20040112_728.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:LISA NORDSTROM
DATE:JANUARY 9, 2004
RE:IN THE MATTER OF IDAHO POWER COMPANY'S APPLICATION FOR
APPROVAL OF AN AGREEMENT WITH THE AMALGAMATED SUGAR
COMPANY, LLC FOR THE SALE AND PURCHASE OF SURPLUS
ELECTRIC ENERGY. CASE NO. IPC-03-10.
On September 2, 2003 , Idaho Power Company (Idaho Power, Company) filed an
Application requesting an Order that approves an Agreement for Sale and Purchase of Surplus
Energy (Agreement) between the Company and the Amalgamated Sugar Company, LLC
(TASCO). The Company filed an amended Application on November 10, 2003 that
incorporated the original Application by reference and replaced the original Agreement attached
as Exhibit 1 with a modified Agreement. The Company asked the Commission to declare that all
payments for energy purchases made under this Agreement be allowed as prudently incurred
expenses for ratemaking purposes.
BACKGROUND
Idaho Power provides electric service to T ASCO' s refined sugar production facility
in Nampa, Idaho, under Schedule 19 to supplement TASCO's own on-site electric generation.
During periods where it generates electricity in excess of its needs, T ASCO sells its excess
generation to Idaho Power.
The Commission has approved the sale and purchase of surplus energy between
Idaho Power and TASCO in the past. In Order No. 27885 issued in Case No. IPC-98-15 on
January 22, 1999, the Commission approved an agreement for the sale and purchase of surplus
electric energy from T ASCO at market-based prices. The Commission approved modification of
this contract in Order No. 28865 issued in Case No. IPC-01-26 on September 28, 2001 , to
DECISION MEMORANDUM
increase the maximum surplus electric energy that T ASCO was permitted to deliver to Idaho
Power to 8.5 MW and extend the contract's expiration date to September 1 , 2003.
THE AGREEMENT
Although the parties wish this arrangement to continue, the Application indicated
that the previous contract did not/adequately address the future electrical requirements of Idaho
Power or TASCO. Both Idaho Power and TASCO believe this new Agreement addresses
current regulations and operating issues to their satisfaction. Electric energy to be sold under the
new Agreement is non-firm energy and will only be available when TASCO's Nampa facility
does not consume the electric energy and/or when TASCO elects to generate in excess of its
energy consumption. Under the new Agreement:
. The purchase price for the energy is set at 85% of the Avoided Energy
Cost as defined within Idaho Power s IPUC Schedule 86.
. The term of the Agreement is 5 years with automatic annual renewals.
Following the initial 5-year term, either party may terminate the
Agreement with 6 months prior written notice.
. The interconnection equipment and point of delivery terms specified in the
2001 amended contract will continue.
Although the Agreement states its effective date is September 2003, for purposes
of a smooth transition, the Agreement provides that it will not become finally effective until the
Commission approves the Agreement and declares that all surplus energy payments made under
the Agreement shall be allowed as prudently incurred expenses for ratemaking purposes.
The only portion of the Agreement that has changed since the original Application
was filed on September 2, 2003 is the Surplus Energy Purchase Price term found in Section
3.2. As this section appears in the amended November 10 Application, ifldaho Power requests
and T ASCO agrees to provide continuous energy at a designated MW level for set length of
time, the Adjusted Surplus Energy Price for that energy will be less than or equal to the Surplus
Energy Price set forth in the Agreement. This provision will not bind Idaho Power if the
Company determines the continuing operation of its electrical system is in jeopardy or access to
alternative energy resources is not physically possible. In the event the parties agree to an
Adjusted Surplus Energy Price, Idaho Power will advise the Commission of the agreed upon
pnce.
DECISION MEMORANDUM
STAFF COMMENTS
In short, Staff recommends that the Agreement for Sale and Purchase of Surplus
Energy between Idaho Power and Amalgamated Sugar Company be approved. Staff believes
that the Agreement will help Idaho Power meet expected loads while reducing the Company
reliance on purchases at full market price, thus minimizing power supply costs. Staff also
recommends that the reasonably incurred costs associated with the T ASCO Agreement be passed
through the PCA.
Staff noted that under the Agreement, T ASCO is required to annually provide Idaho
Power with estimated monthly surplus energy amounts before April 1 of each contract year.
Thus, while Idaho Power will not know the precise amount or timing of the surplus energy it will
be required to purchase from TASCO, it will at least have a fair indication. TASCO's monthly
estimates of surplus energy make it firmer than most of the energy Idaho Power purchases under
its Schedule 86 non-firm energy tariff, where neither the timing nor the amount of generation
provided is generally known with any certainty.
Staff believes that the price terms agreed to in this Agreement are attractive to Idaho
Power and its ratepayers. Using market prices as a basis for the purchase price, rather than the
methodology established for determining long run avoided costs, is appropriate given the short-
term nature of the Agreement and the fact that the energy is somewhat non-firm. Most
importantly, the purchase price is consistent with the price Idaho Power pays for other non-firm
energy purchases.
The Agreement also contains a provision that permits the parties to adjust the surplus
energy price if, at the request of Idaho Power, T ASCO agrees to provide continuous energy at a
designated MW level for an agreed upon length of time. The Agreement envisions such a
circumstance, for example, when Idaho Power s access to alternative sources of supply is not
physically possible or when the continuing operation of Idaho Power s system is in jeopardy. In
such an instance, Staff agrees that it may be advantageous to Idaho Power and its customers to
pay more than 85% of market price. The Agreement requires Idaho Power to notify the
Commission of the price paid, the energy purchased and the circumstances that the Company
believes warranted such purchases.
Idaho Power requests that all payments for surplus energy under the amended
Agreement be allowed as prudently incurred expenses for ratemaking purposes. Staff agrees that
DECISION MEMORANDUM
the payments should be treated as system power supply costs and passed through the Power Cost
Adjustment (PCA) mechanism, subject to Staffs normal audit. By paying 85% of market prices
for these power purchases, customers will benefit by Idaho Power either offsetting market
purchases at full market price or reselling power it does not need at full market price.
COMMISSION DECISION
Does the Commission wish to approve the Agreement for Sale and Purchase of
Surplus Energy between the Company and Amalgamated Sugar Company and declare that all
payments for energy purchases made under this Agreement be allowed as prudently incurred
expenses for ratemaking purposes?
(1
W3- (Yl~
Lisa Nordst
M:IPCEO310 memo2.doc
DECISION MEMORANDUM