Utility district pays millions to nullify Idacorp contract
The Truckee Donner Public Utility District just agreed to pay $26 million to rip up a piece of paper. The result: Their contract with Idacorp Energy will be terminated, and the district’s customers may not have to pay as much for power in the future.
The settlement, which has been months in the making, will terminate the remaining seven years in the district’s nine-year contract with energy provider Idacorp. The arrangement, made in closed session at the Jan. 2 TDPUD board meeting, will also end a series of lawsuits filed between the two parties in the last year or so.
Now that the district and Idacorp have settled, electric and water rates should not increase anymore than they already have, said Steve Hollabaugh, assistant general manager for the district. In December, the board adopted a budget and a 9 percent electric rate increase, based on the assumption that the contract with Idacorp would be nullified.
“If we had not reached a settlement, the typical residential monthly bill for a customer using 650 kilowatt-hours would be approximately $96.80,” he said.
With the augment in rates and the voided contract, the typical residential monthly bill will cost about $75.15. Customers will start paying the 9 percent increase in mid-January to offset the district’s $26 million settlement tab over approximately seven years.
“A rate increase is not a fun thing to do,” Holzmeister said. “Our customers don’t enjoy increases, but it could have been a lot worse. The situation with electricity in California has been in turmoil for a couple years, and we’re trying our darndest to get back on track.”
A lengthy contract
The TDPUD entered the long-term arrangement (a typical power contract is three to five years) during a period of deregulated and skyrocketing electricity prices in California.
“We were worried about how prices would go,” said Peter Holzmeister, the district’s general manager. “So we thought a contract would save the district some money.”
The Federal Energy Regulatory Commission (FERC) refused to control prices and told utility districts to enter into agreements with suppliers, Holzmeister said.
According to the contract, they would have to purchase 25-megawatt blocks for $72 per megawatt-hour starting Jan. 1. Even during the district’s highest peak periods, customers rarely use 25 megawatts. So Idacorp gave the TDPUD the option of selling the surplus energy.
A few months after the district signed the contract with Idacorp, FERC changed its position, said board Vice President Jim Maass. Regulators put price caps on electricity and rates dropped dramatically.
Then the TDPUD and, in effect, its customers were not only paying more than the going rate, the district also had to sell the surplus – for which they were paying $72 per megawatt-hour – at $45 per megawatt-hour.
“So we were stuck between a rock and a hard place,” Maass said. “We thought, ‘This is nuts. We need to get out of this contract.'”
Ironically, the district entered an interim contract with Idacorp for the next four months and will purchase its power at a reduced rate: $41.62 per megawatt-hour. Right now, the district is in the process of finding suppliers for a new three- to five-year contract that will begin in April.