19930127Order No. 24676.pdf

BEFOBE IEE IDAHO PIIBLIC IIIILITIES
gfflce of the Secretr y'\ Service Date'-
JAN 27 't993
COM}IISSION
INIUE MATTER OF IHEAPPIJCATION
OF IDAHO POWER COMPAIYYF1OB
ATIIHOBTNT 11O SEIT TTSI IIAII,ET
TI]RBINE EI,ESIBIC GENERATOB
cAsE NO. rFC-F-92-9
oRDER NO- 24676
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On March 9, 1992, the Idaho Power Company (Idaho Power; Company)
filed an Application with this Commission for authority to sell its turbine electric
generator (Hailey Turbine) located approximately two miles north of Hailey,
Idaho at the Company's Wood River Substation.
APPIJCAITON
According to the Application, the Hailey Tb.rbine is a General Electric
Frame 7, model MS 7001 B (C), dual fuel turbine electric generator with a rating
of 49,580 kW. The equipment proposed for sale includes the fuel handling
equipment, two auxiliary transformers, the carbon dioxide fire control unit, the
waste sump, the 4.16 kV auto transfer unit for starting, all special tools, spare
parts and manuals as well as the turbine generator unit itself.
The Company notes that on Febrrrary 6, 1974, in Case No. U-1006-89,
by Order No. 11315, Idaho Power was granted Certificate of Public Convenience
and Necessity No. 272 for the construction and installation of the Hailey
Turbine. The original purpose for the turbine was to provide increased reliability
to the Hailey-Ketchum-Sun Valley area. The Application states that Idaho
Power has completed construction of a second 138 KV transmission line into the
Wood River Valley, rendering the Hailey T\rrbine redundant.
Idaho Power contends that problems involving the availability of fuel
and the local environmental impact that the Hailey turbine has had at its
present site have forced the Company to omit the turbine as a resource for
planning purposes from Idaho Power's curent studies for new resource planning
or avoided cost deterrnination. Because of this, the Company contends, the sale
of the Hailey Turbine will not affect Idaho Power's "Appendix A" loads
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and resources assessment established by the Idaho Public Utilities Commission
in Case No. IPC-E-89-11, Order No. 23357, setting avoided cost rates for power
purchases from PURPA qualifying facilities.
Idaho Power asserts that it would have no need for the Hailey Turbine
until the year 2002 at which time it would be nearly 30 years old. By that time,
the Company contends, the turbine will be outdated and would require additional
improvements in order to be useful. Furthermore, Idaho Power states that an
economical supply of natural gas for delivery at the present location is not
available. In order to obtain lower natural gas prices, Idaho Power contends, the
Company would have to guarantee the rninimum operation of the turbine at a
20Vo aarnraal plant factor. This would force the operation of the turbine when less
costly alternatives are available such as Idaho Power's share of the Bridger,
Boardman and Valmy generation units.
The Company states that it is also hesitant to utilize the turbine
because of complaints received from local residents regarding excessive noise and
vibration when the turbirre was utilized in the past. In addition, if the machine
were to operate 20Vo of the year or more, the Company states that it would have
to add equipment to reduce the amount of air pollutants exhausted into the Wood
River Valley atmosphere.
Finally, the Company states that, if left, in place, the Hailey Turbine
would require ongoing maintenance in order to keep it in operating condition.
Idaho Power estimates that a capital expenditure of $10 million would
be needed to relocate the turbine to a site near the main gas pipeline, to
refurbish the unit as required for increased operation, to install air pollution
control equipment required at a new site and to provide all the electrical
equipment to connect to Idaho Power's transrnission system.
A Notice of Application was issued by the Commission on April 2, L992
establishing a comment period. The only party to file cornments was the
Commission Staff.
On December 30, L992, the Conrrpany filed a Verified Notification of
Sale with the Comrnission indicating that the Company had secured a buyer;
Longview Fibre Company (Longrriew Fibre). Attached to the notification is a
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copy of the Purchase and Sale Agreement executed by Idaho Power and Longview
Fibre. Under the Agreement, Longview Fibre agrees to pay Idaho Power
$8 million for the turbine. The net book value of the turbine as of December 31,
1992 was $1,473,000. In addition, Longview Fibre is responsible for the costs of
relocating the turbine to its pulp and paper mill in Longview,'Washington. Idaho
Power will incur as of yet unknown costs in restoring the former site of the
turbine.
Idaho Power proposes to file for an accounting Order with the
Comrnission no later than September 30, 1993 to determine the appropriate
ratemaking and accounting treatment to be given the sale.
COMTIISSION STAF:F
The Cornrnission Staff supports Idaho Power's Application. Staff agrees
with the Company that, because of the recently constnrcted transmission line
senring the Wood River Valley, the Hailey T\rrbine has been rendered
superfluous.
Staff analyzed the potential use of the Hailey T\r.rbine as a peaking
resource. For purposes of its analysis, Staff accepted Idaho Power's relocation,
refurbishment and interconnect cost estimate of $10 million as reasonable.
Based upon a rated capacity of 50,000 kilowatts, this computes to an
approximate $200 per kilowatt cost for the Hailey T\r.rbine. To this estimate,
Staff added the Company's estimated lost sale opportunity cost of $131 per
kilowatt. This is calculated as follows: $8,000,000 sale price - $1,473,000 net
book value at L2l3Ll92 = $6,527,000 + 50,000 kilowatt rated capacity = $131 per
kilowatt.
Combining the $202 per kilowatt cost of refurbishing the Hailey
T\rbine with the $131 per kilowatt lost sale opportunity cost yields a unit
capacity cost of keeping the turbine of $333 per kilowatt. Assuming a 1993
delivered gas cost of $2.10 per MMbtu escalating at 4.5Vo per year, Staff found
that the unit cost of this resource is well above the Company's applicable avoided
cost rate even assuming a 70Vo capacity factor. In reality, the most optimistic
capacity factor that could be reasonably expected for this unit is 35Vo, witlo. 25Vo
being much more probable. Because lower capacity factors mean higher fixed
cost allocations, Staff concurs with Idaho Power that the Hailey Turbine is not
economical at this time.
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Staff also agrees with the Company that future combustion turbine
technologies will be much more efficient that current technologies, the latter of
which themselves are substantially more efficient than the technologies
incorporated into the Hailey Turbine.
In light of the foregoing, Staff agrees that, for ratepayers, the highest and
best use of the Hailey Turbine is to sell it as proposed by Idaho Power.
Staff agrees that all accounting issues pertinent to the proposed sale,
including how the proceeds of the sale will be booked, can be deferred until a
supplemental filing is made by the Company no later than September 30, 1993,
or until the filing of the Company's next general rate case, whichever occurs first.
EINDINCI'S
Economic anabrsis
We find that, not only is the Hailey T\r.rbine now redundant, it is also no
longer econornically viable in its present configuration. According to Staffs
analysis, which we accept, the cost of operating the turbine as a peaking resource
would far exceed the Company's avoided cost. Thus, for all practical purposes, it
is unlikely that the turbine will ever be operated by Idaho Power. The
Company's desire to dispose of one of its most expensive energy producing
resources is certainly consistent with its efforts to acquire new resources at the
least possible cost; a policy we fully support. F\rrthermore, we note that the
carrying charges the Company incrrrs in owning the Hailey T\rrbine far outweigh
any possible benefit that could ever be derived from its use, considering the time
value of money.
I^qaI anattsis
Pursuant tn ldaho Code $ 61-328, an electric public utility must obtain
approval from the Cornrnission before it sells or transfers ownership in any
generation, transmission or distribution plant. Section 61-328 provides:
61-928. Elecfuic utilities-,Sale of property to be aplrovod by
commission--No electric public utility or electric corporationas defined in chapter 1, title 61, Idaho Code, owning,
controlling or operating any property located in this state
which is used in the generation, transrnission, distribution or
supply of electric power and energy to the public or any
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turhine?
portion thereof, shall sell, assign or transfer, directly or
indirectly, in any malner whatsoever, any such property orinterest therein, or the operation, management or control
thereof, or any certificate of convenience and necessity or
franchise covering the same, except when authorized to do soby order of the public utilities cornmission of the state ofIdaho. Such authorization and order shall be issued onlyfollowing public notice and hearing, upon verified application
of the parties setting forth such facts as the commission shall
prescribe or require, and if the commission shall find that thepublic interest will not be adversely affected, that the cost of
and rates for supplying service will not be increased by reasonof such transaction, and that the applicant for such
acquisition or transfer has the bona fide intent and financialability to operate and maintain said property in the public
service; provided, that no such order or authorization shall be
issued or granted to any applicant or party corning within theprohibitions set forth in this act. The cornrnission shall have
power to issue said authorization and order as prayed for, or
to refuse to issue the same, or to issue such authorization and
order with respect only to a part of the property involved, andmay attach to its authorization and order such terms and
conditions as in its judgment the public convenience and
necessity may require.
WiIl the ptrblic intemest be advErsely afrected by the sale of t.he Hailey
As we have previously held, the Hailey Ttrrbine is no longer of use to
Idaho Power or its ratepayers. The longer Idaho Power retains ownership of the
turbine in its present configuration, the more obsolete and, therefore, the less
valuable it becomes. We find, therefore, that not only will the public interest not
be adversely affected by the sale of the turbine, the Company's ratepayers will
actually realize a financial gain by the sale of an asset that is non-functional and
almost fully depreciated.
WiIl t,he cost of and rates for supplying s€rrice be increased by the sale
of the Ilailey trrrbine?
As held above, Idaho Power's ratepayers will actually realize a financial
benefit from the sale of the Hailey T\rbine. Therefore, we find that rates will not
be increased as a result ofthe proposed sale.
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Does the purchaser of the Hailey T\rrbine have the bona fide inte,ut and
financial abiliErto operate and maintain the plantin the $rblic se,rvice?
Resolution of this issue depends upon an interpretation of the phrases
"bona fide intent," "financial ability" and "in the public service." We believe that
it was not the intent of the Idaho Legislature, in drafting $ 61-328, that an
electric utility operating in Idaho never be allowed to sell electric generating
plant to a purchaser who will ultimately use that plant outside of the State,
particularly when it is in the interests of the ratepayers and the people of Idaho
to make such a sale.
The Hailey T\r.rbine, for all practical purposes, has been rendered
econornically obsolete to Idaho Power and its ratepayers. The sale of the turbine
should have absolutely no effect on the quality of senrice customers currently
receive. Therefore, we find that the statute does not require that the plant
continue to be operated in Idaho Power's service territory or within the State of
Idaho.
Does t,he purchase, of the Hailey Tuhine fall within the prohibitiops of
this act (chaut€r 3 ofthe 1951 scssion laws)?
Idaho Code $ 61-327 provides that no governmental or municipal
corporation may acquire title to or an interest in the generation, transrnission or
distribution plant of an electric public utility in the State of Idaho. It is our
belief that Longview Fibre Company is neither a governmental nor a municipal
corporation. We find, therefore, that Longview Fibre does not fall within the
prohibitions of the statute.
Conclusion
We find that the sale of the Hailey Turbine, as proposed by Idaho
Power, is in the best interests of the Company's ratepayers. We further find that
the Company's proposal to defer our ruling as to how the sale should be treated
for ratemaking and accounting purposes is acceptable. The Company is directed
to make a filing in this regard no later than September 30, 1993.
As an additional matter, Idaho Power's Certifrcate of Public
Convenience and Necessity No. 272, for the Hailey Turbine, is hereby cancelled.
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ORDEB
IT IS HEBEBY ORDERED that Idaho Power's Application for
approval of the sale of the Hailey T\r.rbine is granted consistent with the terms
and conditions of this Order.
IT IS F.URTHER ORDERED that the Company shall file for a
determination of the accounting and ratemaking treatment to be given the sale of
the Hailey T\rrbine no later than September 30, 1993.
IT IS F URTHER ORDERED that Idaho Power's Certificate of Public
Convenience and Necessity No.272 is hereby cancelled.
THIS IS A FINAL ORDER. Any person interested in this Order (or
in issues finally decided by this Order) or in interlocutory Orders previously
issued in this Case No. IPC-E-92-9 may petition for reconsideration within
twenty-one (2L) days of the service date of this Order with regard to any matter
deeided in this Order or in interlocutory Orders previously issued in this Case
No. IPC-E-92-9. Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See
Idaho Code $ 61-626.
DONE by Order of the Idaho Public Utilities Cornrnission at Boise,
Idaho, this J 7)U- day of January 1993.
BPjr/O-1987
oRDER NO. 24676
MILLER, COMMISSIONER
ATTEST:
/Aa'ry'
MYANA J. WALTERS
COMMISSION SECRETARY
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