20040921Vol II.pdf

ORIGINAL
RECEIVEDBEFORE THE IDAHO PUBLIC UTILITIE9~~~ISSION fT"lLJr-1
Complainant
) CASE NO. IPC-E- 04 - 8
. ) CASE NO. IPC-E- 04 -
- )
ZuDlt SEP 29 Pt1 4:58U . S. GEOTHERMAL , INC., AN
IDAHO CORPORATION
i U i'\IPJ j' UUt. IC
UTILI T IES C0r~lr1f$$IIN
vs.
I DAHO POWER COMPANY , AN
IDAHO CORPORATION
Respondent.
BOB LEWANDOWSKI and MARK
SCHROEDER,
Complainants,
vs.
IDAHO POWER COMPANY , AN
IDAHO CORPORATION
Re spondent .
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 II - Pages 253 - 490
CSB REpORTING
Constance S. Bucy, CSR No. 187
17688 Allendale Road * Wilder, Idaho 83676
[phone] * [phone]
Email csb~spro.net
. .
For the Staff:Scott Woodbury, Esq.Deputy At torney General
472 West Washington
Boise, Idaho 83720-0074
For Idaho Power:Barton L. Kline, Esq.
Idaho Power Company
Post Office Box
Boise , Idaho 83707 - 0070
For U. S. Geothermal:IVENS PURSLEY LLP
by Conley E. Ward, Esq.
Post Office Box 2720
Boise, Idaho 83701-2720
For Bob Lewandowski
and Mark Schroeder:RI CHARDSON & 0 I LEARY
by Peter J. Richardson, Esq.
Post Office Box 1849Eagle, Idaho 83616
For Avista Corporation:PAINE HAMBLEN COFFIN BROOKE
& MILLER
by R. Blair Strong, Esq.
717 West Sprague Avenue
Sui te 1200
Spokane , Washington 99201
For PacifiCorp:STOEL RIVES LLP
by James R. Fell, Esq.900 S. W. Fifth Avenue
Sui te 2600
Port 1 and , Oregon 97204
CSB REPORTING
Wilder , Idaho APPEARANCES83676
WITNESS EXAMINATION BY
Mr. Richardson (Direct)
Prefiled Direct Testimony
Prefiled Rebuttal Testimony
Mr. Kline (Cross)
Mr. Woodbury (Cross)
Mr. Fell (Cross)
Mr. Strong (Cross)
Commissioner SmithMr. Richardson (Redirect)
Mr. Kline (Direct)
Prefiled Direct TestimonyMr. Kline (Direct-Cont'd)
Prefiled Rebuttal Testimony
Mr. Woodbury (Cross)
Mr. Strong (Cross)Mr. Ward (Cross)Mr. Richardson (Cross)
Commissioner Hansen
Commissioner Smi
Mr. Kline (Redirect)
PAGE
253
256
277
291
298
298
299
300
302
305
307
359
361
388
389
392
428
477
480
485
Don Reading
(Lewandowski &
Schroeder)
John R. Gale
(Idaho Power)
CSB REPORTING
Wilder , Idaho 83676
INDEX
Cogeneration & Small Power Premarked
Product ion as of Month ending
December 2002
Premarked
Premarked
Identified
Identified
Identified
Identified
Identified
Letter from Barton L. Kline Premarked
to Conley Ward , dated May 21
2004
PAGE
441
445
458
465
471
NUMBER DESCRIPTION
FOR BOB LEWANDOWSKI & MARK SCHROEDER:
51 -Resume of Don C. Reading
52 -Letter from Barton L. Kline
to Peter Richardson , dated
May 21, 2004
Supply Side Resource Data
Technical Appendix for the
2002 IRP
1993 Acquisition of Supply-
Side Resources, prepared by
I daho Power Company
IPC Qualifying Facilities,
CSPP proj ects
Table 9 Recent Brownlee
Inflow History
FOR I DAHO POWER COMPANY:
201
202 Letter from Barton L. Kline
to Peter Richardson , dated
May 21 , 2004
203 Excerpt from IPC' S Petition
for Reconsideration
204 Three -page exhibi t sponsored
by John R. Gale
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Premarked
Premar ked
Premarked
EXHIBITS
E X H I B T S (Continued)
NUMBER DESCRIPTION PAGE
Identified 424
FOR u. S. GEOTHERMAL , INC.
Idaho Power Response to
First Production Request
CSB REPORTING
Wilder , Idaho 83676 EXHIBITS
BOISE , IDAHO , THURSDAY , SEPTEMBER 2 , 2004 , 1: 15 P. M.
COMMISSIONER SMITH:All right, welcome
back.I think we re readyWe will take up our hearing.
for Mr. Richardson's wi tness.
MR. RICHARDSON:Thank you,
Madam Chairman.Mr. Lewandowski and Mr. Schroeder will
call Dr. Don Reading to the stand.
DON C. READING,
produced as a wi tness at the instance of the Complainants
Lewandowski & Schroeder , having been first duly sworn
was examined and testified as follows:
MR. RICHARDSON:Madam Chairman , just to
let you know , Mr. Lewandowski has joined me at the
counsel's table.
COMMISSIONER SMITH:Okay.
DIRECT EXAMINATION
BY MR. RI CHARDSON :
Dr. Reading, good afternoon.
Yes.
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Are you the same Dr. Reading who caused
prepared direct testimony and exhibits numbered
through 53 to be filed in this case?
Yes.
If I were to ask you the same questions
you were asked in your prepared testimony this afternoon
would your answers be the same?
Yes.
Do you have any corrections or additions
to make to your test imony?
The one I noticed is I think my Exhibi t 52
lS a letter from Mr. Kline and it doesn't have the middle
page however , Mr. Gal e 's Exhibi t 201 is the same thing.
It's got the first page and the last page but not the
middle page where the calculations occur.
Thank you, Mr. Reading.
Madam Chairman , wi th your indulgence, we
will let Exhibit No. 52 with the missing page stand as
is wi th the understanding that the parties can see the
whole exhibi t by looking at the second page of Mr. Gale'
or else we can produce another page for you.
COMMISSIONER SMITH:It works for me.
there any obj ect ion?
MR. RICHARDSON:Thank you
Madam Chairman.
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BY MR. RI CHARDSON :Turning to your
rebuttal testimony, Dr. Reading, are you the same
Dr. Reading who caused rebuttal testimony to be prepared
and filed in this case?
Yes.
If I were to ask you the same questions
this afternoon that you were asked in your prefiled
rebuttal testimony, would your answers be the same?
Yes.
MR. RICHARDSON:Wi th that,
Madam Chairman , Mr. Lewandowski and Mr. Schroeder move to
have Dr. Reading's testimony, prefiled rebuttal and
direct, spread upon the record as if it were read in full
and Exhibits No. 51 through 53 marked for identification
purposes.
COMMISSIONER SMITH:If there's no
obj ection , it is so ordered.
MR. RICHARDSON:Thank you
Madam Chairman.
(The following prefiled direct and
rebuttal testimony of Dr. Don Reading is spread upon the
record.
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PLEASE STATE YOUR NAME AND BUS INESS
My name is Don Reading and my
business address is Ben Johnson Associates, 6070 Hill
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ADDRESS.
WHAT IS YOUR OCCUPATION?
I am a principal wi th Ben Johnson
HAVE YOU PREPARED AN EXHIBIT
OUTLINING YOUR QUALIFICATIONS AND BACKGROUND?
Yes.Exhibit No. 51 serves that
ARE YOU SPONSORING ANY EXHIBITS WITH
Yes.I am sponsoring Exhibi t Nos.
Road, Boise, Idaho.
WHY ARE YOU TESTIFYING IN THIS CASE
I have been retained by Mr.
Lewandowski and Mr. Schroeder to testify as to the
advisability of several terms in a standard offer
purchase agreement tendered to my clients by Idaho Power
for the purchase of the output from their proposed wind
proj ects.Idaho Power is insistent on several contract
terms that make it impossible for my clients to develop
Associates.
purpose. 1
THIS TESTIMONY?
through 53.
NO . I PC - E - 04 - 10 ?
256 READING (Di)
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their respective proj ects.
PLEASE DESCRIBE HOW YOUR TESTIMONY
ORGAN I ZED.
I will outline the contract
provisions at lssue in this case and will then discuss
why they are so problematic to a developer of QF proj ects
such as the two wind proj ects being proposed by Mr.
Lewandowski and Mr. Schroeder.I will then discuss why,
in my professional judgment , theses contract provisions
are not necessary to protect the interests of the
ratepayers or
lThe parties informally agreed to assign exhibit
numbers 51 through 100 to Mr. Lewandowski and Mr.Schroeder I s testimony.
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Idaho Power's shareholders.I conclude by observing some
of the many benefits Idaho Power and its ratepayers would
enj oy if Idaho did have a robust and heal thy QF industry.
COULD YOU PLEASE BRIEFLY DESCRIBE THE
TWO QF PROJECTS PROPOSED BY MR. LEWANDOWSKI AND MR.
SCHROEDER?
The two proj ects are qui te distinct.
However , they both need to have certainty in their
agreement that they will be paid for all of the power
they produce.Mr. Lewandowski's proj ect will , for the
current phase, have a total capaci ty of 325 kw and will
consist of three refurbished 108 kw Micon turbines.Mr.
Schroeder I S proj ect will consist of eleven 900 kw
NEG-Micon turbines.
WHAT ARE THE CONTRACT TERMS YOUR
CLIENTS OBJECT TO?
A. In a nutshell , Idaho Power is requiring
my clients to provide an estimate of the power they
intend to produce each month.The draft contract refers
to this amount at the "Net Energy Amount"(Section 1.1 J .
While that has been a standard practice for QF contracts
in Idaho, Idaho Power's proposed agreement provides a
penal ty if the QF fails to produce 90% of the Net Energy
Amount in any given month or if it produces more than
110% of the Net Energy Amount.
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Q. WHAT IS THE PENALTY?
A. If a QF fails to produce 90% of the Net
Energy Amount in any gl ven month, then the amount of
energy NOT DELIVERED below the 90% floor is defined by
the proposed contract as "Shortfall Energy"(Section
24) If the Market Energy Cost (essentially 85% of
Mid-C) for that month is less than the Base Energy
Purchase Price, then the QF owes Idaho Power nothing.
However, if the Market Energy Cost for that month
greater than the Base Energy Purchase Price , then the QF
owes Idaho Power the difference between the market price
and the Base Energy Purchase Price.Essentially, this
means that the QF is paying Idaho Power for power not
produced at eighty five percent of the Mid-C price.
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Q. WHAT IS THE "MID-C"?
The Mid-C is a market index for
wholesale electrici ty prices in the Pacific Northwest.
It is a transparent market that reflects energy prices in
general and is influenced by national and international
events.For example, Mid-C prices are influenced by the
price of oil and natural gas , ambient air temperatures in
Southern California and have even been affected by the
market manipulations of the recent past.The Mid-
market produces prices that are inherently unpredictable
and that can spike rather dramatically.For example at
the height of the "California Energy Crisis" Mid-C prices
act uall y exceeded $ 5, 000 per Mwh.Today Mid-C is trading
around $30 to $40 per Mwh. My clients understandably
obj ected to a provision in their contracts that would
impose Mid-C liability on them for power they do not
produce.
Q. WHAT IS THE BASIS FOR YOUR CLIENTS'
OBJECTIONS?
First, they believe, and I concur
that under the Federal Law known as PURPA, they are
entitled to be paid full avoided cost rates for all of
their production and that requiring them to PAY FOR POWER
NOT PRODUCED is a concept not provided for in PURPA
however that is an issue that I will leave to the lawyers
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to argue.However , fundamentally this is a penalty that
has no limit, making these projects impossible to finance
or build.No rational individual would expose himself to
the unlimited liability of a penalty tied to a market
price that can be as high as $5 000 a Mwh when they are
only being paid approximately $50 a Mwh.PURPA was meant
to provide a 'level playing field' between a QF facility
and the Company's generating uni ts.As recent events
have shown , Idaho Power was able to recover the maj or
portion of high market rates through the PCA.
structured in the draft contract, there is no way for the
QF developer to recoup any of this proposed penal ty.
That is why my clients obj ected to the Shortfall Energy
concept and the Shortfall Energy Price in the draft
contract they were presented wi th by Idaho Power.
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Q. HAS IDAHO POWER RESPONDED TO YOUR
CLIENTS' CONCERNS RELATIVE TO SHORTFALL ENERGY AND THE
SHORTFALL ENERGY PRICE?
A. The Company did slightly change its
position as noted in a letter sent after our complaint
was filed.A copy of that letter is attached as Exhibit
No 52.It essentially places a cap on the Shortfall
Energy Price at 150% of the Base Energy Purchase Price
mul tiplied by the amount of Shortfall Energy.
DOES THAT CAP SOLVE YOUR CLIENTS'
CONCERNS ABOUT SHORTFALL ENERGY?
While it is a step in the right direction
it is still unacceptable.
Q. WHY IS IT STILL UNACCEPTABLE , ISN'T THE
CONCEPT OF UNLIMITED LIABILITY THE ISSUE WITH YOUR
CLIENTS' INABILITY TO FINANCE A PROJECT WITH IDAHO POWER?
There is simply too much uncertainty
associated wi th a QF having to pay Idaho Power 150% of
the purchase price multiplied by the amount not produced
for a failure to produce.Prudent lenders and financial
backers would balk at the risk that these developers
might be faced, at any time, with such a liability.Just
as importantly, there is no need for such a "liquidated
damages" clause in a QF PURPA contract.
Q. WHY DO YOU USE THE PHRASE "LIQUIDATED
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DAMAGES" IN YOUR ANSWER?
A. That is the phrase used by Idaho Power
in its letter offering to cap the Shortfall Energy
payments at 150% of the contract price.In his letter of
May 21, 2004 , which is attached as Exhibit No. 52, Mr.
Kline makes the following statement:
Idaho Power has considered this
concern further and is hereby offering to place
a cap on Developers' liquidated damages
exposure if Developers fail to provide 90% of
the agreed-upon energy in any month.
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So, it is apparent that Idaho Power is vlewlng this
penal ty as liquidated damages.I am an economist and
often testify on damages and how to measure damages.So,
I understand the concept of liquidated damages.It is
designed for parties to a contract to define damages, in
advance of a possible breach , so that if a breach occurs
there is no dispute over either the level of damages or
the methodology used to measure those damages.I looked
up the definition of liquidated damages and have
confirmed that this is the common understanding of why
such a clause is inserted into contracts.The approach
taken by the Company shifts the risk of generation
downtime to the QF.Idaho Power has the PCA that allows
it to recover 90% of its power supply costs (and keep 10%
of power supply benefits for its shareholders) and thus
mitigates against open-ended liability should it need to
purchase market energy to compensate for an off-line
generation unit. In my opinion , it is completely
inappropriate to use any liquidated damages clause in a
QF contract.
Q. WHY?
First , the underlying reason for a
liquidated damages clause is missing.If a power
supplier breaches its commitment to deliver power to an
investor owned utility such as Idaho Power, that IOU has
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tools readily at its disposal for calculating whether
and by how much , it is damaged.Second , the iquida ted
damages provision makes it extremely difficult or next to
impossible to finance a QF proj ect.PURPA charges the
Commission with the duty to encourage the development of
QF - not place insurmountable roadblocks in their path.
Third, when a QF facility is down - the QF doesn't get
paid.That is incentive enough to for QFs to be reliable
and to do all in their power to insure that their plants
are reI iable.In addi tion , and importantly, it places an
asymmetrical burden of risk on the QF.
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Q. WHAT DO YOU MEAN BY AN ASYMMETRICAL
BURDEN OF RISK ON THE QF?
When a utility I s own plant fails to
produce or has an unscheduled outage, the ratepayers
cover the costs associated with replacing the expected
output from that plant. The shareholders are held
harml e s s .Idaho Power wants to have the best of both
worlds by placing the risk of unscheduled outages on QF
developers while enj oying the advantage of placing the
risk of unplanned outages at their own plants on the
ratepayers.That strikes me as fundamentally unfair and
a violation of the principles of PURPA.I doubt the
financial community would look with favor on Idaho Power
if this Commission ruled that in drought years Idaho
Power's shareholders would be responsible for all of the
excess power supply costs it would incur to replace the
reduced generating capacity from its hydro system.
fact, if that were the case, I would expect the finance
community to completely stay away from any investment in
Idaho Power - the same is true for QFs
ARE THERE OTHER EXAMPLES OF
ASYMMETRICAL RISKS CAUSED BY IDAHO POWER INSISTENCE ON
CONCEPTS SUCH AS SHORTFALL ENERGY?
A. Yes.For example, Sect ion 14. 3 . 1
states that the company does not pay the proj ect during
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times when there is ". line construction or maintenance
requirements, emergencies, electrical system operating
condi t ions Hence, when Idaho Power stops accepting
and paying for the production due to "operating
conditions" on its system it simply stops doing so with
no compensation to the QF developer.That is another
example of asymmetrical risks imposed by this proposed
contract.
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Q. IS THERE A LEGITIMATE CONCERN ON IDAHO
POWER'S PART RELATIVE TO THE FAILURE OF A QF TO DELIVER
CONTRACTED FOR POWER?
A. Absolutely not.Idaho Power has
approximately 70 QF contracts in place that are currently
del i vering power to the company.None of those producing
agreements has a shortfall energy prOVlSlon.It is only
since the Commission returned to the 20-year contract and
10 megawatt threshold for entitlement to published rates
that the company came up with the concept of shortfall
energy.I understand that there are three agreements
that have been signed with this provision, however the
Commission made it clear that these contracts should not
be considered as setting a precedent.(Idaho Public
Utilities Commission Order NO. 29232 , April 15, 2004)
In addition two of those agreements are for facilities
located in Montana making them unique in terms of having
to preschedule their deliveries for wheeling purposes.
HISTORICALLY , WHAT HAS BEEN IDAHO
POWER'S EXPERIENCE WITH THE RELIABILITY OF THE QF
INDUSTRY?
Looking at the report published by Idaho
Power on cogeneration and small power production , it is
apparent that the QF industry is, in fact, qui
reliable.For instance , that report shows that for the
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year to date ending December 2003 , the QF industry had
produced and del i vered 71.47 percent of the amount of
energy it had contracted to deliver and for the year 2002
that figure was 75.65 percent.ThatSee Exhibi t No. 53.
is remarkable especially in light of the fact that
2002-03 was close to a record drought year and that the
vast maj ori ty of Idaho Power's QF contracts are hydro
based.Taken as a whole , the QF industry is extremely
reliable and dependable.There is no need to single out
new QF contracts to impose this penal ty clause.The
industry has a proven track record that can be relied
upon by Idaho Power and its ratepayers.
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WHAT ELSE DO YOU LEARN FROM THE
STATISTICS SHOWING THAT THE QF INDUSTRY AS A WHOLE
GENERATED APPROXIMATELY 70%
Idaho Power is proposing a
percent band knowing full well that the industry average
is 70 percent.This is further evidence that Idaho Power
is actually attempting to prevent the development of new
QFs.
Q. SINCE THE INDUSTRY AS A WHOLE HAS A
PROVEN AND RELIABLE TRACK RECORD , SHOULD IDAHO POWER BE
CONCERNED ABOUT INDIVIDUAL DEVELOPERS FAILING TO PRODUCE
THE I R CONTRACTED AMOUNT?
A. Again, absolutely not.First, as
noted above, individual developers are already highly
motivated to make sure their proj ects produce - if they
don't produce they don't get paid.Howeve r , from the
perspective of Idaho Power , no individual developer'
proj ect is large enough to cause concern from an
operations standpoint.QF standard contracts are limi ted
to ten megawatts - a mere drop in the bucket to a utility
the size of Idaho Power.Again , I need to strongly
emphasize, the system has worked for twenty-five years
wi th no need to impose a shortfall clause in any of the
existing 70 QF contracts. Nothing has changed that
suggests there is a problem with QF reliability and
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nothing has changed that suggests a need to impose a
draconian penalty for failure to deliver.
Q. WHAT ARE YOUR CONCERNS RELATED TO THE
CONCEPT OF "SURPLUS ENERGY"?
A. The Company proposes to pay for energy
delivered that is in excess of 110% of the contracted
amount at the LOWER of either 85% of Mid-C or the
contract price.Obviously, Idaho Power is overreaching
here wi th a heads they win and a tails the QF loses
pricing scheme.Assuming the QF has not increased the
size above the ten megawatt threshold for entitlement to
published rates , Idaho Power should be required to pay
the contract price for all energy produced
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and del i vered by a QF.The Company is simply attempting
to hold the QF industry to an unattainable standard.Not
even Idaho Power can guarantee the output of its own
system within a 90-110% band.One need only to look to
the Danskin plant with its $13 per kWh cost to see an
example of the uncertainties inherent in developing
genera t ing proj ect s Despite the failure of that project
to provide cost effective energy, Idaho Power is still
recovering all of the costs associated wi th it from the
ratepayers.
Idaho Power should be mandated by this
Commission to stay wi th the form of contract used prlor
to this "generation" of contracts under which the QF
paid for power del i vered and not paid for power not
delivered.It is a simple and fair arrangement for the
ratepayers, Idaho Power and the QF developer.
DO YOU HAVE ANY OBSERVATIONS ON THE
"REGULATORY OUT" LANGUAGE IN THE PROPOSED CONTRACTS?
I do.Tucked away under a heading
enti tIed "Governmental Authorization" is a clause that
provides that Idaho Power may terminate the agreement at
its sole discretion if "Idaho law is modified to allow
persons
. .
. other than Idaho Power to sell electric
capaci ty or energy at retail in Idaho Power I S exclusive
service terri tory, and . such change in law resul ts in
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Idaho Power being unable to fully recover all costs
associated wi th this Agreement.This seemingly
innocuous clause is fraught wi th ambigui ty, danger,
uncertainty and inaccuracies.
Q. PLEASE EXPLAIN.
Firs t there is no such thing as
exclusive serVlce territories" for utilities operating
in Idaho.As I understand it , I could start a
cooperative utility today anywhere in Idaho Power'
service terri tory as long as my customer is more than ~
of a mile from an existing Idaho Power service line.
Then I could extend my lines through Idaho Power'
servlce areas and , if legitimately extended , would be
able to serve all new customers that are closer to my
lines than
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they are to Idaho Power's lines.Al though prohibi ted
from pirating another utility's existing customers, I
could legi timately invade Idaho Power's service
terri tory.
Second , the phase fully recover all costs
associated wi th this Agreement" is very problematic.
a deregulation scheme IOU's, such as Idaho Power , would
likely be expected to net out their stranded costs from
their stranded benefits resulting in an overall
settlement of who is owed what.I would anticipate that
QF contracts would be lumped together as a single line
item and other company-owned generating assets would
likewise be a line item cost and or benefit.Who is to
say, In such a global settlement which specific agreement
had its costs covered?It might be like a global
settlement of a general rate case for a specific dollar
amount without deciding which specific rate base item
included or excluded.I fear such a scenario is
extremely likely in the event deregulation comes to
Idaho.If Idaho Power felt it did not recover all of its
stranded costs , it could point to the QF industry and
claim they were the cause of their shortfall.
Third, who would make the call relative to
whether or not Idaho Power had recovered all of its
costs?Would the Commission do so or would the parties
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have to go to court?This clause is simply too
problematic for Idaho Power to insist on its inclusion in
QF agreements.Idaho Power already has a clause
requiring this Commission's approval of the agreement for
ratemaking purposes - nothing more is needed from their
reasonable perspective.
YOUR CLIENTS ARE PROPOSING WIND
PROJECTS.DO YOU HAVE ANY COMMENTS ON WHETHER THEY
SHOULD RECEIVE SPECIAL TREATMENT RELATIVE TO ESTIMATING
PRODUCT I ON?
A. As long as Idaho Power is required to
purchase all output from the QF proj ect wi th no 90 -110%
band for determining shortfall or surplus energy prices,
I do not see any need to treat wind differently from
other proj ects Wind is a variable product in much the
same way hydro is a variable product.In fact , Idaho
Power is seriously considering including wind as a maj or
part 0
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its resource portfolio in its upcoming Integrated
Resource Plan.It is a legitimate QF resource that
deserves to be treated the same as all other legi timate
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Q. DOES THI S CONCLUDE YOUR TESTIMONY?
Yes , it does.
resources.
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Are you the same Dr. Reading who
prefiled direct testimony in this docket?
Yes, I am.
What is the purpose of your rebuttal
testimony?
I address the reply testimony filed
by staff witness Sterling, Idaho Power witness Gale and
the direct testimony of the two intervenors in this
matter , PacifiCorp and Avista, respectively.Howeve r , I
should note that my response to Avista and PacifiCorp
not comprehens i ve .
What do you mean
, "
not
comprehens i ve "
Avista and PacifiCorp raise several
lssues that are far removed from the scope of this
proceeding.Our complaint against Idaho Power is limited
to a couple of very specific issues.Raising new issues
beyond the scope of our complaint at this late date seems
unfair therefore , I intend to stay wi thin the scope of
our original complaint and supporting testimony.
What do you mean
, "
unfair"?
I believe the new issues raised by
Avista and PacifiCorp could have wide ranglng
consequences and that others in the QF industry - in
addition to just Mark Schroeder and Bob Lewandowski
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would definitely want to have an opportunity to respond.
That is what I mean by "unfair"In addition , given the
extremely short time period we have to respond to the
Intervenor testimony - we simply don't have the requisite
time to muster the resources needed to address all of the
implications necessary to respond to those broad issues.
Are there other reasons you bel ieve
it is unfair for the commission to allow PacifiCorp and
Avista to expand the scope of this proceeding?
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Yes.It seems unfair to allow
Intervenors to be permitted to dramatically expand the
scope of a proceeding initiated , not by them , at the
eleventh hour.In my years working for and before this
Commlssion have earned that broadening lssues beyond
the initial scope a proceeding not permissible.
How your test imony organi zed?
The re are only three basic issues
play this case:(1)the 90%-110%band question;(2)
the threshold size at which a QF is entitled to published
rates; and (3) the so-called regulatory out I language.
Please proceed.
Over the last 20 -pI us years , the QF
Industry, Idaho Power and the commission achieved an
equilibrium of sorts.Rates were set (and adjusted) to
respond to changing markets on a regular basis.As a
consequence, Idaho Power has a stable of QF contracts
providing reliable and economic power.The State has
benefited through new jobs, increased tax base and a more
efficient power system.Until these issues surfaced just
last year , not once did we hear from Idaho Power that a
90%-110% band was required.This case is not about QFs
seeking special treatment.This case is about Idaho
Power's attempt to change the status quo that this
commission has crafted over the last two decades.
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believe that Idaho Power should be held to a very high
standard before being allowed to so dramatically upset
the proverbial apple cart.
Have you reviewed Mr. Gale's reply
testimony in this matter?
Yes.
Do you have any overall observations?
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Yes.The underlying theme in Mr.
Gale's testimony is that it is necessary to "better
integrate QF resources into its resource planning and
acquisition process as firm resources"Gal e at p. 4 .
Idaho Power plans to accomplish this resource planning
goal by forcing each individual QF to generate wi thin a
narrow band of its estimated monthly production.
What is the problem wi th company-wide
resource planning using individual QF generating
estimates?
It simply does not reflect how the
company actually plans.Idaho Power's IRP lumps all QFs
together in planning for future years.True , the IRP
provides a list of individual QF contracts , but for
resource planning purposes all QFs are essentially
aggregated and considered a single resource.Indi vidual
QFs are not individually modeled for resource planning
purposes.
What is the import of that fact?
It resolves all five reasons Mr. Gale
identifies on
p.
6 of his testimony, where he attempts to
justify treating each individual QF as if it were a
separate maj or resource.Idaho Power has 182 MW of QF
resources from 70 different QFs.Tha t is an average QF
size of about 2.5 MW each.
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What does the fact that the average
QF is so small mean wi th respect to Mr. Gale's five
different rationales on page
In reason number one, Mr. Gale
recites the alleged requirement that wholesale markets
now have wi th respect to standardi zed contracts,
creditworthy counter parties and the like.But the fact
, wholesale markets almost never trade in blocks that
are smaller than
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25 MW.So requiring QFs to meet the strict standards of
today's wholesale markets is unreasonable.
What about Mr. Gale's point that
Idaho Power is now capaci ty constrained and not energy
constrained?
Taken as a whole , Idaho Power's QF
resource can be modeled and planned.Indeed , Idaho Power
has planned on QF resource in its draft 2004 IRP , even
though none of those resources have been burdened wi th
the 90%-110% band.The operating characteristics of any
individual QF are background noise - not the driver of
the resource plan.The same rationale applies to Mr.
Gale I S comments relative to the transmission system.The
company is well equipped to make needed transmission
plans based on its aggregated QF resourced - it is not
reasonable to assume that Idaho Power makes transmission
planning decisions based on an individual resource being
with 90% or 110% of 2.5 MW.That rationale suggests that
Idaho Power makes transmission and resource decisions
based, on average, on swings in load of .75 of 1 MW.For
a system whose peak load is approaching 3,000 MW , that is
not a reasonable planning cri terion.
Do you have any comments on Mr.
Gale's assertion that "the growing prominence of
intermittent generating technologies , such as wind and
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solar , require a new approach in the company's PURPA
contracting procedures"?
Yes.I am concerned that Idaho Power
has unilaterally attempted to make a maj or policy change
new approach") without first consulting the commission.
I believe Idaho Power's concerns about so-called
intermi t tent technologies" are misplaced.Howeve r ,
order to show how and why they are misplaced , a maj or
fact finding proceeding wi 11 have
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to be initiated by this commission.Sl ipping in a maJ or
change in its contracting policies without first allowing
this commission to thoroughly examine the underlying
rationale is inappropriate.
What about Mr. Gale's final rationale
for altering the decades-old standard practice by which
Idaho Power has been required to purchase all of the
output for a QF?
I am not sure it is a changed
condi tion.The company has always used firm market
purchases to varying degrees to manage risk.This is not
new and, frankly, I see little connection between market
purchases to hedge risk and QF contract terms.
Let's turn to the first issue you
identified - the 90%-110% band.Do you have any comments
on Mr. Sterling I s recommendations?
Yes.Overall , Mr. Sterling has
bought into Idaho Power's misguided attempt to
distinguish between "firm and non-firm energy"For a
hydro-based electric utility to call any generator with a
capacity factor of less than 90% (or over 110%) as
non-firm is akin to the pot calling the kettle black.
is inconsistent that Idaho Power would demand a level of
"firmness" that it cannot itself possibly accomplish.
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I sn 't the SAR a gas resource , and how
does that figure into your analysis of "firm and
non-firm" energy?
Let's be clear.This commission has
never stated in any order I am aware of that QFs seeking
long-term contracts should be distinguished on a
f irm/non- firm basis.In addition, the nature of Idaho
Power's standard contract wi th QFs does not change when
the SAR changes.The QF rates producedNor should it.
by the SAR methodology are an estimate of today I s cost of
marginal energy.Specific contract terms for allowing
QFs to be paid are a function of how and whether this
commission believes the QF industry should be allowed to
exist.In other words , the nature of the SAR provides
guidance as to price (or avoided cost rate) but has never
strictly guided how those rates are applied in contracts
wi th the QF industry.
Do you have an example?
Yes; if QF contract terms were
dictated by the nature of the SAR , then the contract term
would have to mirror the life of the SAR - 35 years.
Also the threshold size would mirror the Slze of the SAR
- over 200 MW , etc., etc.So it is clear that just
because the current SAR may have a capaci ty factor of
greater than 80% or 90%, that the QF contract need not
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contain a similar capacity factor not should it.
Why?
Because to adopt a bright line
capacity factor for QFs wi thout also adopt ing 35-year
fixed term and 220 MW threshold, would be tantamount to
allowing Idaho Power to call "heads you lose and tails
win"
Q .Do you have any specific comments on
Mr. Sterling's recommendations with respect
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to the 90%-110% band concept?
Yes.Mr. Sterling proposes
increasing the proposed band from 90%-110% to a band of
80%-120%.Although a small step in the right direction
neither Staff nor Idaho Power have articulated a
compelling reason to abandon 25 years of history in his
recommenda t ion to adopt a band.As noted in my direct
testimony, the risk of not being paid is incentive enough
to ensure the highest capaci ty factor possible from QFs.
Do you have any comments on Mr.
Sterling's recommendation as to the frequency at which a
proj ect owner may revise their monthly generation
estimates?
Yes.Idaho Power recommends allowing
the QF to adjust generation estimate every two years.
Mr. Sterling recommends such updates be permitted every
six months.If the commission adopts the band concept
allowing updates every six-months is reasonable and
should be adopted.Please understand , however , that I do
not support the band that requlres the concept of
re-estimates in the first place.
Do you have any comments on the grace
period proposed by Staff for excusing performance in the
event of a forced outage?
Yes.Again, wi th the caveat that
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am opposed to the entire band concept necessi tating this
discussion , the 30 day grace period is much more
reasonable than Idaho Power I s very limi ted 72 hour grace
period.
Please summarlze your rebuttal
testimony.
Simply put , we are arguing for the
status quo.This commission has a long history of
successfully implementing PURPA through power purchase
agreements that require the utility to pay for all output
generated by all QFs at full avoided costs.Nothing has
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changed that calls for a radical change in that policy.
Do you have any observations on the
timing of Idaho Power's offer to limit the price for
shortfall energy to 150% of Mid C?
Yes.The timing of Idaho Power'
movement this lssue
filing this complaint.
approach QFs.
It is indicative of their
came only as a resul t of our
Does this conclude your testimony?
Yes.
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open hearing.
(The following proceedings were had in
MR. RICHARDSON:Dr. Reading is now
available for cross-examination.
BY MR. KLINE:
COMMISSIONER SMITH:Thank you.
Mr. Ward , do you have any questions?
MR . WARD:No questions , thank you.
COMMISSIONER SMITH:Mr. Kline.
CROSS - EXAMINATION
Good afternoon Don.
Good afternoon.
Start ing on page 0 f your testimony,
your direct testimony, you're referring to the two small
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You state , and I m looking at line 5, the
answer starting on line 5 , you state , "However , they both
need to have certainty in their agreement that they will
be paid for all of the power they produce. "I guess my
question is what's at issue here isn't that they'll be
paid for all the power they'll produce , it's the price,
Correct , I would agree wi th you on that.
Then looking at your testimony on page 11
wind proj ect s
i sn 't it?
291 READING (X)Lewandowski & Schroeder83676
agaln this is your direct, starting with line 22
approximately, let me make sure I understand your
posi tion here.Is it your position that the wind
proj ects should be paid the published rates for each
kilowatt-hour they produce?
Yes.
Okay, and wouldn't you agree with me that
wind is an intermittent resource?
Certainly.
You go on to say that wind is a variable
product in much the same way that hydro is a variable
product, but aren't there some real differences between
the quality of the power from a hydro facility and from
wind facility?And it goes back to this question of
intermi t tence With a hydro facility, obviously, you'
going to have some variation from year to year?
Certainly.
And that's due specifically to
precipitation and snow pack and reservoir carryover and
all of those things.
Yes.
But in the case of wind , you're going to
have a variation from minute to minute.Tha t 's a
potential , is it not?
Certainly.Depending on what the wind
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how hard the wind blows, what direction , et cetera.
So for purposes of a utility trying to
determine what its resource is going
- -
how much resource
is going to be received from a wind proj ect, it's going
to be a whole lot more difficult to do that, isn't it?
I guess I III answer that in two ways and
I III quibble wi th your "whole lot.One, ITwo points:
was interested in your questioning of a witness earlier
about the whims of the federal government on fish flush
and flood control , et cetera , and I would agree with it.
You were certainly discussing the fact that you don'
have complete control over the operation of your dams for
hydropower and those of us interested in the salmon
industry think maybe the utility industry has too much
power , so we can discuss that another time, so there is,
I think , not complete ability in a dispatchable sense
from hydro proj ects.Idaho Power has a lot of
run-of -river.
The second point is that while it may be
intermittent in a day-to-day or minute-to-minute
scenario , the Power Company and the QFs certainly have
quite a bit of data and project what power will be on a
monthly basis.The Power Company's new draft IRP has an
estimate of what the monthly output from , and you'll have
to remind me, 100 megawatts.I can't remember what's in
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the IRP , but it's 100 megawatts or 200.
Two.
Okay, 200 megawatt s , so in that sense, I
think that it is predictable.It isn't a gas-fired
peaker you punch up at any minute, but it is a resource
which I think has predictability.
I guess the predictability is relative.
, certainly, certainly, and I would add
that the predictability of Idaho Power's resources is not
totally firm at all times in all places.
I just want to make sure , you think that
they're equivalent?
Any individual resource has its own
unlqueness, which when you want to have equivalency,
there is a difference.As was brought out earlier on the
stand today, Idaho Power treats its resources as a
collecti vi ty.It doesn't look at each individual
resource on its predictability.When Idaho Power plans
in the IRP , I couldn't find it in the ' 04 , but certainly
in the 2000 and 2002 , it treats CSPP as a unit and has
buil t into its load and resource plans.
Wouldn't you agree wi th me , Dr. Reading,
that even wi thin the group of QF resources, wind and
solar are unlque in the fact that they are so
intermi t tent in their product ion?
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As an individual resource , yes.
I'd like to direct your attention to page
4, please, again of your direct testimony, and
specifically the answer to the question that starts in
the middle of that page.You're talking about in that
answer , you're cri ticizing the 90 to 110 percent band
mechanism that's in the contract that Idaho Power has
presented to your clients and starting on line 17 , you
make the statement, "No rational individual would expose
himself to the unlimited liability of a penalty tied to a
market price that can be as high as $5 000 a
megawatt-hour when they are only being paid approximately
$50.00 a megawatt-hour.Do you see that reference?
Yes.
Are you aware that the Commission recently
approved a qualifying facility contract between Idaho
Power and J. R. Simplot which contains the language that
you're obj ecting to?
Yes , I am aware and I think it was brought
out earlier, there I s four proj ects and I do not have a
lot of knowledge of those four proj ects.I understand
that there is some uniquenesses involved in them which
may or may not mi tigate but can'go any further
because don't know that much about them.
He re 'the question want ask and,
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Connie , I want to make sure you get this:Is it your
testimony that David Hawk is not a rational individual
because he signed a contract that contained that
MR. RICHARDSON:Obj ection.
MR. KLINE:That's all right.I just
wanted that in the record someplace.
COMMISSIONER SMITH:The Chair doesn'
want any answer to that.
THE WITNESS:I m working for David on
some gas work in Winnipeg, so I will see him next week
I'll ask him how he would answer that question.
MR. KLINE:See if he's rational.
THE WITNESS:I wouldn't dare go there.
BY MR. KLINE:On page 7 of your
testimony - - I think this must be your rebuttal
testimony.
Okay.
Well, in that testimony, you discuss
Section 14.3. 1 of the contract.Do you recall that?
Which deal is where?
ve got to find it.My notes aren't what
they should have been.It's in the direct.There it is,
page 7 , line 17 , and this is the
- -
are you there?
sorry.
, yes , okay.
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Okay, and this is the section of the
contract that applies when Idaho Power has to either
disconnect the QF proj ect or cease taking energy from the
QF proj ect as a resul t of ine constructions or outages
or emergency condi t ions, those kinds of things;
correct?
Yes.
All right.Are you aware that thi s same
provision is in all of the QF contracts that Idaho Power
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has signed since about 1982?
That wouldn't surprise me.
just come?
So this isn't a new provision that has
No.
Okay.
It was in there and goes to
- -
in the
context of the discussion the non-symmetry between how
the provisions we're discussing here are between the
Company and a QF.
MR. KLINE:Okay, that's all I have.
COMMISSIONER SMITH:Thank you, Mr. Kl i ne .
Mr. Woodbury.
MR. WOODBURY:Thank you , Madam Chair.
297 READING (X)
Lewandowski & Schroeder83676
CROSS - EXAMINATION
BY MR. WOODBURY:
Mr. Reading, in your direct testimony
regarding the band proposal of Idaho Power --
Yes.
- -
are there - - if the Commission were to
adopt Idaho Power's band proposal, are there any band
limits that the Lewandowski project or the Schroeder
proj ect could satisfy?
I cannot answer that.I do not know.
MR. WOODBURY:Madam Chair , Staff has no
further quest ions.
COMMISSIONER SMITH:Thank you.
Mr. Fell.
CROS S - EXAMINATION
BY MR. FELL:
Yes, Dr. Reading, on page 3 of your direct
testimony, line 8, you state that Mr. Schroeder's proj ect
will consist of eleven 900 kW turbines.Tha t '9. 9
megawat ts.Was this design selected to specifically get
under the 10 megawatt limit for posted prices?
I cannot answer that.I mean , I just
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asked briefly what the proj ects were and were told
this.
MR . FELL:Can counsel provide an answer
to the question?
MR. RI CHARDSON :Counsel is not a witness,
Madam Chairman.
MR. FELL:Can the company, can Mr.
Schroeder provide an answer?
MR. RI CHARDSON :I f you provide us a
discovery question , we can certainly respond.I'll get
something to you as soon as I can get ahold of Mr.
Schroeder.
Thank you.MR . FELL:No questions.
COMMISSIONER SMITH:Mr. Strong.
CROSS - EXAMINATION
BY MR. STRONG:
I'd like to draw your attention to the
question on page 9 and the question is on line 1 , "What
else do you learn from the statistics showing that the QF
industry as a whole generated approximately 70 percent?"
Do you have your attention focused there?
Yes.
Your testimony is not that the industry as
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a whole generated 70 percent, is it?Your testimony is
that that represents an Idaho Power specific number?
Yes.
You're not testifying here today as to
what the experlence may be wi th Avista or PacifiCorp or
somebody other than Idaho Power?
No.have not looked them.
MR. STRONG:Thank you.That's all
have.
COMMISSIONER SMITH:Do we have questions
from the Commission?
EXAMINATION
BY COMMISSIONER SMITH:
Dr. Reading, earl ier today I had the
opportunity to ask Mr. Runyan his opinion about the
purpose of PURPA and I'd be interested in your thoughts
on that as well.
Well, the purposes of PURPA in my mind,
m thinking for a minute because there's many purposes,
I think , for PURPA , certainly diversity lS one that you
discussed.It's also to try to install some measure of
competi ti veness to the monopoly, electric industry
least monopoly, at the time PURPA was passed.It is
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aimed at
- -
boy, I could gl ve you my economlCS lecture
here.
No lectures.
That it's a check on the utility with the
Averich-Johnson effect where it's been shown that
monopolies tend to want to gold plate rate base because
that's where they get their rate of return , so in part it
was lobbied and passed because of that.I think PURPA is
a good law and I think what I didn't realize at the time
is that it provides not only a good check for looking at
what a utili ty' s resource is in building going forward , I
think it also provides a check to regulatory agencies on
what the value of conservation is and gives a measuring
stick so that regulatory commissions don't get too far
off the ranch either one way or the other.
m not sure I'm saying that very well
but if you have an avoided cost rate and it goes through
a hearing process and it's established and it's thought
out, then you have a very good measuring stick about what
energy and electricity is worth , and when you do your
whole set of regulatory things , you can always look over
your shoulder and say we have that benchmark to look
at.
COMMISSIONER SMITH:Okay, thank you.
Do you have redirect, Mr. Richardson?
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Madam Chairman.
MR. RICHARDSON:Just a couple
Thank you.
REDIRECT EXAMINATION
BY MR. RI CHARDSON :
Dr. Reading, is wind a PURPA resource?
Yes.
And is it entitled to QF status under
My understanding of PURPA , yes.
And do you think that wind should be
entitled to all the benefits as a QF under PURPA?
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Yes.
And to your knowledge, has this
Commission - - and you've been in these wars for a long
time, haven't you?
A very long time , at the beginning, as
So to your knowledge , has this Commission
ever ruled that wind is not a firm resource entitled to
full benefits of a QF?
Not to my knowledge.
And finally, in your opinion , do you think
that that question , whether or not wind is a firm
PURPA?
remember.
302 READING (Di)
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resource entitled to the full benefits as a QF, do you
think that question even assuming it's properly before
the Commission in this hearing, do you think that
question has been thoroughly examined enough for this
Commission to even lssue an order on that question?
Yes.
Do you think that issue has been litigated
In thi s case?
, not litigated , but the Commission , I
think , looking at the testimony
Could rule that wind is a QF?
Yes, that's what I'm saying and eligible
for full rates as a QF.
But the implications on Idaho Power'
system in terms of intermittency and ability to predict
and all of that, has that been litigated in this case?
Now I understand., it hasn't and
would add that Mr. Gale in his testimony talks about how
the posi tion of Idaho Power has changed and they are now
a capacity constrained utility rather than an energy
constrained utili ty.Those of us who participated in the
rate case I think became very aware of that and since
that lS a big change in Idaho Power , my thoughts coming
out of the rate case were that there needs to be a
complete review of Idaho Power on all of their
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conservation resources, on their
- -
on how they look
it on a going-forward basis.Things have changed
significantly, but a lot of the PUC regulatory precedence
that has been established has been set up on a utility
that is assumed to be energy constrained rather than
capaci ty constrained, so in that sense , no , it has not
been fully looked at.
MR. RICHARDSON:Thank you,
Madam Chairman.That's all I have.
COMMISSIONER SMITH:Thank you,
Dr. Reading.
MR. RI CHARDSON :Dr. Reading wi 11 be
around , but he has some personal business to attend to,
may he be excused?
COMMISSIONER SMITH:If there's no
obj ect ion , we wi 11 excuse Dr. Reading.
MR. RI CHARDSON :Thank you , Madam
Cha i rman .
(The wi tness left the stand.
COMMISSIONER SMITH:Does that conclude
your witnesses , Mr. Richardson?
MR. RI CHARDSON :That does,
Madam Chairman.
COMMISSIONER SMITH:All right, it looks
ike, Mr. Kl ine, we're ready for you.
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call Rick Gale.
MR. KLINE:Thank you , Madam Chairman.
JOHN R. GALE
produced as a wi tness at the instance of the Respondent
Idaho Power Company, having been first duly sworn , was
examined and testified as follows:
BY MR. KLINE:
DIRECT EXAMINATION
Could you please state your name and
business address for the record?
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My name is John R. Gale.I typically go
by Ric.My business address is 1221 Idaho Street, Boise,
And by whom are you employed and in what
m employed by Idaho Power Company as the
Vlce president of regulatory affairs.
And in this proceeding did you prefile
direct testimony consisting of 39 pages and Exhibits 201
Tha t 's correct.
And do you have any addi t ions or
Idaho.
capaci ty?
through 204?
305 GALE (Di)
Idaho Power Company83676
corrections that you need to make to your direct
testimony?
m going to add two clarifying words on
page 7 of the direct , 1 ine 1 7 .The sentence starts
"Since almost," I'm going to insert the word " all " and
then on ine 18 where it says Brownl ee East," insert
"transmission" before constraint.
And wi th those changes , Mr. Gale, if
were to ask you the same questions that are contained in
your prefiled direct testimony this afternoon , would your
answers be the same?
Yes , they would.
MR. KLINE:Madam Chairman, I would
request that Mr. Gale's direct testimony be spread on the
record as if read in its entirety and that Exhibits 201
through 204 be marked for identification.
COMMISSIONER SMITH:If there's no
obj ect ion, it is so ordered.
(The following prefiled direct testimony
of Mr. John R. Gale is spread upon the record.
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I daho Power Company83676
Please state your name and business address.
My name is John R. Gale and my business address
is 1221 West Idaho Street , Boise, Idaho.
By whom are you employed and in what capaci ty?
I am employed by Idaho Power Company (Idaho
Power or the Company) as the Vice President of Regulatory
Affairs.
Please describe your work experlence.
In October 1983 , I accepted a posi tion as
Rate Analyst with Idaho Power Company.In March 1990 , I
was assigned to the Company's Meridian District Office
for one year where I held the position of Meridian
Manager.In March 1991, I was promoted to Manager of
Rates.In July 1997 , I was named General Manager of
Pricing and Regulatory Services.In March of 2001 , I was
promoted to Vice President of Regulatory Affairs.
Vice President of Regulatory Affairs, I am responsible
for the overall coordination and direction of the
Pricing & Regulatory Department , including development of
jurisdictional revenue requirements and class
cost -of - service studies, preparation of rate design
analyses, and administration of tariffs and customer
contracts.In my current position , I am responsible for
policy matters related to the economic regulation of
Idaho Power Company.I am al so a member of
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the Company's Risk Management Committee which is charged
wi th balancing the Company's loads and resources on a
short-term basis.Finally, in conj unction wi th the
Company's Senior Vice President for Power Supply, I am
sponsoring the Company's 2004 Integrated Resource Plan
which assesses the Company's loads and plans for
resources on a long-term basis.
What topics will you discuss in your testimony
In thi s proceeding?
I will explain why the Company has developed a
standardized Firm Energy Sales Agreement ("FESA") that
can be uniformly applied to all small qualifying facility
QF") generating technologies.
I will explain why the Company is proposing to
include provisions in the FESA that encourage QF
developers to provide firm energy rather than non- firm
energy.I will discuss the specific provisions the
Company is proposing to include in the FESA to encourage
greater firmness" and explain why these provisions are
fair to both QFs and to the Company's customers.
I will also discuss why the Commission needs to
approve a standard methodology the Company can apply to
determine if a particular QF proj ect is larger than
I will discuss the pros and cons of using ei therMW.
average annual energy or nameplate capacity to decide
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a QF proj ect is larger than 10 MW.I will also explain
why the Company believes using metered energy amounts to
determine whether or not a particular QF is larger than
10 MW is the best approach to this problem.
I will explain why the Company needs to include a
contract provision that gives the Company the right to
terminate QF contracts if electric utility industry
deregulation prevents the Company from recovering
stranded expense associated with above-market QF
contracts.
I will also address other issues raised by
Complainants' prefiled direct testimony.
Why is the Company proposing a standardized
contract for QF' s smaller than 10 MW?
The Company has developed a standardi zed
contract approach that can be applied uniformly to all QF
projects with a capacity smaller than 10 MW regardless of
generation technology.It works equally well for
intermi ttent resources like wind and solar, resources
wi th seasonal variations, ike hydro and geothermal , and
process-driven resources such as industrial cogeneration
and biomass.This standardized approach simplifies the
contracting process and provides economic incentives for
the QF developer to accurately estimate the amount of
energy it wi 11 provide each month.By providing economic
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incentives for QF developers to more accurately estimate
the
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amounts of firm energy they will deliver each month , the
Company is hoping to encourage QF developers to deliver
firm energy rather than non-firm energy.Obtaining
better estimates of the monthly amounts of firm energy
be provided will improve Idaho Power's ability to
integrate QF resources into its resource planning and
acquisition process as firm resources.
Idaho Power also believes that a key benefit of the
Company's contract approach is that it allows
intermi t tent QF resources such as wind and solar that are
inherently non-firm an opportunity to be paid firm energy
prices for at least a portion of their generation.
Please describe the difference between firm and
non-firm energy purchases.
Idaho Power's rate Schedule 86 governs
purchases and sales of non-firm energy from QF' s.
Non-firm energy is defined in Schedule 86 as energy sold
by the QF to the Company on a "non-firm , if , as, and when
available basis.( I daho Power Company, I PUC No.2 6,
Tariff No. 101, Third Revised Sheet No. 86-A QF
seller of non- firm energy can increase or curtail its
energy deliveries to Idaho Power at any time without
prior notice and without any economic consequence.
Idaho Power purchases hundreds of thousands of MWh' s
of firm energy each year.Sellers under these firm
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energy purchases contractually commit to deliver energy
at the times and in the amounts specified in the
contract.In non-QF firm energy contracts, failure to
provide the specified amount of energy at the agreed-upon
time resul ts in the payment of damages , ei ther actual
damages or liquidated damages.
Aren't most of the 71 contracts Idaho Power has
signed wi th QF' s "f irm energy" contracts?
The contracts Idaho Power signed with QF
developers prior to 2003 describe the energy deliveries
as "f irm. In reality, the actual firmness of the energy
deliveries under these pre-2003 contracts more closely
resembles non-firm energy deliveries than firm energy
deliveries.This is because there is no requirement for
QF developers to actually deliver energy in the amounts
and at the times they say they will in the Firm Energy
Sales Agreement.As a result, the utility only has a
general idea how much energy it can expect to receive
from any QF at any time.The amount of energy del i vered
can fluctuate between 0 MW and 10 MW , hour to hour, day
to day, month to month , completely at the discretion of
the QF.
If this type of contract has been the norm
historically, why is the Company now seeking to improve
the firmness or predictability of QF energy deliveries?A. Conditions have materially changed since
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1996, when the Company entered into the last Firm Energy
Sales Agreements that did not require any monthly energy
commi tment from the QF developer.These changed
conditions include:(1) Wholesale markets have
standardized the terms and conditions of wholesale firm
energy transactions. As a resul t, wholesale firm energy
purchases from credi tworthy counterpart ies are now
generally accepted as a prudent and cost-effective way of
meeting a portion of a utility's resource needs.Idaho
Power's recent IRP' s reflect that reality.(2) Idaho
Power has changed from an energy-constrained company to a
capacity-constrained company.Seasonal peaks require the
Company to have a high degree of confidence that energy
purchases will be delivered in the amounts and at the
times specified to match seasonal peak energy demands.
(3) Transmission constraints require that the Company
more precisely anticipate its needs for firm energy
imports.The ability to predict the output of resources
within the utility s control area is increasingly
important.(4) The growing prominence of intermi t tent
generating technologies, such as wind and solar , require
a new approach in the Company's PURPA contracting
procedures.(5) The Company's increased use of firm
market purchases as hedges to manage risk under its
Commission-approved Risk Management Policy escalates the
importance of predictable resource availability.
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Complainants' witness Dr. Reading testifies
that QF contracts are " a mere drop in the bucket to a
utility the size of Idaho Power.Does QF output really
have any impact on Idaho Power's resource planning?
QF resources are no longer " a mere dropYes.
In the bucket to a utility the Slze of Idaho Power.
(Reading, Direct, page 9) .As a resul t of my involvement
in the development of the Company's 2004 Integrated
Resource Plan, it has become clear to me that Idaho
Power's assumptions on QF output , especially during
summertime peak-load hours, has a direct impact on Idaho
Power's need for future resources.As I noted earlier in
my testimony, Idaho Power has changed from an energy
constrained company to a capaci ty constrained company.
Idaho Power's need for additional resources is driven by
transmission constraints encountered during summertime
peak-hour load periods.Since almost all of Idaho
Power's QF' s are located east of the Brownlee East
transmission constraint and inside Idaho Power's control
area, QF output has a direct impact on Idaho Power'
calculation of transmission deficits or transmission
overload.proj ected summertime transmission overloads
will drive the need for new peaking resources.
During 2003 , Idaho Power purchased about 75 aMW
QF generation , yet the nameplate capacity of the
facilities under contract is 182 MW. Idaho Power is
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currently aware of approximately 200 MW (nameplate
rating) of additional QF projects in various stages of
development that are interested in selling energy to
Idaho Powe r .If these potential proj ects are combined
with the existing QF proj ects currently under contract,
the total is close to 400 MW.This is not an
insignificant amount of capacity.The better that Idaho
Power understands the month-by-month capability and
proj ected out put of these proj ects, the better Idaho
Power can assess its future resource needs.
Can you summarize the contract provisions that
Idaho Power has proposed to include in FESA' s to provide
the higher level of resource predictability you describe?
Yes.In Section 6.2 of the FESA , Idaho Power
requests that the QF developer quantify the amount of Net
Energy, in kilowatt hours , that the developer intends to
deliver each month.
When you cite a FESA Section number , what FESA
are you referring to?
The section references in this testimony refer
to the sections in the Draft FESA identified as Exhibit C
to u. S. Geothermal's Complaint.
Please continue.
Section 6.1 allows the QF developer to reVlse
its monthly Net Energy amounts six months after the
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initial operation date, twelve months after the operation
date, and then every two years thereafter.At any time
the net energy commi tment amount can be temporarily
reduced (Section 6.2) if the proj ect is affected by an
event of force maj eure or if the proj ect experiences a
forced outage (Sections 14.1 and 14.1) .
As a result, Idaho Power's proposed FESA provides
substantial flexibility to allow the QF developer to
determine , based on its own judgment and experience, the
amount of net energy that the proj ect will commi t to
deliver each month , and provides flexibility to make
adj ustments to that commi tment if unforeseen
circumstances arise.
Please continue.
Once the developer has determined how much
energy it is comfortable in committing to provide each
month , Idaho Power will include that firm energy amount
in its resource planning and acquisition process.
If the QF developer subsequently delivers more
energy in a month than Idaho Power had planned for , it is
possible that Idaho Power will have to sell that energy
in the surplus market or back-down a more economic
production plant.If the QF subsequently provides less
than the amount committed , it is possible Idaho Power
would have to make additional firm purchases on the
wholesale market to cover that shortfall.
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To address that situation , the proposed FESA
includes provisions to provide an economic incentive for
the QF developer to actually deliver the amount of energy
it indicated it would provide to the Company each month.
I f the QF del i vers a monthly average amount of energy
that exceeds 110% of the commitment amount , such excess
energy (up to 10 , 000 kWh per hour) is purchased at the
same rate the Commission has approved for non-firm energy
purchases in Schedule 86.
( "
Surpl us Energy", Sect ion
2) .
If the QF fails to deliver 90% of the energy it had
committed to provide , and that failure is not due to
circumstances beyond its control , such as forced outages
or force maj eure events, the proposed FESA provides for
liquidated damages to compensate the utility and its
customers for having to acquire energy to make up the
shortfall.("Shortfall Energy", Section 1.21)
What do you mean by "events of force maj eure"
and forced outages"?
Section 17. 1 of the FESA is the force maj eure
section.If the QF developer is unable to meet its
commi tment amount as a resul t of events of force maJ eure
(acts of God, etc., its performance obligation
excused and any shortfall energy amount is reduced
accordingly.In addi tion , Section 6.2 provides that
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the QF facility experlences a forced outage during the
month , any shortfall
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energy amount is appropriately reduced.Forced outages
include generating equipment breakdowns, geothermal well
breakdowns , Idaho Power line maintenance outages , etc.
As a resul t, events that are truly beyond the control of
the QF developer do not expose the QF developer to any
liquidated damages.
Does the FESA provide other limi ts on the QF' s
obligation to pay for energy shortfalls?
The FESA proposed by Idaho Power places
reasonable limits on the QF developer's obligation to pay
for shortfall energy in several ways.First, as noted
above, if the QF proj ect' s failure to supply the 90% of
committed energy is due to either force majeure
conditions or a forced outage, Section 6.2 provides
relief.Second , as provided in Section 1.9, the market
price used to compute liquidated damages is only 85% of
the monthly weighted average of the actual Mid-C prices.
By using 85% of the monthly weighted average of the Mid-
prices, QF developers are immediately shielded from 15%
of the actual Mid-C price. If 85% of the Mid-C market
price is less than the monthly price in the FESA , the QF
pays nothing.Third , Idaho Power has offered to limit
the Complainants' shortfall exposure when 85% of the
Mid-C market price is greater than the monthly FESA price
by capping liquidated damages at 150% of the contractprice. This protects the QF from extreme price
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run-ups such as those occurrlng in 2000-2001.
Is this offer to cap the liquidated damages to
150% of the contract price contained in the FESA?
No.Idaho Power made this offer in letters to
each of the Complainants dated May 21 , 2004.Copies of
the letters are attached as Exhibits 201 and 202.
In their testimony the Complainants argue that
requiring them to commit to a monthly firm energy amount
is extremely unfair.Do you agree that requiring such a
commitment is unfair?
No.While I can understand that the QF' s would
like to have complete discretion in scheduling energy
deliveries , I do not believe it is unfair for Idaho Power
to require some commi tment on their part.All of the
Complainants have testified that their proj ects are
extremely reliable.The Complainants are in complete
control of the amounts they commit to provide and Idaho
Power will rely on the representations of the QF
developer in making its resource and system planning
decisions.
The FESA provides that if the proj ect experiences
events of force maj eure or forced outages , the commi tment
level is adj usted to recogni ze those contingencies.
Are there other measures that you believe make
the commitment obligation equitable?A. Yes. The commi tment amount is a total
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monthly kWh amount.The QF is free to generate at
maximum levels (up to 10 000 kWh per hour) for some hours
during the month and generate at lower levels in other
hours in order to meet the monthly commi tment amount the
QF chose.
In my mind , the only things that would subj ect the
QF developers to shortfall energy payments is if their
proj ections of monthly generation amounts are too high
because they have overestimated the efficiency of their
proj ects or equipment, or they assumed temperature
variations that are not realistic or , in the case of the
wind generation , the developers have overestimated the
amount of wind that will be available.All of those
estimates are completely within the control of the QF
developers, not Idaho Power.In the case of U. S .
Geothermal , a shortfall could also occur if U. s.
Geothermal decided to divert energy from Idaho Power to
serve other internal loads or to make sales to another
entity who is willing to pay a higher prlce.
Throughout their testimony, various
Complainants' Witnesses refer to Idaho Power's proposed
shortfall energy amount as a "penal ty. Dr. Reading
takes specific issue with Idaho Power's characterization
of shortfall energy as liquidated damages.Coul d you
address these criticisms?A. I expect that Complainants I witnesses are
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repeatedly uslng the term penalty because they know
courts generally do not enforce penal ties in contracts.
I believe that the Company's proposal to use average
Mid-C pricing is not a penalty but is a reasonable way of
computing liquidated damages.
Dr. Reading's brief definition of liquidated damages
contained in his testimony is generally correct.Whe re
Dr. Reading I s analysis falls down is his assumption that
the Company could precisely calculate the damages
suffered if the QF fails to deliver the agreed-upon
amount of energy.Dr. Reading states:"First, the
underlying reason for liquidated damage clause
mlsslng.If a power supplier breaches its commitment to
deliver power to an investor-owned utility such as Idaho
Power , that IOU has tools readily at its disposal for
cal cuI at ing whether , and by how much , it is damaged.
I believe Dr. Reading is incorrect when he states that
Idaho Power can readily calculate whether and how much
was damaged by the QF developer's failure to supply an
agreed-upon amount of energy.First , the amount of
energy shortfall is based on a monthly total. Idaho Power
engages In numerous wholesale purchases and sales during
a month.Sometimes Idaho Power makes purchases and sales
simul taneously in an hour as a resul t of changed
conditions, prior commitments, etc.The Company may al so
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run different generating resources at different times
during a month.If the QF developer has failed to
del i ver the required amount of energy in a month , would
it be fair to allow Idaho Power to choose which
transactions in the month it will attribute to the QF' s
failure to perform? Could the Company select, for
example , all purchases at Palo Verde prices during
heavy-load hours or all hours when Danskin is generating
as the measure of its damages for the QF's failure to
perform? I don't think that would be fair to the QF.
the same time, it is unfair to assume that the QF'
failure to deliver has no cost impact on the Company'
power supply expense.This is why a liquidated damages
solution is the most equitable approach for both the
utility and the QF.
Complainants' wi tness Dr. Reading states that
the fact that in 2002 -2003 the QF' s currently selling
energy to Idaho Power provided approximately 70% to 75%
of the energy they originally agreed to provide
demonstrates QF proj ects are reliable.Could you please
comment on this portion of Dr. Reading's testimony?
Dr. Reading correctly notes that in the
aggregate the QF' s selling energy to Idaho Power in
2002-2003 provided approximately 70% to 75% of the energy
they originally agreed to provide.However , this
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statistic really does not provide much useful information
on QF "reliability.The percentage only measures the
difference
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between the QF developer's estimates of annual generation
made 10 or 20 years ago and their actual generation for
2 0 02 and 2 0 0 3 .In addition , the 70% figure Dr. Reading
quotes is an average of all 69 proj ects currently selling
energy to Idaho Power.In actuali ty, the percentage
variation between developers' estimates and actual
performance varies greatly by generation type.For
example, in 2003 the thermal QF projects selling to Idaho
Power delivered from 80% to 100% of the amount they
estimated originally.The QF hydro proj ects using spring
water or located on waterways wi th access to upstream
storage generally (but not always) had higher levels
performance than did QF hydro proj ects located on rivers
or creeks wi thout upstream storage.Lumping the
performances of all types of QF proj ects together and
computing an average number for all of the different QF
proj ects really does not provide much useful information
to predict QF performance on a monthly basis. It is this
monthly generation information that resource planners
really need to make the most efficient resource
acquisition decisions.
All of the Complainants in this case have testified
as to how reliable they will be.Idaho Power has no way
to independently assess the accuracy of those
predictions.Under the contract form that Complainants
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desire to receive , there is no economic incentive to
accurately estimate
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potential generation.resul t,for resource planning
purposes,Idaho Power will never really know how much
energy to expect from a part i cuI ar QF in any month under
these old-style contracts.That is one of the reasons
Idaho Power is asking the QF developers to make a
commi tment to provide a firm amount of energy each month.
Without such a provision, QF developers have no incentive
to provide an accurate estimate of the energy they will
actually provide.
Complainants' witness Dr. Reading states that
Idaho Power's proposal to require QF developers to commi t
to a monthly energy amount is intended to prevent the
development of new QF' s .I s he correct?
Of course not.Idaho Power included this
requirement to encourage QF developers to provide firm
energy in exchange for firm energy prlces.As I noted
earlier in my testimony, much has changed since the early
The types of resources Idaho Power needs, the1980'
ways Idaho Power plans to acquire resources and the ways
it makes resource purchases is much different today than
it was just a few years ago.I do not believe it is
unreasonable for the Company to ask QF developers to
accept reasonable contract requirements that enable the
Company to integrate QF resources in today' s resource
planning and acquisition environment.Q. Wi tnesses for both Complainants argue that by
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requiring them to contractually commit to a monthly
energy amount, Idaho Power is requiring QF proj ects to
comply wi th more stringent standards than its own
proj ects are subj ected to.How do you respond to this
cri ticism?
The cri ticism is inaccurate.For example, on
page 7 of his testimony, Dr. Reading states:" When
utility's own plant fails to produce or has an
unscheduled outage, the ratepayers cover the cost
associated with replacing the output from that plant.
The shareholders are held harmless.In making that
statement , Dr. Reading (1) inaccurately characterizes the
operation of the Company's PCA mechanism;(2) fails to
acknowledge the ongoing oversight by the Commission and
its Staff; and (3) ignores the terms and condi tions of
the FESA.
Why do you say Dr. Reading inaccurately
represents the operation of the PCA?
Except for QF purchases between general revenue
requirement proceedings, the Company only collects 90% of
increases to its purchase power expense.The Company'
shareholders bear a portion of the Company's purchase
power risk and thus the Company is incented to make the
best decision on every purchase transaction
undertakes.This risk sharing is not unlike the 90%-110%
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band Idaho Power has included in its FESA.
Why do you say Dr. Reading f ai 1 s
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acknowledge the ongoing oversight of the Commission and
the Staff?
In each PCA proceeding, the Commission Staff
closely audi ts the Company's power supply expenses.The
most recent example of this oversight occurred in the
Company's most recent PCA case.In Order No. 29506, the
Commission cited the Staff audit and directed Idaho Power
and the Staff to undertake additional analysis of a
specific forced outage that occurred at the Valmy Plant
last summer. Under the PCA specifically and as a
regulated electric utility generally, the Company
operating practices and the costs of power from its
generating plants are subj ect to prudency review on an
ongoing basis.
Why do you say Complainants' criticism ignores
the terms and condi tions of the FESA?
Complainants' testimony ignores material
provisions of the FESA.On page 7, ine 5, Dr. Reading
"Idaho Power wants to have the best of bothstates:
worlds by placing the risk of unscheduled outages on QF
developers while enj oying the advantage of placing the
risk of unplanned outages at their own plants on the
In fact, in the FESA Idaho Power does notratepayers.
place the risk of unplanned outages on the QF developers.
As noted above, force maj eure events and forced outages
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reduce or eliminate shortfall energy amounts.(Sect ion
6 . 2 . 2 and Sect ion 1 7 . 1)
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This includes outages due to Idaho Power line
construction.Idaho Power is providing(Sect ion 6. 2 .2) .
symmetrical treatment between QF contracts and Company
owned generating resources.
Are there other problems wi th Complainants'
comparison of QF contracts and Company owned rate based
plants?
Yes.Comparing a QF Firm Energy Sales
Agreement to a utili ty' s regulated generating resources
is comparing apples and oranges.A utility-owned
resource, once it is included in the utility's rate base
and becomes operating property, is subj ect to ongoing
regulation by the Commission in a number of ways.For
example , the Company's return on its plant investment
changes depending on the then-current rate of return
allowed by the Commission.If the utility's costs of
capital decline, the Company's return on its investment
in generating facili ties is reduced.This benefits
customers.That's not the case for a QF proj ect.
Because the QF sells energy under a firm power purchase
agreement and is not rate regulated , if interest costs
decline , the QF can refinance its proj ect at the lower
debt cost and its equity owners retain 100 percent of the
benefit of the refinancing.
Another difference between the utility's rate-
regulated generating resource and the FESA power purchase
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agreement is that the utility's generating plant
dedicated to serve utili ty customer loads.Once the
utility-owned generating plant becomes operating
property, the utility does not have the right to sell the
plant or direct the output away from serving its native
load customers without commission approval.A QF is not
so encumbered. For example, when Boise Cascade decided to
close the Emmett mill and cancel the Emmett QF contract,
it did so at the height of the Western Energy Crisis.
The cancellation occurred at the only time during the
life of the Emmett FESA that prices under the FESA were
less than wholesale market prices.Our customers would
have benefited if Boise Cascade had not cancelled the
Emmet t FESA.Boise Cascade paid the liquidated damages
and immediately began to investigate if it would be
cost-effective to operate the Emmett QF facility at the
higher wholesale market prices.Ul timately they
determined not to continue to generate at Emmett.
I provide this example not to criticize Boise
Cascade.They did not cancel the Emmet t QF FESA to take
advantage of high wholesale electricity prices.But they
did act in a manner consistent with their business
interest wi thout regard to the impact on Idaho Power or
its customers.I believe this example illustrates a key
difference between a utility resource dedicated to serve
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customer loads and a FESA.
I am not pointing out these differences to
demonstrate that utility resource ownership is superior
to a power purchase agreement wi th a QF.Both types of
resource have a place in Idaho Power's resource
portfolio.My only intent is to demonstrate that it is
impossible to draw direct comparisons between a
utility-owned ~ rate-regulated generating plant and a
power purchase agreement wi th a QF.The appropriate
comparison is between a firm energy purchase from the QF
and a firm energy purchase from another credi tworthy
wholesale market participant.
u. S. Geothermal Witness Runyan testifies that
the contract provisions the Company is proposing to
include to increase the firmness of the QF' s commitment
are inconsistent with PURPA avoided cost pricing.Do you
concur with his analysis?
No.In considering Mr. Runyan's testimony,
lS important to remember that PURPA provides that avoided
costs are based on the costs the utility can avoid by
purchasing from the QF rather than building a resource
itself or purchasing additional resources on the
wholesale market.By inc uding(16 U.C. ~824a3 (d))
the firming provisions in the QF contracts , the Company
is attempting to more closely align the firmness of
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energy purchases under the QF contracts with firm energy
purchases it makes every
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day in the wholesale market.Idaho Power bel ieves
including contract provisions to encourage firm energy
deliveries from QF' s is consistent with PURPA.
Do the FERC regulations implementing PURPA
support the Company's pos i t ion?
I believe they do.18 CFR ~ 292 , et. seq. are
the FERC regulations which govern QF purchases.18 CFR
~ 292.304 (e) states in pertinent part:
(e) Factors affecting ra tes for
purchases. In determining avoided costs, the
following factors shall, to the extent
practicable, be taken into account:(2) The availability of capacity or
energy from a qualifying facility during the
system daily and seasonal peak periods,including:(i) The ability of the utility to
dispatch the qualifying facility;(ii) The expected or demonstratedreliabili ty of the qualifying facili ty;(iii) The terms of any contract or
other legally enforceable obligation,
including the duration of the obligation
termination notice requirement and sanctions
for non-compliance;(iv) The extent to which scheduled
outages of the qualifying facility can be
usefully coordinated with scheduled outages of
the utility's facilities;(v) The usefulness of energy and
capacity supplied from a qualifying facility
during system emergencies, including its
ability to separate its load from itsgeneration;
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(vi) The individual and aggregate
value of energy and capacity from qualifying
facilities on the electric utility's system;and
(vii) The smaller capacity increments
and the shorter lead times available with
additions of capacity from qualifyingfacili ties; and
I believe that all of the provisions that Idaho Power
proposing to include in QF contracts are consistent with
the factors described in subsection (2) stated above.
The provisions are intended to increase Idaho Power I
ability to predict when QF generation will be available
so the Company can integrate QF generation into the
utility's resource and system planning process.They are
intended to increase the firmness and dispatchability of
the QF resources.They are intended to def ine any
sanctions for non-compliance.It certainly appears to me
that what the Company is proposing to do is completely
consistent with the intent of PURPA.
You indicated previously that the Commission
needs to decide how the Company will determine if a
particular QF proj ect is larger than 10 MW.Could you
please explain what you meant?
The Commission has never defini ti vely addressed
how Idaho Power should determine if a particular QF
proj ect is a "less than 10 MW proj ect" and therefore
entitled to the published avoided cost rates.In 2002,
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in its Petition for Reconsideration , which was ultimately
granted and led to the determination of the "published
rates" in Case No. GNR-E- 02 -, Idaho Power requested that
the Commission designate "nameplate capacity" as the test
the Company should apply to determine whether a QF
project is entitled to receive the published rates.
(Exhibit 203)The Commission did not address the
Company's request in its final order , and as a result we
still have no definitive Commission ruling as to the test
to be applied to determine the capacity of a QF and its
enti tlement to the published rates.
What is your understanding of the rationale for
limiting the availability of published rates to QF
proj ects 10 MW and smaller?
My understanding of the rationale supporting
the differentiation between QF proj ects larger and
smaller than 10 MW is a recognition that large QF
proj ects may have individual characteristics that should
be recognized in a negotiated contract between the
utility and the QF.In addi tion , it is logical to assume
that developers of large QF' s will tend to be more
financially sophisticated and the transaction costs
associated with an individually negotiated QF contract
would be more easily absorbed into the multi-million
dollar costs of developing a large QF proj ect.
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Conversely, it is also logical to assume that the
developers
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of smaller QF proj ects may be less sophisticated
developers and more sensi ti ve to the transaction costs
associated wi th individually-negotiated contracts, and as
a result, standardized contracts and published rates
would encourage small QF development.I believe these
are generally logical assumptions and I support the
Commission I S decision to acknowledge the difference
between larger and smaller QF proj ects.
In the past , how has the Company decided which
proj ects have a capacity greater than 10 MW?
Unfortunately, the process has been somewhat
ad hoc.In most instances the Company used nameplate
capacity as the test.Using nameplate capacity led to a
succession of 9.9 MW QF proj ects being presented to the
Company. In those instances the Company included a
contract provision in the FESA' s that put the QF
developers on notice that if their 9.9 MW proj ects
generated more than 10 000 kWh per hour , Idaho Power
could declare that they were not entitled to the
published rates.In the few instances where generation
exceeded 10 000 kWh/hour , Idaho Power notified the QF'
and the QF' s immediately took steps to make sure that
they did not generate more than 10,000 kWh per hour in
the future.
The Company hopes that the Commission will use this
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case to establish the methodology the Company should use
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determine which projects have a capacity less than 10 MW
and are therefore entitled to receive the published
rates.
Why is it important that the Commission
establish the methodology that defines the 10 MW capacity
limit?
The recent Commission order in the Renewable
Energy case has certainly increased Idaho Power's desire
for certainty in this area.It would be in everyone'
best interest if the Commission establishes a specific
test that will identify those situations where the QF
larger than 10 MW and therefore the Company should use
the AURORA model to compute avoided costs to be used to
negotiate individual contracts with large QF' s.
Does the Company have a recommendation as to
how the 10 MW threshold should be determined?
The Company believes that 10 MW is a
measurement of capaci ty.As will be discussed later in
my testimony, nameplate capacity rating is not very
precise and annual average energy production is only
indirectly related to capaci ty.The Company be 1 i eve s
that using actual metered generation is the preferred
method to determine if the capacity of a QF exceeds the
10 MW capacity limit.I f a QF proj ect 's metering shows
that the QF facility generated more than 10 000 kWh per
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hour, that facility's generating capacity must be greater
than 10,000 kW or 10 MW.This test
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lS simple , definitive and the least susceptible to
manipulation of all of the tests.For purposes of my
further testimony, I will refer to this test as the
"Metered Energy Test.
Q .What are the varlOUS ways of measuring the
capacity of QF projects?
Certainly the most commonly used measurement of
a generating resource's capacity is the manufacturer'
nameplate rating.However , as U. s. Geothermal'
Witness Kitz indicates on pages 9 and 10 of his
testimony,nameplate" rating means different things to
different people.Nameplate rating can vary
substantially from one machine to another simply based on
the formula used by the manufacturer to compute the
rating.For example , the nameplate rating of a generator
at an 80% power factor is different from the nameplate
rating of the same generator measured at a 90% power
factor.In fact , a generator manufacturer can
essentially say to a QF developer "How much do you want
it to be?", and be truthful depending on the test
applied.Nameplate rating could be used to determine
entitlement to the published rates if the Commission
would specify a particular methodology to be used to
measure nameplate rating.
The need to precisely define nameplate capacity
eliminated if the Company is permitted to use the metered
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energy test as a check against nameplate ratings.
energy purchases are limited to energy up to 10,000 kWh
per hour, QF developers will have no incentive to "fudge"
on the nameplate capaci ty rating.
Please comment on U. s. Geothermal's suggestion
that the Commission use annual average energy production
to determine the capaci ty of its QF proj ect?
The annual average energy test is only
indirectly related to the engineering concept of
generating capacity.It deviates too far from the
Commission's use of 10 MW of capaci ty to be valid. For
example , the average annual energy test would allow a QF
project with a capacity of 100 MW to generate at its
maxlmum rate of 100 000 kWh per hour for only 876 hours
during the year and still qualify for the less than
MW" rates.The average annual energy test would also
allow a 30 MW QF proj ect to contract to sell 10 aMW to
each of three different utilities and qualify for the
"less than 10 MW" rates from each of the three utilities.
While the initial reaction might be that these are
extreme examples, in fact they are not.It is very
likely that the Company will ultimately be presented with
a wind proj ect with an aggregate nameplate rating well in
excess of 10 MW.In preparing its 2004 Integrated
Resource Plan , Idaho Power has determined that the usual
capaci ty factor
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for wind resources is approximately 35%.As a resul t,
the Commission adopts an average annual energy production
test, very large wind proj ects that are creatively
configured could qualify for the less than 10 MW" rate.
This would allow these large QF proj ects to bypass
individual negotiations with the utility. This is exactly
opposite of the result the Commission intended when
decided that QF proj ects larger than 10 MW should
individually negotiate contracts with the utility.
Are there other issues you want to address
concerning Complainants' wind resources and QF resources
in general?
Wind generation presents several significant
problems for utility resource and system planners.Wind
is an intermittent resource.It literally can fluctuate
between zero and the machine's maximum capaci ty on a
minute-to-minute basis.This fluctuation can be due
ei ther to periods when the wind does not blow or to
periods when the wind blows so hard that the wind
generating resource shuts off to protect itself.A wind
resource is a good example of a non-firm , "if, as, and
when available" resource.Wind resources , unless they
are firmed by other dispatchable resources, simply cannot
be described as providing firm energy.On a long-run
average basis, wind energy may be as predictable as hydro
genera t ion. However, hydro generation
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is not subj ect to the instantaneous increases and
decreases that wind generation is subj ect to.
Large intermittent resources also place significant
demands on utility transmission and distribution
resources. Tying up firm transmission capability on the
Company's constrained system to accommodate intermittent
generation from wind resources presents serious questions
of prudency.
Dr. Reading testifies on page 4 of his Direct
Testimony that wind generators are entitled to be paid
full avoided costs for all of their production.Do you
concur?
Idaho Power believes that wind generationYes.
lS enti tIed to be paid full avoided costs.The import an t
distinction that must be drawn, however , is that
wind-generated energy is non-firm energy and the full
avoided cost for non-firm energy is not the published
rate for firm energy.The appropriate full avoided cost
for wind resources is a non- firm rate under the Company'
Schedule 86.
If that's the case, why is Idaho Power offering
to pay firm energy prices for energy from the Lewandowski
and Schroeder wind generators?
The FESA Idaho Power has proposed to
Lewandowski and Schroeder (as well as to U. S. Geothermal)
provides them with the opportunity to commit a portion
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their proj ects total monthly energy generation as firm.
If the amount they specify is actually provided, firm
prices will be paid.Addi tional energy delivered up to
000 kWh per hour would be purchased at non- firm
prices.The FESA Idaho Power has proposed places wind
resources and all other QF resources on an equal footing
and does not differentiate between technologies.
U. S. Geothermal is requesting that the
Commission rule that the Raft River Geothermal proj ect
has a capacity of 10 MW or less and as such is entitled
to the published rates.Does Idaho Power agree that the
Raft River Plant has a capacity of 10 MW or less?
From the inception of its implementation of
PURPA , the Commission has conditioned entitlement to
published rates based on a measurement of capacity:
, 5 MW or 1 MW.As indicated earlier in my testimony,
Idaho Power believes that the Commission I s current orders
referring to the 10 MW limit connotes 10 MW of capacity.
u. S. Geothermal has indicated that its Raft River
facility will have a combined generation nameplate
capacity greater than 10 MW and will regularly generate
more than 10,000 kWh per hour.Under either of those
tests, the Raft River Plant will have a capaci ty that
exceeds 10 MW.
However , because nameplate capaci ty rating is
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subj ect to so much variability, Idaho Power recommends
that
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the Metered Energy Test be applied.This means that even
if the nameplate capacity of the QF is larger than 10 MW
so long as the actual energy delivered in any hour does
not exceed 10,000 kWh , the proj ect should qualify for the
published rates.This Metering Energy Test has worked
well for Idaho Power in the past.It recognizes that
nameplate capacity is a somewhat fluid definition.Us ing
actual metered generation provides readily verifiable
evidence of the actual generating capacity of a QF
facility. This Metered Energy Test is included in the
FESA's for the Horseshoe Bend Hydroelectric proj ect and
the Magic West (Glenns Ferry) Cogeneration and Magic
Valley (Rupert) Cogeneration proj ects.Each of these
three QF proj ects has a 9.9 MW nameplate capaci ty rating.
These three FESA' s were approved by the Commission on
September 26, 1991 in Order No. 23946, January 22 , 1993
in Order No. 24674 , and July 23, 1993 in Order No. 25050,
respectively.The metered energy test approach is also
incl uded in the contract between Idaho Power Company and
the J. R. Simplot Company which is currently pending
before this Commission.
If u. S. Geothermal is unwilling to agree to limit
its deliveries for the Raft River facility to no more
than 10,000 kWh per hour , then I believe the Raft River
project fails the test for entitlement to published
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rates.In that event, it will be necessary for Idaho
Power to use the
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AURORA model to develop avoided costs to be included in
contract to be negotiated wi th U. S. Geothermal for the
Raft River proj ect
Has Idaho Power utilized its AURORA model to
compute avoided costs for the Raft River proj ect?
No.Idaho Power is hopeful that the Commission
will use this case to make a determination as to the test
to be applied to determine if a particular QF qualifies
for the published rates.At this point Idaho Power does
not know how the avoided costs that the AURORA model
would compute for the U. S. Geothermal proj ect will
compare to the published rates.If the Commission agrees
with U. S. Geothermal's proposal to utilize average annual
energy as the test for qualification for published rates
there would be no reason to go further.If the
Commission determines that U. S. Geothermal's Raft River
proj ect is larger than 10 MW and a negotiated contract
appropriate, Idaho Power would use the AURORA model to
develop avoided costs and would expeditiously negotiate a
Firm Energy Sales Agreement with U. S. Geothermal based on
those avoided costs.
It seems to Idaho Power that it would be better for
the Commission to make its determination of the proper
capacity test regardless of whether its decision would
resul t in a benefi t or detriment to U. S. Geothermal.Q. Complainants have obj ected to the Company'
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proposed contract prOVlSlon addressing utility
deregulation. Could you please discuss why Idaho Power
needs a contract provision permitting it to terminate QF
contracts if deregulation of the utility industry
prevents the Company from recovering stranded QF contract
expenses?
Yes.In the mid to late 1990s, led primarily
by large industrial customers and potential independent
power producers and energy marketers , such as Enron and
CalPine, there was a strong push at both the state and
federal level for restructuring the electric utility
industry.In March of 1996 the Commission initiated a
docket , Case No. GNR-E- 96 -, in which the Commission
considered the benefits and detriments of restructuring
the electric power industry to separate generation
transmission and distribution , and to allow customers to
choose their own electric suppliers without regard to
exclusive utility service territories.In 1997 the Idaho
legislature created an interim committee to study
electric utility restructuring.
In each of those two forums , one of the more
difficult problems discussed was the question of
stranded costs or stranded investment.In Idaho
Power's case, its QF contracts represented a si zable
share of the Company's potentially stranded costs.
Of course, there was a great deal of debate about
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whether Idaho Power would , In fact, have any stranded
costs. A number of representatives of industrial
customers and other argued that the market value of a
number of Idaho Power's generation assets might exceed
book cost, and if the above-market assets were less than
the below-market assets, the utility would have no
stranded costs.Dr. Reading espouses this Vlew in his
testimony on page 11.
Other mechanisms for recovering stranded costs that
were discussed included exit fees, non-bypassable
surcharges, and the issuance of bonds to reimburse the
utili ty for its stranded costs.Under any of those
scenarlos, it is unlikely that the provisions of Section
23.2 would be triggered because the Company would , in
fact , be fully compensated for its stranded QF expense.
However , during the course of the discussions on
stranded costs, several parties argued that the electric
utilities had been on notice for some period of time that
the regulatory environment is in a state of flux and that
the utilities have done nothing to protect their
position.As a resul t, these parties asserted that the
utilities have no right to claim an entitlement to
stranded cost recovery.I recall that QF contracts were
specifically mentioned as examples of stranded expenses
that the utility could have addressed and had not done
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so.
Exhibi t 204 is an excerpt from the report of the
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Attorney General's Office to the 54th Idaho Legislature
dated January 11 , 1999, in which the Attorney General
reported on electric utilities' restructuring.The
highlighted portion on page 2 of Exhibit 204 discusses
the argument that utilities can waive their right to
reimbursement for stranded costs by failing to protect
their rights today.
Obviously, it is impossible to know today whether
In some future electric industry deregulation process
the costs of Idaho Power's QF contracts will still be
above-market and therefore constitute stranded expenses.
It is not the purpose of my testimony to debate the
meri ts or demeri ts of increased competi tion or the
restructuring of the electric industry.I f such
restructuring occurs, it will likely come as a mandate
from either Congress or the Idaho legislature.Idaho
Power's only concern is, if it does occur , the Company
needs to be protected from unfair resul ts.Idaho Powe
is legally compelled to enter into QF contracts.
cannot refuse to enter into such contracts , even if it
believes that the prices in QF contracts will exceed
market prices over the long term.
Complainant Wi tnesses Reading and Runyan both
argue that the Commission approval of a QF contract
sufficient to protect the Company from stranded cost loss
in the event of utility deregulation. Do you agree?
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No, I do not.My legal counsel advises me that
until the Commission issues an order either approving or
disapproving the contract language Idaho Power has
requested, the Company will be vulnerable to assertions
that it voluntarily waived its rights to claim
confiscation of its property if it cannot recover
stranded QF expenses in the future.
Do you have any comment on the testimony from
the various Complainants' witnesses that allege that the
Complainants will be unable to cost-effectively finance
their proj ects unless the Commission rej ects the contract
provisions they identify in their Complaints?
On several occasions in the past, the
Commission has ruled that Idaho Power is precluded from
conducting discovery to examine the finances of a QF
proj ect As a result , there is really no way for Idaho
Power to determine the extent that such assertions may
may not be exaggerated.I can only note , however, that
in the last six months the Company has entered into four
FESA I s with smaller QF' s which FESA' s contain all of the
contested terms and conditions.To the limited extent
Idaho Power is permitted to inquire, the Company has been
advised that in the case of three of the four FESA' s , it
will be necessary for the QF developers to obtain proj ect
financing.The Company was further advi sed that in those
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three instances , all of the QF developers believed that
they would be able to obtain proj ect financing.
Does this conclude your direct testimony?
Yes.
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open hearing.
(The following proceedings were had in
DIRECT EXAMINATION
(Continued)
Mr. Gale, you also filed prefiled rebuttal
testimony in this case, did you not?
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Yes, I did.
And it consists of 16 pages, are there any
additions or corrections that you need to make to your
prefiled rebuttal testimony?
No.
And there were no exhibi ts that went wi
your rebuttal testimony, as I recall.
No.
If I were to ask you the same questions
contained in your prefiled rebuttal testimony today,
would your answers be the same?
Yes.
MR. KLINE:Wi th that, Madam Chairman , I
BY MR. KLINE:
would request that Mr. Gale's rebuttal testimony be
spread on the record as if read in its entirety.
COMMISSIONER SMITH:We will spread the
testimony of Mr. Gale, his rebuttal , upon the record as
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if read in its entirety.
MR. KLINE:Thank you.
(The following prefiled rebuttal
testimony of Mr. John R. Gale is spread upon the record.
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Please state your name and identify
the party upon whose behalf you are presenting testimony.
My name is John R. Gale. I am
testifying on behalf of Idaho Power Company.
Are you the same Mr. Gale that
presented direct testimony in this proceeding.
Yes.
What issues will you address in your
rebuttal testimony?
My testimony will clarify the
Company's posi tion on several issues identified by Staff
and intervenors in their direct testimony. I will also
address a number of al ternati ve approaches proposed by
Staff and intervenors to resolve issues raised by
Complainant's testimony.
What clarifications to the Company'
position need to be made?
I will begin with the testimony of
Commission Staff Witness Sterling. In his testimony on
page 19, Mr. Sterling discusses the provision (Section
14 .1) in the Company's Firm Energy Sales Agreement
(FESA) that protects Qualifying Facilities (QF' s) if they
are unable to perform due to a forced outage. Mr.
Sterling describes this provision as "allowing a 72-hourgrace period during which the QF' s abili ty to perform isexcused. "
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Mr. Sterling goes on to recommend that the
72 -hour grace period be extended to 30 days. In fact,
Section 14.1 of the Company's proposed contract
provides QF' s with a "grace period" that will last as
long as the forced outage exists. The 72 -hour time period
is the minimum length of the "grace period," not the
maximum. Under Section 14.1 of the contract , when the
QF notifies Idaho Power that it is suspending deliveries
because a forced outage has occurred , its minimum
delivery obligation is adjusted to recognize the impact
of the forced outage. Section 14.1 provides that the
generation suspension due to the forced outage mus t last
least hours.could last longer if the forced
outage actually lasts longer.
Why does Idaho Power include the
72 -hour minimum forced outage?
The 72 -hour minimum is included to
discourage abuse of the forced outage suspension
provlslon. Without some minimum outage period , a QF would
be incented to declare a forced outage every time some
minor "hiccup" occurred. The intent is not to preclude
adjustments for legitimate forced outages but to
discourage unreasonable numbers of declarations of forced
outage which could result in a burdensome amount of
accounting and contract administration activities.Q. Does the Company consider the 72 -hour period
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to be the only reasonable length of time to include in
the FESA?
No.While 72 hours seems reasonable,
a shorter period would be workable , so long as it is not
so short as to defeat the purpose of the minimum outage
period.
Commission Staff Witness Sterling
recommends that the 90% -11 0 % bandwidth proposed by the
Company be expanded to 80%-120%. Does the Company have a
position on Mr. Sterling's recommendation to expand the
lower and upper boundaries?
The purpose of set t ing an upper and
lower boundary is to provide QF' s with an economic
incentive to deliver energy at the times and in the
amount s they commi t ted to del i ver , thereby providing at
least some firmness to the energy the Company purchases
from QF' s. Increasing the upper and lower bounds from
+/ -
10 percent to
+/ -
20 percent reduces the firmness and
weakens the Company's ability to plan for a specific
amount of energy from the QF each month. Idaho Power has
signed four QF contracts (one wind proj ect, one hydro
proj ect, one wood waste proj ect and one industrial waste
project) that include the 90%-110% bandwidth. It is
apparent that at least some QF developers , representing a
variety of technologies, believe they can plan their
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generation schedule to successfully operate wi thin that
range. It is also important to remember
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that if a QF proj ect does not meet its commi tment wi thin
this bandwidth , the agreement is not terminated. Instead
the bandwidth only provides a financial incentive for the
proj ect to set the estimated monthly generation levels at
reasonable, attainable levels for that specific facility
and then perform accordingly. The use of a commi tment
level bandwidth is an improvement over the pre-2003
"firm" energy contracts where the QF' s can deliver energy
in any amount at any time and there is virtually no way
for the Company to plan how much energy it will receive
each month from individual QF' s. The Company bel ieves the
90%-110% bandwidth is reasonable because it encourages a
realistic commitment but does not create a QF barrier.
Section 6.1 of the Company'
proposed FESA allows the QF developer to revise its
monthly Net Energy amounts , six months after the ini tial
operation date, 12 months after the operation date , and
then every two years thereafter. Mr. Sterling suggests
that the Company's proposed two-year interval be reduced
to six months. Does the Company have a posi tion on Mr.
Sterling's proposal?
Since the filing of my direct
testimony, Idaho Power has continued to negotiate wi
varlous additional QF developers. Many have suggested
that in addition to the dates proposed in the original
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agreements (six months after the Operation Date , one year
after the
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Operation Date and then every two years for the remainder
of the FESA) , it would also be reasonable to allow the
proj ects to revise the estimated monthly generation
the Operation Date. The Company has reviewed this request
and agrees it would be reasonable and consistent with the
intent of establishing a level of firmness wi thin these
agreements. With this addition , the Company is proposing
to allow the QF proj ects to revise their energy estimates
three times during the first year of operation. This
change recognizes that no matter how perfect the plans
and engineering may be , it takes some actual run-time to
truly determine what a generation facility's output will
actually be. However , after this first initial year , a
viable "firm" generation facility should have most of the
bugs worked out.
After the first year, the Company believes
that the two-year period it has proposed is preferable to
the shorter six-month period proposed by Mr. Sterling
because the longer period adds more firmness" to the
QF's commi tment. The two-year interval allows the Company
to more easily integrate the QF resource into its
biennial IRP resource planning process.
It is also important to note that the
estimated generation requirement is only for total
monthly kWh. It is not measured hourly, daily or weekly.
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Therefore , a project has considerable flexibility in a
given month to vary its
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generation on a daily basis. For a proj ect wi th greater
risk of generation deviations, it may be prudent not to
estimate generation at the maximum output but instead
estimate generation at a lower level to allow a "cushion"
for potential times of reduced generation.
Finally, as I noted in my prior answer
concerning the 90%-110% bandwidth , pre-2003 QF contracts
contained no enforceable energy commi tment on the part of
QF's so even the more frequent six-month adjustment
option proposed by Mr. Sterling would be an improvement
over prior practice. If the Commission is inclined to
require a more frequent adj ustment interval , the Company
would propose a one -year commi tment on the part of the QF
rather than the six months proposed by Mr. Sterling.
In discussing the methodology for
determining whether a particular QF meets the
Commission's 10 MW criteria for qualification for
published rates, PacifiCorp Witness Hale and Avista
Wi tness Kalich both suggest that a 10 MW nameplate
capacity limit be combined with the 10,000 kWh per hour
metered energy limit described in your direct testimony.
Is that a workable arrangement?
Yes , it is. As I stated in my direct
testimony, Idaho Power currently combines these two tests
in several current Commission-approved contracts and thiscombination has worked well. Based on this experience, I
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believe uslng both nameplate and metered energy in
combination to determine entitlement to the published
rates as suggested by Mr. Hale and Mr. Kalich is
reasonable.
Do you still believe that it is
important for the Commission to issue an order defining
how the 10 MW limit should be computed?
Yes. It is critical that the
Commission do so. This case has demonstrated that there
is substantial disagreement and uncertainty as to the
Commission's intent regarding the appropriate methodology
to be used to determine if a particular QF meets the
Commission's 10 MW criteria. For example, u.s. Geothermal
is requesting that the Commission look at its specific
type of generating technology to determine how the 10 MW
capaci ty 1 imi t would be computed. Presumably, each
generating technology, i. e., wind, biomass , hydro , etc.
would also like to have the 10 MW limit determined on a
basis that is specifically tailored to its
characteristics.
I am convinced that a technology-by-
technology analysis would inj ect an unreasonable level
complexity into the process and this complexity will
inevitably result in the filing of additional complaints
before this Commission.It is also important not to lose
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sight of the fact that the reason the Commission decided
to include the 10 MW limit was to standardize the process
for smaller
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proj ects.A technology-by-technology approach is not
conducive to achieving that goal.
The uncertainty associated with the
methodology for determining the 10 MW limit is further
evidenced by the testimony presented by several parties
noting that nameplate capacity should not be used because
it is subj ect to varying defini tions and interpretations.
Some parties have also expressed concerns
wi th using metered energy as the primary test of
capaci ty.
In the final analysis, the current
uncertainty will not be resolved until the Commission
explicitly determines how it wants to determine the
capacity of a QF generating facility. If the Commission
does not make that determination , we run the risk of
continuing ad hoc determinations and the potential for
addi tional complaint proceedings.
In your opinion , is this complaint
proceeding the best forum for establishing the
methodology for determining how the 10 MW criteria will
be established?
Not necessarily.If the Commission
believes a more thorough analysis of this issue
desirable, it may be preferable to remove this 10 MW
calculation issue from this case and address it in
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greater detail in a separate proceeding. It would seem to
me that both utilities and QF' s would have a vested
interest in resolving this matter
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expeditiously and a workshop format could be useful in
identifying, and perhaps resolving, the issues.
If the Commission were to remove the
10 MW calculation issue from this proceeding, how should
the Commission address u. S. Geothermal's "grandfathering"
request?
If the Commission were to bifurcate
this proceeding to address the computation of the 10 MW
limit in greater detail in a separate proceeding,
would probably be reasonable to "grandfather" U. s.
Geothermal. The Commission could then limi t the issues to
be decided in this case to the 90%-110% issue and the
stranded cost issue. The Commission should condition any
grandfathering as follows:(1) the "grandfathered" u.
Geothermal agreement would not be precedential (2) U.
Geothermal would not be permitted to compel any other
Idaho utility to purchase its excess energy, but it could
sell excess generation to third parties (3) U.
Geothermal would agree that Idaho Power would receive its
pro rata share of u. S. Geothermal's total generation in
both heavy-load and ight -load hours.
If the Commission does not desire to
bifurcate this proceeding, are there any other issues
relating to "grandfathering" that you believe the
Commission should consider?
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identified
Mr. Sterling, in his testimony,
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several reasons why he did not believe that
grandfathering" was appropriate in this case. While I
believe the reasons he cited are all valid, I believe the
key consideration is the fact that Idaho Power and U. s.
Geothermal have never entered into a contract. From the
very beginning of the negotiations , there have been
fundamental differences between Idaho Power and U. s.
Geothermal. There has never been a meeting of the minds
between the parties. U. s. Geothermal has always known
that there was a possibili ty that the contract the
Commission would ul timately be willing to approve might
be materially different than the contract U. s. Geothermal
seeks. U. s. Geothermal's dec i s ion to proceed wi
development activities while it litigated this case was a
business decision it made.
Both PacifiCorp and Avista urge the
Commission to confirm that a QF project must sell its
entire output to a single utility. Do you have any
comment on this proposal?
Idaho Power , like Avista and
PacifiCorp, believes it would be inconsistent with the
policy considerations underlying the Commission'
decision to cap the entitlement to published rates at
MW to allow a QF to build a 30 MW facility and then
compel Idaho Power , Avista and PacifiCorp each to
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purchase 10 MW at the published rates. While the Company
anticipates that transmission costs
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would likely minimize the viability of such artificial
schemes, the concern is a real one. Idaho Power would
agree that if a QF developer constructs a project with a
capacity In excess of 10 MW and compels a utility to
purchase its output under PURPA, the Commission should
not allow that same QF to use PURPA to compel another
Idaho jurisdictional utility to purchase generation from
the same facili ty.
Would such a limitation discourage
the development of larger independent power production
proj ects in Idaho?
, it would not. First , the larger
QF can compel a utility to purchase all of its energy at
PURPA rates determined by using the IRP methodology.
Second , the larger independent power proj ect developer is
not prevented from constructing a merchant generating
facility and selling energy on the wholesale market or
selling to the utility in response to a Request for
Proposals ("RFP". Idaho Power's draft 2004 IRP shows
that Idaho Power is planning to issue several RFP' s for
wind , geothermal and combined heat and power proj ects
the next few years. In addition , when you consider the
transmission cost the QF will incur to move its excess
energy from the proj ect si te to third-party transmission
interconnection points on the transmission system , in
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most instances the control area utility will have a
slight price advantage in acquiring excess energy from
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merchant generator interconnected to its system.
In their testimony, Wi tnesses Hale
and Kalich both expressed concern that if a QF is not
obligated to sell all of its output to a single utility,
the QF might sell less valuable light-load-hour energy to
the utility and sell more valuable heavy-load-hour energy
to a third party. Should this issue be addressed in Firm
Energy Sales Agreements?
I agree that QF contracts should not
permi t the QF to use its PURPA rights to require a
utility to purchase less valuable light-load-hour energy
while at the same time selling more valuable
heavy-load-hour energy at market prices.
In his direct testimony, Mr. Kalich
explains why Avista does not propose to include a
stranded cost provision in its PURPA contracts at this
time. Does his explanation satisfy Idaho Power'
concerns?
Not really. Mr. Kalich states that
retail deregulation comes, "the Company believes that the
Commission has the authority to approve charges for end
use retail customers that would provide an opportunity
for recovery of cost obligations resulting from PURPA
contracts. If deregulation does occur at the retail
level , it will be important that legislation address
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stranded cost issues, and/or the Commission retain all
necessary authority to
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address recovery of any PURPA related stranded costs.
Certainly if deregulation unfolds precisely as Mr. Kalich
describes and the Commission receives and exercises the
authori ty to ensure that the Company recovers its
stranded costs resul ting from PURPA contracts, there
would be no issue. Under those circumstances, under the
Company's proposed contract language contained in Section
23 ., there would be no QF contract termination because
Idaho Power would be able to fully recover its costs
associated wi th the QF agreement. What is not covered by
Mr. Kalich' s explanation is the situation where the
legislation or Commission action does not provide for
recovery of stranded PURPA expenses. If that were to
occur , the Company needs to be able to assert that the
government has confiscated its property. Unless the
Commission expressly accepts or rej ects the proposed
contract language, Idaho Power is concerned that it will
face the argument that was raised in 1999 (See Exhibit
204) that a change in the regulatory environment
simply a business risk and does not constitute
confiscation.
Mr. Sterling also addresses the
Company's stranded cost provision (Section 23.2) in his
testimony. Like Mr. Kalich , he argues that the clause is
unnecessary to protect the Company's interests. Do you
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have any comment on Mr. Sterling's testimony in this
regard?
Yes. Like Mr. Kalich , Mr. Sterling
states
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that because the Commission has ordered Idaho Power to
enter into these contracts and the Commission has
approved the payments as prudently incurred expenses for
ratemaking purposes , the provision is unneeded.
Unfortunately, we have no way of knowing today how retail
deregulation might be imposed. If it unfolds as Mr.
Sterling and Mr. Kalich anticipate , Section 23.2 would
never be used. Nevertheless , until the Commission issues
an order either approving or disapproving the contract
language Idaho Power has requested , I am advised by my
legal counsel that there is some remaining risk that the
Company will be vulnerable to future assertions that it
voluntarily waived its right to claim confiscation of its
propert y
Finally, if the Company's concern at this
point is so remote and so unlikely, it's difficult to
understand why it is viewed as such a barrier to QF
financing. As I noted in my direct testimony, three QF
developers have already signed contracts containing this
language , and all three will need to obtain proj ect
financing. None of the three indicated that the contract
provision in question would present an unreasonable
barrier to their obtaining proj ect financing.
On page 6 of his testimony, Mr.
Kalich expresses concern that the 90%-110% bandwidth
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proposed by Idaho Power does not adequately address the
lack of capaci
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associated with intermittent energy resources like wind.
Mr. Kalich correctly notes that
intermittent resources like wind do not provide capacity
and will impose additional costs on utilities for reserve
planning and integrating intermi t tent resources. Both Mr.
Sterling and Mr. Kalich discuss possible discounts to be
applied to published avoided cost rates as a way to
compensate utilities for these additional integration
costs. Idaho Power agrees that when a larger scale wind
or solar resource presents itself , it would be
appropriate to consider an integration charge for
intermittent resources. However , in this case we are
presented wi th two small wind resources. Requiring them
to purchase integration services from the Bonneville
Power Administration or computing an Idaho Power-specific
integration charge would be extremely burdensome for
these small projects. As an alternative , the Company is
providing these two wind resources the opportuni ty to
receive published rates for a portion of their
generation. These two wind developers will determine the
amount of energy they are willing to commit each month
based on their knowledge of their particular proj ect' s
efficiency and reliability. In the interim , Idaho Power
believes this is a reasonable approach that encourages
the development of local wind resources wi thout unduly
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lncreaslng utility cost.
Does this conclude your rebuttal
testimony?
Yes.
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(The following proceedings were had in
open hearing.
MR. KLINE:With that , Mr. Gale would be
available for cross-examination.
COMMISSIONER SMITH:Thank you.
Mr. Woodbury, do you have any questions?
MR . WOODBURY:Thank you , Madam Chair.
CROS S - EXAMINA TI ON
BY MR. WOODBURY:
Mr. Gale, Mr. Reading on page 8 of his
direct testimony indicated that the QF industry for year
ending December 2003 produced and del i vered 71.47 percent
of the amount of energy it had contracted to deliver.
Are you aware whether the Company required QFs to meet
their generation estimates?
Am I aware if the Company requires QFs to
meet their generation estimates?
Yes.
m not aware.
And are you aware of whether the Company
required QFs to revise their estimates downward to
conform to historical generation?
m not aware.
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On page 8 of your rebuttal testimony, you
suggest that perhaps this proceeding should be bifurcated
to resolve the issue of how to measure the 10 megawatt
threshold.Is it the Company's belief that the issue of
measurement of the 10 megawatt threshold has not been
adequately addressed in these proceedings?
No, it's not the Company's posi tion.
That I S just an offering to the Commission if it sui
their needs.
MR . WOODBURY:Thank you.Madam Chair , I
have no further questions.Thank you , Mr. Gal e .
COMMISSIONER SMITH:Thank you.
Mr. Fell?
MR . FELL:No questions.
COMMISSIONER SMITH:Mr. Strong.
CROSS -EXAMINATION
BY MR. STRONG:
Mr. Gale , I'd like to draw your attention
to page 15 of your rebuttal testimony and beginning on
line 5, you discuss capacity discounts for non-firm
resources and if I understand your testimony, you suggest
that discounts may be appropriate for large non-firm
resources, but for smaller resources it would be
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inappropriate.Am I characterizing your testimony there
correctly?
Let's see, you're on rebuttal , page IS?
Yes, 15 , beginning at about line
Okay.
In your testimony, you're not suggesting
that there aren't capacity costs associated with small
non-firm resources that the utility incurs, are you?
No, it's a materiali ty issue.
Materiality means the dimension of the
resource?
Uh-huh.
Has Idaho Power developed any criteria for
what is material and what is non-material?
m not aware of that.
But Idaho Power's testimony would be that
the definition of materiality in this context would be
somewhat larger than the issues in this particular case;
that right?
Yes.
\ .
uniform capaci ty discount could be
developed for all non-firm resources, PURPA resources
would that still be a burden upon the utility and upon
the developer?
MR . RI CHARDSON :Madam Chairman.
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COMMISSIONER SMITH:Mr. Ri chardson
MR. RI CHARDSON :m going to obj ect
the quest ion.The phrase non-firm PURPA resources we'
established earlier doesn't exist in law or in this
Commission Order.
COMMISSIONER SMITH:Mr. Strong.
MR. STRONG:Well, if there were - - let'
just talk about wind resources.
BY MR. STRONG:We're talking about wind
resources in this context, aren't we, Mr. Gale , and your
testimony addresses itself to wind resources?
Tha t 's correct.
Okay, I'll rephrase the question , then.
If a uniform capacity discount could be developed for
wind resources and similar-type resources , would it still
be burdensome to apply it to small and large proj ects?
I would take that as another approach to
sol ve the problem.
MR . STRONG:Thank you.That's all
have.
COMMISSIONER SMITH:Thank you.
Where was I?Mr. Ward.
MR. WARD:Thank you.
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CROS S - EXAMINA T I ON
BY MR. WARD:
Mr. Gale, most of the questions I'm going
to ask you have to do wi th your proposal for a 90 to 110
percent band on purchases from PURPA facilities.You'
advanced a number of reasons why you think this
appropriate.Part of them , part of those reasons , have
to do wi th the relationship between what you characterize
as non-firm and firm power at the two extremes of a pole;
correct?
Correct.
Now , at one extreme the non-firm power is
the tariff 101 power where basically, essentially, as I
understand it , the seller is doing the equivalent of
running the meter backwards; correct?
Well , I think it's 86 is the non-firm
tariff , as I recall.
Okay.
Tariff 86 is a non-firm rate.
Okay; so what I'm trying to get to, the
seller doesn't undertake any obligations at that point to
do anything in the way of generation for Idaho Power;
correct?
It's pretty much dumping energy into the
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system.
And it's paid accordingly; correct?
Correct.
At a far lesser rate than we're talking
about here?
It I S a lesser rate.
Now , at the other extreme are purchase
power contracts which are firm to the point of carrying
liquidated damages typically or at least damage
proVlslons for not delivering; correct?
Correct.
Now , on page 22 of your testimony you say,
"The appropriate comparison" -- I'm sorry, this is at
lines 9 through 11 - - "The appropriate comparison
between a firm energy purchase from the QF and a firm
energy purchase from another credi tworthy wholesale
market participant.Now , I take it what you'
suggesting there is that PURPA resources should be
required to del iver something close to the flat energy
purchases that wholesale purchases represent.
I m saying that the more appropriate
comparison for a purchase power contract is with other
purchase power contracts.
Okay, and if the PURPA resource doesn't
meet that , if it falls outside the 90-110 band at any one
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time , in effect, and I recognize you obj ect to the word
penal ties " but in effect, isn't it true that the
penalties attached will lower the overall PURPA rate that
that developer receives?
Appropriately so.
Okay.Now, tell me why this isn't a
collateral attack on existing Commission orders.
I cannot tell you why.Go ahead.
MR. KLINE:m going to obj ect on the
grounds that "collateral attack" is a legal doctrine.
He's asking a non-legal wi tness a legal question.
COMMISSIONER SMITH:Mr. Ward.
MR. WARD:Well , let me rephrase the
question.
BY MR. WARD:You've participated in other
PURPA proceedings , have you not?
This is my first.
, you're so lucky.
Tha ti s what I've been thinking.
Are you aware that utilities have argued
in the past that PURPA resources should receive a lesser
rate because of their lack of "firmness"?
I am coming to this one - - well , my first
direct answer is I have a general awareness of past PURPA
proceedings but not a detailed awareness , but I come to
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this from the standpoint of valuing a resource to be used
in the system to provide service to our customers.
Well , let me digress a bit , then , and see
if we can do it another way.Idaho Power has recently
gone through a rate case , has it not?
, yes.
And rates have been established and
hopefully will soon be finalized; correct?
Hopefully so.
And under those circumstances, if I were
to refuse to pay my power bill and argue that things have
changed and I have arguments why I should not have to pay
the Commission rates , do you think that's an appropriate
response if Idaho Power is trying to collect from me?
If you are not paying the tariff rates, I
don't think that's an appropriate response.
And would you agree with me that if Idaho
Power were to , recognizing you don't normally file
complaints against customers for failure to pay having
somewhat better means of dealing with that, but if Idaho
Power were to file a complaint alleging that a customer
has not paid , do you think it would be appropriate for
the customer to argue that the rate is not just and
reasonable when there's an outstanding order that says
is?
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Well , I think that issue has been
addressed by the Commission.I think the rate issue has
been addressed by the Commission.
Do you think the Commission has also
addressed the issues surrounding the rates that should
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paid to PURPA developers?
I think the establishment of the published
rates has been set.Their applicability I'm not so sure
about.
Okay.Now , your argument for a - - again
m going to use the word penal ty.I recogni ze you don'
accept it.
Incentive is a good word.
All right , we'll use an incentive.Your
argument for that basically is summarized in your
testimony on page 5 starting at line 9 and going through
I want to test with you the validity of the
proposi tions you advance there.Let's start --
Mr. Ward?
line 21.
Yes.
Page 5 of my direct?
m sorry, of your direct.
Okay.
All right , in the first place , you note in
the first sentence there that the Commission and Idaho
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Power have historically characterized the PURPA
deliveries as firm in your prior contracts; correct?
Correct.
And then you go on to say,"In real i ty,
the actual firmness of the energy deliveries under these
pre-2003 contracts more closely resembles non-firm energy
del i veries than firm energy del i veries
. "
Do you see that sentence?
Yes, I do.
Now , what do the utility's own resources
more closely represent, non-firm energy or firm energy
del i veries?
Well, the utility's resources collectively
serve a different function.They serve to follow load.
They serve to economically dispatch.They are not a flat
purchase.
Well , of course, they're not a flat
purchase, but would we historically characterize those
firm resources?Elsewhere in yourLet me help you here.
testimony you point out that these resources are
dedicated to the service of Idaho Power I s customers;
correct?
Tha t 's correct.
And in that sense they're firm, you can't
just willy-nilly deal their output to someone else?
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Using that definition , I would agree with
you.
I sn 't the same thing true of the PURPA
resources you have under contract?
Isn't what the same?
Well , if you have a contract with a PURPA
developer , that developer can't suddenly go out and sell
that power to someone else , can it?
We might assist that.
You probably would not assist it if it
happened at a time that market prices were high.
Absolutely, we can create a scenarlO when
it's beneficial or detrimental.
And in fact, are you aware of any scenarlO
wi th all the contracts you've signed where a PURPA
developer has essentially sold the power once commi tted
to Idaho Power under contract to someone else?
m not aware of it.
All right; so in that sense, if that were
the definition of firm for resources, leaving aside
market purchases, if that were the definition of firm for
resources, that is, that it is dedicated to the service
of Idaho Power's customers first and foremost , aren'
PURPA proj ects exactly the same as the Company s own
resources?
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Well , you've created a defini tion that if
I accept your de ini t ion, then I agree wi th you.I don'
accept your defini tion.
All right, how are they different in a way
that's consequential to the Company on that criteria
alone as to whether they're dedicated to the service of
your customers?
Well , a purchase power agreement once the
deal is struck is dedicated to the service of our
customers as well.
That's my point.Aren't they identical in
that regard, the Company's own resources and the PURPA
resources?
Well, a PURPA purchase power agreement and
another purchase power agreement are identical as well.
All right.Then you say in the next
sentence of this section I want you to look at, "This is
because there is no requirement for QF developers to
actually deliver energy in the amounts and at the times
they say they will in the Firm Energy Sales Agreement.
Is there any requirement that Idaho
Power's resources deliver energy in the amounts of their
nameplate rating or their average production or any other
cri teria?
Well, our resources have to follow load,
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so you would want them to vary.
I understand that, but there's no
requirement - - well, let's get to the specifics.Let'
take the 270 megawatt SAR resource, surrogate avoided
Is there any requirement for a facility likeresource.
that to meet any specific banding requirements in
product ion of energy?
No, but I still don't accept that as the
appropriate comparison.
But isn't that exactly how the Commission
determined the rates for PURPA developers using a SAR?
It's how the published rates were
established.I still don't accept the way that you
using it.
I f there were golng to be
- -
if the
surrogate avoided resource is the basis for the rates and
there's no penal ty for over- or underproduction in the
rates or the costs to the Company, then to the extent we
lmpose one on PURPA developers, isn't it appropriate to
adj ust the rates for that new and more burdensome
obligation they've now been required to take on?
Well , In a new era of capaci
constraints, I think that there should be higher
reliability desired from purchase power contracts,
including PURPA purchase power contracts.If that later
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impacts a rate adj ustment , then let's argue that at the
time.
Well , and again , we come back to my point
about collateral attacks.When is the appropriate time
to make those arguments?In response to a complaint that
says essentially, that alleges that Idaho Power
refusing to sign a contract in accordance with the
existing rules, is that the appropriate time to do
that?
Well , the PURPA contracts have evolved
over the years and they usually involve issue by issue
brought forward to this Commission for resolution and
think that's what we're doing here.
Would it be appropriate for me to take the
position that in the negotiation of a contract that Idaho
Power should pay more than the posted rates for some
reason and regardless of whether you think that'
appropriate or not, would Idaho Power agree to it?
Would you say that again , please,
Mr. Ward?
Would it be appropriate for me in a
negotiation to take the position that Idaho
- -
identify a reason why Idaho Power should pay more than
the posted rates and insist that it do so and if I did,
what would your response be?
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In a negotiation , in a PURPA negotiation
for outside published rates, we could negotiate it.
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Whether you'd get a favorable answer or not would be up
for speculation , but certainly, we could try to negotiate
Well , I have a little difficulty
envisioning a scenarlO in which Idaho Power would agree
to that.Wouldn't your likely response and the rational
response be no, we have an outstanding order , if you want
the rate, petition the Commission?
I thought you just said that you wanted to
, I just want an adder.
You just want to change the published
No, I just want an adder in recogni tion of
some fact that I think has now made my power more
Well , we think the prlce right now is for
firm reliable power and all we're trying to do with the
provisions in a capacity constrained era is make that
Well , let's test that hypothesis , too.
it.
the end of your statement you say, "The amount of energy
delivered can fluctuate from 0 megawatts and
to go change
negotiate.
rates.
valuable.
more reI iable
402 GALE (X)I daho Power Company83676
megawatts, hour to hour , day to day, month to month
completely at the discretion of the QF.
Now , if you're going to make it more
reliable, a QF would have to be able in essence,
increase its reliability or further improve the
efficiencies of its production; right?
Your facility may already be able to
operate wi thin those parameters.
Well , let me ask the question this way:
I f a QF doesn't produce power , does it get paid?
No.
And if it produces less power -- in fact,
if the QF is trying to estimate what it will produce two
years in advance, does it really have anything to go on
other than a series of averages, assuming it has some
operating history?
Well , you know, there are mul tiple places
or times for to designate,but yeah has whatever
opera t ing stats and knowledge that's gained order to
establish what they think they can deliver.
Okay; so let's take a hydro facility for a
If Idaho Power is going to require me two yearsmoment.
in advance to predict what I will produce and if I don't
produce within a 10 percent range of that prediction, I'
going to receive in effect a lesser rate for my
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resources; correct?
Correct.
All right, how
- -
so I already have an
incentive to estimate
- -
I mean , I already have an
incent i ve to maximi ze my resource , don't I?
That lS a point I'd like to follow up on.
It's the point that Mr. Runyan made.The incentive now
is to maximize the energy going to the utility.Wha t
are asking for is an incentive to deliver what's been
chedul ed It's a different resul
I understand the distinction, Mr. Gale,
but in terms of my operation of the facility, my
obj ecti ve today is to maximize production given the
resources that are comlng down the river or whatever my
hydro source is; right?
Today, yes.
And if you ask me to proj ect into the
future, what I can proj ect into the future is only this:
that I will continue to maximize my production with the
resources available , but I can't know what the resources
are golng to be available, can
Well, then for the Company it's a less
valuable resource.
And --
Let me say it different.Every time I say
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the Company, for the Company and its customers it's a
less valuable resource.
A less valuable resource than what?
Than a resource that will deliver what'
scheduled.
But can even the surrogate avoided
resource predict with 100 percent predictability what
will deliver?
No, but again , I think that's an
inappropriate comparison.
So the surrogate avoided resource is not
an appropriate comparison for the rates that a PURPA , the
posted rates that a PURPA , producer should get?
No, the surrogate avoided resource is used
to establish the published rates.The appropriate
comparison for the operation of a contract is a power
purchase agreement, not the surrogate avoided resource.
Now , I want to return back to your
original phrase.You say the production is completely at
the discretion of the QF.First of all, the QF has every
incentive to maximize their production , would you at
least agree wi th that?
I do agree wi th that.
Is that completely at the discretion
then , of the QF?Economically, does it have any
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discretion to say to itself jeez , I just don't feel like
getting out of bed this morning and turning the plant on
for the next month or so?It would be pretty disastrous,
would it not?
I'll repeat my answer earlier.Right now
the incentive is to maximize production.What we'
trying to incent is align the delivered power wi th the
scheduled power.
But now returning with me to my thought
about how I would do that i f I'm a hydro operator , I'
golng to maximize production no matter what because
tha t 's how I get paid , correct, so my obj ect i ve , the new
obj ecti ve you've now imposed on me or would like to
lmpose on me is that I have to estimate what I'm going to
produce two years in the future.Is there any way that
can do that other than looking at the averages in the
past and saying this is my best estimate?
Well , you may have other resources in
which to make your estimate, but that would be part of
it.
And in fact, do the Company's own
resources operate like that; in other words, you look
the past and see what you ve done and you make some
reasonable judgment about the probabilities you can count
on X percent of these resources in the future?
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We make some judgments about that, yes.
Okay.Now , you say, "As a resul t, the
utility only has a general idea how much energy it can
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expect to recel ve from any QF at any time.
Do you see that statement?
Are we still on
Yeah , 17 through 19.
Yes.
Did you read Mr. Runyan's rebuttal
ve read it.
Do you have a copy wi th you?
Yes.
I d like you to turn to Exhibi t 4.
I have it.
All right , if you look - - now , in this
particular complaint, at least insofar as U. S. Geothermal
is concerned, you understand, of course , that this is a
Yes.
All right, I want you to look at the table
in Mr.
- -
at the top of Mr. Runyan's Exhibi t 4.2 and
let's start wi th the thermal proj ects, the seven thermal
m going to read the average production in
gigawatt-hours from that table:'98, 298;1997 , 299;
testimony?
thermal proj ect
proj ects.
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, 9 9 , 2 9 6; 2 0 0 0, 2 8 5; 2 0 0 1 , 3 14; 2 0 02 , 3 0 7; and 2 0 0 3, 2 7 5 .
Now, looking at that data, are you telling
me that the utility, to quote you, the utility only has a
general idea how much energy it can expect to receive
from any QF at any time?
Well , these thermal proj ects, at least
collectively, seem to be fairly consistent.
Okay.Now , let's look at the middle
col umn .Here we see qui teThat's the 58 hydro proj ects.
a bit more variation and from -- but in the first three
years the range is from 509 to 557.Do you see that?
Correct.
Which strikes me as maybe falling just
barely outside the percent band.Then there'
drop-off in 472
- -
mean In 2000 to 472 and on down to
the mid 30 2001 through 2003.What's been the
dominant fact of life for hydro producers from 2000 to
2003?
It would be the drought.
And if you would flip over to the first
page , you'll see that here we have Idaho Power'
production listed and without golng into great detail,
isn't it obvious that Idaho Power's own hydro proj ects
have suffered a similar reduction in production levels
over the last four years?
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Yes.
What is the good to be obtained , what is
the public good to be obtained - - well , first of all, so
wouldn't it be fair to say that even with hydro, within
some parameters,your planners have some idea of what
they're going get from that resource?may or may
not identical Idaho Power'but it's very similar
in the sense that on an annual basis they know that
there's a certain amount of production that can be
expected in average water years let us say.
Well, . yes , we plan based upon the
information we have.
Does any of this evidence suggest that
there's any reason for penalizing PURPA producers because
they have not been sufficiently reliable?
m not trying to penal i ze PURPA
producers.We're trying to value the product that we'
purchasing.
And - - well, let me put it another way.
In part of your testimony and I'm sorry, I can't ci te you
to the exact page right now , there's some talk about
the - - well, strike that.WouldLet me do it this way:
it be fair to say that it's appropriate to state the
question like this:First of all , the Commission has
established a posted PURPA rate , correct, we know what
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that is?
Yes.
All right , why is it that it would be,
it's appropriate for Idaho Power to in effect reduce that
rate for a project that is unable to meet its exact
production forecast rather than to increase that rate for
those who can?Can't I argue either proposition with
equal plausibili ty?
It may be that you can argue it either
way.Our position is that that rate is applicable to
some level of firmness and to the extent that level of
firmness cannot be delivered, then we're trying to adjust
the price accordingly.
But doesn't the
- -
do you have any
evidence as we sit here today that there's been such a
failure to deliver expected returns that the Company and
its ratepayers have been injured, do we have any
obj ecti ve evidence of that?
I don't have evidence today.What I do
have is a changing environment where the capaci ty plece
is much more important to us and, therefore, we need to
do everything we can to make sure that we have energy
when we re supposed to have energy.
And in fact, the next page of your
testimony basically summarizes that contention.You go
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into a whole list of five reasons why things have changed
and in particular , starting with the bottom of page
line 22 , you're asked, "If this type of contract has been
the norm historically, why is the Company now seeking to
improve the firmness or predictability of QF energy
del i veries?
Do you see that question?
Yes.
And your answer continues there and on
over into page 6 and you basically cite if you look
line 3 on page 6, "These changed conditions include" and
then you give us five allegedly changed conditions.Even
if I were to agree wi th you that these changes have
occurred , isn't the appropriate thing for the Company to
do if it believes that circumstances have changed is to
ask the Commission to reopen the calculation of PURPA
rates?
We're defining the product.
Well , you're alleging essentially that
values have changed because conditions have changed.How
is it that Idaho Power gets to unilaterally cite changed
condi tions and thereby offer a lesser rate, a potentially
lesser rate , to a PURPA producer?
Well , the lesser rate will manifest itself
if the PURPA contract can't perform.
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Well, but prior PURPA contracts have not
been required to perform in this fashion.Hasn't Idaho
Power unilaterally chosen to insert this provision into
its contracts?
Well , the idea of the provisions to try to
incent increased reliabili ty is Idaho Power's idea.
And isn't it a fact that the only impact
this can have economically on PURPA producers is that
those who agree to it risk the possibility that they will
receive less than the posted PURPA rates established by
the Commission?
Yes, and I agree and I reiterate I think
that's appropriate.
That's appropriate notwithstanding the
fact that there's an outstanding Commission Order
establishing those rates, it's appropriate for the
Company to insist on that provision which potentially
lowers rates in individual contract negotiations?
It is appropriate for the Company and its
customers.
Let me take up briefly a couple of other
lssues with you.m not going to go through all of
these, but you repeatedly make statements like this.Let
me refer you to one.At page 13, starting at line
through 14 , you say,"All of those estimates are
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completely wi thin the control of the QF developers, not
Idaho Powe r. "
Do you see that testimony?
Yes.
And while the estimates may be in control
of the QF developers , would you agree wi th me that those
who are subj ect to variations because of weather or hydro
flows , that those variations are not in the control of
the QF developers?
There are some circumstances that they
won't be able to predict.
And so isn't it rather silly to tell a
hydro producer you need to make better est imates two
years in advance or we're going to penal i ze you?
No, I don't think it's silly.I think
we're trying to buy a product from a qualifying facility
and we have an expectation that they III deliver what'
been scheduled.We're asking them to schedule as best
they can.To the extent they don', it's an inferior
product and it should be priced accordingly.
Do you have any evidence that any existing
QF producers have deviated so widely from their estimates
that it has imposed costs on Idaho Power or its
ratepayers?
We have - - I've seen evidence.ve seen
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reports of how deliveries are different than what's been,
I keep saying, scheduled, I'm not sure that's the right
term of art , that are dramatically different.
Has the Company asked those producers
where there are dramatic differences to in fact revise
their estimates?
I don't know.Mr. Ward , you've asked me a
couple of operational questions of which because of my
usual job I'm not aware of.I'd be happy to find out
those answers, but some of the day-to-day operations of
the contracts I'm just not aware of.
Okay.Page 24 , lines 14 through 19 --
well, let's take 14 through 17.You say, "The provisions
are intended to increase Idaho Power's ability to predict
when QF generation will be available." on from there.
If in fact the QF producers are doing their best to
maximize production and they have no reason not to try to
predict accurately what they're going to produce for you,
do they, I mean , they have no economic incentive to give
you bogus numbers?
Well , we're still disconnecting on
maximizing energy versus delivering what's scheduled.
It's a fundamental disagreement between us.
But you say here,"The provisions are
intended to increase Idaho Power's ability to predict
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when QF generation will be available," et cetera, so it
can integrate the QF generation into the utility'
resource and planning process.As an actual matter in
actual production , don t we agree that the QF producer
has every incentive to maximize production?
We've been around this tree, yes , they do.
That's not what we're looking for.
Do they have any incent i ve not to
accurately estimate what they're going to produce as best
they can?Do they get anything from somehow deceiving
Idaho Power about that?
Well , there's no disincentive.There'
no - - there's nothing for them in the accuracy.
One way or the other?
One way or the other.
Okay; so how is this going to increase
if I'm that hydro producer sit t ing there trying to
understand what I should use for a prediction for my
generation two years from now , how in the world is that
going to make me a better predictor penalizing me?
Well , first of all , it will bring a focus
to it.Secondly, the hypothetical you keep using is the
longest time period out in a resource that has a lot of
variability due to water conditions.That's not your
client's situation.
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Well , that's true.In many ways my
client's situation is worse because weather changes on
shorter not ice than hydro condi t ions, does it not?
Well , it does, but we're asking for
schedules over a month , not over a day.
But at some considerable period of time in
advance?
Yes.
And how accurate do you think weather
predictions normally are whether made for a particular
month or week or hour when made well in advance, months
or years in advance?
There may be factors that create an
inaccurate prediction , obviously, but still when the
delivery doesn't match the schedule, the product
deteriorates.
Okay.Over on page 29, turn to the
megawatt definition now.There's no dispute as far as
know with any of the participants in this proceeding
that , and I'm going to ask you to agree wi th this or
disagree , that the Commission's definition of
megawatts for the purposes of entitlement to posted rates
lS something less than clear.
No dispute.
All right, do you have any reason to
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believe that u. S. Geothermal's claim that its definition
is a reasonable interpretation of 10 megawatts based on
engineering principles, do you have any reason to believe
that's not made in good faith?
I listened to the full discussion this
mornlng.I think that it's not an issue of whether or
not it's reasonable, I believe it's made in good faith.
What I think it is is how many different technologies are
you golng to evaluate methods for.
I understand.Let me ask you thi s :
you have any reason to believe , to disbelieve Mr. Kitz'
testimony that if we have a maximum nameplate of
megawatts as well as a maximum hourly output of
megawat ts from a geothermal plant that you'll have
something, I believe he said, on the order of 6 megawatts
of actual production and this plant will not be buil t, is
there any reason to believe he's not being truthful about
that?
m just trying to recall if that was hi
exact testimony.
Okay, well
I believe it was his testimony that if it
was buil t , it would have to be scaled back in order for
them to qualify for the published rates.m not trying
to -- if it was his testimony, it was his testimony.
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All right, let's assume that it is a fact
that if you have a nameplate of 10 megawatts, recognizing
you've got the parasitic load and the weather variation
problem , it's clear , at least this much is clear , that
actual reduction in the plant's capability is going to be
significantly below 10 megawatts, is it not?
It appeared so from the testimony.
All right , and let's assume , then , for the
moment hypothetically that under those circumstances the
plant would not be economic to build at posted rates,
okay?Are you aware that in Idaho Power's most recent
IRP , it called for the acquisition of 100 megawatts of
geothermal?
Yes, I am.
How is the public going to be served
this
- -
assuming that you want geothermal energy for a
valid reason as part of your resource mix, how is the
public going to be served if U. s. Geothermal's plant is
not buil t?
Well , the Company does want geothermal
resources and we'll proceed with an acknowledgment from
the Commission in pursuing those through RFPs which
think is a good faith demonstration that we want those
resources.
But are there any operating geothermal
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plants in the state today?
Not that I'm aware of.
If you really want to develop 100
megawatts of geothermal , leaving aside the question of
this particular plant, this particular place, don t you
think it would be in the public interest to at least
prove the feasibility of a geothermal plant somewhere in
Idaho, a commercial geothermal plant?
I would concede that an operating
geothermal plant would have some benefits.
Okay, and one more area in thi s sub area.
With respect to the 10 megawatt limit, let's assume that
the Commission were to accept - - well , let me back up.
In your rebuttal testimony, you basically, I believe,
adopt the position of the other two utility witnesses who
have argued that in addition to the 10 megawatt metering
cap, there should be a 10 megawat t nameplate cap on
eligible resources.
We did that on rebuttal.
Now , doesn't it follow that the end result
of that if the Commission were to accept that standard
you can never put more than 10 megawatts through the
meter and you can't have more than a 10 megawatt
nameplate rating, doesn't that mean that in order to get
posted rates for 10 megawatts of production , however
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we're golng to define that, the plant would have to have
a 100 percent capacity factor?That's a mathematical
truth , is it not?
I wasn't tracking your math there.
thought that's when you were going to ask the 6 megawatt
question.
Well , let me ask the question I did , reask
the quest ion I did ask.
Okay.
If the maximum nameplate is 10 megawatts
the maximum throughput in any hour is 10 megawatts, in
order to get posted rates for 10 megawatts of production
the PURPA developer would then have to have a capaci ty
factor of 100 percent?
I believe so.
And do you know of any plant on the
utility's system or any PURPA plant that can produce
energy at a 100 percent capacity factor?
Not in perpetui ty .
Fair enough , or even annually?
Not likely.
One other thing.m not quite clear
about where things stand on what we have been calling the
regulatory out provision.I take it the Company'
concern lS that somewhere down the road someone might
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second-guess it with regard to PURPA contracts that at
that point I'll say are not in the money, you understand
what I mean by that?
Yes.
And the second-guessing would take the
would be phrased as the Company volunteered to acquire
these out-of-the-money resources?
Yes.
Doesn'
were lssue an order
Company cannot put the regulatory out provision in the
it follow that if the Commission
saying essentially that the
contract, doesn't that assuage your concerns?
Well , we think if the Commission will
address the issue, then our issue is resolved.
If the Commission were to leave that
provision intact -- well, let me ask it this way:So on
that assumption , the Company will be protected regardless
of what the Commission does, as long as it addresses this
issue?
As long as the Commission addresses the
issue.
Now , on the flip side, would it be
reasonable for the Company to be in a position if the
contract provision is included and in the unlikely event
that deregulation does occur , would it be reasonable for
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the Company to be in a position to unilaterally choose
well, let me add one more caveat, and at that point the
Company has some contracts that are in the money and some
that are out of the money when deregulation occurs, would
it be reasonable for the Company to have the unilateral
availability of choosing which contracts it will keep and
which it will terminate?
Well , I hadn't thought through it that
far.This is driven from my actual experiences during
the last round of deregulation in three states and in
every state , the issue came up everyone is on notice, any
more QF contracts entered into, you enter in at your own
peril and so we're bringing it up and letting the
Commission address it.
Okay,said I onl y had one other thing,
but have one more.You'suggested in your rebuttal
testimony,think,predominantly that U. s.Geothermal
should be required , unless it's grandfathered by this
Commission , to purchase power
- -
I mean to sell power at
rates determined in accordance wi th the AURORA model
methodology; is that correct?
Could you refer me , please?
It will take me a minute.I di dn ' t
anticipate getting resistance to that.
I could be biding time.
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Well , let me ask it in a way that I won't
have to refer you to a particular section.If u.
Geothermal is not enti tIed to posted rates, which is
still a subj ect of controversy between the Company and
U . S. Geothermal , is it not?
Yes.
Okay, then the only other option is to
sell at negotiated rates which are to be determined in
accordance with the application of the AURORA model to
the IRP; correct?
Correct.
Now , let me ask you, did in fact the
Company perform an AURORA model analysis for U. S.
Geothermal?
m sorry, we did one for the Commission
Staff just recently.
Right , in a discovery request, in response
to a discovery request.
Yes.
And I received that
- -
hold on and I'll
tell you when
- -
I think I received my copy yesterday
because I was inadvertently not served and so I can't
pretend that I fully understand what has been done here,
but in response to the Staff's discovery request , first
of all , it appears to me that the AURORA model
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methodology produced a proposed purchase price of roughly
$46.00.Do you recall that?
I recall that.
MR . WARD:Okay, if I may approach?
(Mr. Ward distributing documents.
MR . WARD:I think our next exhibi t number
is
COMMISSIONER SMITH:We'll mark this as
Exhibi t
(Complainant u. S. Geothermal Exhibi t No.
was marked for identification.
BY MR. WARD:Now , I realize I m probably
on somewhat uncertain grounds here , Mr. Gale , because
suspect you did not in fact prepare this response.
That's a good suspicion.
All right, let me ask you at least whether
you can recognize this document and you know what it is.
I recognize the document and know what
l S In general.
Okay, and it's an Idaho Power response to
a Staf f product ion request; correct?
Correct.
And if I go over to page 4 and look at the
bottom or the last line in the first full paragraph , it
says, "will result in a 20-year levelized purchase price
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of $46.13 per megawatt-hour.Do you see that?
MR. KLINE:Page 4?
THE WITNESS:m wi th you.Yeah , I see
it.
BY MR. WARD:First of all , that's well
below the posted levelized rate , is it not?
Yes, it is.
Okay, and here's what I find interesting
and I think probably the way to do this is if I'm asking
questions that are outside your knowledge , Mr. Sterling
is coming up who I think does have some familiarity
That would be fine.
- -
so pass if you must.I t appears to me
that in fact the AURORA model doesn't actually run a
20-year avoided cost calculation; is that correct?
That's my understanding.
That in fact it's limited to a 10-year?
That's my understanding.
All right , and so then to get a 20 -year
rate, the Company has to in effect do what I will
characteri ze as some - - well , let me not characteri ze it
as subj ect i ve .Let me just say the Company has to reach
completely outside the model , does it not?
m not sure.m just not sure.You can
ask Mr. Sterling.
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Well , okay, that's fair.
I would say just for the record , when we
first started down the path of modeling for avoided
costs, we were under a different software program and
we've changed to AURORA over the time.AURORA is , we
think , a pretty good planning tool and we're still
working on it as a tool for this type of pricing, so
would say in fairness , it's still a bi t of a work in
progress.
Actually, you've anticipated one of the
places I was going wi th this.Let me come back - - well
let me just read part of the response here." Idaho Powe r
acknowledges that there are aspects of this response that
require addi tional analysis.Further on
, "
the AURORA
analysis should and could be refined " and then you say
later on this response is generally representative of
costs.
. "
Isn't it fair to say that as we sit here
today, that response indicates that you've made an
estimate of 20-year costs of $46.13, but only 10 years
came from the AURORA model and the AURORA model itself
needs to be at the very least tweaked before it would be
reliable for this purpose , would that be a fair
statement?
I think these results would be fine-tuned
before it would be final results.
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So at best, even if it could accept the
resul ting price , U. S. Geothermal as we si t here today if
it were going to be required to accept the AURORA price
would have to await some further analysis and perhaps
even litigation?
would think you would want to wai for
least some further analysis.
All right,and I think this is my last
question , you're aware , are you not , that U. S. Geothermal
has asked for non-levelized rates?
Yes.
Does AURORA even have a system in place
where it can calculate non-levelized rates?
I don't know the answer to that.
MR . WARD:Okay.That's all I have.
COMMISSIONER SMITH:Mr. Ward, with regard
to Exhibi 5, my copy goes from page 1 to page
page 2 important or shall we just go with it as it is?
MR. WARD: You need another copy.
MR. RI CHARDSON :Mine does the same
thing.
MR . WARD:, mine is okay.Can we go
off the record for a second?
COMMISSIONER SMITH:We will go off the
record.
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(Off the record discussion.
COMMISSIONER SMITH:We're going to take a
break until five minutes after 3:00.
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(Recess.
COMMISSIONER SMITH:All right , I believe
we I re ready to go back on the record.
Mr. Gale?
Mr. Richardson , do you have questions for
MR. RICHARDSON:I do, Madam Chairman.
CROS S - EXAMINA T I ON
BY MR. RI CHARDSON :
Good afternoon , Mr. Gale.
Good afternoon , Mr. Richardson.
Now , did I hear you right that this is the
first time you ve testified on PURPA issues?
This is the first time I've testified on
And is this a new responsibility for
Our power supply Vlce president left the
Company in July and we had a void that needed to be
So is this golng to be an ongoing
PURPA issues.
you?
filled.
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responsibility of yours?
I'll let you know at the end of the
Okay; so you've been doing PURPA issues
hearing.
slnce the end of June?
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ve been involved in the PURPA issues in
this level of detail just for a couple of months.
Okay, and then at page 1 , you state - - oh
is there a new vice president for power supply in the
Yes, there is.
And that person is?
Jim Miller.
And is he not up to speed on these
I can't speak for him.In the interim
Company?
when we knew Mr. Prescott was leaving, we needed to get
ready for the case and it has a lot to do with regulatory
policy, so at least was a partial fit for me.
And your ti tIe is what?
Vice president of regulatory affairs.
And were you at the Company at the same
time as Mr. Runyan , the witness for U. S. Geothermal?
ve been wi th the Company since 1983.
And do you recall that Mr. Runyan'
issues?
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position at the Power Company was the person who directed
development and acquisition of electric cogeneration
proj ect s?
Well , actually I didn't cross paths with
Mr. Runyan until he was head of the delivery
depart men t .
But on his resume in his testimony he
states that
, I'm sure his resume is accurate.
And Mr. Runyan testified this morning that
he I S an engineer; correct?
Yes, he did.
And you state in your testimony that
you're in charge of economic regulation; is that
correct?
Yes.That's a fancy name for
ratemaking.
And the Company didn't have anyone else
available who was more familiar with resource issues than
the person in charge of economic regulation?
This is the first time I've testified on
PURPA , but I've been on the risk management committee
since its inception and I've also been involved in the
last two IRPs, so it's not like I'm a novice to these
issues.
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Okay; so you're familiar with the RFP
process and how that works wi th new resources and the
like?
Yes, I am.
I want to touch a couple of issues that
Mr. Ward raised before they slip out of my mind here.
Mr. Ward asked about QF rates and went into a series of
questions on whether or not this so-called penalty
actually reduces the rates that the QF is entitled to
and you made a statement that I wrote down , I think I got
it accurate , you said that you know how QF rates are set,
but it's their applicability I am not so sure about.
you recall that?
Well , I think the applicability is at
lssue here.
And when you say applicability is at
lssue, you mean who's entitled to the rates?
No, I mean what the rates apply to.I n
mind, they apply to a firm delivery from the qualifying
facili ty.
And you think this Commission left that
lssue on the table last time it set avoided cost rates?
I don't know.
And also when you were discussing with
Mr. Ward the QF , the PURPA contract terms, you stated
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something to the effect of PURPA contracts have evolved
and issue by issue has been brought forward for
resolution by the Commisslon and that is what are
do i ng here and when you said that is what are doing
he re,were you referring to Idaho Power?
I think what this process is about are
some new provisions inj ected into some PURPA contracts or
desired in PURPA contracts.
And those new provisions inj ected in PURPA
contracts, weren t those unilaterally inj ected into
contracts by Idaho Power without first asking this
Commission if those contract terms would be considered
reasonable and fair?
Well , it's my understanding that at least
in some discussions with the Commission Staff that at
least a band around some firmness was an idea that had
some meri t and I'll leave it to Staff wi tness to confirm
or deny that , but that's my recollection.
So in private discussions wi th the
Commission Staff , Idaho Power decided that it was okay to
unilaterally insert this band issue in contracts?
Well , it's Idaho Power's position that
this is a contract improvement and has a benefit to our
customers.
m not asking you if you think it's a
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good idea or a bad idea.I asked you if as a resul t of
those private discussions wi th the Commission Staff
Idaho Power unilaterally decided to insert these contract
provisions wi thout first getting approval from the
Commi s s ion?
The Company believes they are good
provisions and it seems like we are in the process of
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either getting or not getting approval in this
Right , and who ini tiated this
The Complainants.
Not Idaho Power?
proceeding.
Correct.
And the Complainants ini tiated this
proceeding?
proceeding because Idaho Power put these obj ectionable,
from our perspective, provisions in the contract;
Correct.
And you didn't get prior approval from the
Commission to insert these provisions in the contract,
When I say " you," I mean the Company.
No.
Okay.Also, you talked about the need to
al ign del i vered power wi th scheduled power.Do you
correct?
did you?
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recall that?
Yes.
And when you talked about scheduled power
you used the word scheduled and I think you made a
disclaimer that you're not sure that would be the proper
term of art or something like that, but whose schedule
are you talking about , the QF developer or the Power
Company'
m talking about the power that the QF
will say that they can deliver.
So it's the QF' s schedule?
Yes.
Now , in your direct testimony and in
contract negotiations, you said that or the Company would
permi t a change in that schedule every two years;
correct?
That's what the testimony says after the
initial milestones.
Correct, once they get up and runnlng,
it's once every two years.What foundation did you use
for coming up wi th two years?Did you do any studies or
analyses of why two years is the number you wanted to
use?
Well , I think two years - - no , I did not
do any studies.I think two years has a relationship to
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our IRP planning process, al though it could be a shorter
period of time.
And in your rebuttal testimony you say
that the Power Company could live with one year.
Yes , I do.
And why did you choose one year?Was that
based on any studies or analyses?
, it has to do more wi th a couple of
resource processes that I do engage in regularly.The
benefit of knowing the scheduled QF deliveries is even
more so from a risk management commi t tee standpoint than
even the IRP as we are working through our operational
plan and buying and selling for the summer knowing what
we have as far as QF resources is even more beneficial
than the IRP and a one-year time frame would lend itself
to that.
And what are those resource processes you
referred to that have one -year cycle?
Well plan for the system right now
from anywhere up to an 18-month period looking forward
and what we have is what's called an operational plan and
that operational plan takes into account everything we
know about the system , our resources , market prices,
water condi tions and so forth, and from that operational
plan , we make decisions about how to purchase for the
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system and how to hedge for the system.That's the
process that I'm referring to that knowing the QF
deliveries would benefit.
isn'it?
the time?
And that's a dynamic process , I assume,
Well , yeah, things change all the time.
And so your operational plan changes all
That's what I said.
You said things change all the time.
didn't know if you were referring to your operational
plan.
You're right.
Is there a committee that administers the
operational plan or an individual or how does that get
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There is a planning department comprised
of many of the same folks that work on the IRP that
prepare the operational plan.It's submi tted at least
monthly to the risk management commi t tee which is
comprised mainly of Company officers.
So your operational plan changes at least
Yes.
So actually, if you were going to look for
changed?
monthly?
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a resource process to tie scheduled changes rather than
limiting the operational plan committee or the input into
the operational plan , having one-year data from a QF
would not be as valuable as having monthly data from
QF; correct?
m not sure the QFs want to provide us
that data in that type of time frame , but one-year data,
even for the hydro folks , I would think you have a pret ty
good view of what the next hydro year looks like, so
think one year would be beneficial for us for that RMC
process.
"RMC" being?
Risk management committee process.
On page 2 of your testimony, you state
that you will discuss the specific provisions the Company
is proposing to encourage greater firmness and that's at
line 18 , I believe.Do you see that?
Yes.
Now , you put quotation marks around the
word firmness. Can you tell me who you're quoting
there?
m not quot ing anyone and I'm not sure
that the quotes add anything to the sentence.
It certainly makes the word firmness stick
out more than if you didn't put quotes around it.
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Maybe the - - well , certainly, the firmness
of a PURPA contract is not viewed the same by all
groups.
So your putting quotes around it suggests
that perhaps it is not a term of art; is that fair?
I can't tell you why the quotes are there
at this point in time.
Let's explore exactly how imposing these
penalties, and I'll use the word penalties and understand
that you will interpret that to mean incentives , but
let's explore how imposing these penalties for failure to
deliver within your 90 to 110 percent band would actually
encourage greater firmness.Assume that we have a
typical run-of-the-river hydro QF and you actually have
qui te a few such proj ects, correct , like, say, the
Horseshoe Bend hydro proj ect?
Correct.
Had these proj ect s existing proj ects,
been subj ect the band that you propose would that
make their source or mode of power more reliable?
mean , the water that flows through Horseshoe Bend
controlled by entities other than the owners of that
project , isn't it?
Reliable in the sense that to the extent
that the QF can undertake anything within its control to
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more accurately deliver the power they say they re going
to deliver , that's how I'm using the term reliability.
But putting a band on these existing
proj ects, they wouldn't have produced one kilowatt more
or one kilowatt less?
Maybe as the schedule was prepared some
more thought potentially might be given to it now that
means something.
But the schedule doesn t mean anything in
terms of how much water is going to flow through that
proj ect?
No.
It doesn't have anything to do with it;
right?
No.
Along those same 1 ines, how firm are Idaho
Power's run-of-river hydro projects and how do they
differ from a QF's run-of-river hydro projects?
Well , Idaho Power's run-of -river proj ects
are part of a total operating system used to track loads
and dispatched, so I don't see it as similar at all to a
QF run-of-river project.
Would you agree that weather is the
determining factor in determining when and how a
run-of-river hydro project runs?
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Weather encompassing precipitation, yes.
Well , and it would also encompass
I would agree.
And would you agree that weather is also
the determining factor in determining wind and how much a
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wind proj ect would run?
You need the wind to blow , I would agree
And that's weather driven; right?
Yes.
Isn't it possible for Idaho Power to model
wind into your integrated resource plan?
Well , we do model some wind wi th some
assumptions into the integrated resource plan.
And in fact , you've done that in the
current 2004 IRP; correct?
The current 2004 IRP actually does call
for 200 megawatts of wind resources.
MR. RICHARDSON:Madam Chairman , may
approach the wi tness?
COMMISSIONER SMITH:Yes , you may.
temperature.
(Mr. Richardson distributing documents.
MR. RICHARDSON:Madam Chair , I'm handing
out what I would like marked for identification purposes
to that.
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Exhibi t No. 54.
(Complainants Lewandowski & Schroeder
Exhibit No. 54 was marked for identification.
BY MR. RI CHARDSON :Mr. Gale , do you
recognize this document?
Well , it appears like it's comlng out of
our technical appendix.
Well , you were very involved in the
preparation of the IRP you testified earlier.
As an oversight manager to the process
yes.
So would you accept that this is indeed an
excerpt from the technical appendix of your 2004
integrated resource plan?
Yes, I'd accept it.
And looking at the last page of this
document, aren't we able to conclude that Idaho Power
actually able to model the impact, and this is 100
megawatts of wind , actually able to model the impact of
wind on its system and thereby, integrate this type of
power for planning purposes?
It is integrating some wind resources for
planning purposes , yes.
On page 4 you state that obtaining better
estimates of the monthly amounts of firm energy to be
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provided will improve Idaho Power I s ability to integrate
QF resources into its resource planning and acquisition
process as firm resources.That's at line 3; correct?
Yes.
But you're not the person at Idaho Power
who is responsible for integrating QF resources into the
resource planning and acquisition process , are you?
Not directly.
On page 5 you state that the existing
contracts Idaho Power has with QFs are described as firm.
Do you see that?
Yes.
And when you say, use the word
"described," do you mean that that term is actually used
in the contract itself or is it being described by third
parties , such as you or me?
Well, I would describe it as firm to
contrast it wi th those that we receive under Schedule
which is non-firm.
Well , I'm asking you about the existing
contracts.They actually use the word firm , correct , it
appears in those contracts?
Yes.
Thank you,Bart.
Good cue.
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They do, and then at line 14 on that same
page you go on to state that there is no requirement for
developers to actually deliver the energy in the amounts
and at the time called for in the agreements.Do you see
that?
Yes.
Now , you're not a lawyer , are you?
No.
No; so you're not in a posi tion to tell
this Commission how to interpret contracts , are you?
MR. KLINE:I m going to obj ect I think
that's just plain argumentative.
MR. RI CHARDSON :Madam Chairman, this
witness is testifying as to what these contracts require
QF developers to do.m simply trying to explore what I s
the foundation for his understanding.
COMMISSIONER SMITH:Mr. Richardson , I
think he's enti tIed to have a layman's opinion.
MR. RI CHARDSON :That I s what I'm asking
him.
COMMISSIONER SMITH:Okay.
THE WITNESS:Okay, then tee it up
agaln.
BY MR. RI CHARDSON :So you're not in a
position to tell this Commission how to interpret these
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contracts from a legal standpoint, are you?
Not from a legal standpoint.
So have you asked an attorney if these
contracts allow these developers who actually have a firm
contract to not deliver to essentially walk away from
them?Are they out to do that?
It's my understanding that they do not
have to deliver what they say they will deliver without
penal ty
- -
I mean , they do not have to deliver what they
said they will deliver.
So you don't think Idaho Power has any
ability to enforce these contracts?
MR. KLINE:I m going to obj ect I think
agaln , that's just plain argumentative.
COMMISSIONER SMITH:Mr. Ri chardson
MR. RICHARDSON:Madam Chairman , once
again , this wi tness has described the contracts as firm
agreements and then he's testifying in here that he
doesn't think that the developers are required to deliver
power under them.m just asking him if he thinks Idaho
Power - - the reason the developers aren't required to
deliver power is because Idaho Power can't enforce the
contracts that are firm.
COMMISSIONER SMITH:Do you have an
opinion on that , Mr. Gale?
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THE WITNESS:I don't know of Idaho
Power's legal abilities to exert pressure to enforce the
contract.As a practical matter , I do know that the
deliveries are not what they say they are.
BY MR. RI CHARDSON:Okay, well , at line
on that page , you state that the utility only has a
general idea how much energy it can expect to recel
from any QF at any time; correct?
Correct.
And that must be related to your statement
just now that you really don'know w ha t they can
deliver what they del i ver?
They deliver all over the board.
All over the board.
May I approach the witness?
COMMISSIONER SMITH:You may.
(Mr. Richardson distributing documents.
MR. RICHARDSON:Madam Chairman , I'
handing out a document that I would like to be marked for
identification purposes as Exhibit No. 55.
(Complainants Lewandowski & Schroeder
Exhibit No. 55 was marked for identification.
MR. RICHARDSON:Madam Chairman , this
document's cover page is identified as the Technical
Appendix for the 2002 Integrated Resource Plan.
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BY MR. RI CHARDSON :Mr. Gale , do you
recognize this document?
Yes , I do.
Is it in fact an excerpt from your 2002
integrated resource plan to the best of your knowledge?
Yeah from the technical appendix.
Okay,let's turn to the second page of
this document whi ch is actually page from that
technical appendix.Can you just briefly walk us through
what these rows and columns are showing us or does the
first column show your expected average water , average
loads, sales and load forecasts for 2002 as of your 2002
IRP?
MR. KLINE:Which ine are you talking
abou t ?
MR . RI CHARDSON :m talking about the
general document.
BY MR. RI CHARDSON :This is showing us
under 50 percent water , 50 percent loads, which I'll
represent are average condi tions, your expected sales and
load forecasts; correct?
Tha t 's what it appears to show.
Okay, and the first line under the broad
section called "2002," we see the 12 months of the year
for 2002 and the first line under that is "Load.
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Correct.
That's a negative number , so that shows us
what your expected load for those months would be;
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Correct.
correct?
And the second line is "CSPP" and that'
commonly known as cogeneration and small power producers;
correct?
Correct.
So that would be our QFs that we'
talking about today?
Correct.
And you walk across or look across those
columns and you'll see a different number in each month
for CSPP; correct?
Correct.
And so that
- -
because that's a posi ti ve
number under the heading "Load " it looks like to me that
Idaho Power is looking at the CSPP resource as simply a
reduction to load; correct?
It's a positive number as we are adding
and subtracting in coming to ultimately a surplus or a
But it's on the upper part , and the bot tom
deficiency.
line on that section says "Remaining Load" so essentially
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what --
It's formatted that way, Mr. Richardson.
I don't know how much meaning to give it.
It is formatted such that the CSPP is
A reduction to load.
- -
a reduction to load , and can we see
from this that there's a pretty specific, that the
Company has a very specific idea how much CSPP resource
it's going to have in any given month?
Well , I mean , these are broad categories
and you're plugging in a CSPP value for each month just
like you are for loads and the Company's resources.
Which categories are you referring to that
are very broad?
Load is a broad category.CSPP al together
lS a broad category.Thermal is a broad category.Hydro
is a broad category.
So I guess in fact doesn't the Company
have a very specific idea how much energy to expect each
and every month for the planning period from its CSPP
resources?
MR. KLINE:Madam Chairman , I'm going to
obj ect These are proj ections.This isn't an idea of
what we can expect to actually receive.I think he I s
misstating what the document is saying.
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MR. RICHARDSON:Madam Chairman , this
witness testified that he has knowledge of the integrated
resource plan.He's the witness that the Company
sponsored , but they probably have other folks in-house
who know about the technical integration of CSPP
resources.m looking at a document that he's very
familiar with , he's testified he's very, very familiar
wi th and I'm simply asking if this doesn't show us that
they have a specific idea in advance because it is a
proj ection , they are proj ecting, they understand how much
CSPP they're going to have on-line.
COMMISSIONER SMITH:Mr. Kl ine , I think
the wi tness can answer that question.
MR. KLINE:That's fine.
THE WITNESS:And I'm happy to.Again
this is monthly values put in with the information
available just like the load values, just like the CSPP.
m hesitating because the qualitative nature of the
data , we have to come up wi th an estimate , we don't want
to value the CSPP at zero.To the extent that ul timately
will be quality data, that's left to be determined.
BY MR. RI CHARDSON :But it's the Company'
work product , so you assume it I S quality data , don't you?
Well , whether or not in January of 2002 we
got the 53 from QFs or not, I don't know.
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Do you know how the Company arrived at
for January of 2002?
I do not know how the QFs are estimated in
this worksheet.
So you don't know how QFs are estimated
for the Company's planning processes?
m not a technical wi tness
But you're here telling us that we need to
impose these penal ties because the Company can't plan for
QFs, but you don't know how the Company plans for QFs?
m here testifying to provisions that
will increase the reliability of QF deliveries from a
policy standpoint and I also can testify that from an
individual QF standpoint, the deliveries are all over the
board from what is stated will be delivered.
On the top of page 6, you state that firm
energy sales agreements do not requlre any monthly
commi tment from the developer.Do you see that?
Yes.
Isn't it true that all of the existing
contracts Idaho Power has wi th QF developers have a
specific contracted amount for monthly energy
deliveries?
I believe that's true.
And on page 7 on line 1 , you quote
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Dr. Reading as follows:Complainants' wi tness
Dr. Reading testifies that QF contracts are ' a mere drop
in the bucket to a utility the size of Idaho Power.
Does QF output really have any impact on Idaho Power'
resource planning?"And you go on to state your answer
there , but you say,QF resources are no longer ' a mere
drop in the bucket for a utility the size of Idaho
Power. 'As a resul t of my involvement in the development
of the Company's 2004 Integrated Resource plan , it has
become clear to me that Idaho Power's assumptions on QF
output , especially during the summertime peak-load hours,
has a direct impact on Idaho Power's need for future
resources.
Now , do you have Dr. Reading's testimony
in front of you?
I have it with me.
Okay, I think there I s a subtle but
important difference in how you characterize his
testimony, so I would like you to turn to the page in his
testimony that you're quoting, page 9, and if you would
read the question and answer beginning on line 6 from
which you took the quoted language.
The question is "Since the industry as a
whole has a proven and reliable track record, should
Idaho Power be concerned about individual developers
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failing to produce their contracted amount?
Again , absolutely not.Answer:First, as
I noted above, individual developers are already highly
motivated to make sure that their products produce - if
they don't produce they don't get paid.Howeve r , from
the perspective of Idaho Power , no individual developer'
proj ect is large enough to cause concern from an
operations standpoint.QF standard contracts are limited
to 10 megawatts - a mere drop in the bucket to a utility
the size of Idaho Power.
Is that the point you wanted to make?
That's the quote I wanted you to read.
Okay.
I f you would turn to page 7 , then , back to
your testimony, you characterize Dr. Reading's testimony
beginning on ine 1 "Complainants' wi tness Dr. Reading
testifies that QF contracts are a mere drop in the
bucket," and then going to ine 5 , you say,"Yes.
resources are no longer a mere drop in the bucket, 11 but
it was clear after rereading Dr. Reading's quote that he
was not talking about QF contracts or QF resources , but
he was actually talking about specific individual QF
proj ects; correct?
You're correct.
Now , I don't want to ask you to agree or
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disagree with his characterization of 10 megawatts as
being a mere drop in the bucket, but what is Idaho
Power's system load , peak load, approximately?
In the neighborhood of 2 900 megawatts.
So a single 10 megawatt QF represents only
about one-half of one percent of your peak load; right?
Correct.
And what's the average size of your
individual QFs?Would you agree wi th me it's about 2.
or 3 megawatts?
I believe I've seen the 2.5 before.
So actually, on average , an individual QF
on Idaho Power's system is even a third of one-half of
one percent of Idaho Power's system?
Okay.
Now , at page 7 , still on page 7 , beginning
on line 7 , you state that as a direct involvement in the
development of the Company I s resource plan 2004 , the
issues wi th the QFs have become apparent.
May I approach the witness, Madam Chair?
COMMISSIONER SMITH:Yes , you may.
(Mr. Richardson approached the wi tness.
BY MR. RI CHARDSON :Mr. Gale , I have a
copy of your 2004 integrated resource plan that I'm going
to hand to you for your reference.Now , wi th your
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Idaho Power Company83676
involvement in producing this document that made clear
you that Idaho Power is having all these problems with
QFs , is there anyplace in that document where you talk
about these problems?
m not aware of a place in the document
that talks about QF problems.
And I'll represent to you that I've read
through that document several times and that nowhere in
that document are these problems identified or even
footnoted , would you agree with that?
I would accept your representation.
Okay, because you were very involved in
producing this; right?
I was an oversight manager in the
process.
Do you think that it would be reasonable
to expect , especially since you state that it was as a
resul t of your involvement in this IRP process , that
these problems should have at least have been mentioned
in that document , especially given the fact that we'
proposlng such radical changes in the QF contract
process?
I don't know that it's necessary to
address the QF contract changes in the document.I think
the problem of an increasing capaci ty constrained system
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which is referenced well in the document, and
implementing contract provisions which address increased
reliability is a reasonable action for the Company to
take on behalf of its customers.
On line 19 on page 7 , you state that since
almost all
- -
beginning on line 16, essentially, since
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almost all of Idaho Power's QFs are located east of the
Brownlee East transmission constraint and inside your
control area that QF output has a direct impact on Idaho
Power's calculation of transmission defici ts or
transmission overload.Do you see that?
Yes.
Now , you see that as a problem?You say
it has a direct impact.Is that a positive impact or a
I see that as consuming transmission
The QFs are consumlng transmission
Yes.
You're wheel ing them out of your system
I wi thdraw my answer.
Okay; so I'll restate my question.It'
clear that you're testifying here that the QFs have a
negative impact?
resources.
resources?
somewhere?
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Idaho Power Company83676
direct impact on your calculation of transmission
deficits or transmission overload, what's that impact?
Is it a positive impact?A negative impact?
Intuitively to me since it is a load golng
the opposite direction , I think it's a positive impact.
Posi ti ve impact because they obviate the
need for you to buy transmission to bring power into the
system?
I can't take this questioning any further
beyond my level of expertise.
Would you - - assume wi th me that it's a
posi ti ve impact and you said it was , you thought it was
positive , but you don't know why, assume with me it'
positive because when QFs come on line in your load
control area , they obviate the need for you to acqulre
transmission resources to bring market power into the
system.
I'll accept your representation.
Okay, and if that's true , that would be of
value to Idaho Power , would it not?
That's true.
And do you know whether or not the QF
avoided cost rate includes a value or a
- -
a value for
avoided transmission costs?
I don't believe that it does.
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On page 8 you identify, you state that
there are - - first line, that you're currently aware of
approximately 200 megawatts of additional projects that
may yet
- -
that may come on line in various stages of
development, yet you don't tell us who these proj ects
are, why not?
I don't have a specific reason for not
telling you who they are.I believe the 200 megawatts
comes from a QF report prepared for the Company or by the
Company on a monthly basis , but I don't know who they are
and I don't have a specific reason for not saying who
they are.
Isn't raising the specter of being
overwhelmed with new QF development a common tactic by
Idaho Power in proceedings like this?
m not aware of that.
MR . RI CHARDSON :May I approach the
witness?
(Mr. Richardson distributing documents.
MR. RICHARDSON:Madam Chairman , I'
handing the witness a document entitled cover page 1993
Acquisition of Supply-Side Resources prepared by Idaho
Power Company September 1993.
COMMISSIONER SMITH:Is this Exhibit 55?
MR. RICHARDSON:This will be marked for
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identification purposes as Exhibit 56.
(Complainants Lewandowski & Schroeder
Exhibit No. 56 was marked for identification.
BY MR. RI CHARDSON :Now , I'm not going
to ask you if - - well I'll ask you , have you seen this
document before?
Yes.
Did you have any involvement in its
Yes , I did.
Wha t was that involvement?
Again, this was a paper that I had some
oversight in its preparation.
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Okay; so you're generally familiar with
I was in 1993.
Okay, and let's look at the second page of
which is actually labeled page 9 at the
bottom and there's a table in the middle of that page,
the heading of which reads Idaho Power Company proj ects
With Signed Contracts But Not Yet Generating as of
Do you see that?
Yes.
And there's a list of various proj ects and
the total is 147 megawatts.Would you agree with me that
preparation?
it?
this document
January 1 , 1993.
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the vast maj ori ty of those megawatts never
material i zed?
m getting the benefit of a whisper , but
the large one is one that the Company bought out , as
recall , and I would agree with your representation that
probably most of them, most the megawatts didn'
appear.
Okay, turn to the second page , third page
of this document actually labeled page 10 at the bottom
and here we have a larger table which is identified as
Idaho Power Company Table of Potential QF Contracts, and
correct me if I'm mischaracterizing, but this would be
sort of like a table we would see with this 200 megawatt
number you used In your testimony, these are folks who
have approached you in various stages of development;
correct?
I don't know how they directly compare
but certainly because someone approaches us, there's only
a percentage that actually materialize.
Right , and so you have 200 megawatts
your testimony in various stages of development and here
coincidentally, I added them up, it's close to 200
megawatts and looking at this list, can you identify any
of these that have come on line?
COMMISSIONER SMITH:Mr. Kl ine has
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vol unteered to answer.
MR. KLINE:Magic Valley came on line.
MR. RICHARDSON:Well , I'll withdraw the
question , Madam Chairman.
BY MR. RI CHARDSON :Wouldn't you agree
that for a lot of reasons the vast maj ori ty of those
potential QFs who knock on your door never materialize?
Of this list , yes.
And from the list on the preceding page?
Yes.
Now , on page 9 you state that the
developer , and we've been over this
I was a little quick.Magic West on the
preceding page materialized.It takes me a while to
cross reference.
MR. KLINE:Mr. Ri chardson , when you asked
if they didn't material i ze , are you talking in terms of
megawatts or numbers of contracts?
MR. RICHARDSON:I would ike both.
mean , megawatts are what Mr. Gale referred to in his
testimony, so it probably would be best to stick wi th his
standard , which would be megawatts.
THE WITNESS:Those are the only ones
can tell , the two Magics.
BY MR. RI CHARDSON :Okay, movlng on to a
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Idaho Power Company83676
different topic , if you're prepared , are you done with
that?
m ready.
Okay.Now , you testified that you'
going to allow developers to adj ust their net energy
amount once every two years and earlier you testified as
to the importance of QF resources on your transmission
system and the need for firm commitments from them for
transmission purposes.How often does Idaho Power al ter
its transmission schedules?
Well , they potentially could al ter their
schedul e every day.
Right , but you pre-schedule in advance,
but you also schedule daily and hourly even sometimes
don't you?
At least daily.
On page 8 at line 9 , you state that the
two-year window equates to substantial flexibility for
the QF developer.Do you see that?
Do you mind point ing again?Page
Yeah m on page line believe
page line
Okay.
Page line "As resul t Idaho
Power's proposed FESA provides substantial flexibility to
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allow the developer " et cetera, et cetera.How many QF
developers have told you that that gives them substantial
flexibili ty?
None have told me that.
So that's your opinion?
That's my oplnlon.
Do you think a QF developer wi th a
run-of-river hydro project has substantial flexibility in
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proj ecting two years in advance what the weather is going
I think the type of QF facility you just
to be?
described would have more difficul ty than others.
So it wouldn't be substantially flexible
for that QF , would it?
No.
Now , on the same page , page 9 , at line 18,
, 19 , 20 , I guess , you state that if more than planned
energy is delivered to Idaho Power that it is possible
that Idaho Power would have to sell that energy off;
correct?
you?
conclusion.
Correct.
But you don't know that for a fact , do
Well , I think it's a reasonable
462 GALE (X)
Idaho Power Company83676
It's a possibility, but it's not a fact?
It's not a fact because I can't point to
an instance , but I think it's a probability that it'
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It's a possibility, it's probably
happened.
Yes.
happened?
And there are probably instances when
hasn't happened; correct?
happened.
Correct.It either has or hasn'
And isn't the same situation true when
less than planned energy is delivered?You state that
is possible that Idaho Power would have to purchase on
the market , but again , you don't know that for a fact, do
The testimony is it is possible we would
you?
have to make additional firm purchases.Tha t seems ike
a reasonable statement to me.
m not questioning that it's a reasonable
statement; so the eventuality that you're trying to cure
wi th this band may or may not come to frui tion;
correct?
fruition.
I think it's likely it will come to
463 GALE (X)
Idaho Power Company83676
But it may or may not?
I think it's likely.
MR. KLINE:Obj ection , asked and
answered.
BY MR. RICHARDSON:Isn't it true that
COMMISSIONER SMITH:Sustained.
MR. RICHARDSON:Thank you , Madam Chair.
BY MR. RICHARDSON:Isn't it true that the
band if implemented as you recommend , it's not optional
wi th the QF , though; right?I mean , it's always charged.
Whenever there's surplus or deficit, they get charged
whether or not you would go to the market to buy
replacement power and whether or not you have to go to
the market to sell surplus power?
The band would be implemented, yes.
Irrespective of what you're doing in the
market; correct?
Correct, but there's always a market
implication with every transaction.
Isn't it true that, back to your IRP
process , the planning process, isn't it true that for
planning purposes, Idaho Power doesn't even know how much
output is being delivered to it by any individual QF?
For planning purposes, Idaho Power doesn'
know how much output is going to be delivered?
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That's the question.
I think that's probably right on.That'
been my point.
Well, I may have worded the question
improperly or I didn't get my question across to you.
the planning purposes , for planning purposes , for
indi vidual QFs , you don't know what they're going to
produce , but for the QF resource as a whole , you have a
very solid idea of what they're going to produce?
We have an estimate.
MR . RI CHARDSON :May I approach the
wi tness, Madam Chair?
COMMISSIONER SMITH:You may.
(Mr. Richardson distributing documents.
MR. RI CHARDSON :m handing out a
two - page document.The first page is Idaho Power
Company, Qualifying Facilities, Cogeneration and Small
Power Production proj ects , and I'll represent this
taken from your 2004 integrated resource plan.The
second page has the same ti tIe.The second page is
titled Idaho Power Company, Qualifying Facilities
Cogeneration and Small Power Production Facili ties Online
as of December 31 , 2001.
(Complainants Lewandowski & Schroeder
Exhibit No. 57 was marked for identification.
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BY MR. RI CHARDSON :Now , these documents
are taken directly from the 2002 and 2004 integrated
resource plans respectively in the technical appendix
and this is the document, keeping in mind, that you use
for planning purposes for resource acquisition
transmission planning and this is a list of your CSPP
proj ects.Isn't it true that on not one of these
proj ects do the planners even know or apparently care
what each individual QF is generating, they only care
about the aggregate number; isn't that right?
An aggregate number is needed for IRP
planning, for the IRP planning process.I can't
characterize their degree of caring.I would surmise
that they'd want to have as accurate a number as
possible.
But the planners don't know if Snake River
Pottery is a 10 megawatt project or a 40 megawatt little
run-of - stream proj ect, do they?
I don't know that, Pete.I don't know
that they don't know that.
Can you find that information anywhere in
your planning document known as the integrated resource
plan?
No, but the same folks on that team can
get all kinds of information regarding the proj ects and
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their performance.
And what can you conclude from the fact
report an aggregate number?
I don't know what to conclude from that,
That's fair.Looking once more at this
tha t they only
Pete.
number , this exhibi t , wouldn't you agree wi th me that
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whoever it is and however they did it, we don't know who
or how , but they were specific and detailed enough to
calculate this to the second decimal, so it's not a rough
average, would you agree?
I t may be ambi t ious rounding.Because we
have extra decimal points doesn't always mean that's the
accuracies involved.
It's not a rounded number, would you
, they didn't round it.m just saYlng
because there are two decimal points doesn't necessarily
mean it's a more accurate number.
And without the actual planning people who
are actually doing this sort of work , we just don't know
how they do it, do we?
Well , they have to come up wi th an
estimate of QFs in order to do the plan.
And you supervise those people?
agree?
467 GALE (X)
Idaho Power Company83676
process.
I oversee along wi th others part of the
Do you know who actually does that work?
The IRP is led by Karl Bokenkamp.
the QF number.
My guess Randy Allphin would have
something to do wi th it , the QF contract administrator.
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He'currently employed by the Company?
Yes.
Would he have been available to testify on
these issues in this hearing to help the Commission to
understand how --
Well , you're asking technical questions
and we have policy issues before the Commission and I'
the policy wi tness.
Isn't it true that these technical
questions are all about how you integrate QFs into your
resource planning process?It's a complex technical
process , isn't it?
Yes.
And yet , the Company chose to sponsor a
generalist witness?
Yes , it does.
Okay.Now , looking at that exhibit , would
you agree that for modeling purposes the Company just
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models QFs as a single resource?
It may.
You don't know?
I don't know.
Okay, turn to page 13, please, of your
direct testimony.Beginning on line 5, you state that
the only things that would subj ect the QF developers to
shortfall energy payments is if their proj ections of
monthly generation amounts are too high or because they
have overestimated the efficiency of their proj ects or
equipment , that's the first reason , or they have assumed
temperature variations that are not realistic or , in the
case of wind generation , developers have overestimated
the amount of wind that will be available.
You know , I lost my train of thought on
that one.In fact , if I could strike that question , I'd
appreciate it.At the top of that page you state
starting on line 1 that the QF is free to generate at
maximum levels for some hours in order to make up for
shortfalls in others up to the 10 000 kW limit.How do
you propose that a run-of -river or hydro or wind proj ect
accompl i sh that f eat?
To the extent it's capable.
Only to the extent there's water in the
stream or
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Or wind.
wind in the air?
Yes.
So they're not really free in the sense of
they can choose to or not?
If they have the capability to alter their
generation.
And the capability is totally outside of
their control?
In some instances, yes.
In both of those instances?
In those two instances you referenced,
yes.
Now , let's assume that Idaho Power's own
resources are subj ect to the same pI us or mlnus band of
90 to 110 percent and if you generate, if Idaho Power
generates, less than 90 percent of its estimated amount
that the shareholders are on the hook for the shortfall
energy just as the QF developers are on the hook , and
assume if you generate more than 110 percent of your
estimated amount that you only recover 85 percent of
Mid-C as your income and your shareholders are on the
hook for the difference.Now , let's apply that to your
Brownlee complex.
May I approach the witness?
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COMMISSIONER SMITH:Yes , you may.
(Mr. Richardson distributing documents.
MR. RICHARDSON:Madam Chairman , what I'
handing out wi 11 be Exhibit 58.It is entitled Table
Recent Brownlee Inflow History.It's taken from the 2004
integrated resource plan.
(Complainants Lewandowski & Schroeder
Exhibit No. 58 was marked for identification.
BY MR. RI CHARDSON :Do you recogni ze thi s
document?What I want to focus is just the table , the
Recent Brownlee Inflow History.
Okay.I recogni ze those numbers.
And they're familiar to you and that looks
about accurate?
Very painful , yes.
Some were painful , some weren't; right?
Yes , right.
Now , let's just for simplici ty, we don'
have to convert these million acre feet , which is what
the MAF stands for , into kilowatt-hours, let's just
assume that the 6.1 equals the generation from Brownlee,
1 kilowatt-hours or whatever multiplier you want to do
it.You're the developer of Brownlee and you have to
operate within this 90-110 percent band , what number
would you pick as your net energy amount?
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Brownlee?
Brownlee?
The question
Do I get five cents a kilowatt-hour out of
Pardon me?
Do I get five cents a kilowatt-hour out of
That wasn't the question.
was if you were looking at this stream of production data
as your history and you wanted to be
- -
and you state
here on page 13, line 5 , that the only things that would
subj ect the QF developer to shortfall energy payments
if their proj ections of generation were too high.
Okay, I guess my answer would be somewhere
in the 3.3 million acre feet area.
So if you picked , say, 3.3, your band
would be 10 percent of that , so roughly . 3 , so anything
ove r 3. 5 you get
idea what that'
shortfall energy
paid whatever the market is , you have no
going to be, and anything under 3.0 is
and you picked what I would characterize
as the wrong number based on your test imony here because
this QF developer or you would be subj ect to shortfall
energy payments.
Well , you've set up a scenario where
you've made our resource equivalent to the contract and
they're just not.I just don't accept that.
Okay, and based on the number you picked
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the vast maj ori ty of the generation from this proj ect
would be surplus energy; correct?
Which scenario?
You picked the number 3. 3, so everything
over 3. 6 is surplus energy.
Okay.
Let's turn to your rebuttal testimony.
just have a couple more points , so bear wi th me.I n your
rebuttal testimony, Mr. Gale, at page 3 , you testify that
there are four proj ects that have already signed
contracts wi th the pI us or minus 10 percent band and you
concl ude from that , you state it is apparent that at
least some QF developers, representing a variety of
technologies, believe that they can essentially live wi
that band; right?
Yes.
Let's explore those four proj ects.You
say there's a wind and a hydro, one wood waste and one
industrial; right?
That's what the testimony says.
Okay.Now , the wind proj ect , where is
that located?
I believe that's in Montana.
So don't they have to schedule on some
other utility's transmission system to get their power to
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you?
I believe that's correct.
And when you schedule firm transmission
you've got to be pretty firm , don't you?
Yeah , and it's very valuable to the
Company and very reI iable
Okay, and so this QF developer for
whatever reason has have firm schedule of power
output order to get their power to you;correct?
The point that wi the requirements,
they can still execute contract.
The question was this QF developer has to
have a firm schedule with another utility of its power
output in advance in order to get its power to you?
Yes, it does.
And do you know whether or not that wind
developer has any backup capability for its production in
order to firm that delivery?
I believe that it does.
And that would be unique in your
experlence, wouldn't it , with QFs?
That si tuation would be unlque among our
QFs, but it sure makes the product much more valuable to
the Company and its customers.
And you're paying more for it , then?
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t hem a
- -
for it.
located?
And we pay more for it?
That much more valuable , are you giving
No, they're getting the valid firm prlce
And the hydro proj ect, where is
I don't know.
Would you agree with me, subj ect to check
that it's located in the State of Montana outside of
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Idaho Power's load control area?
I would.
And if that assumption were correct that
it's located outside of your load control area in a
different state that it, too, has to schedule firm
transmission with another utility in order to get their
power delivered to you?
Yes, it would.
And do you know whether or not that hydro
facility also has a unique backup arrangement with an
investor-owned utility for firming its deliveries to
My guess is it would.
And doesn't that make it a unlque
you?
proj ect ?
475 GALE (X)
Idaho Power Company83676
It makes it a more valuable proj ect
Doesn't it make it a unique proj ect
terms of your QF experience in Idaho?
Well, now there's two.
Two with an investor-owned utility backing
up del i veries?
Yeah , there's two.
Let's look at the wood waste proj ect , do
you know whether or not the developer of that proj ect has
already secured a firm fuel supply for the 20-year life
of the contract?
It's my understanding that it does have a
supply.I don't know about whether it's the whole
years.
So if I have a firm fuel supply for the
entire life of the contract, I'd probably be a lot more
willing to sign a contract with a band than if I'm a
hydro developer or a wood developer or a geothermal
developer , wouldn't I?
Yes, but from the Company's perspective,
all these contracts are much more valuable to us and our
customers.It's a product we're buying.
The industrial waste proj ect or rational
man proj ect, do you know whether or not that industrial
waste process is backed up with the capability of burning
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natural gas for deliveries to you?
Yes.
So it's a lot easier to sign a contract
with a band if you have the ability to burn natural gas
to stay wi thin the band , isn't it?
Yes.
MR. RICHARDSON:Mr. Gale , thank you for
your patience this afternoon.
Madam Chairman , that's all I have.
COMMISSIONER SMITH:Thank you
Mr. Ri chardson
Do we have questions from the Commission?
Commissioner Hansen.
EXAMINATION
BY COMMISSIONER HANSEN:
Mr. Gale , I've got a few notes here
scribbled and you probably answered these questions a
couple of times already, but to just kind of clarify
in my mind.Aren't we talking about a super small amount
of power in dollars if the QFs fall below the 90 percent?
I mean , I think there was a statement that the QF
contracts were a drop in the bucket to the total and so
my question is
- -
and you know , we talked about the QFs
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that are at 10 or 2.5 megawatts or whatever and what a
small impact that has and I guess where I'm comlng is , is
if you're agreeabl e it is such a small drop in the
bucket , why is it such a big issue to reliability.
And I know you said it's for the benefi
of your customers, but why is it such a big lssue to your
Company and what kind of benefit do you see this
reliability to the customer?I mean , are we looking at
without it that we could see a fair impact on rates on
the customer because they're not meeting their
reliability?I guess that's where I'm kind of coming
from.Can you answer that?
You have several there.First of all , the
drop in the bucket piece of it , the drop in the bucket,
as Mr. Richardson correctly crossed me on was, referred
to individual QFs and in that aspect I would agree and
referred to my testimony as if you look at all QFs , it'
not a drop in the bucket and it's not , so then you ask
yourself , okay, if you can put in a discipline on each
new QF contract that makes them each more reliable , and
right now we have nothing, we don't have
- -
I mean
there's no consequence and so to the extent that they can
exerc i se some means wi thin their control to del i ver what
they say they will deliver and with the new renewables
coming on because we're seeing more and more wind coming
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on that , first of all , it will make each one to the
extent that they can exercise that ability more reliable,
and then as a whole , the whole group will become more
reliable and I think it's important just because they'
small that you not give up the things that you can do to
make it a bet ter product for your customer.
Okay, what is the consequence to the
customer?Well , a big point of our testimony is we have
gone from ene~gy constrained, when we're energy
constrained, we really don't care when we get the
kilowatt-hours , to capacity constrained where we do care
so now we're trying to put into contracts measures that
will try to influence those QF contracts to be more
reI iable.That's why we're trying to do it, but the
consequence would be that you have to make up that power
that you thought you were going to get from the QF and
didn't or you might have to off -load the power that you
got unexpectedly from the QF.
So another area to clarify a point for me
in the case that , say, several QFs are not meeting their
contract , they're not providing the power that you
anticipated , in those cases , then , does that force you
out , say, in the spot market to buy that power?
Well , if you're expecting a certain amount
of power from a QF and it's not delivered , then you'
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going to have to make up that power.Now , maybe you can
ramp up your other generation or maybe you have to go to
the market to take to care of it.
So then am I correct in assuming, then
eventually that's going to flow back to the customer
those costs, if it's greater; is that right?
I think where it might hi t the customer
to the extent we can more fully rely on the capacity that
QFs can del i ver , then that's less of a place where we'd
have to go get peaking resources , because we know we can
rely on the QF contracts to deliver that power on the
peak.
COMMISSIONER HANSEN:Okay.That's all
have.
EXAMINATION
BY COMMISSIONER SMITH:
I guess I want to follow up on this
reliability issue that you've brought up because I'
wondering whether this incentive actually increases
reliability or does it just get the Company some
financial relief?I mean , if you're a wind proj ect and
for some reason the wind does not blow , there's nothing
you can do to increase the reliabili ty up to 90 percent.
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There's two angles to look at it.One is
to the extent that they can take measures, now there's a
reason to take measures.To the extent that there are
things beyond their control, what it does do is now
values the product we're getting more correctly.
But if they don't produce , then they don't
get paid?
Correct.
And if the Company has to go out and buy
power , for some reason it doesn't have the resources on
its system or loads are more than you predicted and you
can't squeeze by, where do those costs go?
Well , they'll go through the power cost
adj ustment and , Commissioner Smi th --
m listening.
- -
if they don't produce and the damages
are exacted, those will go through the power cost
adjustment as well , so the customers are expecting to get
that energy delivered from the QF.If it doesn't happen
and it's to the customer's detriment, then the QF gets to
contribute to the PCA.
I want to go back to this volunteer issue
because I'm curious how can the Company be seen as a
volunteer as long as PURPA is the law and there's a must
purchase requirement and this Commission approves
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contracts and you mentioned your experience in three
states in QF contracts at your own peril , so could you
please expand on that so I can understand how anybody,
especially given the history of your Company since
whatever , in the area of QF contracts could ever be seen
as a volunteer on these contracts.
It's a particular aspect of it.When the
deregulation activity was going on , and the three states
m talking about was here in our own workshops and in
Oregon and in Nevada , the idea of stranded costs came up,
as you might recall , and along with the stranded costs
were the possibility of overpriced , arguably overpriced,
PURPA contracts , and in each state , as I recall , was not
the argument of those that you'd entered into up until
that time, but the mere fact that we had NEPA 92 and
deregulation on the horizon that any future contract that
a company might enter into in that environment , shame on
them if they didn't protect themselves contractually.
That's what I'm referring to and that's what we're trying
to provide here.
So was that a posi tion of the Idaho
Commi s s i on ?
I don't know that it was your position , in
fact , it probably wasn't your position , but it was a
discussion item in our deregulation workshops.
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So it was just a discussion item in
deregulation workshops that probably happened eight years
ago in a state where the legislative commi ttee has
emphatically say we're not going there, not now , not
ever , no way?
I hear what you're saying.
Okay; so was it any more firm in Oregon?
I think it was brought up in all the
states.
But was it any more firm?Is it a state
policy?Is it in their statute?Is it in a commlSSlon
order?
I don't know if it's in their statute
because we're exempted from their part, but from my
aspect , if it's an issue that is brought up in an open
discussion and if we don t take some action to mitigate
, then it's just foolish from our end regardless of how
remote it is.
I understand.The other thing that
occurred to me that this incentive could be is a strategy
on the part of the Company to force these proj ects into
the RFP process so you pay prices lower than the QF rate.
I don't know what the prices will bring in
the RFP process , but I'm eager to see.
Okay, and finally, I just wanted to give
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you the opportunity even though you say you're new to
PURPA to answer the same question that I asked
Dr. Reading and Mr. Runyan about the policy behind PURPA,
why we have PURPA and what the Commission needs to be
aware of so that we're implementing that policy.
Well , I'm not sure that I'm going to
differ much from Mr. Runyan's answer.I think initially
it was put in to provide some other sources of
generation.To the extent it provides a discipline to
the Company's resources like Dr. Reading said , that'
fine too.In today' s age , I think an IRP that has teeth
in it with diverse portfolios that go out for RFPs could
serve a lot of the same purposes.The only place where
see a disconnect is in the very small ones who wouldn'
maybe be able to participate, but potentially even the
IRP RFPs could become the new avoided cost because we'll
have a market test for those, but be that as it may,
think an IRP process with teeth could do a lot of what
PURPA is trying to accomplish.
But PURPA is still the law; right?
Still the law.
So the Commission still has the obligation
to calculate an avoided cost rate?
And maybe costs could be based on IRP
resul ts.
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So you think there'flexibility there?
Yes.
But you haven'asked us to do that?
No.
COMMISSIONER SMITH:All right , I think
that's all I have.
Redirect , Mr. Kline?
MR. KLINE:I do have a couple.It looks
ike we're going to be going tomorrow anyway or do you
have a feel for going late?
COMMISSIONER SMITH:Well , we can go off
the record for a minute.
(Off the record discussion.
COMMISSIONER SMITH:We'll go back on the
record.
REDIRECT EXAMINATION
BY MR. KLINE:
In a question to you from Mr. Richardson
he stated that the Commission has not issued an order
that distinguishes QF resources between non-firm and
firm.Do you recall that question to you?
Yes.
Isn't it true that Idaho Power has filed
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with this Commission and received approval for Schedule
86, the Company's tariff that sets avoided cost prices
for non-firm QF resources?
There is a Schedule 86 that does exactly
wha t you say.
So at least in that sense, the Commission
has established separate prices for firm and non-firm
resources?
Right.
A lot of the questions that you got from
both Mr. Ward and from Mr. Richardson talked about the
Company's unilateral insertion of new contract terms and
condi tions into the contracting process.Idaho doesn't
have a standard QF contract that's been approved by this
Commission , does it?
There isn't a standard.I think there was
at one time, but there isn't now.
But a lot of states have done that
that correct they've actually put out a standard
contract that has to be offered to every
deviations , no negotiations , this is it?
I know there are some states that are that
way.
I know you don't recall the time - - well
anyway, strike that.Mr. Ward asked you a question about
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the desirabili ty of having the U. S. Geothermal proj ect
Raft River proceed in order to prove the feasibility of a
geothermal resource in the State of Idaho.I n your
participation and work in the Company's integrated
resource planning process for 2004 , do you see any
indication that there is a problem with people being
willing to go ahead and develop geothermal resources in
the State of Idaho?
Well , I think during our IRP workshops
there was expressed interest in development of geothermal
resources.
Mr. Ward also asked you a couple of
questions about the AURORA model and we'll talk about
a little bit.We had a chance at the break to discuss
a little bit, so what I would like to have you do , if you
could , please , is just clarify the AURORA model , the 20
years versus the 10 years.
Well , the question , as I recall it , was
doesn't it just model the 10 years and I gave the wrong
answer , it can model 20 years.I just wanted to correct
that.I think Mr. Sterling of the witness group can
probably answer more completely any additional AURORA
questions.
Okay, and Mr. Ward al so asked you a
question regarding the exhibi t , Mr. Runyan's Exhibi t 402.
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Do you have that with you?
I think so.
It goes with his rebuttal testimony, Mr.
Runyan's rebuttal testimony.
COMMISSIONER SMITH:You mean 4.
THE WITNESS:2 ?
BY MR. KLINE:4 .2 .I think they called
it 402 , but it says 4.
I ha ve it.
And he asked you to take a look at the
percentages in the second chart there for CSPP production
for the hydro proj ects and the thermal proj ects and when
you compare those two groups of proj ects , which ones are
most valuable to the Company from a resource acquisition
standpoint?
Well , if they schedule based upon this
information , the thermals would be more predictable.
And therefore , have greater value?
Yes.
And I do want to clarify one more thing.
Mr. Richardson asked you a question about the existing QF
contracts , the ones that, not the most recent four, but
the prior group of contracts about them having monthly
amounts of energy contained in those contracts and isn'
it true that in that generation or that vintage of
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Idaho Power Company83676
contracts the numbers that are in there are simply
estimates by the QF developers , they are not commi tments
on their part?
Estimates is correct.
MR. RICHARDSON:Madam Chair , I obj ect to
the question.
COMMISSIONER SMITH:Mr. Ri chardson
MR . RI CHARDSON :That does ask for a legal
conclusion.
COMMISSIONER SMITH:Is your mic on?
MR. RICHARDSON:I believe that question
does ask for a legal conclusion.He asked if they'
estimates or commi tments and this wi tness has earlier
testified that he can't testify as to the legal import of
those agreements.
COMMISSIONER SMITH:Mr. Kline.
MR. KLINE:In fact, he did answer the
question and he did say that they were commitments and in
fact , they are estimates and I wanted to make sure that
was on the record.
MR. RICHARDSON:I'll renew my
obj ect ion.
COMMISSIONER SMITH:Overruled.
MR. KLINE:Tha t 's all I've got.
COMMISSIONER SMITH:Thank you , Mr. Kline.
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(The wi tness left the stand.
COMMISSIONER SMITH:I suggest we start at
9: 00 a. m., so we'll see you in the morning at 9: 00.
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Wilder , Idaho
Mr. Kline, that concludes your case?
MR. KLINE:It does.
COMMISSIONER SMITH:So we'll begin with
Mr. Fell's witness and then Mr. Strong's and then the
(The Hearing recessed at 4:55 p.
Staff.
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