20040921Vol I.pdf

) CASE NO. rpC-E- 04 - 8
) CASE NO. IPC-E-,04 -
BEFORE THE IDAHO PUBLIC
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U . S. GEOTHERMAL , INC., AN
IDAHO CORPORATION
Complainant,
vs.
IDAHO POWER COMPANY , AN
IDAHO CORPORATION
Re sponden t .
BOB LEWANDOWSKI and MARK
SCHROEDER
Complainants,
vs.
IDAHO POWER COMPANY, AN
IDAHO CORPORATION,
Respondent.
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BEFORE
COMMISSIONER MARSHA H. SMITH (Presiding)
COMMISSIONER PAUL KJELLANDER
COMMISSIONER DENNIS HANSEN
PLACE:Commission Hearing Room
472 West Washington
Boise, Idaho
DATE:September 2 , 2004
VOLUME I - Pages 1 - 252
CSB REpORTING
Constance S. Bucy, CSR No. 187
17688 Allendale Road * Wilder, Idaho 83676
[phone] *[phone]
Email csb~spro.net
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For the Staff:Scott Woodbury, Esq.
Deputy At torney General
472 West Washington
Boise , Idaho 83720 - 0074
For Idaho Power:Barton L. Kline, Esq.I daho Power Company
Post Office Box
Boise , Idaho 83707 - 0070
For U. S. Geothermal:GIVENS PURSLEY LLP
by Conley E. Ward, Esq.
Post Office Box 2720
Boise , Idaho 83701-2720
For Bob Lewandowski
and Mark Schroeder:RI CHARDSON & 0' LEARY
by Peter J. Richardson, Esq.
Post Office Box 1849Eagle, Idaho 83616
For Avista Corporation:PAINE HAMBLEN COFFIN BROOKE
& MI LLER
by R. Blair Strong, Esq.
71 7 West Sprague Avenue
Suite 1200
Spokane, Washington 99201
For PacifiCorp:STOEL RIVES LLP
by James R. Fell, Esq.900 S. W. Fifth Avenue
Suite 2600
Port 1 and , Oregon 97204
CSB REPORTING
Wilder , Idaho
AP PEARANCE S83676
WITNESS EXAMINATION BY
Mr. Ward (Direct)
Prefiled Direct Testimony
Mr. Kline (Cross)
Commissioner Kj ellanderMr. Ward (Redirect)
Mr. Ward (Direct)
Prefiled Direct Testimony
Mr. Kl ine (Cross)
Mr. Woodbury (Cross)Mr. Ward (Redirect)
Commissioner Kj ellander
Mr. Ward (Direct)
Prefiled Direct Testimony
Mr. Kline (Cross)
Mr. Woodbury (Cross)
Mr. Fell (Cross)
Mr. Strong (Cross)
Commissioner Kj ellanderCommissioner Smith
Mr. Ward (Redirect)
Mr. Ward (Direct)
Prefiled Direct Testimony
Mr. Ward (Direct-Cont' d)
Prefiled Rebuttal Testimony
Mr. Kline (Cross)
Mr. Woodbury (Cros s)
Mr. Fell (Cross)
Mr. Strong (Cross)Mr. Richardson (Cross)
Commissioner Smith
Mr. Ward (Redirect)
PAGE
111
117
120
130
132
135
137
142
144
187
189
228
237
238
241
245
247
250
Daniel Kunz
(U. S. Geothermal)
Bill Sutherland
(U. S. Geothermal)
Kevin Kitz
(U . S. Geothermal)
Kip Runyan
(U. S. Geothermal)
CSB REPORTING
Wilder , Idaho 83676 INDEX
NUMBER DESCRIPTION PAGE
FOR u. S. GEOTHERMAL , INC.
Resume of Daniel Kunz Premarked
Resume of Kevin Kitz , P.Premarked
Resume of Kip W. Runyan , P. E .Premarked
4 . 1 Comparison of CSPP & Idaho
Power Generation Record
Premarked
CSPP Generation Record Premar ked
Idaho Power Generation Record Premarked
CSB REPORTING
Wilder , Idaho
EXHIBITS83676
BOISE , IDAHO, THURSDAY , SEPTEMBER 2, 2004, 9: 30 A.
Good morning, ladiesCOMMISSIONER SMITH:
and gent emen .This is the time and place scheduled for
a hearing in two cases which have been consolidated for
the purpose, I think , of hearing:Case No. IPC-04-
U. S. Geothermal , an Idaho corporation , Complainant,
versus Idaho Power Company, Respondent and secondly,
Case No. IPC-E- 04 -10, Bob Lewandowski and Bob (Mark)
Schroeder , Complainants , versus Idaho Power Company,
Respondent.
We'll first take the appearances of the
parties and we'll begin with U. S. Geothermal.
Conley Ward for U. S.MR . WARD:
Geothermal.
COMMISSIONER SMITH:Okay, and for
Schroeder and Lewandowski.
MR. RICHARDSON:Thank you,
Madam Chairman.Peter Richardson of the firm Richardson
& 0' Leary appearing on behal f of Mr. Lewandowski and Mr.
Schroeder.
COMMISSIONER SMITH:Thank you, and for
Idaho Power Company.
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Wilder, Idaho
COLLOQUY
83676
MR. KLINE:Bart Kl ine appearlng for Idaho
Powe r .
COMMISSIONER SMITH:Then we have other
parties in this case, including the Commission Staff.
MR. WOODBURY:Scott Woodbury, Deputy
Attorney General , for Commission Staff.
COMMISSIONER SMITH:And PacifiCorp.
MR . FELL:James Fell for PacifiCorp.
COMMISSIONER SMITH:And Avista
Corporation.
MR . STRONG:Blair Strong for Avista
Corpora t ion.
COMMISSIONER SMITH:Okay, I think
everyone should be familiar with the sound system in the
Hearing Room.In order for the other people in the room
to hear you when you're speaking, you need to push the
little place on your microphone that says touch so that
the red light comes on and your mic is active.This
means you should also press the touch button and make the
light go off when you are making comments you don't wish
to be heard by the rest of the room.
Are there any preliminary matters that
need to come before the Commission before we begin taking
the testimony of the witnesses?
Mr. Ward.
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Wilder , Idaho
COLLOQUY83676
MR. WARD:I guess we have to settle on
the order of presentation and I have not talked to
everyone , but it seems to me the most sensible version
would be U. S. Geothermal first, the other Complainants
next , then Idaho Power and then I'm indifferent
thereafter.
COMMISSIONER SMITH:Okay, that was the
outline I had been given.If that's acceptable to
everyone, we'll proceed along those lines.I f there are
any wi tnesses wi th time constraints that I need to know
about, please let me know.
MR. WARD:I have one other prel iminary
matter as well.
COMMISSIONER SMITH:Mr. Ward.
MR. WARD:Mr. Schochet' s testimony we
prefiled will not be able to attend because of other
business commitments, so we will be withdrawing his
testimony.
COMMISSIONER SMITH:Okay.If there'
nothing further , then we'll begin , Mr. Ward, wi th the
presentation of your case.
MR. KLINE:I guess one final question,
Conley, is it your intention to put both direct and
rebuttal on at the same time?
MR. WARD:Yes, that would be my
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preference.
COMMISSIONER SMITH:Okay.
MR . WARD:Thank you, Madam Chair , and
before I begin , I'd like to make a brief opening
This case has turned out, I'm sorry to say,statement.
very much as I feared it would when u. S. Geothermal filed
its complaint and we had the first request for
consol ida t ion of the proceeding and then, of course,
intervent ion.We're now to the point where much of the
original complaint has been completely lost sight of in
the testimony.
We have a specific contract that we have
tendered to Idaho Power and we are asking the Commission
to direct Idaho Power to sign that contract.This
complaint did not raise general issues about the
applicability of PURPA rates or their wisdom or the
method of calculating them, all of which have been
interj ected into this proceeding by the other parties.
This complaint raised three distinct
issues.The first issue is what we have referred to as
the regulatory out provision that Idaho Power
requesting.Essentially, the Company would like the
ability to unilaterally terminate contracts if it finds
itself or if it believes that it has been prejudiced by
some change in the law in the future.Now , howeve r
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COLLOQUY
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minimal that possibility may be, it's nevertheless a
problem for PURPA developers and for U. s. Geothermal in
particular , and it seems to me we don't really even have
an issue here, because the Company's basic reason for
this provision , their argument is they need this
provision to avoid the appearance of being a volunteer
should they be stuck wi th uneconomic contracts in some
future proceeding.
Well, obviously, if the Commission orders
that prOVlSlon removed from the contract , it is, In
effect, ordering the Company to proceed and any
implication that it would be a volunteer would obviously
be moot, so I think we don't even have an issue in that
regard.
That leaves the two other maj or issues on
the table.The first is the open question of eligibility
for posted rates.The Commission has in the past, as you
well know , said that posted rates would be available to
proj ects of 10 megawatts or less.It has never defined
what 10 megawatts means in that regard , although there
have been other proceedings very recently that have given
some clue, perhaps, to the Commission's intention or at
least told us in the natural resources case what the
megawatt limit does not mean , but we still have that
undefined.
CSB REPORTING
Wilder , Idaho
COLLOQUY
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Now , this has led to a wave of testimony
from the utilities on this issue that has nothing to do
with the complaint in front of the Commission.
Geothermal proposed a definition of 10 megawatts that
believes is reasonable and Mr. Kitz in particular
explains why it is a reasonable engineer's defini tion of
10 megawatts.The contract actually tendered to Idaho
Power contains the proposed net energy per month that we
believe to be consistent with the 10 megawatt definition
and further offers Idaho Power an additional protection
in tapping the amount that may be delivered in any single
month.Now , that's the issue before the Commission and
not all of these other hypothetical scenarios that are
being submitted and testified to by the utilities.
Finally, there's the issue of whether
cogenerators or PURPA producers should be penalized
their output deviates by more than 10 percent from their
estimates.I would submi t to you that , first of all,
this is a collateral attack on the Commission's orders
establishing the posted rates.Essentially, the
companies are now arguing that the test for whether
you re entitled to posted rates doesn't have anything to
do wi th the surrogate avoided resource or the
Commission's prior decision, but instead should be based
on what a market provider would do, would be obligated to
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COLLOQUY
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do in the context of a firm sale to a utility.I submi
to you that that , too, is irrelevant to this proceeding.
The question here is whether we are
eligible for the posted rates and those posted rates will
not in fact be earned by a PURPA producer if the
companies', if the utilities' interpretations are
accepted.It's just that simple; so with that, I'd like
to point out the fact that I probably will not chase
every rabbi t that's been introduced into this proceeding
by the utilities on cross-examination , but it certainly
does not mean that I accept the proposition that those
arguments are relevant and with that, I'm ready to call
my first witness.
COMMISSIONER SMITH:Thank you, Mr. Ward.
MR. RI CHARDSON :Madam Chairman.
COMMISSIONER SMITH:Mr. Ri chardson
MR. RI CHARDSON :May I also respond to
Mr. Ward?
COMMISSIONER SMITH:If you'd like to do
that now , I think there's an opportunity for openlng
statements now or when you present your case.
MR. RI CHARDSON :Thank you,
Madam Chairman.I would ike to do that now because
don't want to be seen as having sat on my rights, so to
speak.I agree wi th Mr. Ward that there are only three
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COLLOQUY
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issues in this docket and the three that Mr. Ward
outlined.A lot of additional issues have been
introduced by the intervenors and the Respondent that are
outside of the scope of this case and I seriously
considered filing a motion to strike a large portion of
the testimonies that were filed by the other parties but
decided not to do it.
Similarly to Mr. Ward , I am not going to,
as he so colorfully puts it, chase all the rabbits that
are runnlng around this field because the only three
issues that the world has been put on notice that the
Commission is going to be deciding are the three issues
in these complaints , not the issues such as discounts for
particular technologies or applicability of QF rates
depending upon the type of technology, those aren'
properly before the Commission and if the Commission
decides to rule on those issues , I believe it would have
to put out a notice to the world because there are a lot
of other parties out there who would be vitally
interested in those issues should you decide that those
are ripe for your consideration; so that would conclude
my openlng statement , Madam Chairman.
COMMISSIONER SMITH:Thank you
Mr. Ri chardson
Does the Respondent or any of the
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COLLOQUY83676
intervenors wish to make an opening statement?
first witness.
Wi th that, Mr. Ward, we're ready for your
MR . WARD:Thank you.We'd call Dan Kunz
to the stand.
COMMISSIONER SMITH:We'll be off the
record for a few minutes.
record.
(Pause in proceedings.
COMMISSIONER SMITH:We'll be back on the
DANIEL KUNZ
produced as a wi tness at the instance of the Complainant
u. S. Geothermal , having been first duly sworn , was
examined and testified as follows:
BY MR. WARD:
DIRECT EXAMINATION
Mr. Kunz , would you state your name and
business address for the record?
CSB REPORTING
Wilder , Idaho
My name is Daniel James Kunz.My business
address is 1509 Tyrell Lane , Suite B , Boise , Idaho.
capaci ty?
And by whom are you employed and in what
KUNZ (Di)
U . S. Geothermal
I am employed by U. S. Geothermal and I'
the president and CEO.
CSB REPORTING
Wilder , Idaho
Thank you.In preparation for this
proceeding today, did you cause to be prepared prefiled
I did.
And do you have any corrections or
addi tions to that testimony?
No, I don'
If I asked you the questions contained in
that prefiled testimony today, would your answers be as
Yes, they would.
And did you al so prepare Exhibi t No.
which is your resume?
I did.
All right , thank you.
Madam Chair , we'd request that Mr. Kunz' s
testimony be spread on the record as if read and his
exhibit identified as Exhibit No.
COMMISSIONER SMITH:Without objection , it
testimony?
(The following prefiled testimony of
Mr. Daniel Kunz is spread upon the record.
given?
is so ordered.
KUNZ (Di)
U . S. Geothermal
PLEASE STATE YOUR NAME AND ADDRESS FOR THE RECORD.
My name is Daniel Kunz , and my business address
1509 Tyrell Lane , Suite B , Boise ID 83706.
BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY?
I am the Chief Executive Officer of U.
Geothermal , Inc.
PLEASE DESCRIBE YOUR DUTIES AS U. S GEOTHERMAL'S CEO.
As chief executive I am responsible for the overall
acti vi ties of the company and one of my key duties is to
secure financing for the development of the company and
its proj ects.
BY WHOM WERE YOU EMPLOYED BEFORE YOU JOINED U. S .
GEOTHERMAL?
I am a founder of U. S. Geothermal and was previously
employed as President and CEO at Ivanhoe Mines Ltd. I am
a 26 -year resident of Boise and a former executive and
1 7 -year employee of Morrison Knudsen Corporation.A full
resume is at tached to my testimony as Exhibi t No.
WHERE WAS U. S. GEOTHERMAL INCORPORATED?
U. S. Geothermal was incorporated in Idaho in
February of 2002.
WOULD YOU PLEASE BRIEFLY EXPLAIN THE NATURE OF U. S.
GEOTHERMAL'S BUSINESS?
The company owns the former U. S. Department of
Energy geothermal power proj ect at Raft River near
CSB REPORTING
Wilder, Idaho
KUNZ (Di)
U . S. Geothermal83676
Burley, Idaho.
HOW DID U. S. GEOTHERMAL FIRST BECOME INTERESTED IN
THE RAFT RIVER SITE?
During the energy crisis of the late 1970' s, the
U. S. DOE selected the geothermal energy resource
underlying the Raft River valley in Southern Idaho as the
location for the
CSB REPORTING
Wilder , Idaho
KUNZ (Di)
U . S. Geothermal83676
world's first binary cycle geothermal power plant.After
expenditures of nearly $40 million the demonstration
proj ect was successfully completed.The proj ect
generated electrical power from 5 existing hot water
production wells and two inj ection wells.While places
like the Geysers in California have made electrical power
using steam directly from the earth to turn turbines,
this was the first time electrical power was made uslng
the hot fluid from the earth that was transferred through
a heat exchanger to boil organic working fluids like
pentane to turn the turbines.By late 1982 the proj ect
was completed and in 1984 the proj ect was turned over to
private enterprise.
After nearly 20 years of inactivity due to market
condi tions and technology issues, the proj ect was
acquired by U. S. Geothermal , Inc.The proj ect includes
production wells , 2 inj ection wells , and 7 moni toring
wells, together with shop office and warehouses and
nearly 6 square miles of energy rights.The old U. S .
Department of Energy power plant has been removed
however; and wi th the advances in geothermal and binary
cycle generation , a new power plant is now being proposed
for the si te.
PLEASE DESCRIBE U. S. GEOTHERMAL'S PRELIMINARY
INVESTIGATION OF THE SITE.
CSB REPORTING
Wilder , Idaho
KUNZ (Di)
U . S. Geothermal83676
The company hired GeothermEx , a leading expert in
worldwide geothermal proj ects and development, to
investigate the energy resource at Raft River.
GeothermEx's report utilized a significant amount of U. s.
DOE data that the company acquired wi th the proj ect The
report is dated August 2002 and concludes that the Raft
River resource area may be capable of producing up to
15.6 megawatts of electrical power from each square mile
of land in the resource area.
CSB REPORTING
Wilder, Idaho
KUNZ (Di)
U . S. Geothermal83676
PLEASE EXPLAIN THE NATURE OF U. S. GEOTHERMAL'
RIGHTS TO DEVELOP THE GEOTHERMAL RESOURCE.
U. S. Geothermal acquired leases and fee simple
ground that encompass the center of the geothermal energy
resource.The acquisi tion was completed last year and
includes the existing buildings , improvements, wells and
well heads.The company ei ther owns or leases the energy
rights. The company also leases access rights to the
surface for ingress and egress.
WOULD YOU PLEASE PROVIDE THE COMMISSION WITH A
GENERAL OVERVIEW OF CURRENT ACTIVITIES AT RAFT RIVER.
The current field program has two elements:well
testing and aquacul ture test work.The company al
applied for , and was awarded in mid 2003, a $400,000
cost-sharing grant from the U.S. DOE.The grant was
first used to inspect each well with a fiber optic
camera.The wells are each over one mile deep and the
fiber optic camera was used to assess the physical
condition of the wells after 20 years of inactivity.
Each well was found to be in very good condition with
only minor amounts of scaling on the wellbore. Two wells
had minor debris and equipment left behind in the well
from the earlier programs in the 1980' s.
The grant was also used to bring a large
workover rig and associated support equipment to remove
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Wilder, Idaho
KUNZ (Di)
U . S. Geothermal83676
the equipment and debris from the wells and to open
flapper valves that were installed by the DOE part way
down each well to prevent the resource from flowing.
order to flow test the wells, the workover rig installed
a stinger to open the flapper valves.Thi s work was
completed successfully and each production well is now
open for flow.The test work also includes a flow test
for each well that is now ongoing.
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Wilder , Idaho
KUNZ (Di)
U . S. Geothermal83676
A Leams separator was attached to each well and the well
is allowed to flow for 24 to 48 hours through the
separator.The separator is fully instrumented to
recover key data ike pressure, temperature, volume and
the various rates of decline or change from each data
point.In addition samples of water , steam and
condensate were collected to analyze fluid chemistry.
In addition , the company has entered into a
development agreement wi th Idaho RedClaw Farms , a private
firm specializing in the production of fresh water
lobster.A small-scale test plan is underway at site to
use some of the cascade energy to develop a potential
aquacul ture business.The core activity on site
focused on determining the power production potential of
the 5 existing wells so that a final design can be
completed for the construction of a new power plant.
WHAT REMAINS TO BE DONE BEFORE YOU CAN PROCEED WITH
DEVELOPMENT OF THE RAFT RIVER RESOURCE?
There are essentially four maj or tasks to be
completed before we can actually begin generation of
electrici ty at Raft River.First , we have to complete
the well testing in order to determine the current
capaci ty of the existing well field.Second , we need to
secure a power sales agreement.Completion of the power
sales agreement will enable us to proceed to the next
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KUNZ (Di)
U. S. Geothermal83676
maJ or tasks, which are to arrange financing for the
Facility and complete the final engineering of the
Facili ty.With these activities completed the company
can then construct and operate the new power plant.
YOU STATED THAT YOU MUST ENTER INTO A POWER SALES
AGREEMENT BEFORE FINALIZING FINANCING.WHY I S THE POWER
SUPPLY AGREEMENT A NECESSARY PREDICATE TO FINANCING?
CSB REPORTING
Wilder , Idaho
KUNZ (Di)
U . S. Geothermal83676
Investors in a proj ect such as the Raft River
Facility have to know the specific details of the power
sales agreement in order to determine whether , and on
what terms and conditions , they are willing to provide
either debt or equity financing.The power sales
agreement is a crucial part of the financing effort and
will impact raising both the corporate equi ty and the
proj ect debt at Raft River.
DOES YOUR ANSWER IMPLY THAT YOU ARE WAITING FOR THE
EXECUTION OF THE POWER SALES AGREEMENT BEFORE YOU
APPROACH POTENTIAL INVESTORS?
No.As a practical matter , proj ects such as this
requlre more or less simul taneous negotiations wi
potential investors and the purchasing utili ty.We first
contacted Idaho Power in mid 2002 , and received our first
draft of the power sales agreement in January of 2003.
We have been in contact wi th potential investors almost
as long.I have assumed primary responsibility in
dealing with investors and lenders , while our COO, Doug
Glaspey, has taken the lead in the utility negotiations.
It is fair to say that the execution of the power sales
agreement is the single most important step in the minds
of the investors to allow them to make serious and
potentially binding proposals for proj ect and corporate
financing.
CSB REPORTING
Wilder , Idaho
KUNZ (Di)
U . S. Geothermal83676
WHAT IS THE STATUS OF YOUR DISCUSSIONS WITH
POTENTIAL LENDERS?
For obvious business reasons, I would prefer not to
disclose the specifics of our negotiations wi th potential
investors who I hope will be competing to finance the
Raft River Facility.But I can say we have experienced
considerable interest in both the debt and equi
components of our financing needs from a number of firms.
These companies include Toll Cross Investments, Frasier
Mackenzie Limi ted , of Toronto , Salman Partners
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KUNZ (Di)
U . S. Geothermal83676
of Vancouver, Manulife Financial , a Canadian-based
financial services group serving millions of customers in
19 countries and territories worldwide and Ormat, a
geothermal equipment. manufacturer and service provider.
Based on my discussions with these potential investors
and/ or enders, I am convinced that we can finance the
Facility at acceptable rates if we can secure a
reasonable contract with Idaho Power at the posted rates.
AND WHAT IS THE STATUS OF YOUR NEGOTIATIONS WITH
I DAHO POWER?
I can best summarize the current situation as an
lmpasse.The parties have diametrically opposed views on
three key issues that will have to be resolved by this
Commission.That, of course , is the reason why we filed
this Complaint.
PLEASE DESCRIBE THE FIRST OF THOSE ISSUES.
The first issue has to do with the definition of a
10 megawatt plant for the purpose of determining whether
a facility is eligible for the Commission's published
rates.Other witnesses will address this issue in more
detail , so I will confine myself to a brief overview of
U. S. Geothermal's posi tion.
The Raft River proj ect is unlque because
will be Idaho's first commercial geothermal power plant.
The thermal plant will rely on air-cooling to achieve the
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KUNZ (Di)
U . S. Geothermal83676
electrical output.Air-cooling is subj ect to seasonal
variations, wi th the cold of winter supplying very high
efficiencies in cooling, and the heat of summer producing
the opposi te effect.Therefore, even though the plant
output will swing from 8 megawatts in the peak of summer
to just over 12 megawatts in the dead of winter due to
the seasonal ambient temperatures , the overall plant
annual output will average 10 MW.This is the
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KUNZ (Di)
U . S. Geothermal83676
true rated capaci ty of such a plant.We feel strongly
that the plant should qualify as a 10 MW QF and be
measured on its performance on an annual basis.
WHY IS THI S I SSUE IMPORTANT?
Idaho has vast geothermal potential, and to allow
its development the Commission needs to recognize the
specific physical elements that govern geothermal energy
genera t ion.If the Commission were to adopt Idaho
Power's proposed definition of the 10 megawatt cap,
would distort the economics of geothermal energy and
severely constrain its development.
HOW WOULD IDAHO POWER'S PROPOSAL DISTORT THE
ECONOMICS OF GEOTHERMAL POWER?
The financing structure for a geothermal plant must
match the economic realities of the plant's output.
on an annual basis , the power sales agreement allows the
first 10 megawatts to be sold to Idaho Power for the
posted QF rates, then we can build a plant that can
amortize its capital costs over a reasonable period.But
if we are limi ted to a 10 MW turbine, we could never
deliver anything close to an average of 10 MW per year.
This is because of the seasonal variations I discussed
earlier , and because Raft River will have a relatively
large parasitic load (the draw of electrical power for
pumps and cooling fans) Our turbine has to be big
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KUNZ (Di)
U . S. Geothermal83676
enough to generate sufficient power to run the in house"
load , overcome the variations in ambient temperatures,
and still generate 10 megawatts over the course of one
year to sell to Idaho Power.
This plant, wi th its own fuel supply, will
become a long-term power source that will be insulated
from energy price shocks associated with fossil fuels.
Geothermal plants are highly predictable and reliable
plants , with overall capacity utilization in the
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KUNZ (Di)
U . S. Geothermal83676
high 90 percentile range.The plant will be a baseload
Idaho Power facility with all the benefits of a baseload
thermal plant.
WHAT IS YOUR RECOMMENDATION TO THE COMMISSION
REGARDING THIS ISSUE?
I recommend that the defini tion of the cap for
published rates be based on 10 megawatts annual average
production , and not 10,000 kilowatts in any single hour.
WHAT IS THE SECOND ISSUE YOU ARE ASKING THE
COMMISSION TO RESOLVE?
Idaho Power is proposing an extremely onerous
liquidated damages provision if energy deliveries are
less than 90 percent, or more than 110 percent, of
scheduled "Net Energy.Deliveries of power in excess
110 percent of "Net Energy" would get only 85% of the
market price, or the contract rate, whichever is less.
The shortfall penal ty equates to 85 percent of market
prices , less the contract rate , for any supply shortfall
below 90% of the scheduled "Net Energy" amount.La ter
wi tnesses wi th more regulatory expertise than I will
explain why this provision is unfair and unreasonable.
But I want to draw the Commission's attention to one
aspect of this proposal that is within my area of
expertise.In my opinion , the Raft River proj ect and
most other QF proj ects will not be able to obtain
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KUNZ (Di)
U . S. Geothermal83676
financing if the power sales agreement contains such
provision.
WHAT IS THE BASIS FOR YOUR OPINION?
This provision would expose U. S. Geothermal to
unquantifiable, and virtually unlimited, risks if a
shortfall were to coincide with a spike in power prices.
Prospective debt and equi ty investors are well aware of
the recent history of outlandish prices in Pacific
Northwest electrici ty markets.Most rational investors
are simply not going to accept this
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KUNZ (Di)
U . S. Geothermal83676
type of exposure, and the few who might do so would want
an exorbi tant return in exchange for assuming such a
risk.
LET'S TURN TO THE FINAL I SSUE DESCRIBED IN THE
COMPLAINT.WOULD YOU PLEASE EXPLAIN IDAHO POWER'S
DEMANDS ON THIS ISSUE?
Idaho Power wants to include a "regulatory out"
clause that would allow it to terminate the power sales
agreement if the advent of retail electric competition
were to prevent it from recovering its costs associated
wi th the power sales agreement.
IS IDAHO POWER'S POSITION REASONABLE?
No.In the first place, Idaho Power does not need
the regulatory out" clause.The power sales agreement
will only become effective wi th this Commission'
approval and commitment to allow Idaho Power to include
the cost in its rates.I f there is a change in
regulatory status, Idaho Power would still be able to
submit the cost recovery lssue to the commission and , if
necessary, the courts.
WHAT HAS BEEN THE REACTION OF POTENTIAL INVESTORS TO
THIS PROPOSED PROVISION?
As testimony from a prospective proj ect lender will
show , the proposed provision creates an unnecessary
uncertainty as to the validi ty of the power sales
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KUNZ (Di)
U . S. Geothermal83676
agreement.It is clear that lenders will not take the
risk that the agreement can be cancelled by an event of
thi s kind.Even if others consider the risk remote or
small , lenders will not be able to price the risk in the
loan , and will therefore elect not to lend under these
circumstances.
WHAT IS THE REMEDY YOUR ARE SEEKING FROM THE
COMMISSION?
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KUNZ (Di) 10a
U . s. Geothermal83676
We are asking the Commission to rule in U. S.
Geothermal's favor on each of these contested issues, and
for an order directing Idaho Power Company to execute a
power sales agreement in substantially the form proposed
In Exhibi ts A and B of the Complaint.
DOES THI S COMPLETE YOUR TESTIMONY?
Yes , it does.
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KUNZ (Di)
U . S. Geothermal83676
open hearing.
(The following proceedings were had in
MR. WARD:And wi th that, Mr. Kunz
available for cross-examination.
COMMISSIONER SMITH:Mr. Ri chardson , do
you have questions for Mr. Kunz?
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Wilder , Idaho
MR. RICHARDSON:I have no questions
Madam Chairman.
COMMISSIONER SMITH:Thank you.
Madam Chairman.
Mr. Kline.
MR. KLINE:I do have a few questions,
BY MR. KLINE:
CROSS - EXAMINATION
Mr. Kunz , I'd ike to direct your
attention to page 8 of your testimony, please.
Okay.
And on the top of page 8 , you talk about
Idaho's vast geothermal potential.Are you wi th me
Yes.
And you go on to say that if the
Commission were to adopt the proposal for the 10 megawatt
there?
KUNZ (X)
U . S. Geothermal83676
definition that the Company has proposed that there
some risk that that potential wouldn't be developed.
think that's an accurate summary of that portion of your
testimony, is it not?
Certainly as it relates to Raft River.
Okay, but PURPA isn't the only way that
geothermal resources can be developed in the State of
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Well , I would say that that's true , yes.
And are you aware that Idaho Power
Company's 2004 integrated resource plan anticipates
issuing an RFP or request for proposals in 2005 to
acqulre 100 megawatts of geothermal energy?
I only learned of that yesterday,
believe, when I was able to review that material.
Okay.Would you anticipate that u. S.
Geothermal might bid some of the Raft River output to
Idaho Power in response to that RFP?
We look forward to that opportuni ty.
If you chose not to participate in that
still seek to sell energy to Idaho Power
Our current position is that we are
seeking to develop the first phase of Raft River , which
is approximately 10 megawatts , under the PURPA
Idaho , i s it?
RFP would you
unde r PURPA?
KUNZ (X)
U . S. Geothermal83676
legislation.
Is there a problem , though , or is there
wi thdraw that.Mr. Kunz , in your testimony you address
the two contested contract provisions.I think you refer
to them as the liquidated damages provision and the
regulatory out provision; is that correct?
Yes.
And in reading your testimony, I think
it's fair to say that you are testifying that inclusion
of ei ther or both of those two contested provisions would
make the Raft River proj ect unfinanceable; is that
accurate?
In my experience to date in discussing
with potential lenders and investors, yes.
Now, Idaho Power included both of those
two contested provisions in the first draft of the
contract that it sent to U. s. Geothermal early in 2003;
is that correct?
Yes.
And I understand from Mr. Ki tz' s testimony
that in spi te of the fact that Raft River and Idaho Power
were apparently at loggerheads on these two contested
provisions, U. s. Geothermal has continued to expend
development monles; is that correct?
That's right.
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KUNZ (X)
U. S. Geothermal83676
Have you read the testimony of Commission
Staff witness Sterling?
Yes.
Now , Mr. Sterling in his testimony
indicated that very early in the process in discussions
he had wi th U. S. Geothermal personnel , he advised them
that they ought to ask Idaho Power to do what's called an
IRP methodology for computing rates.Do you recall that
testimony?
He mentioned that in his testimony.
So from really the earliest days of the
negotiations between Idaho Power and U. S. Geothermal,
u. S. Geothermal knew that there were serious contract
issues that could make the proj ect unfinanceable, the two
contested contract provisions , and you also knew that at
least in the minds of the Staff there was a serlOUS
consideration that perhaps the posted rates would not be
available; isn't that accurate?
, that's not.
All right , could you please explain why
you don't think that's a correct statement of the facts
as they existed?
Yes.The Staff person Sterling mentioned
it in passlng as a comment to one of our people; however
we're a small development company, very small development
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KUNZ (X)
U . S. Geothermal83676
company, and we ralse our capital incrementally and then
spend it very carefully and so we don't have a lot of
resources to be pursulng a variety of different scenarios
that may unfold or may not unfold.We were relying
generally on our knowledge of the PURPA legislation and
our confidence that this proj ect met all of that cri teria
early on based on our analysis at the time and then we
put all of our energies and our precious resources behind
that effort.
All right; so you made a business decision
to continue to lncur expenses and pursue the development
of this proj ect even though you certainly had notice that
there were some serious contract problems and at least
some potential for a rate issue; isn't that correct?
Well , essentially we were initiating our
discussions wi th Idaho Power , exchanging contract drafts
and learning at that time that these issues were starting
to evolve.We always fel t, however , that the provisions
could be negotiated in the context of meeting our needs
under the PURPA legislation.
MR. KLINE:All right.That's all the
questions I have for this witness.
COMMISSIONER SMITH:Thank you , Mr. Kline.
Mr. Woodbury, do you have questions?
MR. WOODBURY:, Staff has no
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KUNZ (X)
U . S. Geothermal83676
questions.
COMMISSIONER SMITH:Mr. Fell.
MR . FELL:No questions.
COMMISSIONER SMITH:Mr. Strong.
MR . STRONG:No questions.
COMMISSIONER SMITH:I s there any
redirect , Mr. Ward?, wait a minute, stop.
question.
Commissioners.
COMMI S S IONER KJELLANDER:I have a
Kj ellander.
COMMISSIONER SMITH:Commissioner
EXAMINATION
BY COMMISSIONER KJELLANDER:
Mr. Kunz , as I think I understand the
testimony, the proj ect you have fluctuates from
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Wilder , Idaho
megawatts to 12 megawatts depending on the season; lS
Generally speaking.What we've done is
that correct?
design it for its normal operating condition and we will
acqulre a plant that is based on that normal operating
design and then as the temperature or air cooling varies
beyond that normal period, the output will go up or
KUNZ (Com)
u . S. Geothermal83676
down.
But the 8 megawatts seems to be the floor;
is that correct?
For the plant Slze we're talking which
would average over an annual period of approximately
net megawatts, 8 would be the lower end of it and
would be the upper end of it, 12 point something.
I guess the question I have, then , is what
consideration did your company consider wi th regards to
maybe looking at an 8 megawatt contract as opposed to a
10 megawatt contract if the issues appears to be over
what is considered to be a firm versus a non-firm
resource?
It has to do wi th what is the most
economically desirable sized plant for this first phase
and a 10 megawatt plant is the most economically
desirable to maximize the revenue and therefore, generate
the right kinds of payback for the loans and the equi ty
investors.
Okay, on the other side, then , to firm up,
what did the company look at wi th regards to other
generation resources that might be used to firm up that
two megawatts during the peak period or the slack period
when it's down near I mean, did you look at that and
then weigh the cost of what that firm generation backup
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KUNZ (Com)
U . s. Geothermal83676
might be as it might relate to the penal ty phase?
Well , because we want to focus on a
renewable energy company, we want this facility to
respond to its energy source and that energy source
the geothermal heat and the ambient temperature.The re
are obviously ways one could firm it up by burning
natural gas or some sort of combustion technology, but
that would go against our green renewable profile.
But even though it goes against the green
renewable profile, wouldn't it help you get through the
contract terms in order to then initiate that contract,
get the proj ect going and then move forward from that
point?
Well , I think the idea here is that when
we have a design parameter of 10 megawatts at a given
ambient temperature and those are 10 net megawatts, we'
also talking about a much larger facility, but we will be
having an internal parasi tic load, so the 10 or the net,
it's probably much closer to 12 to 13 as the gross and
then we'll consume the difference.What we're looking
for is a plant that during the heat of the summer will be
reasonably economlC at the 8 or so and then be able to
make it up in the cooler periods of the winter wi th a
greater output.
But in terms of the way at least the
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KUNZ (Com)
U . S. Geothermal83676
contract argument goes today in your group's perspective
and maybe this is a harsh characterization and you can
recharacterize it, it's green or nothing as far as you'
looking at a 10 megawatt in a contract with your group?
That might be true.I mean , what we want
to start on the right foot wi th our company is green and
renewable.There are a lot of benefits to do that to the
company longer term.
COMMISSIONER KJELLANDER:Thank you.
COMMISSIONER SMITH:Redirect, Mr. Ward?
MR . WARD:A couple.
REDIRECT EXAMINATION
BY MR. WARD:
Mr. Kunz , in the negotiations did Idaho
Power ever take the position that u. S. Geothermal would
only be eligible for the modeled AURORA modeled
rates?
No, not at all , In fact , only in the last
couple of months.
And one other thing wi th regard to
Commissioner Kj ellander' s question.If you know , can a
, a qualifying facility, under PURPA burn fossil fuels
for generation and retain its QF status?
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Wilder, Idaho KUNZ (Di)
U . S. Geothermal83676
I don't know if I'm the right one to
answer that, Conley.
have.
MR . WARD:Okay.Thank you, that's all
Mr. Kunz.
COMMISSIONER SMITH:Thank you
excused?
THE WITNESS:Thank you.
(The wi tness left the stand.
MR. WARD:Madam Chair , may Mr. Kunz be
COMMISSIONER SMITH:If there's no
obj ection , we will excuse Mr. Kunz.
MR . WARD:We next call Bill Sutherland.
WILLIAM R. SUTHERLAND
produced as a wi tness at the instance of the Complainant
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Wilder , Idaho
U. S. Geothermal , having been first duly sworn , was
examined and testified as follows:
DIRECT EXAMINATION
Mr. Sutherland, would you please state
BY MR. WARD:
your name and address for the record?
William Sutherland.Place of business is
SUTHERLAND (D
u . S. Geothermal83676
200 Bloor Street East in Toronto.m vice president of
proj ect Finance at Manulife Financial.
Thank you.In preparation for this
proceeding, were you asked to prepare some prefiled
testimony?
Yes , I was.
And you don't have any exhibits to that
testimony, do you?
I do not.
And if I were to ask you the questions
contained in your prefiled testimony today, would your
answers be as given?
They would , yes.
And did I ask you if you have any
corrections or additions?
You didn't and I do have one correction.
If you would glve that to us.
Yes.I note that in the question please
describe Manulife Financial, it was indicated that
Manulife Financial is the third largest insurance company
in Canada.In fact , we have recently acquired John
Hancock and at the time this testimony was prepared, we
were In the process of merging that, so I guess the
correction would be prior to June of this year , Manulife
was the third largest life insurance company in Canada.
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SUTHERLAND (Di)
U. S. Geothermal83676
It is now by far the largest and is the second largest in
North America , fifth largest globally.
The statement that Manulife is now the
second largest life insurance company that you've just
corrected, that appears on page 1 at lines 11 through 12;
is that correct?
Yes.
MR. WARD:With that, Madam Chair, we
would request that Mr. Sutherland's testimony be spread
upon the record as if read.
COMMISSIONER SMITH:And I'll do t ha t ,
Mr. Ward , except in my book , that's on page 2 , 1 ine
MR. WARD:Oh, I'm sorry, you're correct.
COMMISSIONER SMITH:Just so there's no
confusion in the record , that correction was page 2 , line
MR . WARD:Tha t is correct.
COMMISSIONER SMITH:All right.
there's no obj ection , we will spread the prefiled
testimony upon the record as if read.
(The following prefiled testimony of
Mr. William Sutherland is spread upon the record.
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Wilder , Idaho
SUTHERLAND (D
U . S. Geothermal83676
PLEASE STATE YOUR NAME AND ADDRESS FOR THE RECORD.
My name is William R. Sutherland.My business
address is 200 Bloor Street East , Toronto, Ontario,
Canada.
BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY?
I am the Vice President, proj ect Finance for
Manulife Financial.
PLEASE DESCRIBE MANULIFE FINANCIAL.
Prior to June of this year , Manulife was Canada'
third largest life insurance company.The Company
operates in 15 countries worldwide providing 7 million
customers a diverse range of insurance products and
weal th management services.For the year ended December
, 2003, Manulife earned C$I.55 billion on revenues of
C$16.7 billion and had C$156. 7 billion in assets under
managemen t .Manulife is now the second largest life
insurance company in North America following the recent
merger wi th John Hancock.
WHY IS MANULIFE FINANCIAL INTERESTED IN THIS
PROCEEDING?
The Manulife Capital Project Finance Group
mandated to arrange proj ect financing and investment in
independent power and infrastructure proj ects.In the
independent power sector our group focuses on the
renewable power sector , primarily wind generation but
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SUTHERLAND (Di)
U . S. Geothermal83676
also hydro and geothermal generation.In 2003 , the
proj ect Finance Group funded four energy transactions
(two wind , one combined cycle, and one coal) totaling
U$90 million.Prior to October 2002 , the proj ect Finance
Group was wi th Clarica Life Insurance Company for
approximately five years and arranged and participated in
18 independent power transactions totaling US$800
million.
DOES MANULIFE FINANCIAL HAVE A SPECIFIC INTEREST IN
U. S. GEOTHERMAL'S PROJECT?
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SUTHERLAND (Di)
U . S. Geothermal83676
Yes.We are in discussions wi th U. S. Geothermal
regarding our possible participation in the proj ect' s
debt financing.
HAVE YOU REVIEWED THE COMPLAINT IN THIS PROCEEDING?
Manulife has reviewed the Complaint to the Idaho
Public Utilities Commission against Idaho Power Company
by U. S. Geothermal , Inc.The purpose of our review was
to consider how the three proposed provisions by Idaho
Power Company will influence the ability of U. S.
Geothermal , Inc. to raise debt financing for the Raft
River Facili ty.
WILL THE ISSUES RAISED IN THE COMPLAINT HAVE AN
EFFECT ON THE FINANCING OF THE PROJECT?
Yes.In our Vlew , all three of the Idaho Power
Company proposals cited in the Complaint will have a
negative effect on US Geothermal's ability to secure debt
financing for its Raft River Facility.
WHY IS THAT?
When a lender considers financing a proj ect such as
the Raft River Facili ty, the primary consideration is the
security and dependability of the Facility's projected
revenue stream that will be used to service the debt
financing costs.Any thing that negatively impacts the
revenue stream , or that increases the risk that the
revenue stream may not materialize, will, at the very
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SUTHERLAND (Di)
U . S. Geothermal83676
least , lncrease interest rates and financing costs.
the risk/reward tradeoff becomes too unfavorable, US
Geothermal may not be able to attract financing at all.
TURNING TO THE SPECIFIC COUNTS CONTAINED IN THE
COMPLAINT , WOULD YOU PLEASE EXPLAIN THE IMPACT OF IDAHO
POWER'S PROPOSAL
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SUTHERLAND (Di)
U . S. Geothermal83676
TO LIMIT PURCHASES FROM THE FACILITY TO 10 PEAK MEGAWATTS
RATHER THAN 10 AVERAGE MEGAWATTS?
As always, the first question is one of costs.
Limiting the Facility's sales to 10 peak megawatts will
materially limit the amount of debt financing that the
Facility will be able to obtain.We are not in a
position to quantify the amount of such impairment and
would require additional due diligence and consultation
wi th our technical advisor to quantify this impact.
I S THE I S SUE RAI SED BY THE SECOND COUNT OF THE
COMPLAINT ALSO A CONCERN?
Very definitely.As we understand Count Two of the
Complaint, Idaho Power would require US Geothermal to pay
it 85% of the prevailing market price, less the contract
rate , for any shortfall in monthly energy deliveries
below 90% of the pre-scheduled monthly power deliveries.
In our opinion , this provision is problematic because
has the potential to be extremely punitive.I f this
provision were included in a final Energy Sales
Agreement, it would make it difficult for us to provide
financing for the Facility because of the unpredictable
nature of the potential negative economic impact of this
provlslon.
FINALLY , WOULD YOU PLEASE EXPLAIN HOW THE "REGULTORY
OUT" PROVISION WOULD AFFECT FINANCING?
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SUTHERLAND (Di)
U . S. Geothermal83676
If the third disputed provision allowing Idaho Power
Company to terminate the ESA in the event of changes to
Idaho's regulatory laws were included in the final
Agreement , Manulife would be unable to provide debt
financing for the Facility.We are not willing to take
the risk that the Facility might lose its revenue stream
before its debt is retired , particularly when we have no
reasonable means of evaluating the likelihood of that
risk.
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SUTHERLAND (Di)
U . S. Geothermal83676
WOULD YOU PLEAZE SUMMAR I ZE YOUR TESTIMONY?
Capping the Facility's sales at 10 peak megawatts,
rather than 10 average megawatts , will artificially limit
US Geothermal's access to debt financing.The
"1 iquidated damages" and regulatory out" provisions are
even more serlOUS.Both would greatly increase the risk
assumed by a debtor and , speaking only for Manulife, we
would not be likely to assume either of these
difficult-to-quantify risks.
DOES THI S CONCLUDE YOUR TESTIMONY?
Yes, it does.
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SUTHERLAND (D i)
U . S. Geothermal83676
open hearing.
(The following proceedings were had in
MR . WARD:And wi th that, Mr. Sutherland
is available for cross-examination.
Madam Cha i rman .
COMMI S S IONER SMI TH :Mr. Ri chardson
BY MR. KLINE:
MR. RICHARDSON:I have no questions
COMMISSIONER SMITH:Mr. Kline.
MR. KLINE:A few.
CROSS EXAMINATION
Mr. Sutherland, I understand from your
testimony that you're considering providing debt
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Wilder, Idaho
financing for this proj ect; is that correct?
Tha t 's correct.
And would you anticipate that the debt
financing would be in the form of proj ect financing,
Yes, it would be.
And as a resul t of that , there would be,
essentially the credi t for the debt would be the contract
wi th I daho Power; is that correct?
Mr. Sutherland?
SUTHERLAND (X)
U . S. Geothermal83676
Yes, it would.
And to a great extent you're looking at
the credi t of Idaho Power as support for that contract,
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Wilder, Idaho
We are , yes.
And would it also involve, would the debt
likely be non-recourse debt?
This would be non-recourse to the
Our only recourse would be to the proj ect
assets which would include plant, of course , and the
So the proj ect sponsors don't have any
assets at risk wi th respect to
- -
other than the proj ect
assets themselves; in other words, there's not some kind
of corporate guarantee , there's not some kind of recourse
to any assets other than the actual generating assets; is
That would be true following completion
the proj ect; may in fact differ from that during the
construction period where there may be obligations on the
Okay.
- -
to make sure the proj ect is completed
So if the proj ect were to defaul t on its
are you not?
sponsors.
contracts.
that correct?
sponsors --
as advert i sed.
SUTHERLAND (X)
U . S. Geothermal83676
loan , then your security is the project equipment itself;
is that correct?
Tha t 's correct.
For a proj ect like this one, what would be
a typical debt -equi ty ratio?
m pausing here only because we don'
typically lend 80 percent of the debt.We may restrict
debt to 80 percent of the capi tal cost of the proj ect or
the project development cost, but it would also be
restricted by the debt service coverage ratios and the
level of risk we percel ve.Obviously, if there's a
higher level of risk , we would require higher levels of
debt service coverage which may in fact reduce the amount
of debt to below , say, 80 percent of the proj ect
development cost.
But typically 80 percent debt, 20 percent
equi ty?
Typically, 75 to 80 percent debt, yes.
On page 4 of your testimony, you describe
the proposal that the Company has made to U. S .
Geothermal , the 85 percent-l10 percent band , as being
extremely punitive or having the potential to be
extremely puni ti ve.Do you recall that testimony?
Yes.It's not 85 percent, I think it'
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SUTHERLAND (X)
U . S. Geothermal83676
90-110.
m sorry, you're right, but the key
that you believe that this has the potential to be
extremely puni ti ve; correct?
Yes.
Have you reviewed the contract between
Idaho Power and U. s. Geothermal that is the subj ect
this complaint proceeding?
I have , yes.
All right, and in looking at that
contract, wouldn't you agree that there are a number of
mi tigation measures that are contained in that contract
that would decrease the likelihood that there ever would
be a shortfall energy situation?
There may be mitigates , but there's still
the very real possibility that there will be penalty
payments.
But the possibility would have to occur
after a number of mitigation -- well, let's do it this
way:In looking at the contract, isn't it true that u.
Geothermal at its sole discretion sets the amount of
monthly generation that it commits to provide?
It does.
So if it wants to take a conservative
approach and be very careful that it doesn't commi t more
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SUTHERLAND (X)
U . S. Geothermal83676
than what it really believes it can deliver, it can
certainly mitigate the possibility that there would ever
be any shortfall energy requirement?
I would think there's certainly
circumstances that could rise to shortages, for example,
climatic conditions, typically temperature, humidity can
qu it e different than were assumed to come up wi that
schedule,whi ch fact could resul t powe r production
different than was anticipated and that could lead in
fact to penal ties.The amount of the penalties
certainly open because we do not know what the market
price for replacement power would be at that time, so
potentially the cost could be punitive.Keep in mind
this is a small proj ect and I don't think the economlCS
could necessarily suffer much in the way of penal ty.
And there is , of course , a cap on the
maximum amount of the surplus energy payments, is there
not , the 150 percent?
Tha t was not in the original contract.
believe there's been some discussion only very
recently.
And that would certainly go some distance
at least toward mitigating the extreme risk of market
increases, would it not?
That would obviously mi tigate it somewhat
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SUTHERLAND (X)
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but I still think that the penal ties could still be
puni ti ve.
And, of course , the contract also provides
that if force maj eure events occur , then the surplus
penal ty or the surplus
- -
in the event of force maJ eure
events, the shortfall energy would be mitigated by those
occurrences , would it not?
Yes.
And if there's a forced outage, if the
plant breaks down or if equipment fails, that also
taken into consideration and mitigates the chance that
shortfall energy would be required; isn't that correct?
Mitigated , but only if the outage is for
longer than three days the way I read it.Mitigated not
at all if the outage was for less than three days.
I guess in the end the lender'
perspective has to be they want to eliminate any possible
risk that the revenue stream is compromised in any way,
isn't that really the end resul t for the lender?
It is, ye s .In short , the company's banks
are reasonably conservative lenders, we're risk adverse
and the greater the level of risk , the less likely we are
to be interested in providing financing for the
proj ect
And the equi ty, I guess, between customers
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SUTHERLAND (X)u. S. Geothermal83676
and the QF or the cogeneration/power production facility
is really not a concern for the lender , is it not?
m sorry?
m sorry.Your perspective is pretty
narrow here and you're going to look at this contract and
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Wilder , Idaho
you want to make sure that the revenue stream is as solid
I think you ve testified to that.
Yes.
And whether there is any consideration as
to whether or not the contract is fair to the Company'
customers is really not a concern of the lender; isn't
When you're saying the Company," are you
I daho Power Company.
Idaho Power.Obviously, that is not of
as it can be.
concern to us , no.We're really looking at the proj ect
and the risk associated wi th that proj ect
Have you read Mr. Gale's testimony in this
I have , yes.
In his testimony, Mr. Gale indicates that
has signed four contracts that include the
contested provisions that we've talked about, the
liquidated damages and stranded cost , and those four
that right?
referring --
case?
Idaho Power
SUTHERLAND (X)
U . S. Geothermal83676
contracts are a wind contract, a hydro contract, a
biomass contract and a combined heat and power contract,
and as Mr. Gale testifies, all of these developers have
indicated that they can get proj ect financing for their
proj ects I guess my question to you, is there something
unusual about financing a geothermal proj ect that makes
it so difficult for financing to be obtained for the U.
Geothermal proj ect
I think my thoughts there are that these
wind energy proj ects , probably no one has done more wind
energy proj ects in North America than myself.m not
aware of these proj ects , nor am I aware that any
financing in fact has been arranged, so I don't know
that's a fair question.
All right, but there isn't anything
unusual about geothermal proj ects that would make them
more difficul t to finance than , say, contracts for these
other technologies?
No, I think geothermal proj ects in general
are easier to finance than wind energy proj ects.Wind
energy has typically been very hard to finance over the
years which is why you find Canadian insurance companies
financing wind energy proj ects in the U. S. because U. S.
lenders have been reluctant to do it , not understanding
the technology, not understanding the wind resource
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U. S. Geothermal83676
risk.
One final question.I s there a program
like PURPA in Canada where the electric utilities are
obligated to purchase power from renewable resource
generators?
PURPA is a federal policy in Canada.
Power is regulated on a province-by-province basis.Each
provlnce is quite different.Generally, the provinces
have insisted on request for proposals and contracts have
been awarded based on the best prices received.The
utilities have been forced to enter into those contracts.
In those cases the utilities did not want to.They would
have rather generated the power, buil t the proj ects
themselves, but it was more of a poli tical decision,
politically motivated.It really was not left to the
discretion of the provincial utilities to accept or
rej ect or really to impose terms and condi tions in the
contracts.They were really politically driven.
And they were done via request for
proposal s, that's how it works?
Yes.
MR. KLINE:That's all.
COMMISSIONER SMITH:Thank you, Mr. Kl ine
Mr. Woodbury.
MR. WOODBURY:Thank you , Madam Chair.
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U. s. Geothermal83676
BY MR. WOODBURY:
CROSS-EXAMINATION
Mr. Sutherland , looking at your testimony
on page 2 , you speak of 22 proj ects that have financing
through Manulife now and could you tell me how many of
those proj ects have a revenue stream supported by PURPA
QF contracts?
I don't bel ieve any have.
None?
No.Most of the proj ects in the U. S. are
qualified under PURPA , but in fact they bid in through
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Wilder , Idaho
But do they have PURPA contracts?
No.
MR. WOODBURY:Thank you.Madam Cha i r , no
RFPs.
COMMISSIONER SMITH:Mr. Fell.
MR . FELL:No questions.
COMMISSIONER SMITH:Mr. Strong.
questions.
MR . STRONG:No questions.
COMMISSIONER SMITH:From the Commission.
I think I asked Mr. Richardson.
MR. RI CHARDSON :You did, Madam Chairman.
I have no questions.
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U . S. Geothermal83676
COMMISSIONER SMITH:Do you have redirect
Mr. Ward?
REDIRECT EXAMINATION
BY MR. WARD:
Just one area , Mr. Sutherland.Mr. Kline
asked you some questions suggesting that a developer in
order to ensure that it would not incur penal ties could
always drop down its estimate of its output to something
it knew it could do wi th virtual certainty.I sn 't
true that doing that , of course, would negatively impact
the revenue stream for the proj ect?
You're basically talking a smaller
proj ect, it would negatively impact the revenue stream
yes, and I think the important thing to point out here
that if the proj ect becomes too small , it really isn'
financeable because the cost of non-recourse proj ect
financing which is complex becomes much too expensive and
not cost effective.
MR. WARD:Thank you.That's all I have.
COMMISSIONER SMITH:Commissioner
Kj ellander.
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SUTHERLAND (Di)
U . S. Geothermal83676
EXAMINATION
BY COMMISSIONER KJELLANDER:
Mr. Ward's question prompted a question in
my mind and I'm sorry I didn't think of it first , but
what is the smallest proj ect that your group has ever
financed?
It would have to be in terms of dollars
and the smallest we have ever financed has been in the
20 million Canadian range.
m not real good wi th converSlon rates
but I do understand megawatts and I also understand that
megawatts and dollars and revenue streams don'
necessarily mesh up, but I am curious in terms of
megawatt proj ects if you would know what the smallest
megawatt proj ect or range of megawatt proj ects might be
tha t your group has financed.
Probably 15 megawatts.
So this would be the smallest one, then?
It would be, yes.
COMMISSIONER KJELLANDER:Okay, thank you.
COMMISSIONER SMITH:Thank you very much
Mr. Sutherland.
(The wi tness left the stand.
MR. WARD:I would also like to have
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SUTHERLAND (Com)
U . S. Geothermal83676
Mr. Sutherland excused, if I may.
COMMI S S IONER SMI TH :If there is no
obj ection , Mr. Sutherland is excused.
MR . WARD:Thank you.We next call Kevin
Ki t z .
KEVIN KITZ
produced as a witness at the instance of the Complainant
u. S. Geothermal , having been first duly sworn , was
examined and testified as follows:
DIRECT EXAMINATION
BY MR.WARD:
Mr.Ki t z ,
address for the record?
would you state your name and
My name is Kevin Kitz.
And by whom are you employed and in what
capaci ty?
m employed by U. S. Geothermal.m the
vice president of proj ect development.
Did you prepare prefiled testimony for
these proceedings today?
I did.
Do you have any addi tions or corrections
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U . S. Geothermal83676
to that testimony?
No , I don'
And did you al so prepare - - if I asked you
the questions contained in that testimony today, would
your answers be as given?
Yes , they would.
Did you also prepare what's been marked as
Exhibi t No.
What's the title of it?m sure I did.
It's your resume.
Okay, thank you, I did.
MR. WARD:With that , Madam Chair , we
would request that Mr. Kitz' s testimony be spread on the
record as if read and Exhibit No.2 marked for
identification.
COMMISSIONER SMITH:If there's no
obj ection, it lS so ordered.
(The following prefiled testimony of
Mr. Kevin Ki t z is spread upon the record.
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KITZ (Di)
u. S. Geothermal83676
IDENTIFICATION AND QUALIFICATIONS
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
My name is Kevin Kitz and my business address
1509 Tyrell Lane , Suite B , Boise, Idaho 83706.
WHAT IS YOUR OCCUPATION AND BY WHOM ARE YOU
EMPLOYED?
I am the Vice-President of proj ect Development for
U. S. Geothermal, Inc.I have held the position of VP of
proj ect Development wi th U. S. Geothermal since May of
2003.My responsibilities and objectives include
securing a power sales agreement (" PSA") and transmission
access, field testing, and other acti vi ties.I ha
participated in the drafting of the Firm Energy Sales
Agreements that have been exchanged with Idaho Power
Company.
PLEASE PROVIDE YOUR BACKGROUND AND EXPERIENCE.
I am a licensed Professional Mechanical Engineer in
the state of California , and have almost nineteen years
of experience in the geothermal power industry.I ha
worked in a variety of posi tions wi thin the industry,
including power plant design and construction, resource
development design and construction, resources planning,
transmission issues, contracts, operations , and
maintenance.My resume is attached as Exhibi t No.
MR. KITZ , WHAT IS THE PURPOSE OF YOUR TESTIMONY, AND
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KITZ (Di)
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HOW IS IT ORGANIZED?
My testimony will provide:
1 .A history of the Raft River Geothermal proj ect;
2 .An explanation of why the proposed monthly
generation is that of a 10 megawatts geothermal
power plant , and should be enti tIed to the
published rates under the Idaho Commission'
PURPA guidelines pertaining to facili ties of
megawatts or less,
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U . S. Geothermal83676
including:
an examination of the definition of
megawatts, and
the method by which the monthly output of
the 10 megawatts power plant was
calculated;
A discussion of contract terms related to the3 .
10 megawatts Slze;
4 .An analysis of Idaho Power's proposed
performance penalties; and
5 .Recommendations for actions to be taken by the
Idaho PUC.
OVERVIEW OF THE RAFT RIVER GEOTHERMAL PROJECT
PLEASE EXPLAIN THE HI STORI CAL DEVELOPMENT OF THE
RAFT RIVER GEOTHERMAL RESOURCE.
The geothermal resource at the Raft River si te,
located in southern Cassia County, was first identified
before 1950 at two shallow agricultural wells that
produced boiling water.In 1971 , the Raft River Rural
Electric Cooperative began preliminary investigations
into the possibility of generating electric power from
this resource.Reconnaissance geochemical and geological
work in 1972 by the U. S. Geological Survey indicated a
resource temperature of about 3000 Supported by the
U. S. Energy Research and Development Administration
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( "ERDA", the predecessor to the U. S. Department of
Energy ("DOE", investigations focused on using binary
cycle technology (which was experimental at that time) to
generate electric power.In late 1973 , the U.
Geological Survey ("GSA") began an integrated geological
geophysical , geochemical and hydrological analysis of the
Raft River geothermal resource.Early drilling
activities at Raft River included 34 auger holes of 100
foot depth and five core holes ranging in depth from 250
to 1 423 feet.The next phase
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U . S. Geothermal83676
of drilling consisted of seven deep, full diameter wells
that were completed during 1975 to 1978, and subjected to
extensive testing.
Based on the drilling results, a 5 MW net (7MW
gross) demonstration binary power plant was constructed
during 1979 to 1981.The plant was operated from
September to November 1981.Repairs and modifications
were made, and the plant operated again from March
through June 1982.The output of the plant was about
MW net , and the proj ect confirmed the technical
feasibility of binary plant operation with a geothermal
fluid source.After an expenditure of over $40 million
dollars , the entire Raft River proj ect was officially
shut down at the end of September 1982.ERDA clearly
demonstrated that a binary power plant was technically
viable, and since then, binary power plants have been
successfully buil t and operated around the world.
Due to the cessation of funding for the proj ect , the
GSA sold the Raft River property and assets to HYDRA-
Enterprises , Inc.(a wholly owned subsidiary of Niagara
Mohawk Power Company of New York) in March 1984.
HYDRA-CO relocated the Raft River power plant to another
geothermal field in Nevada where there was an immediate
market for electrici ty sales and kept the Raft River
property on a care and maintenance basis.In October
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U . S. Geothermal83676
1993, HYDRA-CO sold the proj ect to Vulcan Power Company
0 f Bend, Oregon.
WHEN DID U. S. GEOTHERMAL ACQUIRE THE RIGHTS TO
DEVELOP THE RAFT RIVER RESOURCE?
Geothermal Inc.
( "
USGEO "was formed as
private Idaho corporation on February 2002 for the
express purpo s acqulrlng the Raft River geothermal
proj ect and developing the geothermal resource to produce
electric power.On March 28 , 2002 , USGEO entered into an
agreement with Vulcan Power Company to purchase 100% of
Raft
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U . S. Geothermal83676
River.Since then , USGEO merged with a Delaware
corporation and is now a public company with an active
listing in Canada and is currently seeking registration
and a listing on the NASD stock exchange.
As part of our due diligence on the Raft River
proj ect, GeothermEx, Inc., a world recognized geothermal
consul ting engineering firm was retained to review the
data from the ERDA programs and render its opinion of the
production potential at Raft River.In August 2002
GeothermEx produced a "Technical Report on the Raft River
Geothermal Resource, Cassia County, Idaho" in which
estimated the potential production from the existing well
field at 14-17 MW net.
WHAT HAS U. S. GEOTHERMAL INVESTED IN THE RAFT RIVER
GEOTHERMAL PROJECT THUS FAR?
USGEO has made a significant investment for the
acquisition , engineering, legal and G&A costs associated
wi th advancing the Raft River geothermal proj ect toward
the signing of a power purchase agreement.As of April
30, 2004, we have spent $795,843 directly on the project
and , currently have in progress an approximate $700,000
well test program to work over and flow test the existing
wells at Raft River.The well test program is being
accomplished as part of a DOE Geothermal Resource
Exploration and Development cost share grant.
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KITZ (Di)
U . S. Geothermal83676
addition to these costs, we have spent an additional
approximately $800,000 on legal, corporate, accounting,
financial , engineering, marketing and other related costs
necessary to organize a public company for the purpose of
developing the proj ect
PLEASE DESCRIBE THE INFRASTRUCTURE IN PLACE AT RAFT
RIVER.
The infrastructure on the site includes five
production size geothermal wells, two inj ection wells,
wellheads, lined drilling sumps, seven groundwater
monitoring wells, roads, security
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U. S. Geothermal83676
fencing, an office/control building, a shop building with
a 15 ton overhead crane , a 300,000 gallon water tank , and
a warehouse.Road access and line power is installed at
all seven deep well sites.USGEO owns 560 acres of land
and has an additional 3,179 acres of leased geothermal
rights surrounding the property.
The Raft River Rural Electric Cooperative owns a 138
kV transmission line with a capacity of 120 MW that runs
along the northern boundary of the property.The
Bonneville Power Administration leases the capacity on
the transmission line from the Co-op and has an estimated
60 MW of excess transmission capacity available.USGEO
has an interconnect study underway with the Bonneville
Power Administration and has submitted a point-to-point
transmission request for 30 MW of capacity between the
Raft River si te and the Minidoka Dam substation.
PLEASE DESCRIBE THE RAFT RIVER GEOTHERMAL POWER
PLANT.
The planned Raft River Geothermal Power Plant
("RRGPP") uses geothermally heated water to vaporize an
organic working fluid.These types of plants are
generally referred to as organic rankine cycle plants, or
simply "binary power plants.Hot geothermal water
extracted from the earth and supplied to the RRGPP by a
number of wells using downhole line shaft and submersible
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U . S. Geothermal83676
pump s .Once the geothermal water has had the necessary
heat extracted for the binary cycle use and the water has
been cooled , it is inj ected back into the geothermal
reservoir.At the RRGPP , the combined production and
injection pump load (the "parasitic load") may be as much
as 2. 5 MW.The geothermal hot water passes through heat
exchangers , where it vaporizes the organic working fluid.
The working fluid vapor is inj ected into and turns the
turbine to generate electricity and is then condensed.
The condenser technology uses air-cooling mechanical
devices.The condensed organic
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Wilder , Idaho
KITZ (Di)
U . S. Geothermal83676
working fluid is picked up from the condenser by the
boiler feed pumps and delivered back to the vaporizer in
a closed circui t
I S THE PLANT EXPERIMENTAL OR US ING UNTESTED
TECHNOLOGY?
Absolutely not. There are hundreds of megawatts of
geothermal binary power plants installed in the US and
worldwide of the same or similar technology as will be
installed at Raft River.Binary power plants were
commercialized in the mid 1980' s and now have roughly
twenty years of solid performance.
DEFINITION OF WHAT "10 MEGAWATTS" MEANS
Q .IT HAS BEEN STATED THAT THE RAFT RIVER FACILITY WILL
HAVE A CAPACITY RATING IN EXCESS OF TEN MEGAWATTS.WHY
IS THIS THE CASE IF YOU ARE ONLY SEEKING A TEN MEGAWATT
CONTRACT WITH IDAHO POWER?
There are two main reasons:
(1 )First , any 10 megawatt thermal power plant,
including geothermal power plants, must produce more
than 10 megawatts, in order to deliver 10 megawatts.
(2 )We are seeking a Power Sales Agreement limited
to a maximum average annual delivery of 10 megawatts
to Idaho Power.This may actually be the total
initial capacity of the RRGPP.Howeve r , our
intention is to build-out the power plant to greater
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KITZ (Di)
U. S. Geothermal83676
than 10 megawatts , either initially or over time.
While we would prefer to have a single contract for
more than 10 megawatts , economics do not allow new
geothermal capacity to be built at the "Surplus
Energy" rate that Idaho Power offers for deliveries
greater than the 10 megawatts, even if such
deliveries are firm.This leaves u. S. Geothermal no
choice but to seek additional power sales contracts
with entities other than Idaho Power for sales in
excess of
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KITZ (Di)
U . S. Geothermal83676
10 megawatts.If we are ultimately able to generate
more than 10 megawatts, then we will deliver
megawatts to Idaho Power , and the rest to the other
off -takers.
WILL THE RAFT RIVER GEOTHERMAL POWER PLANT GENERATOR
HAVE MEGAWATT NAMEPLATE?
The generator nameplate (or sum of the nameplate
ratings) will be larger than 10 megawatts, even if it is
only built as a 10 megawatt power plant.The generator
must be capable of supplying the summation of the
following loads , thereby determining the actual generator
nameplate rating:
Contracted Load
Capaci ty for increased generation in
cold winter months
Transformation Losses
Boiler feed pumps
Air condenser cooling fans
Other power plant loads
Production well pumps
Inj ection pumps
In the case of the Raft River Geothermal Power
Plant, during the extreme heat of the summer months, the
generator nameplate could be as much as 17 MW , in order
to supply 10 megawatts of annual average power to Idaho
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KITZ (Di)
U. S. Geothermal83676
Power at the Minidoka substation.
ARE THE LOADS DESCRIBED ABOVE CONSTANT ONCE THE
PLANT IS BUILT?
The actual auxiliary load of the power plant is a
function of several factors that are either unknown at
this time , vary over the course of the year, or can even
change over several years.Some of the factors, and the
loads they affect are listed below.
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Wilder , Idaho
KITZ (Di)
U . S. Geothermal83676
Factor
Flowing well temperatures
Depth and number of
product ion pumps
Ease of inj ection of spentfluid
Air temperature
Affects these loadsAll auxiliary loads
Production pump load
Inj ection pump loadAll auxiliary loads
I S THE GENERATOR NAMEPLATE A RELEVANT MEASURE OF THE
CAPABILITY OF THE POWER PLANT TO DELIVER THE CONTRACTED
OUTPUT TO IDAHO POWER?
The generator nameplate is not relevant to the
contracted amount, and should not be used to determine
the size of the Idaho PURPA qualifying facility.
understanding is that the Commission Staff has agreed
wi th this posi tion in prior cases.
I S THE POWER PLANT NAMEPLATE A RELEVANT MEASURE OF
THE CAPABILITY OF THE POWER PLANT TO DELIVER THE
CONTRACTED OUTPUT TO IDAHO POWER?
There is no actual physical power plant "nameplate
only a power plant design rating" The rating is the
power plant output established at a very specific set of
environmental condi tions, including temperature,
elevation , relative humidity, etc.However , those design
conditions are actually met only a very small percentage
of the time.The rest of the time , the output of the
power plant is higher or lower , depending on the
particular environmental conditions at the time.The
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KITZ (Di)
U. S. Geothermal83676
standard design point for the geothermal industry (and
that used in the preliminary design of the RRGPP) is to
use the annual average temperature of the si te to arrl
at the annual average power output of the plant.
IS THIS TRUE OF ALL POWER PLANTS?
For all thermal plants (e. g. gas turbine,
coal- fired, biomass, or geothermal) it is true.The
effect is greater or less depending on the design of the
power plant , and the type of fuel
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be ing used.Typically, thermal power plants are rated
a moderate temperature and relative humidity, rather than
at the extreme of ei ther the summer high or the winter
low.However , regardless of the design point conditions,
the electrici ty output goes up in the winter as the
temperature falls, and the electricity output decreases
as summer temperatures go up.
On the other hand , wind and hydro uni ts tend to be
rated at their maximum capaci ties.For example a 30 MW
wind proj ect will produce the rated capaci ty at those
times that the wind is above a certain speed necessary to
turn the windmills.
CAN YOU DESCRIBE THE EFFECT OF TEMPERATURE ON THE
"SURROGATE AVOIDED RESOURCE"( " SAR " ) ?
The Idaho surrogate avoided resource"( " SAR") l S a
nominal approximately 270 MW gas-fired combined cycle
generating plant operating at an international Standards
Organization ("ISO") rating temperature (58 O , at an
elevation of about 2 000 feet.The SAR is assumed to
produce the rated output at all hours of the year.This
is physically impossible, but if the assumed standard
operating temperature is a reasonable approximation of
the annual average temperature , then the annual average
output will be approximately the same as the rated
capaci ty of the plant.
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KITZ (Di) 10
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But the fact lS that the Idaho SAR would vary
considerably over the course of the year as the
temperature changes.The SAR would be unable to produce
270 MW any time the gas turbine inlet temperature
above the design point temperature.Al though the Idaho
SAR is presumed to have a wet cooling system , many
combined cycle plants are now being buil t wi th air
cooling because of the unavailabili ty of cooling water.
Air-cooled power plants are much more sensitive to summer
temperatures than water-cooled power plants
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because the cooling temperature is the drybulb
temperature of the air , rather than the wetbulb
temperature.The difference between wetbulb and drybulb
temperatures can be 25-35O F in Idaho in the summer.
Thus, summer derating of an air-cooled Idaho plant would
be significant.
WHEN THE RATING OF A THERMAL POWER PLANT
DISCUSSED , IS IT GENERALLY UNDERSTOOD TO BE THE MAXIMUM
OUTPUT OF THE POWER PLANT?
Because rating" is not a rigorously defined term,
it could theoretically mean the maximum output of the
plant (which would occur in the dead of winter) But
generally the "rating" of the power plant would more
likely be closer to the average annual output, or at some
temperature somewhat higher than the annual average
temperature.
MR. KITZ , IN YOUR OPINION , IF A GROUP
OF POWER PLANT ENGINEERS WERE ASKED WHAT THE OUTPUT FROM
"10 MW THERMAL PLANT" WOULD BE, WHAT WOULD THEY SAY?
It is safe to say that very few, if
any, would expect that " 10 megawatts" would define the
maximum output of the plant.Almost certainly, most
power professionals would expect that a 10 megawatt
thermal plant would produce more than 1 0 megawat ts for
part of the year , and less than 10 megawatts for part of
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U . S. Geothermal83676
the year.Most professionals would agree that the
megawatts would be produced over the course of the entire
year, giving effect for the summer and winter temperature
differences.
THE PUC RULED THAT PURPA CONTRACTS ENTITLED TO
PUBLISHED RATES WERE TO BE 10 MW OR LESS FOR A MAXIMUM OF
2 0 YEARS.AS AN ENGINEER , DO YOU FIND IDAHO POWER'
ASSERTION THAT THIS MEANS
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THAT A THERMAL POWER PLANT CAN NEVER PRODUCE MORE THAN
MW IN ANY ONE HOUR TO QUALIFY FOR PURPA RATES REASONABLE?
No.Given the fact that the Commission used a SAR
to develop the published avoided cost rates, it is more
reasonable to conclude that the Commission expected, and
was willing to see , those rates offered to a nominal
megawatt power plant.A nominal 10 megawatt power plant
would average 10 megawatts over the year , but would
produce less than that in the summer and more than that
in the winter.This is exactly equivalent to the output
variation that forms the basis of the Idaho SAR.
WHAT WOULD BE THE CONSEQUENCE OF LIMITING THE IDAHO
SAR TO A MAXIMUM OUTPUT OF ITS RATED OUTPUT?
The higher winter generation from the SAR helps
decrease the annual average cost of power from the SAR.
Without a doubt , limiting the SAR to it's rated output
would raise the cost of power from the SAR.
WHAT WOULD BE THE CONSEQUENCE OF DEFINING A
MEGAWATT PURPA POWER PLANT AS LIMITED TO THE ABILITY TO
PRODUCE NO MORE THAN 10 MEGAWATTS IN ANY HOUR?
That definition would effectively limit any thermal
power plants to a rating of about 8.5 MW, or less.This
would allow the operator to make full use of the
investment in equipment and produce 10.0 megawatts in the
winter , and less than 8.5 megawatts in the summer.
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However , the smaller the plant , the more challenging
it is to develop an economically viable proj ect.In the
power industry, economies of scale are very important to
economic viability and to the cost of power.Limi ting
the output of an Idaho PURPA thermal plant
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to an hourly output not to exceed 10 megawatts would
create another significant economic barrier to the
development of Idaho's renewable energy resources.
WHY DO YOU THINK IDAHO POWER INS I STS THAT THE PUC
MEANT FOR THE 10 MW PUBLISHED RATES CONTRACTS TO BE
LIMITED TO 10 MW IN ANY ONE HOUR?
Throughout our long contract negotiations , Idaho
Power has insisted on defining the Idaho PUC' s
megawatts order as meanlng no more than 10 megawatts in
any one hour.It has acknowledged that this is a
departure from previous contracts, but has offered the
explanation of "simplicity of contract administration.
This does not ring true or make sense to me.Daily,
monthly or annual average output contracts are just as
easily and simply administered.
Idaho Power is well aware of the economies of scale
of power plant construction.It is also well aware of
the realities of the performance of thermal power plants
as ambient temperatures change.By limiting the output
of PURPA plants to 10 megawatts in any hour Idaho Power
positions itself to buy only the absolute minimum amount
of power from QF facilities, individually and in the
aggregate.I don't believe this is consistent with the
Commission's goal of encouraging additional PURPA
facilities.
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S I ZING A 10 MW GEOTHERMAL POWER PLANT
PLEASE DESCRIBE THE SIZING OF A GEOTHERMAL POWER
PLANT?
It is important to note that the final detailed
design of the RRGPP has not yet been started.There are
many factors that are not yet fully defined, such as
producti vi ty of the production wells, inj ecti vi ty of the
injection wells, the identity of equipment suppliers,
etc., that will have an effect on the exact parasitic
loads of the plant and the response of the power plant
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to changing temperatures.Unfortunately, entering into
detailed design process without a firm contract in hand
is costly, risky and therefore not economically possible
for U. S. Geothermal.However , the performance of the
actual RRGPP, once it is buil t, will be similar to the
generation forecasts made as part of the proposed Idaho
Power contract, and included in this testimony.
HOW DID YOU COME UP WITH THE MONTHLY FORECAST OF
POWER PLANT OUTPUT FOR A 10 MW RAFT RIVER GEOTHERMAL
POWER PLANT?
There were three maJ or steps in estimating the
monthly output of the RRGPP.
Site-specific weather data was downloaded from
the internet and analyzed.
Power Engineers, Inc., a worldwide leader in
power plant engineering and design , located in
Hailey Idaho, was hired to develop a computer
model of a binary geothermal power plant
Raft River, and to predict it's output over a
range of temperatures.
The Mal ta weather data, and the Power
Engineers' forecast were merged to estimate the
average monthly output from the power plant.
This was then used to fill in the monthly
output forecast for the Idaho Power contract.
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WHAT WAS THE SOURCE OF THE WEATHER DATA FOR THE
ANALYSIS, AND HOW WAS IT USED?
The weather data was downloaded from the USDA
Agrimet weather site for the Malta weather station , about
20 miles from the si te of the RRGPP.The data
available in several forms , including hourly data and
monthly average data.
The prediction of the monthly generation for the
Idaho Power contract is based on the historical monthly
average temperature over a four-year period , from October
1998 to
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September 2002.For example, the monthly average
temperatures reported on the Agrimet si te from January of
1999, 2000, 2001 , and 2002 , were averaged to arrive at
the expected January temperature.The same process was
used for all twelve months.The resul ting average
temperatures are presented in the following table.The
annual average temperature based on these twelve values
is 47.
TABLE Monthly Average Temperature
Monthly Average Temperatures (O F) Used for the Idaho
Power Contract Based on a 4-Year Average of the Monthly
Average Temperatures at the Malta USDA Agrimet Station
J an-Feb-Mar -Ap r -Ma y-Jun-Jul-Aug-ep t-Oe Dee
28.0--31.2--38.4--45.6--54.6--63.0--71.4--69.5--58.8--47.35.8 26.
HOW WAS THE ANNUAL AVERAGE TEMPERATURE USED?
As discussed above, the rating of a power plant must
be for a specific environmental condition and for a
specific elevation.The geothermal power plant model
developed by Power Engineers used an elevation of 4800
feet and the annual average temperature as the design
point.This is consistent with industry practice for
air-cooled geothermal power plants.It is also
consistent with our expectation that we would have a
megawatt PURPA contract, and we therefore attempted to
model" the output of a plant that would likely produce
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an annual average generation of approximately
megawatts.
WHY WOULD A POWER PLANT WITH A 10 MW RATING AT THE
ANNUAL AVERAGE TEMPERATURE ONLY "LIKELY" PRODUCE AN
ANNUAL AVERAGE GENERATION OF 10 MW?
Nei ther the generation curve, nor the temperature
distribution, above and below the design point
absolutely symmetrical.Therefore the plant might not
produce exactly 10 megawatts as an annual average.
with many other aspects of the power plant design
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this fact highlights the variability in the power plant
output on a month-to-month and year-to-year basis.For
example, while the monthly average temperature in
November used in the forecast was 35. 80 F the actual
monthly average temperature over that four year period
alone ranged from 26.1 O F to 40.9 o
PLEASE DESCRIBE THE RAFT RIVER GEOTHERMAL POWER
PLANT MODEL CONSTRUCTED BY POWER ENGINEERS?
Power Engineers created a numerical computer model
of the RRGPP for the annual average temperature.The
model included the following components:
a fixed assumed load for the production and
inj ection pumps handling the geothermal water;
boiler feed pumps to pump the butane from the
condenser to the boiler;
heat exchangers (pre-heaters, boilers, and
superheaters) between the geothermal water and
the working fluid;
piping and heat exchanger pressure losses;
turbine; and
air-cooled condenser with performance related
to ambient temperature.
Once the model had been calibrated to produce
megawatts at the design condition, the ambient
temperature was varied over a range from OO F to 1000
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An estimate was also made by Power Engineers of the
maximum gross and net output, which looked like it would
occur somewhere around -20 o The predicted output was
interpolated between OO F and -200
WAS THI S POWER FORECAST USED IN THE CALCULATION OF
POWER DELIVERIES FOR THE IDAHO POWER CONTRACT?
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Essentially, but not exactly.Power Engineer'
original model was based on a production and inj ection
pump parasitic load of over 4.5 MW , based on u.
Geothermal's early expectations of the pump load.La ter
estimates assume a parasi tic load of 2.5 MW, more
consistent wi th other geothermal binary power plants.
Therefore , U. S. Geothermal recalculated the power plant
output as a function of temperature wi th the 2. 5MW load
instead of the original 4.5 MW load.However , other than
this adj ustment, the calculations of the power plant'
output as a function of ambient temperature is Power
Engineers' work, based on its experience designing
similar power plants, and using its RRGPP computer model.
A sample of the table, is presented below.
Table 2:Plant Output vs. Drybulb Temperature
Sample of Predicted Output as a Function of the Drybulb
Temperature for a 10 MW Geothermal Power Plant at Raft River
Sample Product ion NET toDrybulb& Inj ect.IPCoTemperatureGrossPlant net Pumps
17.15.2 .12 . 69
17.15.2 .12 . 66
1 7 .15 . 12 2 .12 .
17.14 . 64 2 .12 . 14
17.14 .2 .12 . 08
17.14 .2 .12 . 02
15 . 62 12.2 . 5 10.Design 48O 15.12 .10.
15 .12 .2 .
11.8 . 98 2 .
11.2 .6 .
11.2 .
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Sample ProductionDrybulbInj ect Temperature Gross Plant net Pumps
2 .
2 . 5
100 8 .2 .
4 . 14
3 . 82
3 .
NET to
IPCo
HOW WERE THE TWO SETS OF DATA (MONTHLY AVERAGE
TEMPERATURE AND OUTPUT OF THE RRGPP AS A FUNCTION OF
TEMPERATURE) USED IN THE IDAHO POWER CONTRACT?
The two sets of data were combined and used in three
ways in the contract.
Maximum Man thl Energy:Thi s value was
calculated by using the average monthly
temperature to find the expected average power
plant output at that temperature.The number
of hours in the month was mul t ipl ied by the
output of the plant at that temperature.
Expected Monthly Energy:The Maximum monthly
energy is multiplied by the long-term expected
annual capacity factor of 95%.
The Maximum Plant Output is simply the expected
output of the plant in the middle of winter.
As the table above shows, that is approximately
12 . 7 MW.
IS IT REASONABLE TO EXPECT IDAHO POWER TO ACCEPT
12.7 MW OF POWER FROM A 10 MW FACILITY?
It is reasonable , because that is what a 10 megawatt
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air-cooled geothermal power plant can produce in the
coldest hours of an Idaho winter.Just as Idaho Power
willing to accept the full output of the RRGPP when the
design temperature is above 48O , it is reasonable to
expect it to accept the full output of the power plant
when the design temperature is below 48O , even though
that happens to produce more than 10 megawatts.Capping
the output of
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a 10 megawatt geothermal power plant at 10 megawatts in
any hour would result in an artificial contractual
curtailment of the plant in every single month of the
year (including July and August) This is clearly
constraining the development of geothermal power In
manner I consider to be unreasonable.
What is the benefit to the developer in such a
contractual arrangement?In fact, itThe re is none.
resul ts in substantial lost revenue.What is the benefit
to the ratepayers of Idaho Power?WhatThe re is none.
lS the benefit to Idaho Power?There is none, unless
has an explicit goal of limiting the amount of PURPA
contract power it must purchase.
SINCE THE POWER PLANT MODEL AND THE WEATHER DATA ARE
AVAILABLE , CAN THE RRGPP BE GUARANTEED TO MEET THE
MONTHLY EXPECTED OUTPUT FROM THE PLANT?
Not really.Consider the point discussed above
that in a four-year period, there was a range of average
November temperatures from 26 to 41 o , with an average of
36O Now suppose that there is a November wi th an
average temperature of 43 o , then the power plant will
produce about 10.3 MW average, instead of the 10. 9
average for 360 F.
Idaho Power is insisting on a 90/110 band on the
monthly output from the plant.If the output is below
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90%, then the developer is subject to penalties.For
this hypothetical month, the weather alone will have
eaten up 5.5% (0.6/10.9 = 5.5%) of the total allowable
10% decrease from the forecasted output.This example
shows one of many reasons why Idaho Power's insistence on
the 90/110 band is not reasonable.Idaho Power requires
its generation forecasts to be set up as much as two
years in advance.How would it be ,possible to predict
there is going to be a warm November , and the output of
the power plant will not be able to generate its
predicted load even if there are no mechanical problems
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whatsoever?The 90/110 band is notIt is not.
reasonable for many reasons, including that it makes no
allowance for weather circumstances beyond the control of
the operator.
WHAT ARE SOME OF THE OTHER ARGUMENTS AGAINST THE
90/110 MONTHLY BAND?
There are many sound arguments.Some of these are
briefly described below.
1 .The selection of a band of 90/110 appears
arbi trary, and solely at the whim of Idaho Power.
Why not 75/125 or 70/130?Can Idaho Power provide a
technical basis for justifying a 90/110 band,
especially on such small power plants?Its implicit
argument would seem to be that the failure of one
plant to deliver as little as 1 MW over the course
of a month is somehow financially taxing to it and
to the ratepayers.This is not a credible argument.
The hourly and monthly uncertainty in Idaho Power'
served load is most likely far greater than the
entire output of the RRGPP , let alone the failure of
a PURPA plant to deliver a mere one to two
megawatts.
2 .The band makes no allowance for the normal
breakdown of equipment In a power plant.Such
breakdowns would be intrinsically part of the Idaho
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Surrogate Avoided Resource (SAR) were it a real
plant.Yet in the cost calculation of the SAR
there is no inclusion of penalties for those times
when the SAR cannot deliver it's presumed capacity.
In fact , it is just the opposite of the PURPA plant.
The SAR would stay in the rate base and continue to
be paid off, even if it were unable to deliver power
for several months.The consumer would effectively
double-pay for these failures, paying for both the
asset and for the replacement power.By contrast,
under all of Idaho's existing PURPA contracts , the
ratepayer still pays for the replacement power , just
like the SAR , but unlike the SAR they pay nothing
for the PURPA asset that is failing to deliver
power.
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Idaho Power has selected a "seasonal" approach3 .
to power pricing, yet the penal ties are monthly.
firmness is desired, it would be far more reasonable
to use a "seasonal" firming, rather than monthly
firming, as over the course of the year this would
much better reflect the actual costs to the
ratepayers of Idaho Power.
4 .The only reason allowed, contractually, for
failure to deliver would be "Force Majeure.So the
routine failure of one of the downhole production
pumps , warmer than normal weather , or a shutdown for
scheduled maintenance one week early would all
resul t in the imposi tion of penal ties.
5 .There is no opportunity to "make-up" for power
that is not delivered, as is common In other firming
contracts.This is especially onerous if Idaho
Power is successful in its contention that the power
plant can never deliver more than 10 megawatts in
any one hour.
6 .It is again worth noting that the PURPA plant
lS required to forecast its monthly generation up to
two years in advance , and if it fails to deliver its
estimated power , then it is penalized.I f a firming
contract is required , it would be much more
reasonable for Idaho Power to require the plant to
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forecast its output one to two months ahead, which
would then allow Idaho Power to use more up-to-date
information in purchasing or selling power to match
its system requirements.
. 7 .Lastly, In the May 21 , 2004 letter from Mr.
Barton Kline of Idaho Power to the counsel of U. S.
Geothermal , Idaho Power has offered to cap the total
liability of the U. S. Geothermal under the 90/110
proVl s lon But even with this concession in an
extreme power price scenario such as the one the
Western Uni ted States experienced a few years ago, a
failure to deliver contract amounts for only a month
or two could wipe out an entire year of profits or
even lead to bankruptcy.One has to wonder what
would have happened
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to Idaho Power itself if it had been subject to the
same proviso when the combination of extreme drought
and skyrocketing prices hi t the Northwest.The
ra tepayer is not served by such draconian
consequences, and from a business perspective it is
hard to imagine that lenders would be eager to
participate in contracts with such dire risks.
CONTRACT TERMS RELATED TO THE 10 MW SIZE
SOME OF THE RECENT PURPA CONTRACTS APPROVED BY THE
COMMISSION USE THE POSTED RATE FOR DELIVERIES UP TO TEN
MEGAWATTS, AND A DIFFERENT RATE FOR DELIVERIES IN EXCESS
OF TEN MEGAWATTS.IS U. S. GEOTHERMAL ASKING FOR THI S
TYPE OF CONTRACT?
No.We are only seeking posted rates for the sale
of ten average megawatts of power.We are not asking
Idaho Power to purchase "excess energy" above the ten
average megawatts.
HAVE YOU MADE THIS POSITION CLEAR TO IDAHO POWER?
Yes.From the very beginning of our submi tal of a
first contract revision and discussions in October 2003,
I believe Idaho Power has understood our position.While
we disagree on the definition of the 10 megawatt cap, all
of our negotiations have been premised on the mutual
understanding that we were negotiating a power sales
agreement priced at the non-levelized posted rates, and
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that the plant would be capable of more than 10 megawatts
at peak , but approximately 9.5 megawatts on average.
an addi tional concession to Idaho Power, we have agreed
to cap the annual output at 10 megawatts.
HAS IDAHO POWER RECENTLY CHANGED ITS POSITION ON THE
RAFT RIVER FACILITY'S ENTITLEMENT TO POSTED RATES?
Yes.On May 21 , 2004 , Mr. Barton Kline sent a
letter to U. S. Geothermal's counsel that, for the first
time, stated that Idaho Power does not believe that u. S.
Geothermal is entitled
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to posted rates because the facility will have a
nameplate capacity in excess of 10 megawatts and will
deliver more than 10 MW to Idaho Power during some hours.
This obj ection had never been raised in our prior
months of negotiations and discussions.
WHAT WOULD BE THE PRACTICAL EFFECT ON U.
GEOTHERMAL IF IDAHO POWER IS ALLOWED TO NOW CHANGE
POSITION ON THIS CRITICAL ISSUE?
It would be both unfair , and potentially
devastating.Our disagreement with Idaho Power has
always been over the amount of power it is required to
purchase at the posted rates.All of the draft contracts
exchanged between the parties incorporate the posted
rates in the purchase price, and Idaho Power has never
suggested that those rates would not apply.In good
faith reliance on Idaho Power's original position , we
have spent considerable time, energy, and money in
negotiations with Idaho Power and all the other efforts
necessary to bring this proj ect to frui tion.
addition , we have supplied the draft contracts and their
posted rates to existing U. S. Geothermal investors , as
well as potential investors and lenders.
Now Idaho Power is suddenly taking the position that
it will only buy from U. S. Geothermal at some unknown
modeled rate to be developed at some time in the
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indefinite future.If Idaho Power is allowed to
arbitrarily reverse direction this manner,could
potentially destroy our business plan and waste the
nearly $1.million have expended commi t ted over
the last 10-12 months.Moreover , it wi 11 damage our
credibility with potential lenders and investors, making
the implementation of the proj ect much more difficul
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RECOMMENDATIONS FOR PUC ACTION
IN SUMMARY , WHAT ISSUES ARE YOU REQUESTING TO BE
INCLUDED IN THE COMMISSION RULINGS?
I have discussed three issues:
The engineering definition of a "10 megawatt"1 .
geothermal power plant;
Whether a geothermal plant wi th capaci ty that2 .
sometimes exceeds 10 megawatts should
nevertheless be eligible for published PURPA
rates.
Whether the 90/110 performance penalty is fair3 .
and reasonable.
WHAT ACTIOIN ARE YOU ASKING THE COMMISSION TO TAKE
IN DEFINING THE 10 MW POWER PLANT THAT WOULD QUALIFY FOR
THE IDAHO PURPA PUBLI SHED RATES?
U. S. Geothermal is asking the Idaho PUC to rule that
a 10 megawatt geothermal power plant is defined by the
ability to deliver no more than 10 megawatts as an annual
This should be interpreted to mean that at theaverage.
average design condi tion the power plant will deliver no
more than 10 megawatts, and at temperatures above the
design point, the generation will be lower.
temperatures below the design point, the output will be
higher.This is the traditional way of defining the
output of a thermal plant and is totally consistent with
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industry practice.
The use of 10 megawatts as the maXlmum hourly output
to qualify for published PURPA rates would resul t in the
size of the RRGPP being reduced to only a power plant
rating of approximately 8 megawatts.This 20% reduction
in the design rating would be disastrous for the economic
viability of our project.It is entirely possible that
an 8 MW proj ect would not be economically feasible, and
would have to be abandoned.
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WHAT ARE THE REASONS FOR THE COMMISSION TO DISALLOW
IDAHO POWER'S DEMAND FOR A 90/110 BAND TO FIRM THE
DELIVERY OF POWER UNDER PURPA CONTRACTS.
The reasons described earlier in the testimony are
briefly summarized below:
Idaho Power has not produced any supporting1 .
calculations that this band has not been fished out
of thin air.Nor has it shown how the failure to
deliver as little as 1.1 MW over the course of a
month disrupts its load planning.
The cost (and value) of firming the delivery of2 .
power from the SAR is not included in the calculated
PURPA price.Idaho Power should not therefore be
allowed to gain that value for free in PURPA
contracts.
Idaho Power's proposed PURPA contract 3 .
treated substantially and disadvantageously
differently than Idaho Power's own rate based
plants, which are not in any way subj ect to firm
delivery penal ties, and in fact are paid for , even
when they fail to deliver power.
There is no opportunity for make-up of4 .
shortfalls on either a monthly, or more reasonably,
a seasonal basis.
5 .Forecasts must be made up to two years in
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advance and cannot be changed at any time, nor is
any allowance made for circumstances beyond the
control of the operator, such as warmer than normal
weather, nor for occasional and inevitable normal
short-term breakdowns of equipment.
6 .A final reason would appear to be the
recommendations of the PUC Staff itself.The
Comments of the Commission Staff dated April 4
2003, regarding the Tiber Contract (IPC-03-
states:"Staff recommends . that those
non- standard terms unique to the
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contract (i. e., measurement of the 10 MW rating,
encouraging increased firmness, and seasonal i ty) not
be viewed as precedential.
WHAT RULING ARE YOU ASKING THE COMMISSION TO MAKE ON
THE ELIGIBILITY OF THE PLANT FOR THE PUBLISHED PURPA
RATES?
We are only asking that the Commission to decide
this lssue in accordance with the law , applicable
Commission orders, and common sense.We are seeking
posted, non-levelized rates for the delivery of ten
megawatts of power to Idaho Power.We have interpreted
the 10 megawatt limit on eligibility for posted rates to
mean 10 average megawatts, determined on an annual basis.
From our point of view, this definition is fair, and
based on the actual physical performance of a
megawatts power plant.
However, if the Commission adopts another
interpretation we will comply with it in order to qualify
for the posted rates.But under no circumstances should
Idaho Power be allowed to repudiate the entitlement to
posted rates it has previously acknowledged, as suggested
in its letter of May 21 , 2004.
DOES THI S CONCLUDE YOUR TESTIMONY?
Yes, it does.
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open hearing.
(The following proceedings were had in
MR . WARD:And Mr. Kitz is available for
cross-examination.
BY MR. KLINE:
COMMISSIONER SMITH:Mr. Kline.
CROSS - EXAMINATION
Mr. Ki t z .
Hi.
How are you?Mr. Kitz , much of your
testimony relates to explaining how a geothermal power
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plant is sized and I have to admit, I am still not
exactly sure what the generator nameplate rating for the
Raft River power plant is going to be.Can you tell me
what that number is in megawatts?
I assume are you talking the net rating or
the gross rating of the generator?
Well , when I look at your
- -
maybe this
the way to answer it.On page 1 7 of your testimony
you've got a table , Table
Right.
Okay, now , does this depict the
- -
look at
the column gross.The gross megawatts of the plant
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17 .45, would that be the gross nameplate rating of the
Raft River geothermal plant?
In megawatts, yes, it would, roughly.The
only exception to that might be that, as I said it in the
testimony, certain of the factors that would determine
that final number would still to be determined as a
resul t of well tests , detailed design of the power plant,
et cetera, but it would be in that general range.
All right, and then when I look at Table
, it looks to me like that any time that this plant, the
Raft River geothermal plant, where the temperature
below 48 degrees Fahrenheit, the energy that would be
delivered will exceed 10 000 kilowatt-hours per hour; is
that correct?
Tha t 's correct.
All right, in your testimony beginning on
page 20, you address arguments against the 90-110 band
that Idaho Power has proposed, and I guess I want to
look - - the first item I want to talk to you about is on
page 21 , item No.Are you the re ?
Yes, thanks.
Okay, and you say,"The only reason
allowed, contractually, for failure to deliver would be
'Force Maj eure
' ,
" but isn't it true that a forced outage
is also excused with respect to the shortfall energy
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proposal?
Right , that's true.If it was 72 hours --
the contract, however , limits it to a total plant outage
of 72 hours; so for example , if we have two 5 megawatt
generators and one of them goes down for one day, the
contract provision demanded by Idaho Power requires us to
shut down all 10 megawatts for three days in order to
avoid the contract penal ties.
So when you say "the routine failure of
one of the downhole production pumps," that would be a
forced outage event , would it not?
Right, that's another good example, so
let's say we have three wells each supplying about
megawatts and these are pumps operating In a difficult
environment and they fail occasionally, that knocks
megawatts off of the plant output and it would result in
us incurring penal ties because it's golng to take at
least two weeks for that pump to be
- -
to mobilize a rig
to site , to pull the pump, replace the pump, et cetera,
so that sort of situation which is an expected operating
condition in a geothermal power plant would cause us to
go straight to a penal ty si tuation , into the penal
box.
You wouldn't declare a forced outage in
that situation?
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The contract from Idaho Power wouldn't
allow that because it doesn'-- it only permits a total
shutdown of the plant for 72 hours or more.
Looking at item No.5, you talk about an
opportunity, there's no opportunity to make-up.m not
really sure what you mean by that.During the
negotiations at any time did you present any kind of a
make-up or true-up proposal to Idaho Power?
Well , there was no need to because Idaho
Power's posi tion was we couldn't deliver more than
megawatts in any one hour.Since we're designing for a
10 megawatt plant, even if the plant has extra capacity,
there's no opportuni ty to use that capaci ty to make up
for a shortfall of a few days where there's some piece of
equipment that's broken, so it really locked us up in a
way that even though we had the capability and the desire
to satisfy the 90 percent , the contract prohibi ts us from
being able to do so.
But that's only if you size the plant at
the absolute maximum capaci ty factor, isn't it?
There's an enormous fixed cost in
geothermal power plants.10 megawatts is widely accepted
as the minimum size that a geothermal power plant can
operate at economically and to back down from there with
fixed O&M costs , fixed maintenance costs on the turbines,
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fixed personnel costs , none of those costs change , but
the revenue stream sure does.
On page 26 of your testimony, look at line
, you say,"However , if the Commission adopts another
interpretation , we will comply with it in order to
qualify for the posted rates.When you make that
statement, are you talking about downsizing the proj ect
to qualify for the posted rates?
We would be forced to downsi ze the proj ect
to meet whatever the posted rate eligibility would be , I
believe.
And I guess one of the other questions
want to ask about this , in Mr. Runyan's testimony, he
talks about the fact that if this Commission were to
adopt the peak 10 megawatt definition that's been
advocated by Idaho Power and Staff that it might drive QF
developers to build a series of 9.9 megawatt generator
plants.Is that also something that u. S. Geothermal
might do in order to accommodate its desire to receive
the posted rates?
I believe that the PURPA law and the rules
for QFs allows facilities to be sited one mile apart and
recel ve separate QF numbers and that remains a legal
option for U. S. Geothermal , but spreading facilities
around to dodge issues is not really in anybody' s
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benefit, either Idaho Power's or ours.
But even if you went to the definition
that you propose, what I hear you saying is you could
still do that , you could have four or five 9.9 megawatt
plants scattered over the Raft River site in one area and
still never have to look at the IRP methodology for
computing those rates; isn't that right?
In theory that would be right, if there
was enough surf ace area to spread them all apart by a
mile.I think there's practical limits to that situation
you're putting forward.
On the bottom of page 20 of your
testimony, I think you correctly conclude that when
either an Idaho Power plant shuts down , has an outage , or
if a QF proj ect has an outage or doesn't deliver all of
its requirements under the contract , Idaho Power'
customers are golng to pick up the difference.Their
prices , their costs are golng to go up and it doesn't
mat ter whether it's a QF proj ect or the Power Company'
Under the Company's power cost adj ustment, those
additional costs are going to be included in the
Company s rates; is that correct?
Yes , that's my understanding.
But you go on to say, and you've got this
in bold here, that ratepayers pay nothing for the PURPA
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asset that is failing to deliver power , and my question
here is under any firm power purchase agreement that
Idaho Power might enter into with someone who is selling
us power on a firm basis, if the counterparty doesn't
deliver the amount of energy that they've contracted to
provide , they don't get paid and in addition , they pay
liquidated damages, and my question to you is you're not
saying here in your testimony that U. S. Geothermal should
get paid even if they don't deliver the contracted amount
of energy, are you?
No, I'm not.
All right.
MR. KLINE:Sorry, one second.
(Pause in proceedings.
MR. KLINE:That's all.
COMMISSIONER SMITH:Mr. Woodbury.
MR. WOODBURY:Thank you, Madam Chair.
CROSS - EXAMINATION
BY MR. WOODBURY:
Mr. Kitz , looking at your testimony,
you re the vice president of proj ect development for U. S.
Geothermal?
Yes, I am.
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And you state you have 19 years of
experience in the geothermal power industry which seems
to be reflected also by your exhibit.Does any of that
experience include geothermal power sales agreements wi
state regulated utilities?
It does not.
You also describe the modeling process
u. s. Geothermal followed wi th Power Engineers to estimate
the monthly generation from the Raft River proj ect.
you believe that those monthly estimates are accurate?
Within the level of certainty we have
about the data that we're uslng right now, yes, I think
it's accurate.
The level of certainty within a plus or
mlnus 10 percent?
Easily within 10 percent.
Okay.You're familiar with the Ormat
plant equipment that was considered for this proj ect?
Yes , I am.
Could that equipment be sized for Raft
River such that its output never exceeds 10 000
kilowatt-hours per hour?
Well, you wouldn't, I don't think you
would size the equipment that way.I think that that'
an operational control.In extremely cold weather
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would be - - the basic physics of that plant is going to
make - - if you're saying it's going to start generating
more power , if you're saying could it be absolutely
regulated wi th a mechanical device, I suppose so.
couldn't be designed, though , to somehow just reach some
point and stop.
Could you put a regulator on it?
Well , in theory, sure.I mean , it would
have to look at what the auxiliary load is and subtract
that, but yes , it could be done , I suppose.
What do you believe the ul timate potential
output of the Raft River site is?
The report from our reserVOlr engineering
consultant puts it at a maximum of 90 megawatts from the
resource.That's a highly theoretical number and
undoubtedly unfinanceable at that level and that amount
of area that we control , so I think 10 to 30 is a
reasonable expectation of what's financeable.
MR. WOODBURY:Thank you , Mr. Kitz.
Madam Chairman , I have no further
questions.
COMMISSIONER SMITH:Thank you
Mr. Woodbury.
Mr. Fell.
MR . FELL:Yes, please.
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CROSS - EXAMINATION
BY MR. FELL:
Mr. Ki tz , I represent PacifiCorp, so I'
one of the intervenors.Was it part of your testimony
that the 10 megawatt limit as we're debating it in this
proceeding can lead to suboptimal sizing of facilities?
What do you mean by "suboptimal"?
Tha t is to say that depending on how thi s
definition is set that people, that developers, will
design their generation to get on one side or the other
of the limi t in order to get more favorable pricing?
Right, I think that's always
- -
sure, we
would size to make sure that we're eligible for the
posted rates , whatever the definition of that will be.
That's just the nature of the beast with
posted rates and a limi t to that; correct?
Well , yes.I me an, you know , the
preliminary AURORA model that was run showed a levelized
cost of 4.6 cents and the posted rate is 5.6 cents for
levelized.I think it's pretty obvious there's a big
economlc incentive to, if those prove to be the real
numbers, to stay wi th the posted rate.It's that
simple.
Now , I'd like to understand a little
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better how your Table 2 on page 17 works and what the
auxiliary load is and related losses are on page 8 of
your testimony, so maybe you could just
- -
we'll be going
back and forth between page 8 and page 17.On page 1 7 ,
does the highlighted area that comes to a net of
megawatts represent in your mind what's often referred to
as the design capaci ty of a particular proj ect in the
sense that it's designed at average ambient conditions?
Right , that's the practice in the small
geothermal power industry is to design to the average
ambient condi tion under most circumstances.
And when you're talking about designing to
average ambient condi tions, you're not talking average
energy or anything of that sort , you're talking average
temperature, humidity, altitude of the site , that sort of
thing?
Correct, to achieve what the rated
capac i t Y 0 f the pI ant is supposed to be in thi s case,
megawat ts.
And obviously, the ambient conditions
produce different output.To go from gross to net plant,
is that a factor of some kind of auxiliary load that
takes you from gross to net plant?
Right.I was just trying to distinguish
between the load that's consumed within the power plant
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and the load that's consumed out in the geothermal field
in the pumps , and so plant net is meant to be the items
that you have pointed us to on page 8, such as the boiler
feed pumps, well , the air condensor cooling fans , these
would be some of the larger loads inside the power
plant.
When you talk about parasitic load or when
wi tnesses talk about it, which loads are we referring to
as parasitic loads?
The power plant parasitic loads would be
whatever motor is running that's consuming electrici ty or
the transformation losses to step up to the transmission
system and then the well pumps would be further parasitic
losses.
So the 2. 5 megawatt s that have been
referred to as, I think referred to as , parasitic load;
is that correct?
For the production and inj ection pumps,
yes.
Okay; so that's the fourth column on Table
, then?
Correct.
Going back to gross to net , does that
include the transformation losses , then?
Yes.Well , yes, it should.
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Where is this metered?Is it metered
the plant and then metered again at the point of
deli very?
I would say it's - - for the contract it'
golng to be metered at the point of delivery, but Slnce
that right now is envisioned to be two-and-a-half miles
away, I'm sure it will be metered at the plant as well
but this column would typically represent the plant load
including the transformation loss, the parasitics
including the transformation loss.
So when you get to the final column , the
last column , on page 2 , that's the number that you expect
to deliver at the point of delivery with Idaho Power?
Right, correct.
So if they were planning transmission and
interconnection design , they would be looking at that
number?
Right.We're actually connected to a BPA
transmission line and so in this particular case it's BPA
who is planning the interconnect , but the amount that
Idaho Power would plan on would be roughly this number
here del i vered from BPA.
And I still don't understand the gross to
net plant.It's more than It's quite a reduction.
megawatts and it's not the injection pumps.Could you
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explain a little more what it is?You said it was boiler
feed pumps?Is it related to what's part of the
generator?
Well , the lower the temperature of the
resource the higher the parasitic load is going to be and
so with a low temperature resource like geothermal , the
losses are high.With a high temperature or super
critical coal plant , the parasitics represent a much
lower percentage , so the 20 percent may be surprising to
you simply because of the fact that it's so much higher
than a high temperature thermal plant, but those would be
the - - the fans for the cooling system and for the boiler
feed pumps are the lion's share of the load that's being
consumed within the power plant itself.
All right , thank you.It was my
impression that 20 percent was high , so I appreciate that
answer.Now , in your contract, which is Exhibi t A to the
application , do you have that available to you?
At the last minute I didn't bring it up.
Can I grab that?
I'll be referring to the Table of Energy
on page 9 of this contract, Exhibi t A.
(Mr. Ward approached the wi tness
. )
THE WITNESS:Okay.
BY MR. FELL:All right, now , I'd like to
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take you through and see whether I understand how you
calculated these columns and I'm working with the column
entitled Maximum Monthly Energy and it varies by month.
It's set forth by month?
COMMISSIONER SMITH:m sorry, Mr. Fell
I m still trying to catch up.Where are we in Exhibi t A?
MR . FELL:We're in Exhibi t A to the
application, which is the contract , on page
COMMISSIONER SMITH:Thank you.
BY MR. FELL:And again we're looking at
the last column enti tIed Maximum Monthly Energy.I n your
application of this 10 megawatt limit on the posted rates
and in this column , did you take the facility generation
at average ambient conditions to start with in
calculating this?In a sense, did you take back to Table
2 that line that was highlighted?Were you working from
that?
We were working from the whole table
right.The plant was designed for 10 megawatts and then
its output at each temperature was predicted and that
variation of output with temperature was what was used to
derive the maximum monthly energy calculation.
All right; so month to month it takes into
account temperature?
Yes , it does.It used a four-year average
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of monthly temperatures about 20 miles from the site at a
u. S. Department of Agricul ture weather station.
Do you then multiply that generation
that's a megawatt number , do you multiply it by the
number of hours in a month?
In the particular month , right.
And then do you multiply that by the
capaci ty factor?
When we - - well , yes, that's what the net
energy number is, is that we would expect the geothermal
power plant to run within long-term capacity factor
average of 95 percent, but in any one month it's very
likely that many months will have 100 percent capacity
factor and so what this net energy column was meant to do
was to try to help Idaho Power wi th their planning that
over long term that would be the number , but, of course,
Idaho Power themselves would like us to take our
shutdowns and overhauls in the least valuable months, so
much more likely the actual deliveries during their
premium months will be as close to 100 percent as we can
and when we have to schedule maintenance and have
discretion over that, then we'd go to a month like March
April or May, so it would be less than 95 in those years
where we do maintenance.
The difference, then , between the two
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columns is that net energy is 95 percent of maximum
energy in thi
Correct.
Now , switching, just changing your
perspective here, point of view , if this were a wind
facility, you testified that wind facilities are
different and often judged at maximum capacity; is that
correct?
ve never worked in designing those
facilities, but in conversation , that's my
understanding.
So in a wind facility is it your
understanding that they produce at a much lower capacity
factor?
Right , my understanding is that a
megawatt facility would typically produce somewhere
around 35 percent of its rated capacity on an annual
average basis, so a 10 megawatt facility is probably
going to deliver 3.5 average megawatts year to year.
And if this table in the draft contract
were depicting a wind facility, the net energy column
would be more like 30 or 35 percent , then, of the maximum
energy column?
I guess the reason I'm hesitating is I
don't think any wind developer would suppose that in any
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one month they'd deliver a 100 percent capacity factor
and so they might very well change that maximum monthly
capacity factor or maximum monthly energy.I wouldn't
think they'd put in
- -
put it in maybe qui te the same way
that we did, but we would expect many months to deliver
100 percent of that number , the maximum, and that number
was there specifically to prevent in anticipation of
Idaho Power having concerns about abuse of contract.
That was something we added to try to protect Idaho Power
and give them confidence that we wouldn't be gaming the
system.
Just one other question.Is it possible
to vary what you call here the pumping load , the
parasitic load -- let me get this straight.The
parasi tic load is the pumping load for inj ecting fluid
into the well and extracting it?
Right.In the well field, that's the
parasitic load, yes.
Is it possible to pump into the field,
into the reservoir at one time and generate the power
a later time?Is there any storage capacity concept
that's available here where you're not doing both at the
same time?
That would be fantastic.That would serve
everybody really well , but unfortunately, we're handling
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such huge volumes we'd need a pump storage lake to do
tha t wi th and no, we have to produce it, run it through
the plant and stick it straight back in the ground.
don't have any ability to retain.
No more
Mr. Strong, do you
MR . STRONG:Thank you , Madam Chair.
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83676
MR . FELL:Thank you.
You do?
MR . STRONG:My name is Blair Strong and
represent Avista Corporation, one of the other
So Mr. Strong, since
you do have questions, I propose that we take a break
All right, we'll go
back on the record.Mr. Strong, do you have questions
MR. STRONG:Yes, ma' am, I do.
questions.
THE WITNESS:Thanks.
COMMISSIONER SMITH:
have questions?
COMMISSIONER SMITH:
intervenors.
COMMISSIONER SMITH:
until approximately 11:00 o'clock.
(Recess.
COMMISSIONER SMITH:
for Mr. Ki tz?
KITZ (X)
U . S. Geothermal
CROSS - EXAMINATION
BY MR. STRONG:
I'd like to follow up.You stated in your
testimony that a 10 megawatt facility lS a conventional
size for geothermal facilities; is that a fair
characteri za t ion?
It's a pretty common Slze to build to and
generally accepted as approximately the economic
minimum.
I f you were looking a development such
the property that you are proposing to develop where
there could be mul tiple generators, would the industry
standard be to classify all those generators together as
one proj ect which are located on a common field or to
classify them individually by generator?
It's generally done the second case.It'
generally - - they would generally go in as individual
uni ts Frequently in this type of resource we install a
first unit, small with a very high degree of confidence
that the resource will support it in order to be able to
look at the response of the resource in the first few
years of development to ensure that we don't overbuild
the resource to the detriment of ourselves , our lenders
et cetera.
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And I assume by "the resource," you mean
the geothermal energy that's located at that location?
Correct , the geothermal reservoir.
And the property you're talking about
anticipates a single geothermal source?
Right, it's a single geothermal field
our location.We have ownership and leasing of
approximately six square miles of area and right now
that's all that would be available to us to build on.
Now , I take it from your answers to
Mr. Fell's question that you're familiar wi th the term
design capacity.
Yeah, that's a term we use.It's not a
preclse definition , but the design capacity that
discussed in my testimony was a 10 megawatt plant
designed for a capacity at 48 degrees Fahrenheit.
And are you aware or perhaps reviewed
other testimony in this case which makes reference to the
fact that the standard adopted by the Federal Energy
Regulatory Commission for 100 kilowatt proj ects refers to
design capaci ty?
I 1 m not familiar with the FERC definition
of 100 kilowatt capacity.
MR . STRONG:I have no further
questions.
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COMMISSIONER SMITH:Thank you
Mr. Strong.
Are there questions from the Commission?
Commissioner Kj ellander.
EXAMINATION
BY COMMI S S IONER KJELLANDER:
Mr. Kitz , I want to go back to parasitic
load.When read through your testimony,caught my
attention and there were some questions that were asked
and gue s s would just like to get a very simplistic
question that I think will perhaps demonstrate my
ignorance of physics and maybe even what parasitic load
, so I apologize if what I ask is simply not
appropriate, but you can tell me that.What I want to
get to is that parasitic load.On those days in which
the output of the plant can't meet the 10 megawatts that
would be required under the proposed contract or the
final contract, at least, that was presented by Idaho
Power , could another generation resource provide the
power for that parasitic load in order to meet the
megawatt output of geothermal power?
So let me just clarify, you're asking
we're trying to target a steady 10 megawatts all the
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U . S. Geothermal83676
time --
Correct.
- -
what could our plant do to do that?
And is the parasi tic load - - that'
actually a bet ter question.
Okay.Okay; so there's different terms
for parasitic load, but the parasitic load is basically
everything that is produced by the generator and isn't
delivered to the receiving entity, so in very broad
terms, we could even consider the fact that BPA will
charge us losses to transport their line.Maybe that'
not a parasi tic load strictly, but what I was trying to
get at was the difference between gross and net and what
I was trying to show was that the output of the generator
varies with temperature and then the output of the power
plant varies wi th temperature.
If you look at Table 2 , you'll see that
the pump load stays constant, though , regardless of
temperature.We still have to keep pumping that same
amount of fluid.We're just making more or less power
with it and that gives us our net delivered , so I hope
that somewhat clarifies the idea of the parasitic, and
then the second question that you asked is what could we
do to firm
- -
to provide an absolutely steady
megawatts and I think earlier you raised the possibility
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of adding a thermal resource to the si te as an example.
Well, just a resource.I didn't mention
thermal.
Okay.That's true , somebody else did.
guess that earlier we looked at the part of the testimony
where we predicted our monthly output and that same
characteristic of changing output with temperature
happens at Danskin.It would have happened at the
air-cooled plant that Idaho Power was proposing.This is
just a characteristic of thermal power plants.It's not
unlque to geothermal and by providing a monthly
- -
looking at the temperature, the average temperature of
the month , we're telling Idaho Power what they can expect
from that plant.It's much more economical for them to
acqulre resource, you know, aggregating all of these
varYlng loads to meet their load than for us to do that.
That's not - - that would cost the ratepayers a lot of
money for each individual generation resource to try to
make itself look like a system sell , an absolutely steady
output with time.
Let me go back to my simplistic question.
I guess I'll go back to the parasitic load.If that
parasi tic load wasn't there, you didn't have it, would
you be around more closely a 10 megawatt output on a
daily basis or an hourly basis?
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No, and you can see that in Table
That's what the gross generation number means, so if we
look at that and the design is
- -
the gross output is
15-and-half megawatts and in the cold weather it goes
up to 1 7 - and - a - hal f and down as the weather get s hot ter
the same thing would happen if we put it at 10.Tha ti
about a 10 or 12 , 15 percent variation , so the power
plant itself excluding the parasitic loads would still
vary by at least 15 percent each direction as the
temperature changes.
COMMISSIONER KJELLANDER:Okay, thank you.
COMMISSIONER SMITH:Do we have redirect,
Mr. Ward?
MR . WARD:Yes.
COMMISSIONER SMITH:Wai t a minute , I have
0 n e , I' m s 0 r ry .
EXAMINATION
BY COMMISSIONER SMITH:
Mr. Kitz, you described how your pumps
operate In a difficult environment.
Right.
And I can understand that , so periodically
they're golng to fail and when is that periodically?
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that terms of months or years or decades?
Well it'a good question actually.
Friday and Saturday was just a pump semlnar,
fact, and Raft River actually was the site of where some
of the first , was where the first geothermal pumps were
ever tested and they sometimes achieved a run of three or
four hours and over time it dragged up to two or three
months and in certain fields now there's pumps that run
nine or ten years.I would say typical is, a typical
expected is three to four years now , but each field
inevitably experiences a pump that fails within a year of
having been reinstalled and so it's still highly
variable.
But it's not something that should be
expected monthly or bimonthly?
No.
COMMISSIONER SMITH:Thank you.That was
my question.
MR. WARD:Thank you.
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REDIRECT EXAMINATION
BY MR. WARD:
I want to follow up with an answer you
gave to Commissioner Kj ellander or a portion of it and
let me maybe help to clarify this by asking about Idaho
Power's resources for the moment.Idaho Power has
- -
you
know enough about Idaho Power to know that it has a mix
of thermal resources and hydro and other resources; is
that correct?
Yes.
Now , let's assume that for some reason
Idaho Power was required to meet the standard it is
proposing here; that is, each individual resource would
have to operate between 90 and 110 percent of its
estimated output.Do you have that hypothetical in
mind?
Okay.
Now , as you mentioned to Commissioner
Kj ellander , that would cost the ratepayers a lot of
money.Please explain what you mean by that , why that
would cost the ratepayers a lot of money.
I think that was a slightly different
statement than what I said, but to answer your question
let me - - I'm just thinking about what the implications
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are.
Well , let me ask it this way.
COMMISSIONER SMITH:It's okay, Mr. Kitz
you've learned early that the hardest questions come from
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BY MR. WARD:Let me ask it thi s way:
your own 1 a wye r .
Idaho Power because it has diverse resources has a
reserve requirement that applies to its system as a
Yes.
Now , let us suppose that Idaho Power'
resources had to operate within the constraints that
they're suggesting for PURPA resources in this
that mean that every single
have to if you wanted to avoid the
penal ties or achieve the desired obj ecti ve in terms of
operating characteristics , every single resource would
have to have a backup resource?
Or not bid the capacity of the plant as
was suggested by one of the other ones which would then
mean that the plant wasn't producing its full capaci
and would therefore have to charge more in order to meet
its debt obligations.The cost of the power would go up,
Okay.
Wouldn'
resource woul d
whole; correct?
proceeding.
138 KITZ (Di)
U . S. Geothermal83676
but the benefit to Idaho Power of having so many plants
and so much reserve capacity is that that variation from
plant to plant, that uncertainty that's going to come
from one pump breaking or a forced outage is that they'
able to aggregate all of that uncertainty and cover
wi th a single number , but to cover the uncertainty in a
single plant is a much higher risk, much more expensive
undertaking than to cover the risk of an aggregate.
Okay, and is there any reason , is there
any intrinsic reason , why PURPA resources would be any
different in that regard; in other words, why their
aggregate reserve, if you will , or reserve protection,
there any reason why it would be different than the
aggregate of utility resources?
No.In fact, it actually is in my view , I
haven't planned reserves wi th utili ties, but it seems to
me that having a whole bunch of 10 megawatt resources
exposes the Company to a lot less risk of a large block
golng missing than having one 500 megawatt coal plant
which would make a noticeable bobble in the system when
it drops off.
One other area.You've read the testimony
of the utility witnesses in this case, have you not?
I have.
And are you aware that with the Avista and
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PacifiCorp filing the companies' witnesses proposed a
two-part test for the 10 megawatt limit and that that
two-part test is now that a plant could never produce
more than 10 megawatts in an hour and it could have a
maximum nameplate rating of 10 megawatts; is that your
understanding?
MR. KLINE:Madam Chairman, I think we'
on redirect, aren't we?
COMMISSIONER SMITH:Theoretically.
MR. KLINE:That's up to you.
COMMISSIONER SMITH:Is that an obj ection,
Mr. Kline?
MR. KLINE:I just wanted to inquire.
COMMISSIONER SMITH:Well, I think I'll
allow Mr. Ward to ask his questions.He would have the
opportunity for rebuttal if he'd like, but it seems much
more efficient to allow him to do that now.
MR . WARD:Well , I'm actually not golng
where counsel thinks I was.What I'm responding to
questions about the parasitic load and I want to make
that clear.
BY MR. WARD:Now , do you have that
thought in mind, that the utility definition is accepted,
the new proposed utility definition, nameplate capacity
is at a maximum of 10 megawatts?
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Okay.
All right.Now , if you bui 1 t a geothermal
plant with a nameplate capacity of 10 megawatts, meaning
the maximum it could produce , and it still had to serve
its parasitic load , what would be the output , the actual
output, in terms of deliveries to the utility from a
plant like that?
Well , if the maXlmum the generator could
ever produce was 10 megawatts, if you measured it at the
generator , then you would end up with about a 6 megawatt
proj ect, geothermal proj ect , and I guarantee it would not
get buil t
That's all I have.MR . WARD:Thank
you.
COMMISSIONER SMITH:Thank you, Mr. Ward
and thank you, Mr. Ki t z .
THE WITNESS:Thank you.
(The witness left the stand.
MR. WARD:We'd call Kip Runyan to the
stand.
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KI P W. RUNYAN
produced as a wi tness at the instance of the Complainant
u. S. Geothermal, having been first duly sworn , was
examined and testified as follows:
BY MR. WARD:
DIRECT EXAMINATION
Mr. Runyan , would you state your name and
address for the record?
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My name is Kip Runyan.I live at 2233
Spring Mountain Drive here in Boise, Idaho.
And for whom are you testifying in this
m an independent consul tant retained by
u. S. Geothermal to provide assistance in their attempt to
Did you prepare prefiled testimony for
Yes, I did.
Do you have any - - referring just to your
direct testimony for the moment , do you have any
additions or corrections that you're aware of?
No.
And did you al so prepare Exhibi t No.3 --
proceeding?
get a contract.
this proceeding?
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U . S. Geothermal83676
Yes.
-- In conjunction with that testimony?
Wi th respect to the direct testimony, if I asked you the
questions today contained therein, would your answers be
as stated?
Yes.
MR . WARD:Madam Chair, I'd request that
the prefiled testimony of Mr. Runyan be spread on the
record as if read or prefiled direct testimony and his
Exhibit No.3 be marked for identification.
COMMISSIONER SMITH:If there's no
obj ect ion , it is so ordered.
(The following prefiled direct testimony
of Mr. Kip Runyan is spread upon the record.
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PLEASE STATE YOUR NAME AND ADDRESS FOR THE RECORD.
My name is Kip W. Runyan.My business address
2233 Spring Mountain Drive, Boise , Idaho.
BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY?
I am a sel f - employed consul tant in the independent
energy business.My services include assistance in the
development, contracting, financing, and operation of
independent power facilities.
PLEASE PROVIDE YOUR BACKGROUND AND EXPERIENCE.
I am a licensed Professional Civil Engineer in the
state of Idaho and have twenty six years of experience in
the electrical energy industry.I have held a variety of
positions within the industry, including President and
CEO of Ida-West Energy Company, an independent power
producer , and Senior Vice President of the Delivery
Business Uni t of Idaho Power Company.A complete resume,
including my educational background and employment
history, is presented as Exhibi t No.
MR. RUNYAN , ON WHOSE BEHALF ARE YOU APPEARING IN
THIS PROCEEDING?
My testimony is presented on behalf of U. S.
Geothermal, Inc.U . S. Geothermal retained me on October
8, 2003 to assist in the negotiation of a Firm Energy
Sales Agreement (" Agreement") wi th Idaho Power Company.
The Agreement was to be consistent with contracts
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approved by the Commission pursuant to the State of
Idaho's PURPA program for qualifying facili ties.
Recently, as a result of the inability of Idaho Power and
U. s. Geothermal to reach agreement on the terms and
condi t ions of the Agreement, I was asked to provide
testimony discussing those disagreements in this case.
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MR. RUNYAN , WHAT I S THE PURPOSE OF YOUR TESTIMONY?
My testimony will describe the negotiations leading
up to the filing of the Complaint in this case and the
proposed terms and conditions in three areas in the
Agreement that the parties have been unable to resolve.
Finally, I will explain what I believe to be the
appropriate resolution of each of the three disputed
lssues.
PLEASE DESCRIBE HOW YOUR TESTIMONY IS ORGAN I ZED.
My testimony will discuss, in the following order
(i) the factual background of the negotiations,(ii) the
definition of a 10 MW facility and how it affects the
provlslons contained in the Agreement,( i i i ) Idaho
Power's attempt to include provisions that penalize U. S.
Geothermal if the output of the proj ect in any month
falls below 90% or above 110% of the proj ect 's estimated
monthly output,(iv) Idaho Power's demand to include a
provision that allows Idaho Power to terminate the
Contract if certain deregulation activities and
regulatory actions occur in the State of Idaho, and (v)
what I believe to be the appropriate resolution of the
contested issues.
PLEASE PROVIDE A HISTORY OF THE NEGOTIATIONS BETWEEN
U. S. GEOTHERMAL INC. AND IDAHO POWER LEADING UP TO THE
FILING OF THE COMPLAINT IN THI S CASE.
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Prior to my employment by U. s. Geothermal , U. S
Geothermal contacted Idaho Power in early 2003 and was
sent several standard form PURPA agreements by Idaho
Power Company.The form agreements differed primarily
depending upon whether the payments under the agreement
were levelized over the contract period or non-levelized
(escalating over the contract term) As I stated
previously, I was retained by U. s. Geothermal on October
8, 2003, to assist in the negotiation and finalization of
a Firm
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Energy Sales Agreement wi th Idaho Power Company.The
following is a brief history of the maj or negotiation
events:
On October 24 , 2003, U. S. Geothermal submi t ted to
Idaho Power Company a "mark-up" of the previously
provided agreement for a non-level i zed contract.
The "mark-up" was generally consistent with Firm
Energy Sales Agreements that Idaho Power had entered
into over the last decade and which were approved by
the Idaho Public Utilities Commission.The maj or
( 1 )
changes from the draft agreement provided by Idaho
Power Company specifically addressed the three
contract provisions contested in this case.
(2 )On November 20, 2003, Idaho Power submitted to U. S.
Geothermal a new draft of the Firm Energy Sales
Agreement.The draft did not include any of the
changes proposed by U. S. Geothermal in its "mark-up"
of October 24 , 2003.
(3 )On November 21, 2003, Idaho Power and U.
Geothermal met to discuss each of the proposed
agreements.Although significant progress was made
in "tidying-up" a number of non-controversial
issues, no progress was made on resolution of the
three maj or contested issues.
(4 )On December 5, 2003, Idaho Power submitted a new
148 RUNYAN (Di)
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draft of the Agreement, incorporating many of the
changes the parties had previously agreed to, but
still containing the three contested issues, albeit
in a slightly modified form.
(5 )On February 20, 2004, U. s. Geothermal submi t ted a
new draft of the Agreement that incorporated terms
and conditions agreed to by the parties, as well as
reflecting its position on the three contested
issues.This draft of the Agreement
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attached as Exhibit A and Exhibit B (red-lined) to
the Complaint filed on March 25, 2004.
( 6)On March 4, 2004 , Idaho Power delivered a new draft
of the Agreement, at tached as Exhibi t C to the
Complaint.Al though the draft contained several
areas different than the U. S. Geothermal draft of
February 20 , 2004 , from a materiality standpoint,
the three contested issues remained the only issues
that were not resolved or resolvable.
(7 )On March 5, 2004, I had a phone discussion with
Randy Allphin of Idaho Power Company regarding the
latest drafts of each of the parties.I asked Mr.
Allphin if there was any way that Idaho Power would
materially modify its position relating to the three
contested issues.His response was that al though
Idaho Power was always ready to discuss some form
modification , it would not consider materially
changing its posi tion on the three contested issues.
( 8 )On March 25, 2004 , U.S. Geothermal filed its
Complaint with the Idaho Public Utilities
Commission.
MR. RUNYAN , CAN YOU PLEASE DESCRIBE THE GENERAL
BACKGROUND THAT FORMED THE UNDERLYING BASIS FOR THE
NEGOTIATIONS?
In 2002 the Commission issued a serles of Orders
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(No. 29029 , No. 29069 and No. 29124) that made
significant changes in the terms and conditions under
which a PURPA proj ect could expect to enter into a
standard form contract eligible for published avoided
cost rates in the State of Idaho.The maj or changes
inc 1 uded :(i) an increase in the eligible project size to
(i i) an increase in the contract length10 megawatts,
available to proj ects to a twenty-year term , and (iii) a
recalculation of the avoided cost available to eligible
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qualifying facilities.The changes the Commission
ini tiated in these Orders resul ted in a general
revi tal i za t ion of the independent power industry in the
State of Idaho and, in particular , provided U. S.
Geothermal an avenue to develop its facility at Raft
River.
CAN YOU PLEASE RELATE THE CONTRACTING ACTIVITY THAT
HAS OCCURRED SINCE THE ISSUANCE OF THE COMMISSION ORDERS
IN 2002.
Since the Orders were issued, I am aware of three
contract s that have been submi t ted to, and approved by,
the Commission.The contracts are for the Tiber Montana
hydroelectric facili ty, the Renewable Energy wood waste
facility at Emmett , Idaho and the United Materials wind
facili ty in Great Falls, Montana.In both the Tiber and
Renewable Energy contracts , Idaho Power will pay
published rates for the first 10 megawatts of "Net
Energy" delivered in any hour and market-based rates for
deliveries in excess of 10 megawatts in any hour.
addition , all three contracts include the contested issue
relative to the 90%/110% output banding and the contract
termination prOVlSlons relative to certain deregulation
scenarios in the State of Idaho.The Commission approved
each of the contracts, al though it consistently stated
that it considered the provisions establishing actual
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generation rather than nameplate generation to' meet the
10 megawatt classification and the 90%/110% banding to
establish firmness" as "significant changes from prlor
Idaho Power QF contracts.TheOrder No. 29232 at
Commission further noted that our decision in this case
sets no precedent for our future regulation of such
Agreements and should not be viewed as precluding
negotiating parties from challenging the reasonableness
of such terms for inclusion in any future QF contracts.
Id.
MR. RUNYAN , CAN YOU PLEASE EXPLAIN THE DISPUTE
BETWEEN THE PARTIES RELATIVE TO THE PROJECT CAPACITY?
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An independent power proj ect in the State of Idaho
that is a qualifying facility ("QF") under PURPA, is
eligible to receive rates published by the Idaho Public
Utilities Commission for the sale of its energy.
Eligibility for those published rates is restricted by
the Idaho Public Utilities Commission to projects of
megawatts or less, with a contract term of no more than
Idaho Power contends that the Commission Itwenty years.
intent was to limit deliveries from the project to no
more than 10 megawatts in any hour during the agreement'
term. U. S. Geothermal believes the Commission's intent
was to offer the published rates to agreements for ten
average megawatts or less.Stated another way, the
question is whether the Commission's 10 megawatt criteria
for published rates refers to peak capacity or total
energy. Under U. S. Geothermal's proposal, output would
exceed 10 megawatts during favorable ambient conditions
(winter months) and would be less than 10 megawatts
during unfavorable periods of the year (summer months) ,
but would in total for the year average less than
U. S. Geothermal believes such a proj ect is,megawatts.
in fact, a 10 megawatt facility under any normal rating
cri teria and meets the intent of the Commission in
establishing the 10 megawatt cap.
WHY DO YOU BELIEVE U. S. GEOTHERMAL'S POSITION
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CONSISTENT WITH THE COMMISSION'S INTENT?
u. S. Geothermal will sell only the proj ect output
defined as "Net Energy" in the Agreement, that
qualified to receive the published QF rates.Unl ike the
Tiber and Renewable Energy facilities, Idaho Power is not
obligated to purchase any energy that exceeds "Net
Energy" amounts in any hour.In fact, the Agreement
specifically disallows the delivery of any energy In
excess of the "Maximum Capacity Amount. The
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Agreement proposed by U. s. Geothermal is only for the
sale of energy produced by a 10 megawatt facility as
defined in the Agreement.
SHOULD THE FACT THAT THE RAFT RIVER FACILITY WILL
HAVE CAPACITY IN EXCESS OF 10 MEGAWATTS MAKE IT
INELIGIBLE FOR PUBLISHED RATES?
No, and Idaho Power has not previously taken the
position that it should.QF Contracts approved since
2002 have applied the published rates to the first
megawatts in any hour for facilities with a capacity in
excess of 10 megawatts.The record al so shows that
during the course of negotiations the parties were never
in disagreement on the applicability of the published
rates up to the first 10 megawatts of output.
This is not to say that the facility's ultimate
capacity will not someday grow beyond 10 megawatts, but
this potential growth will depend on several factors.
The first is the ability to contract at rates that
support the construction of each stage of the proj ect,
and the second is the determination of the availability
of geothermal water and the cost to produce the supply
geothermal water for each incremental addition.
understand the construction of these types of facilities
to be modular in nature.It is reasonable to assume that
as market pricing for energy changes over time
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additional wells and new generating modules may become
possible.For a number of reasons, including permi tting,
common facilities utilization and overall efficiencies,
it is obvious that any growth in the electrical output of
this geothermal resource would most likely be sited at or
near the currently proposed facility.In any event,
u. s. Geothermal will presumably enter into new contracts
of some sort to sell any increased production that proves
economically and technically feasible.But the potential
for further growth and addi tional
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sales should not be relevant in this proceeding.I see
no reason why it either benefits, or damages, the
customers of Idaho Power if U. S. Geothermal is allowed to
utilize the facility site to add incremental modules in
the future for sale under separate energy agreements
market condi tions allow expansion.
IF THE COMMISSION WERE TO RULE THAT PROJECTS WITH
CAPACITIES GREATER THAN 10 MEGAWATTS ARE NOT ELIGIBLE FOR
PUBLISHED RATES, WHAT WOULD BE THE LIKELY RESULT?
One possibility is that U. S. Geothermal , and
possibly other developers facing similar situations,
would simply construct a series of 9.9 megawatt plants.
IS THI S IN ANYONE'S BEST INTERESTS?
I don't believe so.Nor is it consistent with what
I take to be the Commission's intent to assure that only
10 megawatts of energy from a facility is eligible for
published rates.I do not bel ieve the economic
inefficiencies resulting from siting multiple 9.
megawatt facilities serves the interest of any of the
parties in this proceeding.
HAS ANYTHING RECENTLY OCCURRED THAT CHANGES THE
PARAMETERS 0 F THE D IS PUTE?
Idaho Power recently wrote U. s. Geothermal aYes.
letter , dated May 21, 2004, that for the first time
claims the proj ect "is not entitled to published rates
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for QF proj ects smaller than 10 MW" as a resul t of
deliveries in excess of 10 megawatts in certain hours.
Although the letter is somewhat unclear , it appears that
the intent of Idaho Power is to change the position
has consistently taken in other agreements since 2002 and
during the course of negotiations with this proj ect over
the last year , to now disallow published rates for the
delivery of the first 10 megawatts of output to Idaho
Such a changePower.
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in Idaho Power's basic contracting philosophy at this
late date in the negotiations will have a substantial
impact on the ability of u.s. Geothermal to develop its
proj ect It should be understood that U. S. Geothermal
has proceeded over the last year, with the expenditure of
substantial investment and effort , on the basis of Idaho
Power's previous position and the Commission's treatment
of facilities with a total capacity in excess of
megawatts.
DO YOU KNOW WHY IDAHO POWER HAS SUDDENLY CHANGED ITS
POSITION?
I don't know all the reasons , but I suspect it may
be due in part to the Commission's recent criticism of
Idaho Power in the Renewable Energy case, Case No.
IPC-04-
IS THE RENEWABLE ENERGY DECISION APPLICABLE TO THIS
CASE?
I don't believe it is.The Commission criticized
Idaho Power in that case because it bought the first ten
megawatts from a 17 megawatt facility at posted rates,
and the balance at negotiated rates.The Commi s s ion
Staff said that the price for energy in excess of
megawatts lacked justification.The Commission pointed
out that proj ects in excess of ten megawatts are supposed
to be offered rates derived from Idaho Power's IRP and
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the AURORA mode 1 .In the present case, we are only
proposlng to sell Idaho Power ten megawatts.There are
no excess generation sales, and we have repeatedly
pointed that fact out to Idaho Power.
ARE THERE ANY ASPECTS OF THE RENEWABLE ENERGY
DECISION THAT ARE APPLICABLE TO THIS CASE?
The Commission ultimately approved theYes.
contract in that case primarily because the developer was
innocently ensnared by reliance on Idaho Power'
negotiating position.
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The same innocent reliance exists in this case.
Geothermal has spent substantial amounts of money as a
result of negotiations that focused solely on published
It should be noted that in the Renewable Energyrates.
Case, the Commission Staff filed its testimony on April
6, 2004 , and the Commission Order was issued May 5 , 2004.
Both events were after the filing of the Complaint.
Al though I believe the U. S. Geothermal proj ect meets the
10 megawatt maximum criteria for published rates, if the
Commission were to rule otherwise I believe it would be
appropriate to grandfather the U. S. Geothermal proj ect
regard to the availability of the published rates.
maj or change, and the inevi table delay it would cause, in
contracting at this late stage in U. s. Geothermal
proj ect 's development would simply be unfair and
unnecessary.
ARE THERE OTHER FACTORS THE COMMI S S ION SHOULD
CONSIDER IN RESOLVING THIS DISPUTE?
I believe acceptance of Idaho Power's positionYes.
would create an unintended bias against thermal
generation proj ects.For example, in the case of a
hydroelectric or wind generation facility, the facility
would be capable of generating the same amount of
capaci ty at any time during the year , subj ect only to the
availabili ty of motive force adequate to meet its design
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capaci ty.In the case of thermal proj ects in general
and the U. s. Geothermal proj ect in particular , the
project's output in any hour is limited by the ambient
temperature in existence at any specific time during the
If the Idaho Power interpretation of theyear.
Commission's intent on the 10 megawatt capacity
limi tation were deemed appropriate, the U. s. Geothermal
facility would in fact have to be designed for an output
at average ambient conditions of significantly less than
10 megawatts in order to generate no more than
megawatts during the coldest hour in any year.This
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interpretation is clearly biased against thermal proj ects
in general.You would have to read the Commission'
intent as a limitation of capacity to 10 megawatts for
technologies that are capable of relatively steady state
operation, and significantly less than 10 megawatts for
proj ects that are sensi ti ve to actual ambient changes
during the course of the year.The net resul t would be
that thermal proj ects under that interpretation would
generate significantly less annual energy than
non-thermal proj ects.Such a bias, specifically against
one technology, does not appear to meet the intent of the
Commission to limit the total amount of energy purchased
under published rates to a level it felt was appropriate.
DO THE TERMS AND CONDITIONS PROPOSED BY U. S .
GEOTHERMAL BOTH RECOGNIZE THE HOURLY IMPACT OF AMBIENT
CONDITIONS AS WELL AS THE COMMISSION'S INTENT TO LIMIT
THE ANNUAL ENERGY SUBJECT TO THE PUBLI SHED RATES?
Yes.In U. S. Geothermal's last draft of the Firm
Energy Sales Agreement included as Exhibi ts A and B to
the Complaint), u. S. Geothermal proposed that the
"Maximum Capaci ty Amount"(Section 1.8) be defined as
12 .7 megawatts in any hour.In addition , in Article VI
of the Agreement , U. S. Geothermal introduces the concept
of "Maximum Monthly Energy Amounts.This concept limits
the maximum energy deliveries in any month to a specified
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The total of all 12 months' "Maximum Monthlyamount.
Energy" amounts is 87 661 megawatt hours, or an average
output of 10 megawatts (multiplied by 8,766 hours in an
average year) u . s. Geothermal has gone the extra step
in its proposal to assure that the facility output
delivered pursuant to this Agreement is in fact from a
megawatt facility, by contractually limiting the maximum
del i veries in any month to
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those expected of a 10 megawatt geothermal facility
subj ect to the normal influences of its environment.
DOES THE FACT THAT U. S. GEOTHERMAL VARIES THE
"MAXIMUM MONTHLY ENERGY" AMOUNTS CREATE ANY UNINTENDED
CONSEQUENCES AS A RESULT OF THE SEASONAL VARIATION IN
ENERGY PRICES UNDER THE CONTRACT?
In fact, payments under the proposed contractNo.
are slightly less than payments would be for a proj ect
that delivered 10 megawatts in every hour of the year.
U. S. Geothermal's proposal simply addresses the variance
caused by actual ambient condi t ions, and does it in a
manner that is consistent with the Commission I s intent to
limit the published rates to 10 megawatt contracts.
COULD YOU PLEASE BRIEFLY EXPLAIN THE DISPUTED
90%/110% OUTPUT PENALTY?
Idaho Power is requiring the inclusion of terms and
conditions within the Agreement that it believes add to
the "firmness" of the energy it will receive pursuant to
the Agreement.The Provisions limit the payment of
published avoided cost rates for energy produced by the
proj ect up to 110% of the monthly "Net Energy Amounts"
specified in the Agreement.Energy in any month which
exceeds 110% of the monthly "Net Energy Amount" is to be
paid the current month's "Market Energy Cost" or the
published avoided cost rate in effect, whichever
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lower.
In addition , Idaho Power insists on the introduction
of the concept of "Shortfall Energy" and an associated
"Shortfall Energy Payment.In this case, if the proj ect
does not deliver at least 90% of the monthly "Net Energy
Amount" specified in the
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Agreement, the proj ect is required to pay any resul ting
"Shortfall Energy Payment.The Shortfall Energy
Payment" is calculated by subtracting actual monthly
deliveries from 90% of the monthly "Net Energy Amount" in
the Agreement and multiplying by the amount, if any, that
that month's "Market Energy Cost" exceeds the published
avoided cost rate in effect in the Agreement.
U. S. Geothermal disagrees with the inclusion of
these provisions, and proposes that the Agreement contain
the standard terms and conditions that have been used for
PURPA proj ects in the State of Idaho over the last
decade.Those terms and conditions rely on the fact a QF
is paid only for energy actually delivered , without any
compensation for capaci ty, to assure that the QF receives
payment consistent with the published avoided cost.
DO YOU BELIEVE THAT THE PUBLISHED RATES FAIRLY
COMPENSATE PURPA PROJECTS FOR THE " FIRMNESS PENALTIES"
IDAHO POWER IS PROPOSING?
The 90%/110% provisions clearly add to theNo.
val ue Idaho Power receives as resul t of paying Agreement
rates for only a relatively narrow range of proj ect
In addition, Idaho Power has mitigated itsoutput.
potential expense if it has to purchase replacement
energy in the case of deliveries below the 90% threshold.
The problem I have with these terms and conditions
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that the value added for the purchaser has not been
reflected in the value of the energy sold by the proj ect.
The published avoided cost rates reflect the avoidance of
the least cost avoided utility asset.The value of these
"firming" characteristics has not been included in the
calculation of the value of the avoided resource, and
is not included in the published rates.
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HOW CAN YOU BE SURE THE VALUE OF THESE PROVISIONS
HAS NOT BEEN INCLUDED IN THE PUBLISHED AVOIDED COST?
The cost saved by avoiding the construction and
operation of the next lowest cost resource option for a
utility is utilized to calculate avoided costs.In Idaho
Power's case, the Commission has determined that a
utility constructed and owned combined cycle natural gas
fired proj ect is the so-called Surrogate Avoided Resource
( " SAR "
) .
This determination was the resul t of an
extensive and time-consuming process open to the industry
as a whole.The resul t of this effort was to establish a
cost that the utility would avoid if an independent
generator provided an equivalent amount of energy in lieu
of the avoided resource.In the case of the SAR, the
facility presumably owned by a utility would recover its
investment and operating expenses In the same manner as
other regulated assets.The concept of avoided pricing
is designed to leave the consumer unaffected - that is,
the consumer would see the same cost regardless of
whether the resource was supplied by the utility or by an
independent generator.
DO UTILITY ASSETS, AND SPECIFICALLY THE SURROGATE
AVOIDED RESOURCE , HAVE COST RECOVERY CLAUSES SIMILAR TO
THOSE "FIRMING" PROVISIONS BEING PROPOSED BY IDAHO POWER?
The current regulatory process allows for thoseNo.
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costs and expenses, prudently incurred, to be recovered
through the rates for sales to utility customers.I am
not aware of any process that builds in an adjustment
similar to the 90%/110% provisions proposed by Idaho
Power in the recovery of investments in regulated assets.
In fact, Idaho Power currently adjusts rates on an
annual basis through the Power Cost Adjustment (peA)
subj ect to Commission approval, to assure it recovers its
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investment in generation even when production
significantly more or less than the average production
anticipated.The PCA is, at least in the case of lower
than anticipated production , the exact opposite of the
treatment proposed in the firming" concept.Under Idaho
Power's proposal , the PURPA resource doesn't get paid for
its capital and operating costs if it doesn't generate,
and it also gets hit with a potentially enormous penalty
for potential market costs for replacement power
purchases.An Idaho Power SAR, on the other hand,
recovers its capi tal and operating costs even if it
doesn't generate, and it also recovers through the PCA
in all cases except imprudency, 90% of any market costs
incurred for replacement power.
It is very difficult for me to understand why the
avoided utility resource and the project under a QF
contract should receive such diverse, and in fact
opposite, recovery treatment. Again, if those "firming"
provisions are truly desired by the purchaser, the value
and cost of those characteristics should be included in
the avoided cost.
ARE YOU PROPOSING THAT THE QUALIFYING FACILITY
SHOULD RECEIVE TREATMENT EXACTLY LIKE THE AVOIDED UTILITY
RESOURCE?
I am not advocating that qualifying facilitiesNo.
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should recel ve an equivalent to the PCA or that there
should be modifications to the recovery mechanisms the
Commission has established.But by the same token , QFs
should not be held to a performance standard that has not
been required of the SAR.The QF contract payment terms
and condi tions that have become standard in agreements
over the last decade , which are utilized in the U. S.
Geothermal draft of the Agreement, were arrived at after
many years of significant consideration and hearings
conducted by the Commission.The Commission had to weigh
many significant issues, including security provisions
for
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performance and assurances that the consumer was in fact
not impacted by the supply of the avoided energy at the
avoided cost.What I am suggesting is that the
unilateral inclusion of the firming" provisions by Idaho
Power Company would dramatically al ter the balance
achieved by the Commission.
IS THE 90%/110% BANDING CONCEPT CONSISTENT WITH
OTHER CONTRACTS IN TODAY' S MARKETPLACE?
Other power purchase contracts in the marketplace
today may have terms and conditions similar to those
proposed.But the issue in our case is whether the
benef i t and value obtained by the purchaser in the
Agreement has been properly priced into the purchase
prlce for the proj ect' s output.For example, if Idaho
Power were to request supply proposals subj ect to these
"firming" requirements , I can assure you that the bid
price proposed by prospective sellers would reflect the
cost of providing a product reflecting this firmness.
Similarly, it would not be unreasonable for Idaho Power
to request in a system sale agreement that a specified
capacity be delivered in every hour over a specific
period of time with penalties and consequences if such
terms were not met.It would also be true that the cost
of providing such a product would be reflected in its
price. It is totally incorrect to assume that a facility
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output contract should be expected to deliver under the
same terms and condi t ions as a system sale wi thout
appropriate adjustment in the price of the energy
delivered.
CAN YOU PLEASE CLARIFY HOW THE TRANSACTION
CONTEMPLATED BY THI
OF A SYSTEM SALE?
In the case of a system sale , or for that matter the
AGREEMENT VARIES FROM YOUR EXAMPLE
calculation of an electric utility's generating
capabilities, the fact that the utility's generation
assets are comprised of a
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number of distinct and separate generating facilities
creates a "f irmness" to the overall capaci ty.Even
though one facility may not be able to generate for any
number of reasons, the system as a whole, in fact, has a
reliable firm capacity because of the redundancy created
by numerous independent generation sources.This is why
utility system reserve margins can be a relatively small
percentage of total system capaci ty, while still assuring
the firm delivery of energy to utility customers.This
is clearly a case where the strength and characteristics
of the whole are far superior to the sum of the
individual parts.
Similarly, in the case of the more than 60 PURPA
qualifying facilities now providing energy to Idaho
Power , even though each individual facility may not be
considered " firm," the group as whole in fact delivers
the benefit of a firm resource to Idaho Power and its
If in fact the firming" terms and conditionscustomers.
proposed by Idaho Power were appropriate and commonplace
for all individual generating assets, then a radical
recalculation of the appropriate reserve requirements for
utilities should be undertaken.In short, Idaho Power
trying to force at tributes associated wi th systems and
tailored sales into a contract that is intended to
represent an avoided utility rate based project.
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DO YOU BELIEVE THAT IDAHO POWER SHOULD BE PRECLUDED
FROM CHANGING THE ESTABLISHED TERMS AND CONDITIONS OF
PURPA CONTRACTS?
If Idaho Power believes the terms andNo.
conditions need revision , then I believe the Commission
hearing process, open to all interested parties , should
be utilized to investigate the worthiness and potential
impacts of those changes.What I do believe
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inappropriate is for Idaho Power to unilaterally force
those changes on individual developers in the contract ing
The monetary and technical capabilities ofprocess.
Idaho Power, in comparlson to the individual developer,
hardly make for a fair and productive negotiation.Such
a practice also resul ts in the exclusion of other parties
with a vested interest in the issues from participating
in the achievement of a balanced and comprehensive
solution.
COULD YOU PLEASE BRIEFLY EXPLAIN THE DISPUTED
CONTRACT TERMINATION ISSUE?
Article XXIII , Section 23.2, of the Agreement
presented in Idaho Power's latest draft, provides that
(1) existing Idaho Law is modified to allow persons or
entities other than Idaho Power to sell electric capacity
or energy at retail in Idaho Power's exclusive service
terri tory, and (2) such change in law resul ts in Idaho
Power being unable to fully recover all costs associated
wi th this Agreement," Idaho Power may terminate this
Agreement on sixty days prior written notice.
Q .WHAT CONCERNS DOES THIS PROVISION PRESENT TO U. S.
GEOTHERMAL?
There are several issues of concern.The first
that the Agreement provides that it will not take effect
until the Commission has approved the Agreement and
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declared that payments made pursuant to the Agreement
shall be allowed as prudently incurred expenses for
ratemaking purposes.u. s. Geothermal has no problem
accepting the Commission's approval as a precedent to the
effectiveness of the Agreement.
Having received that approval, it is unfair to
u. s. Geothermal , its investors , and its lenders to
provide for the termination of the Agreement as a resul t
of actions and negotiations that would be conducted
outside the scope of this contract. In the unlikely
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event that deregulation and retail access were to occur
in the State of Idaho during the life of this Agreement,
the negotiation, settlement and balancing of assets and
liabilities as the utility moved to deregulation would be
a comprehensive solution that would undoubtedly include
many offsetting compromises and valuations.Under those
circumstances, it would make no sense for Idaho Power to
have the sole right to determine whether it was allowed
full recovery for this specific Agreement, and to
subsequently determine whether this Agreement should
terminated.
HAVE ANY OF THE AGREEMENTS APPROVED BY THE
COMMISSION SINCE 2002 INCLUDED THIS PROVISION?
Yes, but I believe that the acceptance of those
provisions by other developers has been based on their
belief in the unenforceability of such clauses.It is
simply not conceivable that sophisticated lenders and
investors would submit their future contract rights and
their abili ty to recover their investment to a regulatory
process over which they have no control, wi th the final
interpretation of the outcome of that very complicated
process residing solely in the hands of the purchaser
under the Agreement.In effect, despi te having received
a contract accepted and approved by both Idaho Power and
the Commission , the seller is being asked to allow the
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Commission and Idaho Power the ability to terminate the
Agreement as a resul t of actions completely unrelated to
performance pursuant to the Contract.As a businessman
this provision simply does not pass the smell test as a
fair , or legal for that matter , provision that Idaho
Power should be allowed to unilaterally force into the
Agreement.
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DO YOU BELIEVE THAT IDAHO POWER NEEDS THIS PROVISION
TO PROTECT ITS ABILITY TO FULLY RECOVER PAYMENTS MADE
PURSUANT TO THIS AGREEMENT?
No, I do not.As discussed previously, the
Agreement is not effective until the Commission approves
it and declares that recovery of Idaho Power's payments
shall be allowed as prudently incurred expenses.If for
some reason Idaho Power felt that, in the course of
retail deregulation, it was not allowed to fully recover
all costs associated wi th this Agreement, its recourse
should be to the Commission or ul timately to the courts,
to protect its rights.To discard that avenue of
protection and default to punishing the Seller under the
Agreement through a termination is simply indefensible
and Idaho Power's demand for such a provision is, at the
very least , heavy handed and unreasonable.
IF THE COMMISSION ACCEPTS U. S. GEOTHERMAL'S POSITION
ON THESE ISSUES, WHAT IS THE APPROPRIATE REMEDY?
The U. S. Geothermal draft of the Firm Energy Sales
Agreement included as Exhibit A and B to the Complaint
consistent with past agreements approved by this
Commission.The terms and condi tions of that Agreement
are consistent with historical practices, address in a
fair and consistent manner the Commission's intent to
limit the published rates to 10 megawatt facilities, and
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will enable U. S. Geothermal to obtain financial
commitments in the marketplace.I believe the Commisslon
should order Idaho Power to adopt the provisions of U. S .
Geothermal's draft agreement.
DO YOU EXPECT THE FINAL AGREEMENT TO BE EXACTLY IN
THE FORM OF THE DRAFT AGREEMENT INCLUDED AS EXHIBITS A
AND B IN THE COMPLAINT?
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The Agreement should be substantially in theNo.
form of Exhibit A and B to the Complaint, but will need
to be modified in several areas that should not be
controversial or contested.For example, since that
draft of the Agreement was submitted, the Commission has
ruled on the applicability of provisions in the Agreement
to address the ownership of the proj ect 's environmental
attributes, such as Green Credits, Green Tags, Renewable
Energy Credits (REC) and Emission Credits.The current
draft of the Agreement left the issue in limbo subj ect
the Commission's ruling.Consequently, Article VIII
should now be entirely deleted from the Agreement.
In addition , Idaho Power introduced in its final
draft (included as Exhibit C in the Complaint) Article
, entitled "RELIABILITY MANAGEMENT SYSTEM.This
Article attempts to incorporate reliability criteria into
the Agreement because Idaho Power is the control area
operator , even though the proj ect is located outside of
Idaho Power's service terri tory.It is necessary to
bring the technical experts of Idaho Power into the
discussion to resolve several structural issues regarding
implementation of the reliability management standards
and the appropriate vehicle to address the
responsibilities between U. S. Geothermal (the generator)
the Bonneville Power Administration (the wheeling
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enti ty), and Idaho Power (as the purchaser of the energy)
and Idaho Power (as the control area operator in that
area of the State) Al though these issues need to be
resolved, Mr. Allphin of Idaho Power and I both agree
that they are resolvable once we get the appropriate
parties together.A meeting to discuss these issues is
now being scheduled , and it is my hope that resolution of
appropriate provisions will be achieved prior to the
completion of this case.
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ARE THERE ANY OTHER MATTERS YOU BEL I EVE THE
COMMISSION SHOULD CONSIDER IN RESOLUTION OF THE
COMPLAINT?
As discussed in the factual background portionYes.
of my testimony, it appears that Idaho Power may be
changing its position on the pricing of the first
megawatts of energy from a project with a capacity of
more than 10 megawatts.As I discuss in that portion of
my testimony, if the Commission were to determine that
none of a proj ect' s output for a facility with a capacity
In excess of 10 megawatts is eligible for the published
rates, I believe it would be appropriate to grandfather
the U. S. Geothermal proj ect in regards to the
availability of published rates for the first
megawatts of output.A maj or change in contracting for
such proj ects at this late stage in the U. S. Geothermal
proj ect 's development would simply be unfair and
unnecessary.
DOES THI S CONCLUDE YOUR TESTIMONY?
Yes.
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open hearing.
(The following proceedings were had in
DIRECT EXAMINATION
(Con t inued)
Now , let's turn to your rebuttal
testimony, if you will , Mr. Runyan.Did you prepare
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prefiled rebuttal testimony in this proceeding?
Yes, I did.
And if I asked you the questions contained
therein , would your answers be as stated?
Yes.
And did you al so prepare Exhibi t Nos. --
, Exhibit No.4 in conjunction with that testimony?
Yes, I did.
All right, and is that testimony and those
exhibits true and correct to the best of your
Yes, they are.
Do you have any additions or corrections
, I don'
MR. WARD:I'd then ask that the rebuttal
BY MR. WARD:
testimony of Mr. Runyan be spread on the record as
know 1 edge?
to ei ther?
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read and Exhibit No.4 marked for identification.
COMMISSIONER SMITH:Seeing no obj ection
it is so ordered.
(The following prefiled rebuttal
testimony of Mr. Kip Runyan is spread upon the record.
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PLEASE STATE YOUR NAME AND ADDRESS FOR THE RECORD.
My name is Kip W. Runyan.My business address
2233 Spring Mountain Drive , Boise, Idaho.
ARE YOU THE SAME KIP W. RUNYAN WHO PREVIOUSLY
SUBMITTED DIRECT TESTIMONY IN THIS PROCEEDING?
Yes.
WHAT I S THE PURPOSE OF YOUR REBUTTAL TESTIMONY?
The purpose of my rebuttal testimony is to respond
to a number of comments and concepts put forward in the
testimony of Idaho Power witness Gale, Avista witness
Kalich , PacifiCorp witness Hale , and Staff witness
Sterling (together referred to as the "The Other
Wi tnesses")
Q .DO YOU HAVE A GENERAL COMMENT ABOUT THE NATURE AND
CONTENT OF THE TESTIMONY PROVIDED BY THOSE WITNESSES?
Yes.A common theme running through all of the
utility witnesses' testimony is their insistence that
PURPA resources should receive something less than full
avoided cost rates because they don't provide capaci
benefits and are less reliable or riskier than utility
owned resources.Later on in my testimony, I will submit
evidence that proves these contentions are demonstrably
wrong, but as a preliminary matter I would like to point
out that these issues were fully litigated when the
Commission established avoided cost rates.None of the
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pleadings in this case place the level or reasonableness
of avoided cost rates at issue, and the utilities'
arguments about the value of PURPA resources are
therefore irrelevant and a prohibited collateral attack
on the Commission's prior orders.
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DO YOU HAVE ANY OTHER GENERAL OBSERVATIONS ABOUT THE
UTILITIES' TESTIMONY?
All three utility witnesses conJure up aYes.
parade of hypothetical PURPA abuses that might be
possible in certain scenarios. Some of these
hypotheticals are ludicrous on their face, such as Mr.
Gale's assertion at page 29 that a developer might build
100 megawatt plant and then generate only 876 hours
order to qualify for a posted rate based on average
megawatts.Moreover none of the witnesses submi t any
evidence whatsoever that any PURPA generator has ever
perpetrated , or even attempted, any of the practices the
utilities allegedly fear, and they further ignore the
fact that many of the envisioned scenarlOS are prohibited
by existing Commission orders or already barred by
provisions in the draft contract U. S. Geothermal tendered
to Idaho Power.In short, the utilities devote much of
their testimony to beating up a strawman of their own
invention.None of this has anything to do with the real
issues in this case.
WHAT ARE THE REAL ISSUES BEFORE THE COMMISSION IN
THIS COMPLAINT?
U. S. Geothermal's complaint raises three discrete
lssues:
(1 )What is the definition of the 10 megawatt Slze
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limit for entitlement to the Commission's Published
Rates?
(2 )Should Idaho Power be allowed to include
contractual provisions that impose financial
penal ties if a PURPA generator's energy deliveries
vary by more than 10 percent from its forecasted
perf ormance?
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(3 )Should Idaho Power be allowed to include a
contract clause that allows Idaho Power to
unilaterally terminate PURPA contracts if certain
regulatory actions occur in the State of Idaho?
Subsequent to the filing of the complaint, an
addi tional issue has arisen as a resul t of the
Renewable Energy of Idaho proj ect Order (Order No.
29487) and the response to that Order by Idaho
Power.The new issue can be summarized as follows:
(4 )Can a proj ect larger than 10 MW generate more
than the contract firm energy amounts and sell that
excess either to Idaho Power at market based rates
or to a third party and nevertheless remain eligible
for the published rates for the first 10 megawatts
of generation, consistent with the terms and
condi tions of the contracts approved by the
Commission for the Tiber Montana proj ect (Order No.
29232) and the Renewable Energy of Idaho proj ect
(Order No. 29487)?Additionally, if the Commission
changes its policy, should u.S. Geothermal be
grandfathered" because of the extensive
negotiations it conducted wi th Idaho Power based on
Idaho Power's contracting guidelines and the
previous Commission approvals?
THE OTHER WITNESSES ALL AGREE THAT THE "TEN MW
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PROJECT CAPACITY" CRITERIA FOR PUBLISHED RATE ELGIBILITY
SHOULD BE INTERPRETED TO MEAN THAT THE ACTUAL ENERGY
DELIVERED IN ANY HOUR DOES NOT EXCEED 10 , 000 KWH'
WOULD YOU LIKE TO COMMENT ON THAT CONCLUSION?
Yes, with a little background first.I believe
Idaho Power wi tness Gale provides an accurate summary of
the current situation by concluding, on line 8 of page 25
of his testimony, that "we still have no defini ti ve
Commission ruling as to the test to be applied
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to determine the capacity of a QF and its entitlement to
the published rates.Earlier in his testimony,
beginning at line 3 0 of page 24 , Mr. Gale points out that
In 2002 , Idaho Power requested that "name plate capacity"
be used to establish published rate entitlement, but that
the Commission declined to address this issue.
I am not familiar with Avista or PacifiCorp' s
practices , so I can't speak to their situation.But in
the case of Idaho Power , the utility has taken the
position that it would buy the first 10 megawatts through
the meter on an hourly basis at published rates , without
regard to the proj ect 's theoretical or actual capaci ty.
Deliveries in excess of 10 megawatts were labeled
Optional Energy," which Idaho Power would purchase at
the lesser of 85% of Mid-C market prices or the published
rates.
I believe the contracting parties have the
capabilities to reach a logical and fair determination of
project capacity, if they are so inclined, and that it is
reasonable for the Commission to expect the parties to do
so. I believe that u. S. Geothermal's proposed definition
is a reasonable resolution based on sound engineering
principles.The utilities' proposed definition is not
inherently unreasonable, but the Commission should
understand that it will have the effect of reducing the
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maXlmum Slze of many PURPA proj ects, specifically
geothermal proj ects, well below the supposed 10 megawatt
limit.
THE OTHER WITNESSES CHARACTERI ZE THE U. S. GEOTHERMAL
APPROACH TO DEFINING PROJECT CAPACITY AS AN APPROACH
BASED ON " AVERAGE ANNUAL ENERGY.DO YOU AGREE WITH
THEIR CONCLUSION?
No I do not.When analyzing the U. S. Geothermal
approach , I think it is important for the Commission to
focus solely on the 10 MW capacity definition that
actually in the contract , rather than the utilities'
hypothesized definition.U . S. Geothermal is not
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proposing an "average annual energy " basis for the
calculation of the proj ect 's capaci ty.Instead, it
proposing that the facility s capacity be determined just
as Staff witness Sterling describes for the Idaho Power
Danskin proj ect
Staff witness Sterling states at line 17 page 11
Idaho Power's Danskin proj ect is normally referred to as
a 90 MW plant because it has the capability to generate
at 90 MW under normal condi tions
. "
(emphasis added)
explained in my direct testimony, as well as the
extensive discussion in U. S. Geothermal witness Kitz' s
testimony, the U. S. Geothermal proj ect is capable of
generating only 10 MW under normal conditions.The fact
that both of the above facilities will actually generate
at more than the stated capacities under favorable
ambient conditions and less than stated capacities at
unfavorable conditions does not change the fact that they
are respectively a 90 MW and 10 MW thermal proj ect.
discussed in the Runyan and Kitz testimony, to conclude
otherwise is to impose a bias against thermal proj ects in
general, and specifically a bias against the development
of geothermal resources.
THE OTHER WITNESSES DISCUSS ABUSES THAT MAY OCCUR
THE COMMISSION WERE TO ALLOW A PROJECT TO UTILIZE A SO
CALLED " AVERAGE ENERGY APPROACH"DO YOU BELIEVE THEIR
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CONCERNS ARE VALID?
If one disregards the provisions of the U. s.
Geothermal contract and assumes that the Commission would
actually approve published rates for a contract with a
100 MW capacity, they might have a legitimate concern.
But the facts in this case are substantially different
than the doomsday scenarios they described.The fact
that the contract before the Commission limits deliveries
to specified "Maximum Monthly Energy" amounts, and
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it further limits hourly deliveries to the "Maximum
Capaci ty Amount,whi ch
Article 14.goes
imi t del i veries the Transmitting Entity pursuant to
in this case is set at 12.7 MW.
state that " Seller's failure to
this contract to the Maximum Capacity Amount will be a
Material Breach of this Agreement.The proj ect simply
cannot do what The Other Wi tnesses are forecasting
wi thout breaching the terms of the contract.
THE OTHER WITNESSES ALSO BRING UP THE POSSIBILITY OF
OTHER MANIPULATIONS THAT MIGHT OCCUR , PRIMARILY SHIFTING
DELIVERIES BETWEEEN PEAK AND OFF PEAK PERIODS TO
FACILITATE ADDITIONAL PROFITS AT THE EXPENSE OF IDAHO
POWERS CUSTOMERS.DO YOU AGREE WITH THEIR CONCERN?
Later in this rebuttal testimony I will address
those concerns since they relate to a proj ect that sells
its output to mul tiple purchasers.This discussion
however , is about how capacity eligibility for published
rates is determined, and that determination has nothing
to do wi th any of the conj ectured abuses.
DOES THE 10 MW FACILITY CAPACITY DEFINITION PROPOSED
BY U. S. GEOTHERMAL CREATE ANY RISK FOR THE COMMISSION OR
THE CUSTOMERS OF IDAHO POWER?
Absolutely not.The resul t of calculating the
capacity of the thermal facility at normal conditions
to adopt a rating standard that is consistent with
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standard utili ty and engineering practices.Any strained
interpretation or misrepresentation of this methodology
by contracting parties is easily dealt with in the
existing contracting and approval process.It is a
matter of common sense , and Idaho Power and potential
sellers
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should be expected to conduct the determination in a
professional manner , supported by solid engineering
principles.
IF THE COMMISSION FEELS THAT SOME EXPOSURE
CREATED BY THE ADOPTION OF THE NORMAL CONDITIONS STANDARD
FOR THERMAL PROJECTS, ARE THERE WAYS TO ALLEVIATE THAT
CONCERN?
Absolutely.Contracts could simply expand the
definition of the Maximum Capacity Amount to include an
appropriate capaci ty amount for each month , determined by
utilizing accepted engineering principles.That
provision , along with the Maximum Monthly Energy Amounts
previously specified by U. S. Geothermal in the Contract,
would eliminate any risk of such an abuse.
Geothermal witness Kitz presents extensive testimony
explaining how the U. S. Geothermal capacity definition
consistent wi th the actual operating characteristics of a
geothermal resource.U . S. Geothermal is not at tempt ing
any slight-of-hand , it simply would like its geothermal
resource analyzed like a geothermal facility.
IDAHO POWER WITNESS GALE STATES AT LINE 17 OF PAGE
, THAT IDAHO POWER IS PROPOSING ADDITIONAL CONTRACT
PENALTIES TO "ENCOURAGE GREATER FIRMNESS.DO YOU
BELIEVE THESE CHANGES ARE WARRANTED?
No, I do not.Idaho Power is proposing financial
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penal ties for CSPPs whose monthly production deviates
more than 10 percent from estimates required to be
submi t ted two years in advance.Idaho Powe r ha
presented no evidence to support this proposal , other
than the vague assertion that it will benefit Idaho Power
and its customers.Tha t may be
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true in the sense that it will effectively reduce CSPP
rates, but the issue is whether the proposal is fair and
reasonable to all stakeholders.
DID YOU INVESTIGATE THE RELIABILITY OF THE CSPP
INDUSTRY IN COMPARISON TO IDAHO POWER'S FACILITIES?
Following a review of the testimony by witness Gale
I researched the past performance of both the CSPP
proj ects and Idaho Power's own facili ties over the period
1997 through 2003 in order to compare the "firmness" of
the two types of resources.I selected that specific
period because it required only minor modification of the
raw data to be consistent for the facilities operating
throughout the period.Data for the CSPP proj ects was
taken from the annual "Report of Cogeneration/Small Power
Production for Idaho Power" submitted by Idaho Power to
the Commission.The data for Idaho Power facilities was
taken from the FERC Form 1 reports filed annually by
Idaho Power.The results of the analysis are attached to
this testimony as Exhibit No.
As the Exhibi t indicates , over the last seven years
the CSPP proj ects have been more consistent in their
output , and therefore more predictable, than Idaho
Power I S own resources.Actual production over the period
for all Idaho Power resources varied from 116% (1998)
84% (2003) of their seven year average production.
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the other hand , CSPP production varied from 115% (1997)
to 85% (2003) of their average.The figures for Idaho
Power are admittedly not directly comparable to CSPPs as
a whole because Idaho Power's thermal facili ties are
idled when market condi tions allow more economic
purchases.But in revlewlng only CSPP thermal proj ects,
the deviation over the seven year period was from 93 %
106% of the seven year average, a very reliable and
predictable performance by any definition.Furthermore,
comparing only Idaho Power'
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hydroelectric proj ects wi th CSPP hydroelectric proj ects,
the resul ts clearly indicate that the CSPP proj ects are
more predictable and reliable.Idaho Power's hydro
facilities varied from 138% (1997) to 71% (2002) of
average over the period, while the CSPP proj ects varied
from 125% (1997) to 76% (2001)
WHAT CONCLUSIONS CAN BE DRAWN FROM THE CSPP HISTORIC
PERFORMANCE DATA?
This data refutes the utilities' repeated assertions
that CSPP facilities provide only energy and not
capaci ty.In terms of reliability and predictability,
the CSPP facilities have operated as well as, and
arguably better than , utility resources.A utility
trying to balance loads and resources knows it can count
on the CSPP portfolio to produce base load capacity and
energy in much the same manner as the utility's own base
load resources. While it is true that the Commission has
decided to limi t payments to PURPA proj ects for only
energy delivered, that policy decision does not mean that
CSPP projects are not delivering both capacity and
energy.
ARE THERE ANY OTHER CONCLUSIONS WE CAN DRAW FROM THE
CSPP PERFORMANCE DATA?
Yes.There is simply no evidence that the
performance penal ties Idaho Power is requesting are
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justified.Mr. Gale would have the Commission believe
that the 90/110 performance band is necessary to limit
CSPP producers "discretion" over the operation of their
facilities.But the fact is that Idaho QF proj ects
receive payment only for energy delivered.This is the
ultimate motivation for reliable and continuous
product ion.Considering the record, I find no
justification for Idaho Power to make a radical change in
the pricing terms and condi tions that have provided such
a positive result.In 1 ight of
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Idaho Power's stated desire to achieve simplicity of
contract administration " the inclusion of the complex
performance banding requirements, and the contract
disputes they will inevitably cause , is counter
productive and unnecessary.
DO THE SAME OBJECTIONS APPLY TO THE 80%/120%
PERFORMANCE BAND PRESENTED BY STAFF WITNESS STERLING?
Yes.Like Mr. Gale, Mr. Sterling has not presented
any analysis or documentation to justify or support the
bandwidth he proposes.As discussed above, Idaho Power'
own aggregated hydroelectric facilities, which represent
a group of assets that any utility or state would love to
include in its generation portfolio, vary from 71% to
138% of average production over the last seven year
period.It makes no sense that new resource additions
should be expected to operate at levels substantially
superior to Idaho Power's admittedly top-flight
generation system.As the record indicates , even though
certain assets, for a variety of reasons, may operate at
less than expected levels during certain periods , the
aggregate group of assets operates in a very satisfactory
manne r .This is not surprising because a CSPP facility
that does not operate at its maximum capability
already penalized by the loss of revenue for the energy
it could have delivered.
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Given the fact that CSPPs already have a powerful
motive to maximize production, and considering that, in
the aggregate, they are performing as well as the
utility's own resources , there is no justification for
performance penal ties of any type.The fact that Mr.
Sterl ing' s proposal may be less onerous than Idaho
Power's doesn't make it any less arbitrary.Mr. Gal e ' s
or Mr. Sterling's desire to see additional resource
"firming," does not change the fact that the proposed
treatment is completely opposite of what is required by
this Commission of Idaho Power's own resources (including
the
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Surrogate Avoided Resource) In fact , the imposition of
potential penal ties on Idaho Power makes far more sense
than it does for CSPPs because , as our direct testimony
pointed out , the PCA eliminates for Idaho Power 90% of
the penal ty a CSPP faces under the payment for delivered
energy contracts now in place.
WHAT IS YOUR RESPONSE TO STAFF WITNESS STERLING'S
RECOMMENDATION THAT MORE FREQUENT UPDATING OF MONTHLY
GENERATION ESTIMATES IS APPROPRIATE?
As I have just explained , the existing CSPP proj ects
are just as predictable as utility assets for planning
purposes, and I therefore rej ect the notion that
performance penal ties are appropriate. This unfairness
exacerbated by the fact that the two-year lead time for
generation estimates that Idaho Power has proposed
clearly arbi trary.As anyone familiar with the weather
in the Northwest knows , forecasting weather and stream
flows 2 years in advance is a recipe for disaster.
the forecast of monthly generation estimates is meant to
be informative and useful , and not punitive , then the
proposal by Staff wi tness Sterling to shorten the
intervals for updating generation estimates from 2 years
to 6 months is superlor to Idaho Power's proposal.
would suggest , however , that even a six months forecast
is too long.For example, who in their right mind would
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place any credence in a November forecast of May stream
flows?If the Commission deems such forecasts necessary,
a month ahead forecast will resul t in much more accurate
information , while minimizing the puni ti ve nature of any
penal ties Idaho Power may be allowed to impose.
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STAFF WITNESS STERLING REFERS TO IDAHO POWER'S
PROPOSED CONTRACT LANGUAGE ABOUT FORCED OUTAGES AND
PROPOSES SOME CHANGES.DO YOU AGREE WITH THE PROPOSED
CHANGES?
The contract section referred to by Staff Wi tness
Sterling is, in my view, unwarranted for the reasons I'
already discussed , as well as completely confusing as to
the section's intent and purpose.In the first place,
the contract does not allow for a 72 hour grace period
for forced outages as witness Sterling states.The
section provides instead that any delivery suspension
will be for a minimum of 72 hours.It further states
that any suspension has to be for "all" deliveries,
despite the representation by Idaho Power witness Gale on
page 9 of his testimony that "the net energy commitment
amount can be temporarily reduced.Neither of these
provisions makes sense to me.For example, if the
facility has 3 generating units , why must "all"
deliveries be suspended?Why not just the damaged uni
or if the unit is capable of operating at some reduced
level , why must "all" deliveries be suspended?If the
equipment can be repaired in 24 hours, what public good
is served by the requirement to suspend deliveries a
minimum of 72 hours?I simply don't understand the
reason for the clause and its punitive nature.
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EARLIER IN THE REBUTTAL YOU DISCUSSED THE
MEGAWATT LIMIT ISSUE AS IT WAS FRAMED IN THE PLEADINGS IN
THIS CASE.HAS ANYTHING HAPPENED SINCE THE COMPLAINT WAS
FILED THAT COMPLICATES THIS ISSUE?
Yes.Throughout the negotiations, one of the
primary sticking points between Idaho Power and U. S .
Geothermal was how to define the Commission's reference
to a 10 megawatt limit.But both parties assumed that
the 10 megawatt standard applied only to
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the amount of power that must be purchased at published
rates , and that it did not limit a seller to a nameplate
or peak capacity of 10 megawatts in order to be eligible
for the published rates.That is why Idaho Power's draft
contracts provided for the purchase of Optional Energy
above 10 megawatts at a market based price.
This view seemed to be supported by the Commission'
Order No. 29232 in the Tiber case , issued on April 28,
2003 , which authorized the payment of published rates
notwi thstanding the fact that the proj ect might
ultimately exceed 10 megawatts of capacity.But on May
, 2004 , approximately 6 weeks after u.s. Geothermal
filed its complaint in this case , the Commission issued
Order No.2 9487 approving the Renewable Energy of Idaho
contract.That contract contained the "Optional Energy"
concepts to facilitate a 17.5 MW biomass facility.
the body of the Order , the Staff and Commission
admonished Idaho Power regarding its contracting
methodology for projects with a capacity in excess of
, and indicated that Idaho Power should determine the
price for such proj ects in accordance wi th the Aurora
model IRP methodology.
Consequently, Idaho Power changed its position and
now argues for the first time that u. S. Geothermal is not
entitled to published rates for 10 megawatts or less of
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production, however defined, but instead is entitled only
to the unknown rate that the Aurora model will ultimately
produce for the entirety of its output.Staff witness
Sterling now endorses this approach in his testimony.
IF THE COMMISSION DETERMINES THAT PROJECTS LARGER
THAN 10 MEGAWATTS ARE NOT ELIGIBLE FOR PUBLI SHED RATES
DO YOU FEEL U. S. GEOTHERMAL SHOULD BE SUBJECTED TO THE
AURORA MODEL IRP METHODOLOGY?
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No.I believe u.s. Geothermal should receive a
grandfather" exemption from the IRP requirement for the
same reason that the Commission exempted Renewable
Energy.The Commission stated in its Findings, at page
, "What is persuaSlve in this case is the unfairness of
holding the QF proj ect hostage for the failure of the
utility to follow the Commission-approved avoided cost
methodology.The project's viability, as configured , is
dependent on the timely approval of the submitted
Agreement. "
DO THOSE SAME CONSIDERATIONS APPLY TO THIS CASE?
Yes.Following is a brief summary of the facts
surrounding the effort by U. S. Geothermal to obtain a
PURPA contract at published rates:
(1 )As presented in my direct testimony, early in
2003 Idaho Power sent several standard form PURPA
agreements to U. S. Geothermal.These agreements
included terms and conditions for the delivery of
and payment for "Optional Energy."Opt ional
Energy" is defined as "The electric energy produced
by the Facili ty, less Station Use , and less Losses
scheduled and delivered by the Transmission Entity
to Idaho Power at the Point of Delivery that exceeds
, 000 Kwh in any single hour.Article VI of the
agreement goes on to state that " Idaho Power will
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purchase all of the Net Energy and Optional Energy
produced by the Sellers Facility
(2 )On April 28 , 2003 , the Commission issued Order
No. 29232.The Order approved the Tiber Montana
Contract.That contract included the same
provisions that are discussed above.The Order
provided a substantial discussion of the "Optional
Energy" concept and the likelihood that the Tiber
proj ect may or may not someday have a capacity
greater than 10 MW.
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(3 )Extensive contract negotiations between Idaho
Power and U. S. Geothermal were conducted during the
period from October of 2003 to the filing of this
Complaint.The specifics of those negotiations are
more completely discussed in my direct testimony at
pages 4 & 5 and pages 9 through 11.During the
entire period of negotiation the availability of
published rates for the first 10 MW of output was
never in dispute.
(4 )On March 25 , 2004 , U.S. Geothermal filed its
Complaint wi th the Commission.
(5 )On May 4 , 2004 , some 6 weeks after the filing
of the U. S. Geothermal Complaint, the Commission
issued Order No. 29487.
(6 )On May 21 , 2004 , two months after U. S.
Geothermal filed its Complaint , Idaho Power sent a
letter to U. S. Geothermal that , for the first time
in the negotiation , denied entitlement to the
published rates for the U. s. Geothermal proj ect.
(7 )The hearing dates for this Complaint are
scheduled for September 2nd and 3rd 2004.An Order
addressing the complaint is expected sometime
thereafter , over one and one-half years after the
contract negotiations were ini tiated.
THE OTHER WITNESSES RAISE A NUMBER OF CONCERNS ABOUT
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THE POTENTIAL FOR ABUSE IF A PROJECT THAT IS LARGER THAN
10 MW (SAY 20 MW) SELLS THE OUTPUT OF THE PROJECT TO
MULTIPLE PARTIES.DO YOU AGREE WITH THEIR CONCERNS?
No.The stated concerns primarily center around two
issues.The first is that a project in this situation
could force mul tiple 10 MW PURPA contracts on varlOUS
utilities at the published rates in the State of Idaho.
The second is that the proj ect would basically shop its
output to the most favorable purchaser at the most
favorable periods of time.The
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Commission has already addressed the first of these
concerns, and the second can be addressed by contract
terms and condi tions that make such abuses impossible.
PLEASE EXPLAIN YOUR THOUGHTS ON THE CONCERN THAT
MULTIPLE QF CONTRACTS COULD BE OBTAINED.
This issue was fully discussed in the Staff Comments
contained in the Tiber Montana Case (Order No.2 9232). On
page 4 of that Order , Staff is quoted as stating, "
Order No. 26772 , the Commission equated the term
proj ect' as used in rate orders and schedules wi
qualifying facility,' as that term is defined by FERC.
Thus each qualifying facility is only entitled to one
PURPA contract.U. S. Geothermal agrees wi th the Staff
interpretation and is willing to stipulate that the
proj ect , except for this contract, is not enti tIed to
utilize the required purchase provisions of PURPA to
contract with any other utility doing business in State
of Idaho.
TURNING TO THE SECOND ISSUE , CAN U. S. GEOTHERMAL
GAME THE SYSTEM BY SHIFTING DELIVERIES BETWEEN MULTIPLE
PARTIES IN ORDER TO MAXIMIZE ITS PROFITS?
If the intent of the contracting parties is clearly
understood in the contract, I don't believe such "gaming"
can occur.If such practices were to occur , the
purchaser under the contract would have legal rights to
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claim a breach of performance and pursue appropriate
legal and financial remedies.It should be clearly
understood that u. S. Geothermal has no intent to, or any
interest in , employing any of the act i vi ties re f erred
by The Other Wi tnesses If Idaho Power, or this
Commission , has any concerns in that regard , u. s.
Geothermal is more than willing to include provisions in
the contract that provide adequate protection to all
parties.u. S Geothermal intends to del i ver Idaho Power
its pro-
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rata share of the proj ect output during all hours of each
day of the contract period.Any reasonable contract
provision to assure this performance is acceptable to U. S
Geothermal.The contract provisions could be qui
simple, and easily monitored through the right to audit
on demand all of the proj ect product ion records.
The problem I have with the utilities' presentation
is that having stated the concerns, the only solution
offered is to disallow any and all sales of additional
output to any third party, rather than proposing contract
language that protects their interests.I cannot
identify any public policy issue or concern that would
lead to forbidding a sale of excess energy to a third
party.Again , reasonable parties attempting to provide
adequate and fair contract protections should have no
problem agreeing on appropriate contract terms and
condi t ions.
STAFF WITNESS STERLING BELIEVES U. S. GEOTHERMAL
SHOULD NOT BE ENTITLED TO THE SAME " GRANDFATHERING"
TREATMENT AS RENEWABLE ENERGY OF IDAHO.DO YOU AGREE
WITH HIS CONCLUSIONS?
No.In Staff Witness Sterling's testimony on page
23, he states that the Commission reluctantly approved
the Renewable Energy contract , "in part because it did
not wish to delay Renewable Energy's progress on
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complet ing the proj ect and in part because it did not
wish to penalize Renewable Energy for mistakes not of its
crea t ion. I see no reason why the Commission should
treat u. S. Geothermal any differently than Renewable
Energy, simply because it has exercised its rights to
challenge what it believes are unfair contract terms in
six month complaint process before this Commission.
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STAFF WITNESS STERLING ALSO STATES THAT THIS CASE
DIFFERENT , BECAUSE HE REMEMBERS "TELLING U. S. GEOTHERMAL
ON ONE OR MORE OCCASIONS THAT IF IT WANTED TO PURSUE A
PROJECT 10 MW OR LARGER , IT MUST REQUEST THAT IDAHO POWER
COMPUTE A RATE USING THE IRP-BASED METHODOLOGY.DO YOU
AGREE WITH HIS CONCLUSIONS?
No.PURPA developers do not follow the PUC' s
proceedings and orders with anything like the utilities
intensity or expertise , and they should be entitled to
rely on the presumption that a utility I s contractual
approach is consistent with Commission orders and
policies.The QF developer has a significant number of
development and contracting issues it must manage.
further burden it with the responsibility to ensure that
Idaho Power's negotiation positions are entirely
consistent wi th the Commissions intent is simply
unreasonable and unworkable.
STAFF WITNESS STERLING INDICATES, AT PAGE 22 , THAT
U . S. GEOTHERMAL REQUESTS " GRANDFATHERING" FOR THE
AVAILABILITY OF PUBLISHED RATES CONSISTENT WITH THE
RENEWABLE ENERGY OF IDAHO TERMS.IS THIS AN ACCURATE
REPRESENTATI ION?
Not entirely. U. S. Geothermal is asking the
Commission to "grandfather' U. S. Geothermal for
eligibility for published rates for the first 10 MW of
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proj ect output , as that is defined in the contract, with
the right to sell any excess to other third parties.
discussed earlier in this rebuttal testimony, as well as
in my direct testimony, u. s. Geothermal is more than
willing to include contract provisions that protect Idaho
Powe r
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and its customers from any potential abuses it feels
lS not now contractually protected from.
IF THE COMMISSION DECIDES THAT U. S. GEOTHRMAL IS
ENTITLED TO TERMS CONSISTENT WITH THE RENEWABLE ENERGY OF
IDAHO CONTRACT , BUT IS NOT COMFORTABLE WITH ALLOWING THE
SALE OF EXCESS PRODUCTION TO A THIRD PARTY , WHAT EFFECT
WILL THIS HAVE ON THE VIABILITY OF THE U. S. GEOTHERMAL
PROJECT?
The financial feasibility of the proj ect under the
described scenario is really outside the scope of the
services I am providing U. S. Geothermal.I would , in
such a case, ask the Commission to review the fairness of
the provision Idaho Power has included in its Market
Based Pricing for Optional Energy."Market Energy Cost"
is defined as "eighty-five percent (85%) of the weighted
average of the daily on-peak and off -peak Dow Jones
Mid-Columbia Index (Dow Jones Mid-C Index) prices for
non- firm energy."Opt ional Energy," that is energy in
excess of 10 000 Kwh in any single hour, is paid the
current month's Market Energy Cost or the published
rates, whichever is lower.Idaho Power enj oys the
benefit if the Market Energy Cost is below the published
rates, but denies the seller the benefit of a Market
Energy Cost that is above the published rates by limiting
the payments to the lesser of the published rates or
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Market Energy Costs.Optional Energy" is treated as
non- firm.Staff witness Sterling describes the terms
under which "non firm" energy sales are made on page 4 of
his testimony."Non-firm energy projects less than 10 MW
in size are paid 85% of Mid-C market prices.Idaho
Powers inclusion of the lesser of" provision in the
Optional Energy pricing is inconsistent with the pricing
criteria the Commission has established.The lesser of"
provision is unfair and inconsistent with
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Commission prlclng criteria and Idaho Power should
instructed to remove that provision from the contract.
DOES THAT COMPLETE YOUR REBUTTAL TESTIMONY?
Yes.
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(The following proceedings were had in
open hearing.
MR . WARD:And Mr. Runyan is available for
cross -examination.
COMMISSIONER SMITH:Mr. Kline, do you
have questions?
MR. KLINE:I do have a few.
CROSS -EXAMINATION
BY MR. KLINE:
Morning, Kip.
Good morning.
Several places in your testimony you argue
that if the Commission uses the 10 megawatt definition
that the utilities and the Staff are proposing rather
than the 10 average megawatts definition that u. S.
Geothermal is proposing as the litmus test for the
entitlement to the published rates , that's going to
create a bias against thermal plants.I think you said
u. S. Geothermal would simply like to have its geothermal
resource analyzed as a geothermal facility.I think
that's in your rebuttal testimony.
Tha t 's correct.
Okay, but doesn't that approach put the
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Commission in a position where it's creating a
megawatt definition for each qualifying facility
generating technology; in other words, when you you'
talking I want my geothermal to be treated as a
geothermal , aren't you putting them in that position?
Somewhat , al though I feel that's a
reasonable position because the consequences of not doing
that are so severe and so biased against certain
technologies that it's simply not fair and it's simply
not product i ve .
It seems to me a lot of what we're doing
today is trying to come up with a definition for
megawatts of capacity that will allow each of the
developers or the developer to create a revenue stream
that will support his proj ect and if we do that for each
of the technologies, aren't we going to have to have one
for anaerobic digesters, aren't they going to want to
have a 10 megawatt definition that fits their particular
technology, same wi th wind , same wi th hydro, doesn't that
put the Commission in a very difficult spot in tying to
manage all those definitions of 10 megawatts?
, I don't believe it does.I believe
that the parties in the case, in this case , for example,
have experts , engineering experts, on their side that can
present a case such as Mr. Kitz has presented on why
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is reasonable that the plant is rated at the position
that he states it is.
I think Idaho Power with its broad
engineering department and assets has people that can sit
there and judge the reasonableness of such a presentation
and I think if the parties are willing to do it on a
good- fai th basis, they can come to an understanding and
present it to the Commission on that basis.I don'
believe it does present a problem for the Commission.
On page 5 of your rebuttal testimony
ve got to find it - - agaln , you're talking about the
definition of the 10 megawatt capacity and I'm looking on
page 5, line 15 where you say the Commission should
understand, and there you're talking about choosing the
10 megawatt definition as proposed by the utilities and
the Staff , that this will have the effect of reducing the
maximum size of many PURPA proj ects well below the
supposed 10 megawatt limit , and my question is all you'
really talking about there, though, is reducing the size
of proj ects that would qualify for the published rates;
isn't that right?
That's correct, and in addi tion to that,
what I'm saying is that type of policy, it places biases
into the analysis and I think the easiest way, we'
heard Mr. Kitz testify that if you had to meet that
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maximum 10 000 an hour that it's really a 6 megawatt
proj ect; on the other hand, that's an air-cooled proj ect
and so what that does is say well , gee, we can't have
air-cooled proj ects in the State of Idaho qualify for the
published rates here in the State of Idaho, we have to
have water-cooled proj ects because water-cooled proj ects
will have a narrower band of variation by the output
its generator , and so as a Commission , what the
unintended consequence of that action is is to tell the
development industry you should build water-cooled
proj ects and that may be in direct conflict with state
policies or local policies or other considerations , but
it does have an impact and it is unintended , but it'
there.
But that's only if you assume that the
only way PURPA proj ects or the only way that PURPA
operates is with published rates.I mean , PURPA still
allows developers to require the utili ties to purchase
their output , it just might not be at the published
rates; isn't that true?
m not aware in the State of Idaho other
than perhaps Simplot that there's been any of those
contracts over the last 25 years , so it isn't a fertile
field in any case.I mean , it's a difficult process
because if I get outside of published rates , I have to
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negotiate not only terms and condi tions wi th the buyer
Idaho Power in this case, but I have to negotiate what an
appropriate rate is.I have very little leverage.
only recourse is back to the Commission.Going to the
Commission is an extremely lengthy and costly process.
The developer is at a distinct disadvantage.I t can'
move quickly and what PURPA , the published rates at
megawatts or less , allows is a proj ect to at least know
if I put all my other pieces together , I can build this
proj ect at the rates that I know I can get.
In your testimony on page 9, rebuttal
testimony, excuse me , you make some comparisons of actual
to average production for CSPP resources as a group and
Idaho Power generating resources as a group and I do
and you also have an exhibit that demonstrates that as
well; correct?
Correct.
All right.Now , on line 18 you state that
the figures for Idaho Power are admittedly not directly
comparable to CSPPs as a whole because Idaho Power'
thermal facilities are idled when market conditions allow
more economlC purchases.
Correct.
Okay.You go on to say, though , that when
you look at QF hydro facilities as compared to utility
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hydro facilities that QF hydro facilities are "more
reliable" and what I want to do is make sure that
- -
appreciate your putting in the sentence here that
indicates that the way that the utility has to operate
its facilities are dictated by the market, but isn't it
true that the Company also has restrictions on the way
can operate its hydro facilities that also would make
these numbers perhaps not comparable?
Well , if it's a matter of market-driven
reasons why they would do that, then I would say no, that
it wouldn't really be an impact in this analysis because
it's over a long enough period of time that any carryover
from year to year or reservoir planning would have washed
out over that seven-year period.
But it might be from a year-to-year basis
things like Corps of Engineers required flood control.
mean , if the Corps of Engineers calls up and says you'
got to get your reservoirs down to a certain level by a
certain date , that could resul t in substantial head loss
could it not?
Just the same as for a QF.I f the Corps
of Engineers or any other governmental agency imposes
restrictions on the operation of those proj ects, yes, it
has an effect.
And in your experience , does the Corps of
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Engineers impose restrictions on QF resources to the same
level that they would Idaho Power'
I just can't say one way or the other.
mean , I think it's probably a matter of sensitivities and
proj ect locations and otherwise, so you can have a very
sensi ti ve species of fish or fauna In very small areas
that might be directly affected by a small hydro, so I
just don't know , Mr. Kline.
Would fish flush perhaps be another
example on the Idaho Powe r system of situation where
the utility required to operate its hydro system in a
way that might not produce the maximum amount
kilowatt-hours , but it's completely beyond the Company
control as to how to optimally operate its hydro
facilities?
All condi t ions placed on the proj ect,
ramplng rates, maximum changes in elevations, all those
changes affect the ability of the operator to maximize
what it would like to do with that project.I don't
question that.
Okay; so it probably would have been
appropriate to put in in your discussion of the
comparison of QF hydro resources to Idaho Power hydro
resources a similar kind of disclaimer, I guess, and that
is you'd have to recognize that Idaho Power isn't
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completely in control of how it operates its hydro
facilities and that could have affected the computation
of reliability that you put in your exhibit and your
testimony?
No.If I was to go down that path , I
think I' d have to go I'm not aware of the number of
controls that either Idaho Power or the individual QFs
were subj ected to over that seven-year period which may
have affected the output of the data in any number of
I mean , I just don't know.ways.Your assumption is
that no QFs were impacted to the extent Idaho Power was
during this period.I don't think
- -
I have no knowledge
to say that.
Well , you've developed a number of QF
resources.
Yes.
Do they participate in Corps of Engineer
flood control?
Well , there's one I'm working on right now
that does as a matter of fact.
But the ones that you have done have not.
No.
Do they participate in fish flush?
Well , indirectly perhaps.I don't know.
I mean , the water they receive out of a reservoir comes
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in at abnormal amounts at abnormal times because of the
effects of fish flush , so yes, they are impacted by fish
flush.
The bottom line is the QF generator
generates just as hard as they can as much as they can
and there really isn't very much that restricts their
operation , wouldn't you agree with that?
Well , they have a lot of oversight , but
agree completely.Within the rules that are established
by the governing agencies , they operate as long as they
can and as hard as they can.
And if Idaho Power was able to do that
the numbers that you have in your comparison would
probably be different?
m not sure about that.I mean , we'
talking about
- -
if Idaho Power didn't have any agencies
that placed restrictions on them , that would be true, but
that would al so be true in the other case, so it'
just
- -
I think that's adequate.I just don't have any
data to justify what you're saYlng.
All right.
That's all I've got.
COMMISSIONER SMITH:Thank you, Mr. Kl i ne .
Mr. Woodbury, do you have questions?
MR. WOODBURY:Thank you , Madam Chair.
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CROSS - EXAMINATION
BY MR. WOODBURY:
Mr. Runyan , I think as Mr. Kline went into
it a little bit , as former president and Ida-West, you
were involved in developing several PURPA QF proj ects
Idaho?
Yes, I was.
And at that time was your understanding of
the 10 megawatt threshold for published rates that it was
a capacity limit or an energy limit?
Well, it was a capacity limit in my role
that I had hydro proj ects that we developed in the State
of Idaho and so I guess to kind of clarify where I'm at,
if the motive force produces, the available motive force
produces , the 10 megawatts , I believe that's the limit.
Now , the problem we're having here is wi th the geothermal
that the motive force , the steam is the same , the output
is different because of ambient conditions, so at the
hydro facilities I participated in , yes , I believe we
needed to have a maXlmum output of 9.9 megawatts.
Would you accept, though, that what
being proposed by U. S. Geothermal is perhaps a departure
from the way the utilities and this Commission have
looked at the 10 megawatt limit?
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It's a departure from the way it's been
handled and the only comparison , I think , the only valid
comparlson , is to gas-fired projects, cogen projects that
were approved and in those proj ect s , they agreed to the
limitation on a per hour basis and that was a business
decision on their part, but I don't think it really
all the other proj ects and the hydro proj ects , I mean my
opinion , reasonable people would say a 9.9 megawatt
proj ect that has that amount of motive force available to
it is what was intended by capaci ty.
MR. WOODBURY:Thank you, Mr. Runyan.
Madam Chair , no further quest ions.
COMMISSIONER SMITH:Thank you.
Mr. Fell.
MR . FELL:Yes , please.
CROSS - EXAMINATION
BY MR. FELL:
Mr. Runyan , in your rebuttal testimony,
you state that the utilities have mischaracterized your
testimony or your approach as an average annual energy
approach.Do you recall that part of your testimony?
Yes, I do.
And I just want to ask some questions to
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get down to what it is that you're proposing in the
contract.On page 7 of your direct testimony, lines
and 8, it says,"u. s. Geothermal believes the
Commission's intent was to offer the published rates to
agreements for 10 average megawatts or less.Now,
rather than try to hold you to that, I gather what you'
saying is it's not the average energy concept that the
utilities are describing; is that correct?
Well , in the first place I would say that
was a very poor selection of language on my part, but I
think if you continue to read through the paragraph , you
get to the thrust of our argument and that we further
clarified it that it was ambient average conditions which
is the rating point of the proj ect in a 10 megawatt
facility under any normal rating criteria, and we're not
asking that we can have a 30 megawatt proj ect that
averages 10 megawatts on the year.
What we're asking is that a plant be rated
at its average ambient condi tion and be allowed to vary
over the year in its output in relationship to what
actual ambient condi tions turn out to be , which is again
kind of clarifying it's not a motive force issue.It'
an issue outside of that generation issue driven by the
motive force.
And maybe this is beating on this a little
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too much , but in your rebuttal testimony on page 6 , you
talk about normal condi tions which is in bold to try to
get our attention that you're talking normal conditions,
and if I turn to Mr. Kitz' s Table 2 on page 17 of his
direct testimony, this is the table we've talked about
before that has the bold line across on the design
temperature and producing 10 megawatts net to Idaho
Powe r .
m sorry, which page lS that?
It's on page 1 7 .I might have misstated
that.
Okay.
When you're talking about normal
conditions , are you talking about the same thing Mr. Kitz
was talking about in that table?
At the design point of 48 degrees
Fahrenhei t, yes.
MR . FELL:Okay, no further questions.
COMMISSIONER SMITH:Mr. Strong.
MR . STRONG:Thank you , Madam Chair.
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CROSS-EXAMINATION
BY MR. STRONG:
On Page 5 of your rebuttal , you state
you're not familiar with Avista or PacifiCorp' s practices
with regard to capacity planning.Can I also assume that
you're not generally familiar with their contracting
practices wi th respect to PURPA proj ects?
Somewhat I'm vaguely familiar with them.
ve seen some draft PacifiCorp contracts.I have not
seen an Avista contract.
Well , in your testimony, you propose
varlOus contract features in your proposed contract with
Idaho Power.I take it you re not necessarily proposing
that these be applied as uniform standards across all
utilities in Idaho , are you?
If you could be a little more specific on
what features , perhaps.
Well , let I s take the most obvious one, how
utilities would rate a project for entitlement to the
avoided cost, published avoided cost , rates.
Yes, I think that
You are proposing that that would be
applicable to all utilities in Idaho?
Yes , I am.
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Okay, but I take it that you are not
proposlng any standard that would be applicable to other
generating types , like non-geothermal generating types?
, no.
You make some recommendations about
incentives that may or may not exist with respect to
encouraging a developer to deliver the most power that
he's capable of developing.You're not necessarily
making any recommendations there that would apply to all
utilities across Idaho, are you?
m recommending that the 90 110 band be
eliminated.
Is that recommendation intended to be
uniform across all utilities or is it just applicable to
your relationship with Idaho Power?
Well, I believe it should be across the
jurisdictional area of the Commission , but , of course,
that's the Commission's decision to make and not mine.
Well , would you concede that in the
particular relationships that other utilities may have
with their developers that they may negotiate other
mechanisms for encouraging proj ects to deliver the most
power from their proj ect?
m always in favor of mutually agreed
upon terms and conditions.
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On page 6 of your rebut tal , I think you
concede or explain that a 100 megawatt proj ect would pose
a legi timate concern to a utili ty.
Yes.
Are you referring to a 100 megawatt
geothermal proj ect or would that also be true of other
types of generating proj ects?
All generating types.
Well , that poses something of a dilemma,
does it not, for the Commission?You're suggesting that
the Commission adopt
- -
not adopt a standard which
precludes your project from receiving the published
avoided cost rate , but you're conceding that at the 100
megawatt size , maybe that's too large and outside of the
entitlement?
What I'm proposing is that based on sound
engineering principles that a rating can be determined
for the proj ect and if that rating is determined at 10
megawatts, then I believe it qualifies for the rates.
don't see any way that a 100 megawatt proj ect could come
up with any logic that made sense to a group of engineers
that would allow you to call it a 10 megawatt proj ect.
What I believe is reasonable people with good engineering
principles to go by can determine if that's an
appropriate rating.I don't think that's a difficult
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resul t to get to.
So you are not asking or proposing that
the Commission find some line in between 100 megawatts
and 10 and draw the ine there, are you?
No.
You're instead, and I don't want to put
words in your mouth and tell me if I am, but you'
propos lng that some
determination?
Yes.
Okay,and that means that there may be
rule of reasonableness apply to this
some factors associated wi th some types of proj ects which
may not have any bearing on other types of proj ects?
Correct.
And again , referring to your direct
testimony on page 14 , you refer to standard terms and
conditions that have been used in PURPA projects in
Idaho.I take it that your reference there is to terms
and condi tions that have been offered by Idaho Power in
Idaho; is that a correct statement?
That's correct.
MR . STRONG:Madam Chair , I have no
further questions.
COMMISSIONER SMITH:Thank you,
Mr. Strong.
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Mr. Richardson , I forgot to ask if you had
questions.
MR. RI CHARD SON :Just one, Madam Chairman.
CROSS-EXAMINATION
BY MR. RI CHARDSON :
Mr. Runyan , I was intrigued by Mr. Kl ine ' s
questions of you on the impact of federal regulations on
hydroelectric production.Do you recall that exchange?
Yes.
It just strikes me that it's about as
difficult to predict the whims of federal regulators and
the Army Corps and federal regulations as to wind
doesn't that actually suggest that strict bands on
production are not appropriate?
I think the strict bands are not
appropria te because I think you can get to the same
resul t in a much more eff icient manner , and to expand on
that, what I think the Commission has done over 25 years
of a number of parties being involved in proceedings
come up with a methodology which incents the QFs to
deliver under the maximum incentive possible and I think
that's supported by our data and to strap a banding on
top of that doesn't add anything to the incentive of the
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QF to supply the power.All it does is start imputing
financial penalties which effectively results in a
reduction of the rates.
And how long were you employed by Idaho
A little over 20 years.
You were actually there before PURPA was
passed, weren't you?
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Yes.
And according to your resume, you were
general manager of the resource development division
one point; is that correct?
Yes.
And what's your educational background?
I have a Bachelor of Science in civil
So you're an engineer?
Right.
MR. RICHARDSON:Thank you.
Power Company?
Madam Chairman , that's all I have.
COMMISSIONER SMITH:Yes, Mr. Richardson
the Commission is grateful that you did not include state
regulators in your question.
MR. RICHARDSON:I wouldn't dare go there,
engineering.
Madam Chair.
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COMMISSIONER SMITH:Are there questions
from the Commission?
EXAMINATION
BY COMMISSIONER SMITH:
Mr. Runyan , it occurs to me that this is a
good opportuni ty for me to take advantage of your
experience and a lot of times when you si t on a case like
this and you have engineers talking to you about things
that you really don't understand because you didn't take
physics, it occurs to you that the main purpose of having
a commission is to direct the policy of what you'
dealing with , and so with your experlence with PURPA
what do you think the purpose , the public policy purpose
of PURPA is?
Initially, and I think it still holds true
today, is to encourage a diverse supply of energy.
was In response to the oil shortage , so a di versi ty
supply of energy and the way it seems to me that the
state took it one step further is it said we like the
idea of di versi ty, but we only want to have the exposure
limited to so-called 10 megawatt plants.
Because part of our purpose is to protect
ratepayers from undue financial conditions or burdens;
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correct?
Correct , and that's why the Commission
empowered to set the rates, the avoided cost rates , and
we've had those hearings and the SAR is now in place.
Do you think this goal of di versi ty
supply is any less important today than it was when PURPA
was enacted?
No, I think it's more important.
And so in your opinion , if the Commission
is going to achieve this purpose of having di versi ty
supply, recognizing that we've put appropriate safeguards
around it in terms of size and rate so that ratepayers
aren t adversely impacted, what's the right answer In
thi s case?
The right answer in this case is to stick
with a well-proven contract methodology.The facts show
that the proj ect has consistently performed at levels
that are very acceptable and the Commission has gone
through over the years a capaci ty and energy payment
which was deemed too risky and in fact, was encouraged by
the utilities to go to an energy payment only for
delivered energy and with that change , we've had a very
stable situation that gets the performance out of the
proj ects, that's the desired performance, and does it in
a way that doesn't burden the developer wi th a number of
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very difficult risks that must be quantified in order to
finance and build a proj ect.
Now , wi th regard to these contracts and
some contracts maybe having different features or as
opposed to having just a standard contract that you sign
or you don't sign , I guess I was trying to ponder whether
the purpose of having a standard contract was for the
benefit of QF developers or for the benefit of the
utility.
Well , I think it's to the benefit of both.
It's always good for the developer to know what you'
getting into on the front end.It's to the benefit of
the utility because it takes less administrative burden
and I think it's to the benefit of all the people
involved in it because you know what you have and you'
not going to get a lot of one-off type of deals.
Do you think there's any room for
different features?
Yes , I do.As I've stated , I think the
capacity limitation and the interpretation of the
Commission's intent lS one that needs to be deal t wi th
a proj ect -by-proj ect basis and it's not an unreasonable
burden to consider what the resource type is and to make
a well-researched judgment on what's an appropriate
determination of whether that meets the cri teria or not
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and so I think there does have to be flexibility.
And in terms of your discussion , I think
with Mr. Strong and perhaps Mr. Fell about your goals for
the QF industry as a whole and the Commission's statewide
policy, would it be just enough for you if we approved
the contract terms that u. S. Geothermal desires in your
Idaho Power contract and didn't go for the full-blown
statewide , three-utility, multi-project policy
position?
That would be very adequate for my
client.
COMMISSIONER SMITH:Thanks.That's a 11 I
had.
Do you have redirect , Mr. Ward?
MR . WARD:Jus t one area.
REDIRECT EXAMINATION
BY MR. WARD:
Mr. Runyan , Mr. Kl ine asked you some
questions regarding the ability of PURPA developers to
insist on a contract even if their capacity doesn't meet
the 10 megawatt limitation.Do you recall that
discussion generally?
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Yes, I do.
Now , has Idaho Power indicated in its IRP
that it would like to acqulre or intends to acquire
geothermal resources?
Yes, it has.
And in the interest of encouraging
di versi ty, do you think it's important that Idaho bring
on its first geothermal proj ect?
Yes,do.
Now you we
earlier were you not?
Yes.
If fact the utility-proposed nameplate
here when Mr. Kitz testified
definition of the 10 megawatt limit were adopted
Mr. Ki tz said essentially that this proj ect will not be
built.Now , of course, as Mr. Kline suggested, it could
still be buil t if you could get a negotiated contract
but isn't it true that the options would be either
Mr. Ki t z is right, ei ther the proj ect would not be bui 1 t
or would have to be the first PURPA developer to
negotiate a contract for a larger facility?
I believe that's right.m just not
totally familiar with some of the Simplot past contracts,
but I believe that's right.
MR. WARD:Okay, that's all I have.
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Runyan.
COMMISSIONER SMITH:
THE WITNESS:
Thank you, Mr.
Thank you.
COMMISSIONER SMITH:Thank you , Mr. Ward.
(The wi tness left the stand.
COMMISSIONER SMITH:
(Noon recess.
That brings us to
lunch time.I propose we break now for lunch and return
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at 1:15.
COLLOQUY