20080715_2294.pdf

DECISION MEMORANDUM
TO:COMMISSIONER REDFORD
COMMISSIONER SMITH
COMMISSIONER KEMPTON
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:NEIL PRICE
DEPUTY ATTORNEY GENERAL
DATE:JUL Y 2, 2008
SUBJECT:FIRM ENERGY SALES AGREEMENT BETWEEN IDAHO POWER
COMPANY AND DF-AP #1 LLC FOR THE BIG SKY WEST DAIRY
DIGESTER GENERATION FACILITY; CASE NO. IPC-08-09.
On April 28, 2008 , Idaho Power Company ("Idaho Power" or "Company ) filed an
Application with the Commission seeking approval of its Firm Energy Sales Agreement with
DF-AP #1 LLC ("DF-AP") dated April 21 , 2008. On June 6, 2008, the Commission issued a
Notice of Application and Modified Procedure and allowed 21 days for interested parties to
submit their comments to the Commission regarding Idaho Power s Application. See Order No.
30570. Thereafter, the Commission received written comments from the Commission Staff
Idaho Conservation League and an Idaho resident.
THE AGREEMENT
The sales agreement ("Agreement") entered into between Idaho Power and DF-
dictates that DF-AP would sell and Idaho Power would purchase a specified amount of electric
energy generated by the Big Sky West Dairy Digester Generation Facility ("Big Sky ) near
Gooding, Idaho. Application at
DF-AP "proposes to design, construct, install, own, operate and maintain an
anaerobic digester adjacent to the Big Sky Dairy near Gooding, Idaho. . ..Id. This facility
qualifies as a "small power production facility under the applicable provisions of the Public
Utility Regulatory Policies Act of 1978 PURP )" and will provide a total of 1.5 MW of
nameplate generation. Id. at 1-
DECISION MEMORANDUM
The parties entered into the aforementioned energy Agreement on April 21 , 2008.
The Application states that the Agreement was entered into pursuant to the terms and conditions
of prior Commission Orders; will have a 20 -year term of effectiveness; utilizes the "Non-
Levelized Published Avoided Cost Rates established by the Commission for energy deliveries of
less than 10 average MW"; and will not become effective until all of its terms and conditions
have been approved by the Commission as "allowable expenses for ratemaking purposes.Jd.
2. The Agreement also contains terms and conditions similar to other PURP A agreements
previously approved by the Commission - "including provisions for delay damages and delay
security in the event the facility does not achieve its Scheduled Operation Date.Id.
DF-AP will begin delivering energy to Idaho Power s system on November 2008
and has set apart February 14, 2009 as its Scheduled Operation Date. Id. DF-AP must meet
certain requirements and preconditions under the Agreement prior to any energy deliveries to
Idaho Power s system. Jd. Idaho Power states that it will monitor for compliance with these
terms throughout the term of the Agreement. Jd. at 2-3. Finally, the Application states that the
Agreement dictates that "all applicable interconnection charges and monthly operation and
maintenance charges under Schedule 72 will be assessed to DF-AP and administered by Idaho
Power s delivery business unit." Id. at 3.
INDIVIDUAL COMMENTS
On June 23, 2008, the Commission received an e-mail from a resident of Shoshone
Idaho. The individual expressed a generalized approval for utilizing "our natural resources to
help the environment."
IDAHO CONSERVATION LEAGUE COMMENTS
Idaho Conservation League ("ICL") is an Idaho-based conservation organization
representing over 500 members. ICL's organizational activities include "citizen action, public
education and public advocacy." ICL Comments at 1.
On June 26, 2008 , the Commission received a letter from ICL supporting the
Agreement. Specifically, ICL expressly supported the conversion, through anaerobic digestion
of dairy waste into "clean energy" as a means of increasing "clean power production and
reducing greenhouse gas emissions.Jd. ICL stated that it was "excited to see Idaho use the
Public Utilities Regulatory Policy Act (PURP A) to further support the use of renewable energy
sources.Id.
DECISION MEMORANDUM
ST AFF COMMENTS
Staff notes that "there are two provisions in the Agreement that distinguish it from
other recent PURP A agreements.Staff Comments at 2. First, the Agreement contains a
liquidated damages clause that requires DF-AP to pay a stipulated amount if the project comes
online after February 14, 2009. Staff believes that this provision is reasonable in light of the
recent history of at least six separate QF projects that have failed to meet their contractual online
dates. A failure to meet the contractual online target date can adversely affect Idaho Power
power supply costs given recent high market prices for replacement power. The Agreement
requires DF-AP to post what is referred to as "delay security" that can be drawn upon if DF-
does not meet its February 14, 2009 scheduled operation date. Staff opines that this "liquid
security" is reasonable to ensure the availability of assets and/or funds should the liquidated
damages provision be triggered. Id.
Second, the Agreement contains provisions reflecting the Commission s approval of
adjustments to the published avoided cost rates to reflect Idaho Power s daily load shape and to
recognize the difference in value between energy delivered by QFs during heavy load hours and
energy delivered during light load hours.Id. at 3; see also Order No. 30415. Staff states that
this is noteworthy because it is the first Agreement to include provisions delineating separate
heavy load and light load hour rates. Id.
Staff has reviewed Idaho Power s Application and recommends that the Commission
approve all of the Agreement's terms and conditions.Id. Staff believes that all payments
Idaho Power makes to DF-AP pursuant to this Agreement for purchases of firm energy should be
deemed "prudently incurred expenses for ratemaking purposes.Id.
COMMISSION DECISION
Does the Commission wish to approve Idaho Power s Application for approval of its
Firm Energy Sales Agreement with DF-AP dated April 21 , 20087?J~
Neil Price
Deputy Attorney General
M:IPC-O8-09 _np2
DECISION MEMORANDUM