19970103order_no_26751.pdf

aI
Office of the Secretary
Service Date
January 3, 1997
t BEFORE THE IDAIIO PT'BLIC UTILITTES COMMISSION
IN TIIE MATTER OF TITE APPLICATION OF
THE WASHINGTON WATER POWER COM.
PAI\TY FOR AIY ORDER APPROVING
ACCOIINTING A}[D RATE MAKING TREAT.
MENT OF WOOD POWE& INC. TERMTNA-
TION COSTS.
cAsE NO. WWP-E-96-8
oRDER NO. 26751
On November 27,1996, The Washington Water Power Company (Water Power; Company)
filed an Application with the Commission for an order approving accounting and ratemaking treatment
pertaining to Water Power's costs relating to the termination of a power sales agreement between Wood
Power, Inc. (Wood Power) and the Company.
Wood Power operates a wood waste powered generation facility pursuant to the Public
Utiliry Regulatory Policies Act of 1978 (PURPA) at Plummer, Idaho. Water Power entered into a power
sales agreement with Wood Power on August 19. 1982 to purchase the energy and capacity from that
fac ilitl .
Rayonier operates a timber mill adjacent to the Wood Power facility. Wood Power provides
steam to Rayonier for manufacturing purposes in exchange for which Rayonier provides wood waste
fuel to Wood Power. On September 30. 1996. Water Power entered into an agreement with Wood '
Power and Rayonier terrninating the power sales agreement subject to an order by this Commission
approving the propoded accounting treatment and the issuance of a permit to Rayonier by the Idaho
Department of Environmental Quality to operate the Wood Power facility at Plummer.
ln exchange for Wood Power's termination of the power sales agreement, the Company shall
pa),a total of $9.5 million to Wood Power within seven working days following consummation of the
above noted contingencies. According to Water Power, the price paid by the Company for power from
the Plummer facility exceeds the current and expected market prices for electric power. The Company
argues, therefore, that the termination of the power sales agreement through the agreed upon single
payment would produce substantial benefits to the Company's electric customers over time. Water
Power contends that the net present value of the estimated savings from buying replacement power at
)
)
)
)
)
)
)
IoRDER NO. 26751
,i
I
expected market prices compared to those contained in the power sales agreement over its remaining
term exceeds $19 million. Thus, the Company asserts that the agreed upon single payment amount of
$9.5 million represents half of the calcularcd net present value of the above market portion of the power
purchases.
The totalcosts associated with the acquisition of energy from Wood Power are included in
the Company's purchase power expense and, therefore, are a component of Water Power's PCA
mechanism. The Company proposes that all elements of the power sales agreement be eliminated from
the PCA tracking mechanism and that the Company be allowed to defer and then amortize the single
payment of $9.5 million over an eight year period. This amortization period was determined by
calculating when the net present value of savings and costs offset each other on an accumulative basis.
In year nine, following the termination of the power sales agreement, annual net purchased savings
would begin flowing through to operations, the Company contends.
Water Power requests that the accounting order be issued on or before January 6,1997 to
coincide with an agreement previously entered into between Water Power and Wood Power.
On December 17,1996, the Commission issued a Notice of Modified Procedure soliciting
comments in response to the Company's Application. As expected, Rayonier and Wood Power,
Inc. support Water Power's Application. In addition, the Commission Staff filed comments also
recommending approval of the Company's Application. According to Staff, in terms of present value,
the Company's analysis indicates that Water Power can buy out the Wood Power contract for 501 on
the dollar. which Staff contends is beneficial to the Company and its customers. Staff recommends
acceprance of the proposed accounting and ratemaking treatment related to the buyout costs contending
that deferral and amortization over eight years is reasonable.
FINDINGS
We hereby approve Water Power's Application for proposed accounting and rate making
rreatment regarding the buy out of the Wood Power contract. Given that there was no opposition to the
Application, as well as the fact that the buy out of a firm power purchase agreement at 50(, on the dollar
would clearly be in the best interest of the Company and its ratepayers, we find that the Company's
request is reasonable and should be approved. In addition, we find that the deferral and amortization
ofthe buy out over eight years is reasonable.
ORDER NO. 26751 -2-
{,
J ORDER
IT IS HEREBY ORDERED that the Application of The Washington Water Power Company
for proposed rate making and accounting treatrnent of the buy out of the Wood Power, Inc. contract.
IT IS TIEREBY approved as set forth herein.
THIS IS AFINAL ORDER. Anyperson interested inthis Order(or in issues finally decided
by this Order) or in interlocutory Orders previously issued in this Case No. WWP-E-96-8 may petition
for reconsideration within twenty-one (21) days of the service date of this Orderwith regard to any
matter decided in this Order or in interlocutory Orders previously issued in this Case No. WWP-E-96-8
. Within seven (7) days after any person has petitioned for reconsideration, any other person may cross-
petition for reconsideration. See Idaho Code $ 6l-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 5.e<L 6u,
ofJanuary 1997.
RALPH PRESIDENT
H. SMITH, COMMISSIONER
Commissioner Hansen was out ofthe office on this date.
DENNIS S. HANSEN, COMMISSIONER
ATTEST
.%..: aZ- *
Myrna J. Walters
Commission Secretary
vld/O:WWP-E-96-8.bp
ORDER NO. 26751 -J-
I