December 31,2010. A coy has
also been provided to Rick Sterling and Scott Woodbur. Please fie ths copy with the origina v1
Agrement.
Tls Agreemen was approved in Commssion Order 22326 on Febrar 9, 1989. The
Agreet has a Term of 20 yea from the Opertion Date of June 20, 1990. The cut energy
prices witlun the Agreement ar:
Season 1
Season 2
Season 3
3.489 cents per kWh
5.603 cents per kWh
4.669 cents per kWh
The attached letter agreement provides tht the curent Agreeent be extended, inluding these
energy prices until December 31, 2010.
In early June 2010, Ida Power notified the project of the pending contrct ternation. At
that time the project expressed the desir to continue to sell energ to Idaho Power uner the exing
agreement until Decemer 31, 2010, with the intention of execting a new agremet with
Idao Power for energy sales prior to Deember 31, 2010.
Page 1 of2
POBox 70 Boise, Idaho 83707 1221 W Idao St Boise, Idao 83702
J eaI Jewell e e.'
Page 2 June 17,2010
The project is curent on all rerements witl the Agreement and the energy prices withn
the existing agreement ar more favorable then a new PUR A agreement. Idaho Power agreed it was
reasonable to extend the ter of the Agreement. In th letter agreement Idaho Power advises the
project tht a copy of this leter wil be filed with the Commssion and if the Commssion requi
additional inormtion or processes, the project wil be notified of these requirements.
Please contact me if you have any questions or if you reuir any addtiona informtion.
Sincerely,
!?f,~'
Randy C Allphi
Idao Power Company
RCAIcs
Attacluent
cc: Rick Sterling (IPUC) l;
Scott Woodbury (IPUC)
Donavan Walker (IPC)
Page2of2
POBox 70 Boise, Idaho 83707 1221 W Idao St. Boise, Idao 83702
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An IDACRP COmp
June 11, 2010 , .
. .... . ... .
SE Hazelton A, L.P.
C/O Enel Nor America Att Victor A Enel
One Tech Drive, Suite 220
Anover, MA 01810
Rady C. AUphin
Senior Energy Contct Coordinto
Tel: [phone]
ralphjnl1dahOlwe.co
Re: Hazelton A, Projec Number: 31715128
Finn Ener Sales Agent - Ter Exteion Letter Agrement
The Finn En Sales Agren (Agt) fo the above-referd project daed Janua i 8, i 988, is due
to exir on June 20, 2010. Ido Power an Ene! Nor Amerca have discussed and agr to extend th tem
of th exsting Agren to Decbe 31, 2010 with no ch to the extig ters an condtions.
If you concur with exend the contract ter as descnbed abov please sign th lettr in the designated space
below and retu to Idaho Power Company. Upon rept of th signed docut, I wil fùe a copy with theIdaho Public Utilties Commssion (IPDq, rern a copy to you for your reords an retai a copy for Idao
Power recor.
In filing the copy with the IPUC I wil include a cove letter advising them of our agreement to extend and as
tht if they require any additional informtion or processes to notify Idaho Power.
Siny,
fd (J au'
~y C. Alphin
Ida Power Compny
Aged, Undetood an Accepd
Signture
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ManagName/Title
Date vl-tro
P.O. 8C 70 (83101)
1221 W. Idaho St.
Boi.. ID 83702