20020307SW.doc

DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
LOUANN WESTERFIELD
BILL EASTLAKE
DAVE SCHUNKE
RICK STERLING
RANDY LOBB
TERRI CARLOCK
TONYA CLARK
DON HOWELL
LYNN ANDERSON
GENE FADNESS
WORKING FILE
FROM:
DATE:
MARCH 7, 2002 RE: CASE NO. PAC-E-01-17 (PacifiCorp)
NU-WEST INDUSTRIES—ELECTRIC SERVICE AGREEMENT

On December 26, 2001, PacifiCorp dba Utah Power & Light Company (PacifiCorp; Company) filed an Application with the Idaho Public Utilities Commission (Commission) requesting approval of an Electric Service Agreement (Agreement) with Nu-West Industries (Nu-West) dated December 10, 2001. The Agreement, along with a separate agreement, entered into under Electric Service Schedule No. 9, replaces an electric service agreement (Prior Agreement) dated June 9, 1998, approved by the Commission in Case No. PAC-E-00-03.
Nu-West is engaged in the production of phosphate fertilizer at facilities located in Soda Springs, Idaho.
The Prior Agreement governing electric service to Nu-West terminated on December 31, 2001. Rates under the Prior Agreement were 03.3¢ per kilowatt-hour for all kilowatt-hours if Nu-West used a specific minimum amount of energy. However, if Nu-West used less than the minimum amount on an annual basis, it paid 03.4339¢ per kilowatt hour for all kilowatt hours.
Rates for service to Nu-West under the Agreement submitted are based, the Company contends, on the cost of serving Nu-West. Accompanying the Company’s Application is a summary of the Cost-Of-Service Study results for service to Nu-West. Due to the size of its load (approximately 20,000 kW), the Company does not have an electric service schedule applicable to service to Nu-West, thus necessitating a special contract. The Agreement, the Company contends, is effectively a customer-specific tariff schedule. By its terms the Agreement is effective January 1, 2002, subject to approval by the Commission, and will terminate on December 31, 2004, unless renewed in accordance with the Agreement’s terms.
As reflected in Section 4 of the Agreement, the following monthly charges will apply to Nu-West:
May-October November-April Customer Charge $$ Per Month $282.89 $282.89 Demand Charge $$ Per kW-Month $ 11.00 $ 8.89 Energy Charge
Heavy Load Hours
(HLH) $$ Per MWh
Monday – Friday
HE0800–HE2300 MPT $ 22.71 $ 18.92 Light Load Hours
(LLH) All other hours and holidays $ 17.03 $ 17.03
*These contract rates will result in an effective contract rate of 3.384¢/kWh.

The demand and energy charges identified in the Agreement are to be uniformly adjusted annually effective January 1, 2003 and each January 1 thereafter in accordance with the formula set out in the Agreement. Agreement Section 4.2.
A separate agreement under electric service Schedule No. 9 has been entered into for service to Nu-West’s Mountain Fuel Substation, service to which was included in the Prior Agreement. The effective rate for that part of Nu-West’s service under Schedule 9 will be 4.232¢/kWh. The overall effective rate for all of Nu-West’s service (Agreement and Schedule 9) is 3.48¢/kWh.
Regarding jurisdiction of regulatory authorities, Section 8 of the Agreement includes the following language:
8.1

This Agreement is subject to approval of the Commission. In the event the Commission Order approving this Agreement either requires imputation of revenue to PacifiCorp, or provides for possible future imputation of revenues to PacifiCorp, PacifiCorp may terminate this Agreement by providing Nu-West notice within 30 days of entry of the Commission’s Order. In the event the Commission Order approving this Agreement does not provide for the direct assignment of the revenues and costs of this Agreement to the Idaho jurisdiction for ratemaking purposes, PacifiCorp may terminate this Agreement by providing Nu-West notice within 30 days of the entry of the Commission’s Order. In the event that the Commission Order approving this Agreement contains any condition that is materially adverse to either party, the party adversely impacted by the condition may terminate this Agreement by providing the other party notice within 30 days of the entry of the Commission’s Order.

8.3

The parties agree that the Commission has the authority to modify the rates for service under this Agreement under the same standard that applies to tariff customers generally. Accordingly, surcharges or credits that apply to service to tariff customers generally will also apply to service under this Agreement.

Commission Notices of Application and Modified Procedure in Case No. PACE0117 issued on January 17, 2002. The deadline for filing written comments was February 8, 2002. The Commission Staff was the only party to file comments. Reply comments were filed by PacifiCorp on February 27, 2002. The comments can be summarized as follows:
Staff Comments
The proposed agreement between PacifiCorp and Nu-West contains rates based upon a cost of service study provided by the Company in conjunction with its filing. The study submitted is based on an unaudited 1999 test year and incorporates critical assumptions such as situs/system treatment of large special contract customers, treatment of the irrigation interruptability credit and allocators used to assign revenue requirement among the customer classes.
Based on a general comparison of contract rates previously approved by the Commission for service to Nu-West and a comparison of cost of service studies used to generally develop both rates, Staff believes the proposed rates are reasonable and recommends approval by the Commission. Staff also recognizes that the proposed rates represent a reasonable 5.5% increase over rates that expired in December 2001 and that the rates proposed are acceptable to both parties.
Staff does not recommend approval at this time of the specific assumptions used by the Company in its cost of service study filed in this case. Staff maintains that cost of service issues will be fully addressed in other cases currently pending before the Commission and need not be decided in order to approve the proposed Nu-West rates.
Should the Commission ultimately establish cost of service that is different than that used by the Company to justify the rates, the Commission can modify contract rates under its continuing authority. Staff does not oppose a Commission finding that allocated costs and revenues subsequently established for service to Nu-West be assigned to Idaho for ratemaking purposes.
Staff believes that the Commission retains full jurisdiction over contract rates despite Agreement language to the contrary. Staff recommends that the Company be directed to clarify in the Agreement exactly what is intended by Section 4.2, explain why it is not contradictory to full Commission jurisdiction over contract rates (Section 8.3) or eliminate the section entirely.

COMPANY REPLY
As reflected in PacifiCorp comments, it is intended that Section 8.3 of the submitted Agreement control, so that if the Commission were to find that some particular rate is the just and reasonable rate to be charged Nu-West, notwithstanding what that rate would be under the other terms of the Agreement, such determination will be binding under the “tariff” standard. If however, there were not a specific determination of the rates for Nu-West (for instance, if a general rate increase were spread by stipulation), the Company contends that the rates for Nu-West would be established pursuant to Section 4.2.
Commission Decision
PacifiCorp requests approval of an Electric Service Agreement with Nu-West Industries dated December 10, 2001. Staff recommends that the contract rates be approved. Staff contends that the cost-of-service study submitted in this case and related assumptions need not be specifically approved to approve the Nu-West rates. Does the Commission wish to approve the PacifiCorp/Nu-West contract? With or without qualifications?

Scott Woodbury

Vld/M:PACE0117_sw2

DECISION MEMORANDUM 3