20120828Volume VII.pdf

ORIGINAL
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE COMMISSION'S
REVIEW OF PURPA QF CONTRACT
PROVISIONS INCLUDING THE
SURROGATE AVOIDED RESOURCE (SAR)
AND INTEGRATED RESOURCE PLANNING
(IRP) METHODOLOGIES FOR
CALCULATING PUBLISHED AVOIDED
COST RATES.
CASE NO.
GNR-E-11-03
TECHNICAL
HEARING
HEARING BEFORE
COMMISSIONER MARSHA H. SMITH (Presiding)
COMMISSIONER MACK A. REDFORD
COMMISSIONER PAUL KJELLANDER
PLACE: Commission Hearing Room
472 West Washington Street
Boise, Idaho
DATE: August 9, 2012
VOLUME VII - Pages 1215 - 1273
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HEDRICK .
COURT REPORTING
POST OFFICE BOX 578
BOISE, IDAHO 83701
208-336-9208
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APPEARANCES
For the Staff:
For Idaho Power Company:
For Avista Corporation:
For PacifiCorp dba Rocky
Mountain Power:
For Idaho Conservation
League:
For Idaho Wind Partners I,
LLC:
For The Northwest and
Intermountain Power
Producers Coalition;
Grand View Solar II;
The Board of County
Commissioners of Adams
County, Idaho; J. R. Simplot
Company; Exergy Development
Group of Idaho, LLC; and
Clearwater Paper Corporation:
For Renewable Northwest
Project; Idaho Windfarms,
LLC; and Ridgeline Energy,
LLC:
KRISTINE A. SASSER, Esq.
Deputy Attorney General
472 West Washington
Boise, Idaho 83702
DONOVAN E. WALKER, Esq.
and JASON B. WILLIAMS, Esq.
Idaho Power Company
Post Office Box 70
Boise, Idaho 83707-0070
MICHAEL G. ANDREA, Esq.
Avista Corporation
1411 East Mission Avenue
Spokane, Washington 99202
DANIEL E. SOLANDER, Esq.
Rocky Mountain Power
201 South Main Street, Suite 2300
Salt Lake City, Utah 84111
BENJAMIN J. OTTO, Esq.
Idaho Conservation League
710 North Sixth Street
Boise, Idaho 83702
GIVENS PURSLEY, LLP
by DEBORAH E. NELSON, Esq.
601 West Bannock Street
Boise, Idaho 83702
RICHARDSON & O'LEARY, PLLC
by PETER J. RICHARDSON, Esq.
and GREGORY M. ADAMS, Esq.
Post Office Box 7218
Boise, Idaho 83707
McDEVITT & MILLER, LLP
by DEAN J. MILLER, Esq.
420 West Bannock Street
Boise, Idaho 83702
HEDRICK COURT REPORTING APPEARANCES
P. 0. BOX 578, BOISE, ID 83701
For Mountain Air Projects, UDA LAW FIRM, PC
LLC: by Michael J. Uda, Esq.
7 West Sixth Avenue, Suite 4E
Helena, Montana 59601
For Renewable Energy WILLIAMS BRADBURY, PC
Coalition and Dynamis by RONALD L. WILLIAMS, Esq.
Energy, LLC: 1015 West Hays Street
Boise, Idaho 83702
For Twin Falls Canal Company, CAPITOL LAW GROUP, PLLC
North Side Canal Company, by C. THOMAS ARKOOSH, Esq.
Big Wood Canal Company, and 205 North Tenth Street,
American Falls Reservoir Fourth Floor
District No. 2: Boise, Idaho 83702
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HEDRICK COURT REPORTING APPEARANCES
P. 0. BOX 578, BOISE, ID 83701
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WITNESS EXAMINATION BY PAGE
William Piske Commissioner Smith 1216
(Public) Statement 1216
EXHIBITS
NUMBER PAGE
For Clearwater Paper Corporation, et al:
501 Don C. Reading Curriculum Vitae, 3 pgs Premark
Admit 1271
502 Request for Production No. 26(sic), Premark
16 pgs Admit 1271
503 Avista Corporation Response to Request Premark
for Information, 6 pgs Admit 1271
504 Request for Production No. 7, 41 pgs Premark
Admit 1271
505 Montana Public Service Commission Premark
Order No. 7172, 25 pgs Admit 1271
506 Request for Production No. 2, 2 pgs Premark
Admit 1271
507 Statement of Purpose, RS21243C1, 3 pgs Premark
Admit 1271
508 Idaho Legislature Final Bill Status, Premark
1/9/12-3/29/12, 2 pgs Admit 1271
509 - 514 Admit 1271
516 - 520 Admit 1271
HEDRICK COURT REPORTING INDEX
P. 0. BOX 578, BOISE, ID 83701 EXHIBITS
For Renewable Energy Coalition:
801 Sorenson Engineering-Designed Premark
Hydroelectric Projects, 12 pgs Admit 1271
For Dynamis:
1002 - 1003 Admit
For Idaho Wind Partners I, LLC:
2101 Richard Guy Curriculum Vitae, 2 pgs Premark
Admit 1271
2102 Firm Energy Sales Agreement between Premark
Idaho Power Company and Burley Butte Admit 1271
Wind Park LLC, 42 pgs
2103 Firm Energy Sales Agreement between Premark
Idaho Power Company and Golden Valley Admit 1271
Wind Park LLC, 42 pgs
2104 Firm Energy Sales Agreement between Premark
Idaho Power Company and Milner Dam Admit 1271
Wind Park LLC, 42 pgs
2105 Firm Energy Sales Agreement between Premark
Idaho Power Company and Oregon Trail Admit 1271
Wind Park LLC, 42 pgs
2106 Firm Energy Sales Agreement between Premark
Idaho Power Company and Pilgrim Stage Admit 1271
Station Wind Park LLC, 42 pgs
2107 Firm Energy Sales Agreement between Premark
Idaho Power Company and Salmon Falls Admit 1271
Wind Park LLC, 42 pgs
2108 Firm Energy Sales Agreement between Premark
Idaho Power Company and Thousand Admit 1271
Springs Wind Park LLC, 42 pgs
2109 Firm Energy Sales Agreement between Premark
Idaho Power Company and Tuana Gulch Admit 1271
Wind Park LLC, 42 pgs
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HEDRICK COURT REPORTING EXHIBITS
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2110 Firm Energy Sales Agreement between Premark
Idaho Power Company and Camp Reed Admit 1271
Wind Park LLC, 58 pgs
2111 Firm Energy Sales Agreement between Premark
Idaho Power Company and Payne's Ferry Admit 1271
Wind Park LLC, 58 pgs
2112 Firm Energy Sales Agreement between Premark
Idaho Power Company and Yahoo Creek Admit 1271
Wind Park LLC, 58 pgs
2113 Generator Interconnection Agreement, Premark
Schedule 72, Burley Butte Wind Park, Admit 1271
22 pgs
2114 Generator Interconnection Agreement, Premark
Schedule 72, Pilgrim Stage Wind Park, Admit 1271
21 pgs
2115 Generator Interconnection Agreement, Premark
Schedule 72, Camp Reed Wind Park LLC, Admit 1271
et al, 22 pgs
2116 Generator Interconnection Agreement, Premark
Schedule 72, Golden Valley Wind Park, Admit 1271
21 pgs
2117 Generator Interconnection Agreement, Premark
Schedule 72, Milner Dam Wind Park, Admit 1271
21 pgs
2118 Generator Interconnection Agreement, Premark
Schedule 72, Salmon Falls Wind Park, Admit 1271
23 pgs
2119 6/13/07 Letter, Kline to Jewell, Premark
RE: Case No. IPC-E-06-21, 39 pgs Admit 1271
2120 Docket No. RM79-55, Pgs 75-77, 3 pgs Premark
Admit 1271
For Ridgeline Energy, LLC:
2201 Firm Energy Sales Agreement between Premark
Idaho Power Company and Rockland Wind Admit 1271
Project LLC, 63 pgs
HEDRICK COURT REPORTING EXHIBITS
P. 0. BOX 578, BOISE, ID 83701
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BOISE, IDAHO, THURSDAY, AUGUST 9, 2012, 9:00 A.M.
COMMISSIONER SMITH: Good morning, ladies and
gentlemen, welcome you back to the hearing this day. Yesterday
when we left we had an interest by a member of the public to
make a comment, and we'd be happy to hear him at this time if
you'd like to come forward, sir.
MR. PISKE: Would you like me to speak from here,
Madam Chair?
COMMISSIONER SMITH: No. You need to come up
here and Commissioner Miller will have you raise your right
hand and promise to tell the truth, and then you can sit --
COMMISSIONER KJELLANDER: Commissioner Miller?
COMMISSIONER SMITH: Did I say that?
MS. SASSER: You did.
COMMISSIONER KJELLANDER: Could the record
reflect that that isn't me.
COMMISSIONER SMITH: Sorry, Commissioner
Kjellander.
MS. SASSER: Nothing like being put on the spot.
COMMISSIONER SMITH: Yes.
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WILLIAM PISKE,
appearing as a public witness, being first duly sworn, was
examined and testified as follows:
EXAMINATION
BY COMMISSIONER SMITH:
Q. Would you please state your full name and your
mailing address?
A. My name is William H. Piske. My address is 1603
East Carter, Boise, 83706.
Q. And, Mr. Piske, do you have an interest in the
proceedings that the Commission is holding today?
A. Yes. I've been a part of the case, even -- I'm
not at Bar so I was disbarred from being at Bar, so I'm now
speaking on behalf of our company in the proceedings.
Q. Well, you know, some people don't think the
unions are strong in Idaho, but the lawyers' union is very
healthy.
A. I drank at the Crescent Bar.
Q. Okay. Mr. Piske, would you please give us your
statement?
A. Yes, I will, Madam Chair. Thank you very much.
Madam Chair, Commissioners, attorneys, I present
my oral argument as an officer of Interconnect Solar
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HEDRICK COURT REPORTING PISKE
P. 0. BOX 578, BOISE, ID 83701 Public
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Development, an Idaho limited liability corporation, and a
resident of Idaho. I have been present for all but Wednesday
morning's witness testimony, and have heard the record and
energy future; however, the cost of the solar and various otherl
resources were not financially feasible. At that point in time
in the solar industry, our labs were producing solar cells with
only an efficiency of eight to nine percent, not 14 to 19
percent as tested at NREL and placed in service today. The
electronic explosion had yet to take place. Utility scale
solar was just a vision into the future. I remember my teacher
saying some day it will happen, and here we are, working it outi
40 years later.
In those same years, my communication lessons
taught us about the prospect of global warming. Our new
satellites with the attached solar panels could perform in the
frozen cold of space and supply energy to the sensors, cameras,
and telecommunications needed to send the data to Earth as they
do today from our space station. The satellite data showed and
continued to show what damage the Industrial Revolution was and
is causing our sensitive planet. I distinctly remember being
told in '75 that if we do not stop polluting at these levels,
the whole Earth's atmosphere will be covered in emissions and
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P. 0. BOX 578, BOISE, ID 83701 Public
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keep the sun's heat locked in at night, rather than escape into
space and cool the planet.
We did not yet know about global dimming caused
by the contrails of air traffic around the globe, as proven
during the 9/11 attacks when halts on air travel into America
for three days increased our daily temperature two degrees and
reduced our evening cooling by five degrees, affecting the
average temperatures of the US, that without this shall I say
"blessing," our planetary temperature gains would be even
greater than they are today. Understand if the planet gains
just two more degrees globally, our ocean temperatures will
rise; our ocean currents that carry warm air to Europe in the
winter, rain to US fields in the summer, will all change. The
ocean --
Slow down? Sorry. Excuse me.
The oceanic currents will slow as they desalinate
even more than they already have. One only needs to see the
extreme drought and crop damage the majority of the US states
are currently experiencing, as well as extreme rainfalls around
the globe.
As I sat here and listened to this room full of
fine attorneys, all dedicated to their Companies with respect
to their points of view, all I heard, essentially, is a fight
without the big picture in mind, that being the Earth and its
job to sustain us.
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P. 0. BOX 578, BOISE, ID 83701 Public
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We act as if our marbles are the only marbles on
the whole planet; that what we do currently here in Idaho to
get energy and the pollution it causes and the damage carbon we
all know in our hearts is doing to our ecosystem is not of
consequence or costs. Pollution cleanup costs was never once
mentioned, to my best recollection, in any brief or testimony.
We heard debate on RECs and their value they may or may not
have, liquidated damages, SAR verses other value systems,
contracts limitations, but not tonnages of CO2 emissions our
Utilities are currently spilling out and the downstream costs
coming from that pollution.
Our renewable developers bring to the table a
carbon-free energy, and I only use Germany as an example of the
success they have had, even though they receive less radiation
than Seattle annually.
No one mentioned the national security benefits
or its value. After all, China can't take out every solar
panel or windmill, but they can sure take out a dam, a CCCT,
SCCT, nuclear site, or coal-fired plant. That's what our
military did to Iraq: We took out their infrastructure. If we
were attacked, how long would it take Idaho Power, Avista,
PacifiCorp to get Grandma some heat with their current
portfolio and infrastructure?
Correct me if I'm wrong, but no one discussed the
cost the Utilities will face in the cleanup of coal ash debris,
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HEDRICK COURT REPORTING PISKE
P. 0. BOX 578, BOISE, ID 83701 Public
where coal ash is finally being treated as the harmful
environmental toxin it is as a result of coal-fired generation
waste; or the amount of CO2 the Langley CCCT facility will feed
into the atmosphere. Yes, it was cheap and profitable, but
with cleanup costs just around the corner, was the true avoided
cost of the resource accounted for?
What if the carbon fines come into play? Will
this Commission allow that cost to be borne by the ratepayer,
or burden the stockholders for their management team's
mishandling of their debris? I didn't hear that.
Will this cleanup be a part of avoided cost
modeling, a cost component backed by reality not speculation or
personal opinion?
Will we consider the cost of removing the dam
silting or salmon runs and the extensive resource we lost in
economic sustainability?
Why would we try to stop a proven technology as
renewable resources are and send us packing at a time we could
take the next giant leap forward in mankind's evolution? That
is essentially before this Commission in this case, a leap
forward, not backwards.
My current Idaho Power bill, when you include all
the extra fees, two annual adjustment mechanisms, franchise
fees, energy efficiency services, is nine cents. Idaho Power
just received a rate increase not reflected in this bill. Why
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HEDRICK COURT REPORTING PISKE
P. 0. BOX 578, BOISE, ID 83701 Public

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is $93 levelized as was our solar contract over 25 years a bad

2 deal?

:3 Why should a power line mistakenly keep a

4 developer from providing such value and security to the

5 customers?
6 It all ends up with attitude. We are one of

7 three states in the whole USA going backwards this year in

8 renewables, according to Photon Magazine's last edition.

9 As a solar developer, we can, once our asset is
10 paid for, offer rates to the future as we did that we guarantee
11 will come down without a carbon footprint or waste by-product.
12 After all, as the owner of a Utility-scale plant, why would we
13 have to have a higher rate increase? I know the sun will come

14 up and I'll make energy. All I have is low 0 and M costs. I
15 can even look at the weather and forecast production. And when

16 the sun goes down, the people go to bed, so does my production.

17 The shape of solar production does fit Idaho

18 Power load needs. Mark Stokes of Idaho Power publicly has said

19 this. So why did the Utilities not invest in a guaranteed rate

20 reduction for the public interest yet? So why was solar

21 included in the December 2010 cap when our energy is so much

22 different in time of delivery than wind, and there was not even

23 a Utility-scale plant in Idaho? In fact, it was Siemens who
tZIN provided the software and expertise to walk Idaho Power through

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HEDRICK COURT REPORTING PISKE
P. 0. BOX 578, BOISE, ID 83701 Public
The real result of these hearings, in my opinion,
is that we take the next step forward, given the science and
social experience we currently have in America, apply the truth
downstream many years at all associated costs.
Addressing RECs, if QFs are only paid capacity
and energy set by avoided cost and then a Utility takes them
and sells them, does that not add up to a discount? I get a
levelized cost of $93 per megawatt over 25 years, and they get
to sell RECs without compensation? I call that a rebate, and
But since a solar QF does not pollute, we should
ds for the investment risk. All Utilities could
Invest in solar on a Utility scale.
And maybe this should have been considered in the
Langley approval process, but Langley ensures costs and profits
escalating, and exposes the volatility of a gas market and
supply. I know the sun comes up every day, and if it doesn't,
it will not matter to us.
As far as LDs go, when you have a surplus on your
system 11 months out of the year, where is the damage? Why,
with the surplus, would a new business start without a balance
sheet but proving the financing capabilities be a threat, or is
it just another man-made dam renewables have to swim against.
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HEDRICK COURT REPORTING PISKE
P. 0. BOX 578, BOISE, ID 83701 Public
As for contract duration, we all know the Utility
does not pay for their resources in five years. Why the
unacceptable idea, when energy prices can be held down after
investment is recovered?
This Commission has an enormous responsibility,
and the technical Staff that supports the findings of this
Commission should be highly trained in ongoing energy
production education on a mandatory basis that can represent
the public's interest in today's evolving technologies, not
unsubstantiated opinion.
I ask that you think about the tomorrow and all
the factors involved. There is no reason for a Utility not to
move forward and understand the laws of the country and the
intent of those laws.
Honor those who gave their lives, their legs,
their arms, their sons, and their daughters to give us a
competitive free market and it will drive down costs, just like
the cell phones, TVs, and computers.
I ask the Commission to consider those whose
lives are yet to be born and how we can keep them receiving an
affordable, pollution-free tomorrow, a sound energy mix with
compliant partners working together to integrate the new
technologies. It is in the public interest.
Thank you for your consideration of these
concepts.
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HEDRICK COURT REPORTING PISKE
P. 0. BOX 578, BOISE, ID 83701 Public

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Q. Mr. Piske, thank you for your comments. Let's
see if there are any questions for you. And if you do have a
3 copy of your remarks --

4 A. Ido.

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Q. -- the court reporter would be happy to have it,
6 I'm sure. Thank you.

7 COMMISSIONER SMITH: Are there any questions for

8 Mr. Piske?
9 How about from the Commissioners?

10 MR. REDFORD: No.

11 COMMISSIONER SMITH: I don't see any. Thank you

12 for your participation.

[1
13 THE WITNESS: Thank you for your time.

14 (The witness left the stand.)

15 COMMISSIONER SMITH: Are there any other members
16 of the public who wish to make a statement at this time?

17 Seeing none, I think, Mr. Miller, we're at the

18 point of your closing remarks.

19 MR. MILLER: I'm not sure what the Commission has

20 in mind in terms of order of presentations. If the Commission

21 desires, I would be happy to start.
COMMISSIONER SMITH: That would be wonderful,

23 thank you.

24 MR. MILLER: Thank you, Madam Chairman and

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25 members of the Commission. Let me start by confirming my
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understanding that the evidentiary record is closed, the legal
briefing record is closed. What we're here for today is to
give each party an opportunity to sort of sum up their
understanding of the parts of the record that we would like you
to consider during your deliberations.
I would like to start with a brief comment on the
REC issue. While I did not cross-examine witnesses on that
issue, I would like to again commend to you for your
consideration the legal brief of Renewable Northwest Project,
which I won't review in detail, other than to say I think it
makes a compelling argument for the proposition that REC5 are
undoubtedly the property of the project.
Let me turn -- having said that, let me go to
Schedule 74, and before doing that just to say or reemphasize a
note about Ridgeline Energy.
As you know, Ridgeline operates the 80-megawatt
Rockland Project, which is in commercial operation and
producing energy. Ridgeline has obviously committed an immense
amount of capital to the construction and now operation of that
project.
Ridgeline has, or the Rockland Project has, an
approved contract which is in evidence as Exhibit 2201. As has
been noted, the Rockland contract is not a standard form
agreement. Every term was carefully negotiated. As part of
those careful negotiations, the parties did not include Section
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HEDRICK COURT REPORTING ARGUMENT
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1 304(f), Curtailment Rights. As part of those careful

2 negotiations, the parties did not include what is often

3 referred to as the Afton clause, which incorporates various

4 legal cases and rules.

5 The Ridgeline Rockland contract is so unique that

6 in the Commission's Order approving the agreement, the
7 Commission took the unusual step of commending the parties for

8 the agreement. You said in Order 32125: We commend the
9 parties for negotiating an agreement that we find sets forth a

10 creative solution to resources used that have heretofore often

11 resulted only in impasse and the filing of complaints.

12 Ridgeline strongly hopes the Commission will not

13 deny Ridgeline the benefit of its carefully-negotiated bargain,
14 which the Commission found to be worthy of commendation.

15 Let me now turn to Schedule 74 more generally,
16 and I have five observations for your consideration regarding

17 the proposed schedule:

18 The first is that it is fraught with legal doubt.

19 In the briefing in the case, the issue has been aggressively
20 briefed by many competent lawyers on both sides of the issue.

21 I'm afraid that approval of the schedule could lead to the

22 necessity of further litigation to resolve what may, at this

23 point, be at best an unsettled question.

24 The second point is that as a factual matter, the

25 need for Schedule 74 at this point is questionable. I won't
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belabor it in detail other than to say that the need for the
schedule, in my opinion, has not been established in the record
by a preponderance of the evidence.
The third observation is that Schedule 74 is not
ready for prime time. It's vaguely written. Its application
to particular circumstances is uncertain.
The fourth observation is related to the
preceding, the third observation, which is that all
implications of the schedule have not been thought through.
It's clear that -- or, it's un- -- there are contract
provisions in every one of the approved contracts that may be
implicated in ways we don't fully understand by approval. For
example, the impacts on 90/110 clauses and MAG clauses,
according to one witness, require further legal analysis.
And, finally, and perhaps more importantly, prior
to filing of the schedule, there was no effort to resolve the
light loading issue in a collaborative way. I think it would
be one thing if the issue came to you after the proposal had
been fully vetted and it had become apparent that parties could
not agree as to its implementation. It's quite another thing
when it comes to you as an unvetted, take-it-or-leave-it
proposal.
Now I'd like, with your permission, to return
more specifically to the Rockland firm energy sales agreement.
In the briefing, as you know, there is extensive discussion of
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whether Section 304(f) applies to fixed rate contracts. In
rebuttal testimony, witness Sterling makes a distinction as to
the types of fixed rate -- fixed rates, and argues that rates
based on the SAR methodology are not the type that the Section
304 contemplated.
In Ridgeline's July 20th legal brief, we set
forth an analysis showing that the prices in that contract are
not based on SAR rates, but are based on AURORA rates that take
into account operational conditions for each hour of the year,
and are undoubtedly of the type Section 304(f) contemplated.
During the course of the hearing, Idaho Power did
not dispute that analysis. During the course of the hearing,
the Staff did not dispute that analysis.
I won't use a movie analogy this time, but I will
use a literary analogy, which is that this reminds me of a
Sherlock Holmes novel and the story of Sherlock Holmes turning
to Watson and saying, "Did you notice anything interesting
about that dog?"
And Mr. Watson says, "No, I didn't."
And Sherlock Holmes says, "Well, the dog didn't
bark when it should have."
And in this case, neither the Staff nor Idaho
Power Company barked when it should have.
So if nothing else, based on the record as it
exists now, I believe the Commission is compelled to find that
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Section 304 does not apply to the Rockland firm energy sales
agreement.
So, I'm now ready to conclude with just a general
4
5 As Commissioner Smith perhaps inadvertently
6 alluded to, I do have some life experience that allows me to
7 sympathize with the difficult position you are in. The
8 Companies have presented to you what I believe to be a series
9 of extreme and radical proposals aimed at crippling the future
10 development of renewable energy in Idaho, and aimed at
11 punishing current projects. Regrettably, your Staff has
12 endorsed most of those and all their important details. So
13 I'll just conclude by wishing you luck in your deliberations as
14 you exercise your independent judgment searching for a balanced
15 result that takes into account all of the interests of the
16 parties and serves the public interest.
17 Thank you.
18 COMMISSIONER SMITH: Thank you, Mr. Miller, for
19 your very thoughtful comments.
20 Are there questions from the Commission?
21 COMMISSIONER KJELLANDER: No.
22 COMMISSIONER SMITH: Ms. Sasser, I understood you
23 also wanted to make some closing arguments.
24 MR. WALKER: Madam Chair, excuse me, if I may
25 interrupt. I did not want to interrupt Mr. Miller during his
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2 clarify a -- I'm sure an unintentional misstatement of fact:

3 I believe Exhibit 2201, which is the Rockland
4 Wind Farm contract, page 26, does contain what was referred to

5 as the Afton clause and the reference to Section 304(f).

6 COMMISSIONER SMITH: Okay. Thank you,
7 Mr. Walker. We will look at that.
8 MR. MILLER: You're right.

9 COMMISSIONER SMITH: Ms. Sasser.

10 MS. SASSER: Thank you, Madam Chair. Just a few

11 comments from Staff.

12 Several of the Intervenors in this case have
13 portrayed these proceedings as an attack on PURPA. Dr. Reading
14 even testified that Staff's proposals are PURPA killing.

15 Intervenors suggest that the proposals of the Utilities and
16 proposals of Commission Staff are an attempt to end the

17 renewable development in Idaho.

18 Contrary to the assertions of some parties, it is

19 not Staff's intent to wage war on the QF industry.

20 Staff agrees with the QF developers that PURPA

21 was, indeed, enacted to encourage renewable and cogeneration

22 development. However, PURPA does not require that terms

23 adopted by the states make projects financeable. PURPA does

24 not require 20-year contracts. PURPA does not require

25 published rates for projects over 100 kilowatts. PURPA does
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not address ownership of renewable energy credits, and FERC has
specifically left that determination to the states. PURPA does
require that QF development and the source of the energy
provided not negatively impact ratepayers.
It's worthy of note that PURPA is not the sole
mechanism for Utilities to acquire renewable generation. PURPA
has its place, and the point of this proceeding is to allow
PURPA development to continue as long as Utility need is
recognized and the generation is priced fairly. However, PURPA
was not intended as a mechanism for adding major resource
acquisitions. There are other avenues such as Requests for
Proposal that better recognize Utility need, ensure fair
prices, and better meet the needs of the Utilities' customers.
Staff believes its primary responsibility in this
case is to propose what it believes is in the best interest of
the ratepayers and in accordance with the law. PURPA rates and
rules in Idaho are in need of revision. Quantity of QF power
cannot be controlled because of PURPA's must-purchase
obligation, so other mechanisms must be put in place. Staff
believes that it has made proposals for revision that still
allow for renewable development without putting ratepayers at
risk.
And that's all I have. Thank you.
COMMISSIONER SMITH: Thank you, Ms. Sasser.
Do we have any questions from the Commissioners?
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1 COMMISSIONER REDFORD: No.

2 COMMISSIONER SMITH: Oh, I thought I saw a

3 smattering of other hands yesterday. Mr. Richardson, you look

4 anxious to turn on your mic.

5 MR. RICHARDSON: Thank you, Madam Chair. I do
6 have some closing remarks. I do appreciate the opportunity.

7 First of all, I want to thank the Commissioners

8 for your patience over the last two days, and for your even and

9 fair administration of these proceedings. I think all the
10 parties appreciated your handling of the proceeding, and they

11 all have had an opportunity to make their best case.

12 I also want to thank Greg and Kristie for their

0 13 help.

14 Commissioners, I always find it daunting to make

15 closing statements, because one is tempted to try to write a
16 moving and convincing piece that cinches the deal for your

17 clients, and that's a lot of pressure. Plus, when I share the
18 back bench here with such seasoned and brilliant attorneys as

19 former Commissioner Miller, Tom Arkoosh, Mike Uda, and Ron
20 Williams, and the not so seasoned but equally brilliant

21 attorneys Deborah Nelson and Ben Otto, I know I'm on the right

22 team. But that just increases the pressure not to let them

23 down.

24 Fortunately, I don't have to give that stirring

25 speech, because of the able and talented efforts of our expert
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witness Dr. Reading. He made our case in his testimony, and
that case withstood the scrutiny on cross-examination by some
of the best attorneys -- Utility and Staff attorneys I know.
Dr. Reading got it right when he said this case
is about prices and should not be about the process, just as
Commissioner Smith hit the nail on the head when you noted that
maybe some more vigilance is needed in updating the inputs into
the SAR methodology. There is no need for wholesale changes to
the SAR methodology. That methodology, according to
Dr. Reading, has proven to be robust and remarkably accurate
over the long term. And as Staff witness Sterling said, it has
generally proved satisfactory. If the avoided cost rates are
too high because natural gas prices are too low, then all you
need to do is update the gas price forecast and you will have
an accurate avoided cost rate.
You need to look no further than my clients in
this matter to know that the Utilities' the-sky-is-falling
argument is wrong. Simplot and Clearwater Paper are rational
economic actors. They know there is a tension between setting
avoided cost rates accurately and the retail rates they pay.
They also know the discipline of a free market and the rewards
competition bring to rational economic actors. My third
client, Exergy Development Group, is also a rational economic
actor, which was available to bring much market discipline to
Idaho Power.
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I am -- now, I am not planning to address all of
the issues we discussed in this case, but I will hit some of
the highlights:
First, I urge you not to rule that the Utilities
have, in fact, been the owners of RECs all of this time, but
rather to rule that the Utilities must disclaim ownership of
RECs in their standard QF contracts. You have already ruled
several times that the QF/Utility relationship does not convey
RECs, and you simply have, frankly, no authority to give RECs
to the Utilities when this state has not created them. But you
do have the authority to instruct the Utilities not to extort
RECs from QFs by intentionally soiling in the nest and spoiling
the ability of either party to market the RECs. You can, and
you should, put a stop to that heavy-handed bullying.
Now, Commissioner Smith was on the Bench when you
lifted the reduced contract term and size cap for entitlement
to published rates, and she probably remembers the Utilities
arguing the same arguments today that they did then, that they
don't need QF power, and the Commission should leave the
contract term of five years and the size cap at one megawatt,
all squarely in the shadow of the California energy crisis.
I fear that if you once again lower the contract
term and the size cap, it will take no less of a disaster than
the magnitude of the California energy crisis to once again
allow the QF industry to develop in Idaho. All of Idaho
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suffered the consequences of that disaster, and a viable QF
industry would have helped to alleviate that pain.
The liquidated damage clause provided by all
three Utilities is clearly, unequivocally, and inevitably an
illegal penalty. Approving that penalty will no doubt lead to
litigation, which you can avoid by simply adopting
Mr. Schoenbeck's mark to market proposal. This proposal will
ensure that Utilities are compensated for actual damage
suffered.
If Utilities are concerned about the liquidity of
a defaulting QF, a security deposit reflecting a Utility's
possible increased power supply costs in the event of a breach
may be appropriate. In the event of a delay default, the
Utility could draw on that security based upon a mark to market
calculation of the Utility's actual replacement costs for power
caused by the QF's default. However, an arbitrarily chosen
$45-per-kW liquid security deposit that the QF automatically
forfeits as liquidated damages after a 90- or 180-day delay
default does not pass muster under Idaho law. Utilities are
not above the law such they are entitled to assert an illegal
penalty for performance in their contracts, even though none of
the rest of us can do that.
Schedule 74, on top of a wind integration charge,
is a double hit and is unfair. Mr. Hayes', Mr. Sorenson's, and
Mr. Looper's testimonies are compelling on this issue. Idaho
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Power is not operationally constrained. If it has any
constraints, they are of the Utility's own making. It is a
self-fulfilling prophecy and nothing more. At a minimum, you
should demure until FERC has ruled on Idaho Wind's petition for
a declaratory judgment on curtail issues.
The Utilities' process tariffs are full of
inconsistencies, inaccuracies, and follow such a leisurely
timeline that I truly believe they were drafted for the purpose
of forcing QFs from being successful and viable in Idaho. They
were almost an afterthought, at least on Idaho Power's part,
and we do need a separate docket opened to sort out that mess.
Use of the IRP for setting avoided cost rates is
just as bad, if not worse, as it was back when you eliminated
the first deficit year from avoided cost rate setting. As the
issues in the IRP become more complex, opaque, and specialized,
there is simply no way a lay citizens' advisory board can have
any more meaningful input than, say, a letter to an editor on a
complex question for the Tax Commission. Having advisory
teams, while a nice gesture, is little more than that.
Compounding that hurdle is the heavy-handed
manner in which Idaho Power kicked the Snake River Alliance off
its advisory team. The message that sends to other possible
dissenting voices is clear.
Idaho Power's sophisticated PR efforts are
generating political heat for you, I am sure. A review of the
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. cities clearly shows Idaho Power's handiwork on all of those
If the Utilities get their way on any of these
issues, Dr. Reading will have been proven correct. It is PURPA
killing, and that is wrong from so many perspectives.
It's wrong from economic development perspective.
Langley Gulch is a big machine that does a really good job of
exporting Idaho's dollars to places like Louisiana and Wyoming.
In contrast, the Simplot cogeneration facility leaves Idaho's
dollars in Idaho. The North Side Canal Company's hydro
projects help keep our irrigators in business. Clearwater
Paper is more profitable and, hence, more stable due to its
cogeneration facility, keeping jobs in Nez Perce County.
It's wrong from the perspective of compliance
with the law. PURPA really does require you to encourage
the requirement for ratepayer neutrality or nondiscriminatory
rates. The entire body of law applies, not just those portions
the Utilities like to repeat and repeat.
It's important from the perspective of fuel price
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1 risk. Despite an assertion that annual power cost adjustments

2 reduce fuel risk, the simple fact is that once online, QFs

3 never seek a rate increase. The value of that locked-in rate

4 is significant and real.

5 And it's important from the economic standpoint,
6 the invisible hand of Adam Smith, if you will. The fact of the
7 matter is that Utilities in Idaho have no competition and,

8 hence, lack the discipline that the market brings to economic
9 actors. As state-sanctioned, vertically-integrated monopolies,

10 our Utilities do not have any real-life yardstick against which

11 their resource acquisition can be measured. PURPA is that

12 yardstick in Idaho.
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13 In sum, I urge you to stay the course, make

14 timely adjustments when necessary to the inputs to keep the SAR

15 up to date, but don't throw out a system that works well and
16 provides so many other public interest benefits to Idaho.

17 Thank you for your time, Madam Chair.

18 COMMISSIONER SMITH: Thank you, Mr. Richardson.

19 Do you have any questions?

20 COMMISSIONER REDFORD: No.

21 COMMISSIONER SMITH: No questions.

22 Any other takers? Mr. Williams.

23 MR. R. WILLIAMS: Madam Chair, Commissioners,

24 thank you for this opportunity to make these comments. I hope

25 that they remain brief.
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This case is about pricing, but it's not just
decisions to make. But there's also issues masquerading as
pricing issues that are really designed to dismantle the entire
independent renewable energy industry, and the target of that
dismantling is the wind industry. But there's collateral
damage, and that collateral damage could affect my clients, the
Renewable Energy Coalition, which are a collection of small
hydro developers, and others such as Dynamis that offer firm,
quasi-scheduled capacity near a load center. So we agree that
there needs to be price readjustment, and there needs to be
mechanisms that let you and all of us better react to pricing.
The pricing also needs to reflect I think at this
point the unique differences between the three Utilities.
PacifiCorp has an RFP out on the street seeking base load
resources. Idaho Power, doesn't but their resource plan shows
the notion that prices need to be generic for all three
Utilities because developers need -- should not be flocking to
one Utility or the other. I think they should be able to
present viable proposals to the Utility that's showing a
particular need that's either there or different than another
Utility, so I would ask you to reconsider that.
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Secondly, on the nonprice issues, there's four
specific issues that I think would effectively dismantle all of
the industry, both prospectively, and in one instance
retroactively, and those four issues are Schedule 74, ownership
of RECs, five-year contracts, and the eligibility cap for
standard rates. I'm not going to go through all of those, but
I would like to take on a couple.
The legal issues behind Schedule 74 have been
well briefed and I'm not going to address those, but I think
what this case has shown is that the factual record -- and
Mr. Miller alluded to that -- the factual record that proves
the necessity for that has not been -- has not been made.
There is evidence that Langley Gulch alone has the ability to
integrate 600 to 900 megawatts of wind. There's evidence that
the other gas-peaking thermals of Idaho Power's system could
also ramp at 50 megawatts per minute and could integrate
another fairly significant segment of variable resources.
So the fact that Idaho -- I think what we need to
get into is we need additional exploration on this point.
These issues would be much better addressed in a collaborative
workshop matter. There are other potential solutions than
Schedule 74. One of the solutions that was suggested was that
maybe Idaho Power does need to turn its coal units off in some
of these shoulder periods for lengthy periods of time and use
their thermals with low gas prices to do a better job of
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fluxing and integrating the system. But in any event, we have
not had the opportunity to have those discussions, and I think
that issue begs deferral to a future proceeding.
I also will not go through the different
positions in the briefs taken on RECs, but I would just simply
note one thing: I don't believe the Commission has the
authority to make a determination on who owns RECs. The
Commission has rate making authority clearly established by
Statute. The fact that RECs or the confiscation or the taking
of some private property can be used to lower rates is not the
traditional rate making authority that I believe is authorized
the Commission under Title 61 and as the Supreme Court has
spoken to.
And then my final point has to do with the
schedules moving forward. Everyone agrees that there needs to
be a better set of rules and procedures for the QF contracting
process and I do commend Idaho Power and PacifiCorp for giving
us a good start with their proposed schedules, but I really
think this is an issue that is better handled, again, in a
collaborative process. Specifically, developers and Utilities
both need a better definition when an obligation to purchase
arises. The free form that we've had in the last couple of
years and the standards that have been set don't work well for
the Utilities and they don't work well for the developers.
We also need more sanity brought to the
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1 interconnection process, and specifically, there needs to be a
2 better linkage between when legally-enforceable obligations are

3 created and where we are in the interconnection process,

4 because you literally have contracts that are in bold print
5 that say "If I don't get interconnected by this point in time,
rou I am in default 90 days after that," yet the interconnection is

7 completely out of hand for the developers. There needs to be

8 linkage brought between those events in a rational contracting
9 process, and there is -- there is a balance that can be drawn
10 between the notion of trying to establish a legally-enforceable

11 obligation within a 15- or 30-day period and a two-year process

12 that could involve getting final interconnection figures and

13 dates set.

14 These would best be handled in what the Utilities

15 as a regular practice do when they do RFP5, when they build
16 their own plants, when they have the contracts that they put

17 out into IRP5 to build transfers, all have milestone schedules

18 that say these are the key important variables that have to
19 happen for this project to get online. Everybody agrees to

20 those. When things that may be short of force majeure but

21 above a level but are still prudent occur that force that

22 schedule to shift, the schedule should shift. It shouldn't

23 just simply throw the project in the position of having to

24 default.

25 So, those are the issues that I hope that we can
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move forward and develop collaboratively rather than having to
litigate pieces of things like that.
Thank you, Madam Chair.
COMMISSIONER SMITH: Thank you, Mr. Williams. I
just presumed you were here yesterday when I asked Mr. Sterling
about the collaborative process, and I think we've asked you
guys to do that before. For some reason, it didn't happen.
MR. R. WILLIAMS: Madam Chair, if I could respond
to that?
COMMISSIONER SMITH: Probably not.
MR. R. WILLIAMS: Okay.
COMMISSIONER SMITH: Any questions?
Thank you, Mr. Williams.
Yes.
MR. ARKOOSH: Thank you, Madam Chair. I'd like
to not repeat what was said prior, but I would like to adopt
the remarks of Mr. Miller, Mr. Richardson, and Mr. Williams.
I have to background what I'm going to say by
trying to remind myself of why we're here, both under the state
law and under the federal law. Under the state law, the Power
Companies and other Utilities have cut a deal. You know, the
deal that they have cut is that they're going to give fair and
benevolent treatment to the community they serve; they're
required to. In return, they get a fair rate of return on
their capital. But because they're a monopoly, we have
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1 Commissions that require they do that.
2 In 1978, I think Congress decided two things.
3 They decided, one, it was in the public interest that we have
4 alternative energy. We were frightened, and we probably still
5 should be frightened, looking at what's going on in the world.
6 The second thing I think Congress decided was
7 that it was not fair and benevolent treatment nationally by the
8 Utilities to encourage this industry, and so consequently they
'•l passed PURPA and they asked the state regulatory bodies to
10 encourage PURPA, encourage small power production. What
11 Congress said in the -- in its House report and this language
12 is adopted by the Supreme Court in the American Paper Institute
S 13 case is as follows, if I may read this, Madam Chairman:
14 Cogeneration is to be encouraged under this
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section -- that's Section 210 -- and therefore the examination
of the level of rates which should apply to the purchase by the
17 Utility of the cogenerator's or small power producer's power
18 should not be burdened by the same examination as are Utility
19 rate applications, but rather in a less burdensome manner. The
20 establishment of Utility type regulation over them would act as
21 a significant disincentive to firms interested in cogeneration
22 and small power production.
23 We've gone from that in 1978, your Honor, to
24 Staff comments in this proceeding -- this is from
.
25 Mr. Sterling's testimony and he was asked about it on the
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stand -- that said it would be contrary to the public interest
to encourage PURPA development. I'd like to reread that: It
would be contrary to the public interest to encourage PURPA
development at a time when it is not needed to serve customers
and at a time when poor economic conditions strain customers'
ability to pay. I believe it would be good public policy for
the Commission to use effective tools such as limiting maximum
contract terms.
I don't think that's fair and benevolent, and I
don't think it's in the public interest. And I think all of
the proposals currently made by the Utilities in this case and
endorsed -- some of them are endorsed by Staff -- are directed
toward disencouraging alternative energy development.
I'd like to talk about each one of those and I
would like to point out that, in my view at least, this is not
about pricing. This is about who builds capacity. You know,
Madam Chairman, you did point out it's been a long time since I
was here, but I can tell you, last time I was here, the only
difference I see was the room was east and west rather than
north and south.
COMMISSIONER SMITH: It was.
MR. ARKOOSH: The issues are exactly the same:
Who is going to build the marginal unit of power capacity.
It's not at all about pricing. Pricing here is only a tool to
disencourage alternative energy.
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Regarding contract term, Ms. Sasser says PURPA
does not require these contracts be financeable. I would
suggest to the Commission it is my belief this Commission has
absolute discretion to set the contract term, but in the
exercise of that discretion, it must be exercised such that
industry.
Cap for eligibility. What happens if you set the
cap for eligibility at 100 kW is that every contract will be
negotiated except for inconsequential projects. If you
negotiate every project, then the difficulty you're going to
suffer is you're going to have huge delays and the
transactional costs again will kill the industry.
Subjective curtailment. And the language of 74
clearly is subjective curtailment. Subjective curtailment is
not in the existing contracts. I think Mr. Schoenbeck was very
clear about what the language looks like if you're going to
have Section 304 curtailment in contracts. It's very specific,
very set out, and, frankly, on this record, the only evidence
about the inability to integrate was, as I heard it, the Idaho
Power's witness indicated that she didn't know the answers to
the questions and Mr. Looper was very clear that if we are
going to have intermittent power, we have the current capacity
to integrate a lot more than we currently have. It's a matter
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1 of will. It's a matter of benevolence and fair play.

2 The pricing mechanism. I think it -- without

3 getting into the weeds about the pricing presentation, and I

4 think Mr. Schoenbeck's work on pricing was very fair and very

5 even-handed, it seems, to me, that every corner that could be
6 cut to disincentivise the industry has been cut by the

7 Utilities to do that. I don't think it's necessary. A couple

8 of examples is -- is carbon. The carbon adder in the IRP is

9 used for their planning purposes but not used for pricing. It

10 makes no sense. It's inconsistent.

11 The liquidated damage question, I think

12 Mr. Richardson expressed it very well. It's probably not

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13 enforceable in Idaho. I think what the Utilities are really

14 looking for -- and maybe justifiably so -- is required to have

15 some skin in the game, and what they're really looking for I
16 think is a performance bond. And that probably should be

17 realistically adjusted in some way so that they have some

18 assurance people will step up to the extent there's any risk.

19 I think in a 100-megawatt -- or, ten-megawatt project that

20 doesn't perform at 180 days, I think half a million bucks is

21 too much money. I think the incentive to perform can be set at

22 a much lower bar.

23 The REC5. RECs exist to encourage the energy,

24 and we've got so flip-flopped that the Utilities in this

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of alternative power. That's how backwards we've gotten.
There are, in my view, two solutions, and,
Chairman Smith, I think you nailed them right on the head. The
first solution is vigilance. I think that the pricing -- and
I'll give you a "for instance" in my view:
On page 16 of Mr. Stokes's testimony, he has a
chart about where he expects energy prices to go. We're at the
dip, we're at the bottom. We should be locking in all this
energy we can for our children and our grandchildren and their
futures, and we're not doing it. We're fighting to build
Utility type capacity. And so if we watch the prices, make
them fair -- I don't know whether the current PURPA prices that
the Utility has publicized so much are unfair. Five years from
now, they may be a hell of a deal. I don't know that and
neither does the Utility, frankly, notwithstanding the claims
to the public and their own ratepayers. But I think that
everybody seems to agree, right now it's real cheap, we should
be locking it in. So I do think vigilance is the watch word.
How do we exercise that vigilance? I don't think
we need to do it in this room. I think you ought to use this
docket to say exactly what you said in this docket: I think
you ought to require the industry and the Utilities to sit down
and reasonably work out these problems. I don't think you need
to reward the Utilities for their nonbenevolent behavior and
their intransigeance in this matter. On the other hand, I
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think that they have expressed concerns that they are worried
about and I think they need to be resolved, but I think you've
paved the way to resolve them. I think we ought to be required
to sit down and resolve them.
Currently, and sadly, I think alternative energy
at the hands of the Utilities currently -- and I don't know how
much intent is there, but I don't think it's good for the
state, is a tattered, beggar child at the back door, and I
think it should be the fair-haired child at the front door.
And I think we all ought to be required to make that happen.
So I thank the Commission for its attention. I
would ask the Commission not to adopt these disincentives
wholesale, they're devastating. And I would ask the Commission
to use this docket to require the industry and the Utilities to
come together on these issues.
Thank you.
COMMISSIONER SMITH: Thank you.
Ms. Nelson.
MS. NELSON: Thank you, Madam Chair and members
of the Commission.
COMMISSIONER SMITH: You need to get closer to
that thing I think.
MS. NELSON: How's that? Is that better?
COMMISSIONER SMITH: Yeah, just speak up.
MS. NELSON: Okay. Idaho Wind Partners is
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concerned with a single issue in this docket: Application of
the proposed Schedule 74 to existing projects. We want to
leave you with just a couple of points this morning about that
issue.
First, as a matter of law, applying Schedule 74
to existing fixed-rate contracts is contrary to FERC
regulations. We believe FERC was very clear in its
implementing Order 69 that Section 304 does not override
legally-enforceable obligations. I'm not going to repeat the
details of that argument for you this morning -- it's included
in our legal briefs -- but I do want to just briefly address
the new argument raised by Idaho Power's and the State's
attorneys yesterday regarding Section 7.5 in our contracts,
which according to Mr. Sterling is the same form language in
every contract dating back to at least 1985.
Section 7.5 does not state any agreement of the
parties to allow curtailment for any reason. What Section 7.5
does say is that the parties agree that the terms and
conditions in our contract must be construed in accordance with
the referenced FERC regulations.
This is acceptable. We take comfort in having
the referenced FERC regulations control, because we believe
that to construe the terms of our contract in accordance with
those regulations means that Schedule 74 cannot apply to us for
all of the same reasons that we have set forth in our legal
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Second point I'd like to leave you with this
decision on this issue. They repeatedly state in their brief
that they already have this legal power and they simply need
the Commission to adopt a few protocols. This characterization
not only obscures the real deficiencies in the proposal such as
the lack of any oversight or compensation or consideration of
how it might trigger penalties in the contracts, but it also
ignores the real and significant consequences this will have on
projects that have already obligated themselves to hundreds of
millions of dollars of debt to build the projects and operate
them.
Idaho Wind Partners is an experienced party with
experienced lenders who are experts in these types of
transactions. They did not undertake these obligations
lightly, or without the careful review of literally thousands
of expert consultants and attorneys. Every term of the
contracts was carefully considered. When they invested $450
million in these projects in Idaho, they believed, as they
continue to believe now, that these projects are not subject to
Section 304(f) curtailment, and they have too much at stake noti
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to fight this collateral attack on their approved contracts.
These projects are financed, constructed, and
3 delivering renewable energy in Idaho today. They pay taxes and

4 they provide jobs. Idaho Power's request not only puts those

5 projects at risk, but it also exposes this Commission to legal
6 challenge and an implementation nightmare, and undermines the

7 sanctity of contracts in Idaho.

8 We ask the Commission to decline to adopt the

9 proposed Schedule 74, especially in cases where capital has

10 already been committed to build the project.

11 Thank you.

12 COMMISSIONER SMITH: Thank you.
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13 Are there any questions?

14 Mr. Otto.

15 MR. OTTO: Thank you, Madam Commissioner. My

16 colleagues have covered quite a bit of ground, so I'll be able

17 to cut down quite a bit on what I have to say.

18 Mr. Walker said in the paper the other day that

19 this case is about pricing, and I think that's what your

20 obligation is: To find the appropriate avoided cost price and

21 let the market fall as it mays -- as it may. Despite that, the
WIM Utilities have asked you to go far beyond pricing and to

23 approve extra legal curtailment and REC decisions. I urge you

24 to not take the bait. You don't need to.
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25 Schedule 74 is half-baked at best. My colleagues
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have covered that adequately.
In our case, we've established that as far as the
Mid Snake dams, that's a choice Idaho Power is making to create
an operational constraint. They are not legally obligated to
be constrained in that way. Don't take the bait. Tell Idaho
Power to go home and do its homework to find the least-cost
solution to use their flexible hydro system to meet their PURPA
obligations.
As for RECs, we concede by all of the interest in
all of these parties from wind developers to canal companies to
the dairy producers, REC5 are a big deal. They're not merely
one way.
The testimony and the evidence in this case
establishes that RECs are the property of the developers.
That's not asking you to rule on something. That's just asking
you to recognize what is the existing law in Idaho, which is
that person who puts their sweat and treasure into creating
property owns that property, just like rain water. It's
simple. All you have to do is recognize that and the issue is
solved.
The Staff and the Utilities, they ask you to
assign REC5 to the Utility because they might affect rates, but
that misses the mark. The first question is whether that
property which may impact rates is, in fact, dedicated to
public use, and just as steam from a cogeneration plant is not
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dedicated to public use and available to reduce rates, the same
applies to RECs.
Then Mr. Clements and Ms. Grow and the Staff
argue that REC5 are somehow the ticket to the PURPA dance.
FERC has rejected that for years. It's simply not the case.
And then to make it worse, they argue that
somehow RECs are outside of PURPA, but then claim that they're
the PURPA -- the ticket to the dance. That's disingenuous at
best.
Finally, the public interest weighs sharply in
favor of assigning RECs to the project developer. The Staff's
reasons are just unpersuasive. They admitted they did not
cover the whole range of public policy issues, as my colleague
Ms. Nelson referred to, as far as job creation, environmental
quality issues, other folks have referred to national energy
policy. There are a range of public policy issues that are
impacted by who owns RECs.
The other, as I covered in my cross, is a
half-baked hypothetical on their renewable portfolio standard.
That's simply not a valid basis on which to make a public
policy decision.
So to close on that issue, the Utilities chose to
make RECs' ownership an issue, and they ask you for an illegal
ruling that's bad public policy. Don't take the bait, and
recognize that under current law, REC5 are the property of the
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developers.
And thank you for your time.
COMMISSIONER SMITH: Thank you, Mr. Otto.
Are there questions?
COMMISSIONER REDFORD: No.
COMMISSIONER SMITH: Mr. Uda.
MR. UDA: Thank you, Madam Chair, members of the
8 Commission.
9 I'm something of an outsider here. I think this
10 is the sixth State Commission I've appeared in front of on
11 PURPA issues, and from an outsider's perspective, with bits and
12 starts I think, compared to some other states I've been in, you
13 all have done a remarkable job. I think you have some very
14 important public policy questions guided by law about what you
15 are to achieve in this proceeding.
16 From my perspective, having been working in the
17 PURPA field for 21 years, I believe what I've heard here at
18 this proceeding with respect to the obligation to encourage
19 I guess, not to discourage -- QF development, I think you will
20 not hear a single project developer tell you that a five-year
21 term is sufficient. I mean, there may be some set of
22 circumstances where it could work and you could spin out some
23 hypotheticals where it could, but I think objectively speaking,
24 if you say you're going to have a five-year contract, you're
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25 not going to get any PURPA projects, or at least unless they're
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1 very unusual.

2 And I guess that's where I would part company
3

from Ms. Sasser's comments to the extent that you don't have to
encourage PURPA by having longer-term contracts. I mean, the

5 fact is if you don't have longer-term contracts, you won't get
6 any, and I guess it's up to you to decide as to whether you

7 think that's sufficiently encouraging or not. From my

8 perspective, it's not.

9 I think the second issue that I need to talk

10 about -- and I want to echo some of Ms. Nelson's remarks
11 because it applies equally to my client, Mountain Air. They

12 currently have PUC-approved tariffs -- I mean, PUC contracts.

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13 They are under construction now. And I think what we heard
yesterday during my cross-examination of Mr. Sterling is the

15 18 CFR 292.304(f) and Order 69, there is guidance there about
16 how that provision is supposed to be interpreted and whether

17 it, for example, permits a Utility to do what Utilities here or

18 at least Idaho Power is proposing to do. And reasonable minds

19 can differ over what that means, but to expect a project

20 finance team and their lawyers to look at what, to my mind, is
21 an anomalous interpretation of that particular provision of the

22 Federal Register is I think expecting a bit much.

23 So when these finance commitments were made

24 and -- they were based on certain revenue stream. And without

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25 that revenue stream, I think we heard testimony from
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about putting those projects in financial jeopardy. And just
leaving aside the legalities of it, ask yourself, is that fair?
Is it fair to expect people to anticipate interpretation to the
law that didn't exist at the time that they were negotiating
their contracts, and they should somehow have managed for them?
There's been some suggestion in this proceeding, and I think
that's not fair.
And I understand that these are difficult
situations where you have a perception, anyway, that you're
getting to the tipping point on how much wind you can
integrate, how much more renewables you have to buy, but
there's always a balance between the Utilities' interests and
they have valid interests too, and ratepayer interests are
always, of course, paramount and -- but there's also this
obligation to encourage. And I would submit to you that that
balance is not struck by the proposals that you've heard from
the Utilities in this proceeding.
I think there is a better way to accomplish some
of these objectives. I do think that the idea that you more
timely update your natural gas price forecasts and incorporate
those in the methodology that you're currently using is
probably the best way to go, it's the simplest way to go,
because if you set the price point low enough, particularly
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1 with the expiration and no guarantee of the renewable
2 production tax credits, I think that there will be a natural
3 slowing in any event. So I think you may at this point be
CIE trying to solve a problem that doesn't really exist at this
5 point. I think the problem to the extent it exists existed
6 sort of in the past moving forward, but I think there's going
7 to be a tipping point there too, and that tipping point will be
8 at the end of this year if the production tax credits aren't
9 renewed.
10 In summary, what I would say to you is that I
11 don't think Schedule 74 should apply to any PURPA contracts. I
12 think the law is very clear about the set of circumstances in
13 which FERC anticipated that 18 CFR 292.304(f) would apply. But
14 I also would say to you, you shouldn't especially apply them to
15 existing contracts, because there are going to be disputes that
16 arise out of that, and, also, I think in closing, it's simply
17 unfair to those projects.
18 Thank you, Madam Chair.
19 COMMISSIONER SMITH: Thank you, Mr. Uda.
20 Questions?
21 COMMISSIONER REDFORD: No.
22 COMMISSIONER KJELLANDER: None.
23 COMMISSIONER SMITH: Are you weighing in on this?
24 MR. SOLANDER: Are you talking to me?
25 COMMISSIONER SMITH: I am, Mr. Solander.
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1 MR. SOLANDER: Yes. I'll be very brief.
2 COMMISSIONER SMITH: Okay.

3 MR. SOLANDER: Thank you, Madam Chairman and
4 Commissioners. I don't want to belabor the issues that have

5 been discussed and raised in testimony. I just want to
6 emphasize two points, and that is the need to update all
7 aspects of the model, and the need for more frequent and annual
8 updates to the modeling.

9 Anything other than contemporaneous inputs will

10 leave us in the same situation we find ourselves now. Large QF

11 projects do have a substantial impact on the Utility and its

12 customers, and there is no reason to make sure that QF

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13 develop- -- and there is no reason not to make sure that QF

14 developers are given the most accurate pricing possible.

15 Staff agreed with the Company's analysis shown in
16 Table 1 of Mr. Dickman's rebuttal testimony that demonstrates

17 that the impact of stale information could be nearly $100
18 million for an 80-megawatt wind project. And Staff also agrees
19 that the flaw with the SAR methodology has been the lack of

20 frequent updates.

21 In RMP's view, the genesis of the controversy

22 over QF pricing has been due to inaccurate prices that have
23 been calculated using outdated assumptions and forecasts. The

24 simple solution is to provide Utilities the opportunity to use

25 every piece of known and measurable information.
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And, finally, as Mr. Dickman stated in his
testimony and was acknowledged by Mr. Sterling and Mr. Kalich,
for Rocky Mountain Power's GRID model, it is not sufficient to
update only the gas prices, but all aspects of the model,
including electric prices, must be updated to ensure an
accurate avoided cost price.
Thank you for your time and attention to this
issue.
COMMISSIONER SMITH: I have a question.
MR. SOLANDER: Yes, ma'am.
COMMISSIONER SMITH: So what is the
responsibility of Rocky Mountain Power for stale information
and outdated assumptions? Does your client have any
responsibility whatsoever to be proactive in that regard?
MR. SOLANDER: Absolutely, but if we're not given
the opportunity to update prices more often than annually, the
information will, per se, be outdated and inaccurate.
COMMISSIONER SMITH: And is that prohibition
against more frequently than annually something the Commission
has instituted?
MR. SOLANDER: I'd have to defer to Mr. Dickman
or Mr. Clements on that.
But I would note that updating the prices can
work both, you know, in the QF developer's favor or in --
COMMISSIONER SMITH: Exactly.
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MR. SOLANDER: -- ratepayers' favors. I mean,
Rocky Mountain Power isn't asking that the updates be applied
one way. We're asking that every time a contract is signed, it
be updated, so that the developer is given what is the most
accurate avoided cost price at that time.
COMMISSIONER SMITH: Well, you know, for natural
gas providers in this state, we change their rates at least
once a year. And given what we know about how gas prices move,
we have a percentage in there that and if the price in between
this annual change exceeds X percent, you have to come back
when you know that it has done that, so that we can adjust them
again.
MR. SOLANDER: As the Gas Utility?
COMMISSIONER SMITH: As the Gas Utility. So is
that kind of what you have in mind?
MR. 5OLANDER: I think that it's better described
in Mr. Dickman's testimony, but I think that any mechanism that
would allow Rocky Mountain Power to update the model as
frequently as possible, we would be in favor of.
COMMISSIONER SMITH: Thank you.
MR. SOLANDER: Thank you.
COMMISSIONER SMITH: Mr. Andrea.
MR. ANDREA: Thank you, Madam Chair. I'll,
similarly, be as brief as possible. I just want to hit on a
couple of really quick points. One is liquidated damages.
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There's been much said about liquidated damages,
and I just want to emphasize that having meaningful liquidated
damages and meaningful security is absolutely essential to
protect the Utility's ratepayers. Leaving it until the time of
the breach to calculate damages and hope that there is
unsatisfactory given the nature of QF developers. If you wait
until that point in time, you're likely to be trying to collect
damages against an entity that is not solvent and no longer
exists. Moreover, they can just reappear as another LLC --
So, liquidated damages and adequate security is absolutely
essential to protecting the ratepayers.
The only other issue I want to hit is I want to
sure that the rate that is paid to QF developers reflects our
actual avoided costs, no more and no less.
Ms. Sasser did a great job of articulating some
of the unassailable truths I think about PURPA of what it does
and does not do and I won't reiterate those, but so long as the
avoided cost rate is actually set at an accurate avoided cost
rate, then that's all that we're really asking for.
So I thank the Commission for your time and your
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consideration over many years on these issues. I'm hopeful
that we can reach a resolution that resolves most of these
issues for a significant period of time so we don't have to do
this over and over again. And I ask that the Commission adopt
the recommendations that Avista has provided in this
proceeding.
Thank you.
COMMISSIONER SMITH: Thank you.
Any questions?
COMMISSIONER REDFORD: No.
COMMISSIONER SMITH: Mr. Walker.
MR. WALKER: Thank you, Madam Chair,
Commissioners, and thank you for the opportunity to come to you
with these problems. Again, I think, you know, the amount of
attorneys and Commission Staff and people in the room that come
together and offer -- offer what they will to you for your
consideration, you know, I think it somewhat odd, but I think
everyone here can take some amount of pride in Idaho and this
Commission and many of the people in this room being somewhat
on the forefront throughout the history of PURPA on PURPA and
PURPA issues and PURPA-related matters, and not being afraid to
try to tackle these difficult questions. And so in many ways,
it's -- you know, it's been a long road to get to this point.
You know, not only with -- just with this case but with PURPA
in general, it's -- on some ways it's a 30-year road to here.
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As you deliberate on this matter, I think it's
important to keep in mind that this particular case, you know,
started with the Utility's filing back on November 25 of 2010.
It's important to remember also that this is phase three of
eligibility cap, issues of disaggregation, and this phase three
was specifically designated to look at avoided cost
methodologies and other contracting issues.
Also, I think the Commission has an advantage
here of having legal briefs that have already been submitted
and are on the record to help guide its deliberations, and
Idaho Power specifically directs the Commission to its legal
brief. And I'll not get into the specifics of those arguments
here, but I think they are on the record and they're very
important to guide your decisions in this matter.
And another comment I'd like to make, I think,
trials as they're called elsewhere -- the way those are
conducted at the hearing here, I think, you know, we have
written and prefiled direct and rebuttal examination, we have
live cross-examination that occurs at the hearing, and I think
sometimes something -- something gets lost when we're at the
time of hearing, and if not lost, sometimes the main points of
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1 the proceedings are not discussed at the hearing as much as

2 they are contained in the record in the direct and the written
3 testimony that is admitted and becomes part of the record. And

4 I think that's somewhat the case here with this hearing, and
5 although not talked about very much during the course of the
6 last couple of days, I think the most important part of this

7 case is really the detrimental effect that the implementation

8 of PURPA is having on Idaho Power customers, and on the
9 operation and reliability of Idaho Power's system.

10 During the last couple of days, we've heard a lot

11 from the Intervenors about the promotion of renewable energy

12 and development or nonutility generation and the QF's public

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13 interest, so to speak, but what has not been talked about as

14 much at the hearing but what is at least as, if not more,

15 important is the requirement that Idaho Power's customers
16 remain indifferent or neutral or unharmed by the acquisition of

17 QF energy.
Now, the harm to Idaho Power's customers has been

19 clearly laid out and firmly established and largely unrebutted

20 in this record. In fact, it's been confirmed by Staff and it's
21 been specifically recognized by this Commission in this very

22 proceeding referencing the Commission's Order responding to

23 Idaho Power's Motion to Stay wherein the Commission

24 specifically found that the current implementation of avoided

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1 Power's avoided costs, that are not just and reasonable, and
2 that are not in the public interest.

3 The evidence here shows that a very large

4 increase in QF projects online and under contract since 2004
5 with Idaho will increase power supply expense borne by our

6 customers from approximately $40 million in 2004, which took

7 approximately 20 some years to accumulate; to $60 million in

8 2009, just some five years later; that doubles to $120 million

9 in 2012, just three years after that; and ultimately arriving

10 at $167 million annually in 2014. And, once again, this

11 expense is from existing facilities that are currently

12 operating and those that are actually under contract at this

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13 moment. That number tops out at $186 dollars by 2026. That's

14 some over 450 percent increase in net power supply expense from

15 2004. And those numbers will result in dramatic annual rate

16 increases for all of our customers. They're here.

17 And a slightly different perspective in the

18 record, the average Schedule 19 or large power service customer

19 sees $138,000 of an annual increase based on these power supply

20 expenses. Our largest customers, or special contract

21 customers, see an annual increase from just under $1 million to

22 over $3.6 million annually based on these numbers. These are

23 current operating projects, current projects under contract.

24 Now, it's been suggested here and by several

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1 current methodologies in place, nothing is broken, or at the
2 most, let's update the inputs more often and more consistently.
3 Well, Idaho Power asks this Commission to take this unique
4 opportunity that we have to step back, take a look at what it
5 is that this state's implementation of PURPA should be, and to
6 seize this opportunity to make meaningful changes. Does it
7 really make sense to continue to set avoided costs based upon a
8 proxy resource or what it would cost the Utility to build and
9 operate a fictitious power plant, or does it make more sense to
10 step back and take a look at what the definition of avoided
11 cost really is: The incremental cost to the Utility of energy
12 and capacity, which but for the purchase from the QF the
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13 Utility would otherwise generate itself or purchase from
14 another source.
15 Let's not just put a Band-Aid on our previous
16 methods. Idaho Power asks you to continue to be courageous and
17 to adopt a new methodology that better comports with federal
18 law and also meets the state's obligations with regard to
19 implementing PURPA.
20 Idaho Power maintains five -- five main requests
21 of this Commission through these proceedings:
22 Number one, as I mentioned, to authorize Idaho
23 Power to use its hourly incremental cost methodology for all QF
24 pricing.
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25 Number two, to limit the term of a PURPA contract
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1 to five years.
2 Number three, to adopt the proposed Schedule 73
3 which establishes an express process and timeline for the
4 negotiation of a PURPA contract.
5 Number four, to adopt the proposed Schedule 74,
6 which, as we're well aware by now, establishes a curtailment
7 process consistent with FERC's 304(f).
8 And, lastly, we've asked the Commission to
9 establish that when a Utility makes a purchase from a QF by
10 purchasing that QF's output, the RECs associated with that
11 output also go to the Utility and its customers.
12 Now, all of these determinations are within this
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13 Commission's authority and discretion to make, and what we've
NXIM asked is supported by substantial and competent evidence that's
15 contained within this record. It's in the best interests of
16 our customers, and it is obviously ultimately in the public
17 interest.
18 Now, in conclusion, you know, some of the great
19 advantages that Idaho Power and its customers, its service
20 territory, and in fact this region enjoy from consistently
21 having among the very lowest electric rates in the nation we
22 believe have been shown to be -- are being eroded by a flood of
23 QF generation that we are all paying too much money for. Idaho
24 Power's forced -- forced to purchase this power with no regard
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25 to whether it's needed on its system, with no regard to whether
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it's called for in the Company's integrated resource planning
process, and with no regard to whether there are other
lower-cost resources available as alternatives for its
customers.
Additionally, Idaho Power is forced to deal with
the difficult tasks and problems associated with integrating
large amounts of intermittent and variable renewable generation
onto its system, once again with customers paying the resulting
price of those complications and problems. And in most
instances, the Company and its customers can't even claim the,
quote/unquote, benefits of this renewable generation in the
form of RECs, can't even claim the existence of renewable
generation on its system because of that.
Now, as I stated in this proceeding, I think the
Commission has the unique opportunity here to re-examine the
appropriateness of the methodologies that are used in this
state to set avoided cost, to re-examine the way that the State
of Idaho implements the federal requirements of PURPA, and
obviously, Idaho Power is deeply affected by these
determinations, as are its customers, as are the QF developers,
as is everybody here with an interest in these proceedings.
Idaho Power -- we believe we have proposed very
reasoned and rational solutions to these problems that both
ensures that the requirements of PURPA would continue to be met
as established by the federal government, but also that
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Idaho -- that also would enable Idaho Power to continue to meet
its requirements of providing safe, reliable, and low-cost
power to its customers.
We believe that the Company's proposals are
within the Commission's discretion and authority, that there is
substantial and competent evidence in this record to support
findings implementing all of those recommendations, that they
are in the public interest, that they are specifically designed
to comply with the federal requirements that you're charged
with implementing, and, ultimately, we ask respectfully that
you implement them as we requested.
COMMISSIONER SMITH: Any questions?
COMMISSIONER REDFORD: No.
COMMISSIONER SMITH: Nor I.
Well, Mr. Miller.
MR. MILLER: Just one point: Mr. Walker did
correct an error in my oral presentation, and I thank him for
the correction.
COMMISSIONER SMITH: Okay. Thank you,
Mr. Miller.
And I want to thank all of the participants. I
know the issues involved in these hearings are really
important, and to all your clients and all the lawyers, your
views are strongly held. But I do appreciate that you were all
able to make your points with civility and courtesy, and I do
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appreciate that in the hearing room, because I think we can all
and we do disagree, but we don't need to be disagreeable to
each other. And I appreciate all of your participation and
your thoughtfulness.
The record in this proceeding is closed. I don't
think there are any late exhibits coming, or any other
opportunity for filings or briefs. I would note that we
occasionally still get e-mailed comments from members of the
public, and I think that's just in the ordinary course of
business, we do get those.
So this is the point at which if I made any
errors in not admitting any exhibits, they are hereby admitted
by Commission Rule, and I appreciate that.
(Clearwater Paper Corporation, et al,
Exhibit Nos. 501 through 514 and 516 through 520, Renewable
Energy Coalition Exhibit No. 801, Dynamis Exhibit Nos. 1002 and
1003, Idaho Wind Partners Exhibit Nos. 2101 through 2120, and
Ridgeline Exhibit No. 2201 were admitted into evidence.)
COMMISSIONER SMITH: And I wish you all well and
safe travels.
The Commission understands the importance of
these issues and the need for a timely resolution, and we will
do our best to -- well, we probably won't move at the speed of
light, but we will go as quickly as we can.
Thank you all. I appreciate your participation.
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The hearing is adjourned.
(The hearing adjourned at 10:34 a.m.)
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AUTHENTICATION
This is to certify that the foregoing is a
true and correct transcript to the best of my ability of the
proceedings held in the matter of the Commission's review of
PURPA QF contract provisions including the Surrogate Avoided
Resource (SAR) and Integrated Resource Planning (IRP)
methodologies for calculating published avoided cost rates,
Case No. GNR-E-11-03, commencing on Tuesday, August 7, 2012,
through Thursday, August 9, 2012, at the Commission Hearing
Room, 472 West Washington, Boise, Idaho, and the original
thereof for the file of the Commission.
Accuracy of all prefiled testimony as
originally submitted to this Reporter and incorporated herein
at the direction of the Commission is the sole responsibility
of the submitting parties.
WENDY J.MU,.RR-\Y,tNotary Pubi
in and for .th'e State of Ida o,
residing at Meridian, Idaho.
My Commission expires 2-8-2014.
Idaho CSR No. 475
*t Doc
o
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