IPCE991.BPR.doc

BRAD PURDY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]

Street Address for Express Mail:
472 W WASHINGTON
BOISE ID 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE TARIFF ADVICE FILING OF IDAHO POWER COMPANY FOR
APPROVAL OF REVISED TARIFFS
PERTAINING TO THE COMPANYS SCHEDULE 86 - COGENERATION AND SMALL POWER PRODUCTION NON-FIRM ENERGY.
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CASE NO. IPC-E-99-1

COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its attorney of record, Brad Purdy, Deputy Attorney General, and in response to the Notice of Application and Notice of Modified Procedure, Order No. 27964 issued on March 11, 1999, submits the following comments.
On February 19, 1999, the Commission received a Tariff Advice filing No. 99-02 from Idaho Power Company (Idaho Power; Company) in which Idaho Power proposes to amend its existing Schedule 86 which contains the rates and conditions for the purchase of non-firm
energy by Idaho Power from cogeneration and small power producers. The Companys filing was in response to Order No. 27885 issued by the Commission on January 22, 1999 in

Case No. IPC-E-98-15; a case involving the approval of a purchase and sales agreement for surplus energy between Idaho Power and the Amalgamated Sugar Company (TASCO). In that Order, the Commission approved Idaho Powers proposed special contract with TASCO (formerly a Schedule 86 customer), but conditioned its approval on the understanding that Idaho Power would file an application for approval to revise the Companys Schedule 86 so that all parties supplying non-firm energy under that schedule are treated in a manner similar to that provided by the TASCO agreement.
Although Idaho Power filed this Application as a tariff advice, the Commission chose to assign a case number and process the case under modified procedure in order to provide affected parties the opportunity to comment.
The following two contracts currently use Schedule 86 for all of their monthly payments:

1. Fisheries Development Co. -- a 261 kW hydro project with total generation in 1998 of 428,175 kWh

2. Sunshine Power # 2 -- a 110 kW hydro project with total 1998 generation of 214,770 kWh

The majority of all of the cogeneration projects have surplus energy clauses that make use of the Schedule 86 rates if the generation is ever classified as surplus. Generation would be classified as surplus if it exceeds the amount of firm energy generation specified in the contract. Very seldom do any of the projects make use of the surplus energy clauses, except in the case of the following two projects which frequently make use of the clauses:

1. Simplot Pocatello -- a 12 MW cogeneration project with total 1998 generation of 88,735,170 kWh

2. Vaagen Brothers Lumber -- a 4.5 MW cogeneration project with a total 1998 generation of 20,118,000 kWh

Representatives for each of the four projects listed above were sent notices of filing in this case.
The proposed amendment would change the manner in which Schedule 86 rates are determined. Under the current method, the rate paid is equal to the average per kWh cost of energy used to serve the Companys marginal 200 MW of firm load in each month. Under the proposed method, the purchase price for energy would be set on a per kilowatt hour basis and would be equal to the daily on-peak and off-peak Dow Jones mid-Columbia index prices less four mills.

STAFF ANALYSIS
Staff believes that the proposed method for determining Schedule 86 rates is reasonable. Market-based rates, especially for non-firm energy, are an accurate way of valuing the surplus energy which would be purchased by Idaho Power. The four mill reduction from market prices is also reasonable, since it closely represents the cost Idaho Power would incur if it was necessary to sell generation off-system should it not be needed to serve Idaho Powers loads.
Using historical information provided by Idaho Power, Staff has made a historical comparison of the rates that would have been paid under the current Schedule 86 rates versus the rates that would be paid under the proposed methodology. A graphical and tabular comparison is attached. The comparison shows that there is not necessarily good correlation between Schedule 86 rates and Mid-Columbia prices. At times the prices are relatively close, but at other times there is a marked difference. Over the 21-month period examined, on average, Schedule 86 rates were approximately 20 percent less than mid-Columbia prices less four mills.
Staff believes it is likely that market-based non-firm energy prices will, on average, usually exceed Schedule 86 rates, although there can be no certainty since neither set of rates can be known in the future. Nevertheless, Staff believes market-based rates reflect a fair and accurate value for non-firm energy. Furthermore, using market-based rates is simpler, and the rates are more easily determined than current Schedule 86 rates since mid-Columbia prices are now published daily.

For those customers now being paid according to Schedule 86 rates, there would likely be some advantage to being paid market-based rates. The relatively small difference in rates however, combined with the few customers on Schedule 86, would have a relatively minor impact on Idaho Power and its ratepayers.
When the TASCO agreement was being considered by the Commission, Idaho Power filed comments in response to Staffs filed comments and stated that basing non-firm energy purchase prices on a regional market index is the correct approach to take. The Company concluded that the current methodology for developing avoided costs for pricing non-firm energy under Schedule 86 has been effectively superseded by the ready availability of market prices for non-firm energy in the Pacific Northwest.

DATED at Boise, Idaho, this day of March 1999.

_______________________________
Brad Purdy
Deputy Attorney General

Technical Staff: Rick Sterling

RPS:BP:gdk:i:wpfiles/umisc/comments/ipce991.bpr

STAFF COMMENTS 1 MARCH 18, 1999