4. Reasonableness Issues

4.1. Existing Settlement Period

Bear Valley is subject to an existing settlement agreement adopted in D.02-04-041 which addresses recovery of energy costs through August 31, 2011. Nothing in this decision in any way alters, amends, or otherwise modifies the settlement or its operation for rate recovery of energy costs. Therefore, we find that Bear Valley is able to recover its net costs for energy delivered to retail customers acquired pursuant to the Shell agreement through August 31, 2011, subject to the limits of that settlement.

The settlement agreement set a cap of $77.00 per MWh for the weighted average annual cost in calculating the Energy Charge component of the Purchased Power Adjustment Clause balancing account. (See, D.02-04-041, Finding of Fact 5, and Ordering Paragraph 3.) Therefore, subject to the continued application of the settlement, we find the Shell agreement to be recoverable without further review through August 31, 2001.

4.2. Post Settlement Period

The balance of the Shell agreement is not subject to the settlement agreement and therefore Bear Valley's amended application seeks a finding that the costs are reasonable:

Bear Valley "seeks approval of the prices, terms and conditions of the [Shell agreement], and an order allowing [it] to recover its full costs for purchased power under the [Shell agreement], subject to the Settlement Agreement approved in D.02-07-041 and [Bear Valley's] prudent administration of the [Shell agreement]." (Amended Application, p. 4.)

4.3. Discussion

We have reviewed, but will not disclose, the confidential prices⁶ for the Shell agreement and its four products described above. We have also reviewed the portion of the prepared testimony which described Bear Valley's determination of the forecast need for energy. Finally, we have considered our ratemaking practices with respect to existing settlements, preapproval of contracts, and recovery of costs through a reasonableness review process.

Bear Valley chose to execute a final agreement with Shell while the application was pending. The agreement does not appear to be conditioned upon our approval; therefore, Bear Valley chose to bind itself and thereby assumed the risks inherent in executing any contract without preapproval. The Commission has not exclusively preapproved contracts: the practice of demonstrating the reasonableness of costs in a subsequent review was the norm for many years. Therefore, Bear Valley assumed the risk of recovering in rates the reasonable costs of the Shell agreement for the period following the expiration of the settlement Agreement on August 31, 2011, until the expiration of the Shell agreement.

The Division of Ratepayer Advocates (DRA) did not serve testimony and offered no other showing to describe any analysis, conclusions or recommendations, applicable to the amended application; DRA's response to the amended application was "not oppose" and withdrew its original motion to dismiss.⁷ The City of Bear Lake withdrew its protest stating it takes "no position" on the application, and, like DRA, offered no showing which would describe any analysis, conclusions or recommendations, applicable to the amended application. Therefore, our record is limited to the amended application and amended prepared testimony by Bear Valley.

4.4. Conclusion

We find that the outstanding ratemaking settlement protects ratepayers until its expiration on August 31, 2011. However, Bear Valley entered into the final agreement before the Commission could grant or deny pre-approval. We therefore need not, but we have the discretion, to find the Shell agreement and the related four energy products to be reasonable at this time. Bear Valley argues that the Commission's current practice is to approve contracts. But this usually occurs for the large electric utilities only after a review by a formalized procurement review group process where competent interested parties have an opportunity to review the entire procurement proposal and the utility's analytical review process. This process provides intervenors with access to confidential information and prompt feedback to the utility if the intervenors are concerned about the proposed transactions. There is no formal procurement review group process for Bear Valley, although the record shows that DRA did have access to the procurement data and was consulted by Bear Valley. As we have already noted, DRA made no formal recommendation on the record.

The Shell contract terms executed by Bear Valley may or may not prove to be the best possible price in hindsight. But our standard of review is that of a prudent manager. Thus, the reasonableness of a particular management action depends on what the utility knew or should have known at the time that the managerial decision was made, not how the decision holds up in light of future developments. The record shows that Bear Valley executed the contract at a time when market prices were falling and the company was faced with a choice of whether to wait for preapproval or to "lock-in" what appeared to Bear Valley to be a good price (for the four separate commodities).

One benchmark for comparison is the market price referent used for renewable portfolio standard solicitations. In Resolution E-4214, dated December 18, 2008, the Commission adopted baseload energy prices for 10, 15, 20 and 25-year contracts for baseload energy. These prices are guideline for renewable energy, which is presently more expensive on the whole than conventional thermal energy. Thus any conventional-source contract, like this one is, should normally be significantly cheaper than a renewable source contract. We also note that the Shell agreement did result from a request for offers and subsequent negotiations in an effort to achieve a reasonable contract. We therefore conclude that based on the information available to Bear Valley at the time of negotiating the contract that the applicant has met the standard of a prudent manager. We will therefore approve the contract terms for the post-settlement period and
Bear Valley may recover its post-August 31, 2011 costs subject to meeting its obligation to prudently administer the Shell agreement.

⁶ A confidentiality and non-disclosure agreement were adopted by a ruling dated September 25, 2008.

⁷ See Section on Procedural History.