20040921Vol III.pdf

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ORIGINAL
HEGEfVED
BEFORE THE IDAHO PUBLIC UTILITIES COM~~e~BON trOtL!;"
L.J
Complainant
) CASE NO. IPC-E-04-
) ,
) CASE NO. IPC-E-04 -
Zug~ SE? 2m PJf1 r.: 5'8U . S. GEOTHERMAL, INC.
IDAHO CORPORATION
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vifLtl ItS GOrtr'1tSSJ.(JJN
vs.
IDAHO POWER COMPANY , AN
IDAHO CORPORATION
Respondent.
, I;
BOB LEWANDOWSKI and MARK
SCHROEDER
Complainants,
vs.
I DARO POWER COMPANY,
IDAHO CORPORATION
Respondent.
)..
BEFORE
COMMISSIONER MARSHA H. SMITH (Presiding)
COMMISSIONER PAUL KJELLANDER
COMMISSIONER DENNIS HANSEN
PLACE:Commission Hearing Room
472 West Washington
Boise, Idaho
DATE:September 2004
VOLUME III - Pages 491 - 695
CSB REpORTING'
Constance S. Bucy, CSR No. 187
17688 Allendale Road * Wilder, Idaho 83676
[phone] * [phone]
Email csbC0spro.1fret
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For the Staff:Scott Woodbury, Esq.Deputy At torney General
472 West Washington
Boise, Idaho 83720-0074
For Idaho Power:Barton L. Kline, Esq.
Idaho Power Company
Post Office Box
Boise , Idaho 83707-0070
For u. S. Geothermal:GIVENS PURSLEY LLP
by Conley E. Ward, Esq.
Post Office Box 2720
Boise, Idaho 83701-2720
For Bob Lewandowski
and Mark Schroeder:RI CHARDSON & 0' LEARY
by Peter J. Richardson, Esq.
Post Office Box 1849Eagle, Idaho 83616
For Avista Corporation:PAINE HAMBLEN COFFIN BROOKE
& MILLERby R. Blair Strong, Esq.
71 7 West Sprague Avenue
Suite 1200
Spokane , Washington 99201
For PacifiCorp:STOEL RIVES LLP
by James R. Fell, Esq.900 S. W. Fifth Avenue
Suite 2600
Portland , Oregon 97204
CSB REPORTING
Wilder , Idaho
AP PEARANCE S83676
WITNESS EXAMINATION BY PAGE
Laren J. Hale
(PacifiCorp)
Clint Kalich
(Avista Corp.
Mr. Fell (Direct)
Prefiled Direct Testimony
Mr. Woodbury (Cross)Mr. Richardson (Cross)Mr. Ward (Cross)
Mr. Fell (Redirect)
Commissioner Smith
491
494
515
516
518
525
528
Kip Runyan
(U. S. Geothermal)
Rick Sterling
(Staff)
Mr. Strong (Direct)
Prefiled Direct Testimony
Mr. Kline (Cross)Mr. Richardson (Cross)Mr. Ward (Cross)
Commissioner Kj ellander
Mr. Strong (Redirect)
530
534
549
550
554
556
560
Mr. Ward (Direct-Reb)
Mr. Strong (Cross-Reb)Commissioner Kj ellanderMr. Ward (Redirect-Reb)
564
569
570
572
Mr. Woodbury (Direct)
Prefiled Direct Testimony
Mr. Kline (Cross)Mr. Richardson (Cross)Mr. Ward (Cross)
Commissioner Smith
Mr. Ward (Recross)
Mr. Woodbury (Redirect)
573
576
609
610
636
681
686
687
CSB REPORTING
Wilder , Idaho 83676 INDEX
Premarked
Admi t t ed
Premar ked
Admi t t ed
101 Non-Utility Generation Options Premarkedfor Power Sales to Idaho Power Admitted
PAGE
691
691
691
691
691
691
691
691
624
691
NUMBER DESCRIPTION
FOR PACIFICORP:
Estimate of QF Value Given
Various Types of QF Resource
301
FOR AVISTA CORPORATION:
401 BPA Wind Firming & Shaping
Service
FOR THE STAFF:
102 Sample Contract Generation &
Payment Scenarios
103 Sample Contract Generation &
Payment Scenarios
104 Bibl iography
105 BPA Wind Integration
Services, March 2004
FOR BOB LEWANDOWSKI & MARK SCHROEDER:
- 58
Order No. 15746 in Case
No. P-300-
CSB REPORTING
Wilder, Idaho 83676
Premar ked
Admi t t ed
Premar ked
Admi t t ed
Premarked
Admi t ted
Premarked
Admi t ted
Admitted
Identified
Admitted
EXHIBITS
E X H I B T S (Continued)
NUMBER DESCRIPTION PAGE
FOR U. S. GEOTHERMAL , INC.
1 - 4.Admi tted 691
FOR I DAHO POWER COMPANY:
201 - 204 Admi t t ed 691
CSB REPORTING
Wilder , Idaho EXHIBITS83676
BOISE , IDAHO , FRIDAY , SEPTEMBER 3, 2004 , 9:00 A.
COMMISSIONER SMITH:Good morning,
gentlemen.We I 11 take up our hearing again.I believe
Mr. Fell , we were going to begin with your witness.
MR . FELL:Yes, PacifiCorp will call
Mr. Laren Hale to the stand , please.
LAREN J. HALE
produced as a witness at the instance of PacifiCorp,
having been first duly sworn , was examined and testified
as follows:
DIRECT EXAMINATION
BY MR. FELL:
Mr. Hale , would you please state your
name , business address and present posi tion wi
PacifiCorp?
Yes.My name is Laren Hale.My business
address is 825 NE Mul tnomah , Suite 800 , Portland , Oregon
and 11 m a senior analyst with PacifiCorp.
Mr. Hale, did you cause to be prepared
prefiled direct testimony in this case?
CSB REPORTING
Wilder , Idaho
491 HALE (Di)
PacifiCorp83676
I did.
And did you also prepare what has been
marked as Exhibi t 301?
I did.
Mr. Hale - - let me start somewhere else.
Madam Chair, I have two questions of
clarification that I I d like to ask Mr. Hale before
getting into swearing to his testimony.
COMMISSIONER SMITH:Please proceed.
BY MR. FELL:Mr. Hal e , are you
recommending adoption of a nameplate rating standard for
eligibility for the 10 megawatt posted rates?
, I I m not.
When you refer to the term "design
capaci ty" in your testimony, is that what you I
referring to?Is that what you re recommending?
Yes.What we are recommending is that the
maXlmum capaci ty of any time while operating consistent
with the manufacturing specifications under prudent
utility practice taking into account actual operating
condi tions.Effectively what that means is that would be
the highest megawatt-hours that would ever pass through
the meter.
Mr. Hale , with that clarification , if
were to ask you today the questions that are contained in
CSB REPORTING
Wilder , Idaho
492 HALE (Di)PacifiCorp83676
your prefiled testimony, would your answers be the
same?
Yes, they would.
MR . FELL:We move that the prefiled
testimony of Mr. Hale be spread on the record as if read
and that Exhibit 301 be marked for identification.
COMMISSIONER SMITH:If there's no
obj ection , it is so ordered.
(The following prefiled testimony of
Mr. Laren Hale is spread upon the record.
CSB REPORTING
Wilder , Idaho
493 HALE (Di)
PacifiCorp83676
Please state your name, business
address and present position with PacifiCorp (the
Company"
) .
My name is Laren Hale , my business
address is 825 NE Multnomah , Suite 800 , Portland , Oregon
97232 , and my present position is Regulatory Analyst
Ld/Sr.
Qualifications
Briefly describe your education and
business experience.
I received an undergraduate degree in
Business Finance and a Masters of Business Administration
from the University of Utah. I began working for Utah
Power & Light Company in 1979.During my 25 years wi
the Company, I have held a variety of positions including
Senior Power Planner , Senior Cost of Service Analyst, and
Senior Pricing Analyst.I was promoted to my present
position in April 2001.
Please describe your current duties.
Among other duties , I am responsible
for the preparation of the Company I s avoided costs in
each of the Company I s six juri sdict ions.
Have you been a witness before this
Commission in the past?
Yes, I was a wi tness in Case
CSB REPORTING
Wilder , Idaho
494 HALE (Di)
PacifiCorp83676
IPC-E- 95 - 9.In that case I supported the Company I
calculation of IRP-based avoided costs.
CSB REPORTING
Wilder , Idaho
Summary of Testimony
Will you please summarize your
test imony?
Yes.My testimony addresses the
following lssues.
(1 )US Geothermal is requesting that the
10 MW ceiling used to determine eligibility for standard
tariff prices should be defined as 10 aMW.Idaho Power
495 HALE (Di)
PacifiCorp83676
promoting a capacity definition of "10 MW in any hour.
We agree wi th Idaho Power I s approach wi th one addi tion.
We proposed that there be an ini tial capaci
determination to verify that a QF is eligible for tariff
prlces and that this initial capacity determination
should be enforced with a contract provision limiting
payment to not more than 10 MW in any hour.
(2 )Idaho Power I s standard contract
has provisions that allows a QF to commit to monthly
delivery schedules in order to receive firm pricing.
agree that conditioning firm pricing on monthly delivery
commi tments is a reasonable requirement.
(3 )Idaho Power I s standard contract has
a prOV1Slon that allows for termination of the contract
if retail deregulation results in unrecoverable stranded
costs.We support Idaho Power I s position that utilities
need to act prudently to mitigate their potential
exposure if deregulation results in unrecovered stranded
costs.
Appropriate Method for Calculating the 10 MW Ceiling for
Standard Avoided Cost Price Application
What is the Company I S posi tion as to
how the 10 MW ceiling for standard or published price
application should be determined?
The Company agrees wi th Idaho Power
CSB REPORTING
Wilder , Idaho
496 HALE (Di)
PacifiCorp83676
that the 10 MW ceiling should be determined to be a
measure of maximum capaci ty and not of average energy
delivery.Some measure of maximum capaci ty has
historically been used both in Idaho and the other
jurisdictions where PacifiCorp operates.The application
of standard avoided cost prices to PacifiCorp I s
contracts and tariffs employs a capacity ceiling or
determina t ion , and not an average energy concept.
CSB REPORTING
Wilder , Idaho
497 HALE (Di)
PacifiCorp83676
defini tion , a "megawatt" is a measure of capaci ty, not
average energy.Moreover , the PURPA regulations which
provide the legal authority for standard pricing use the
term "design capacity" to differentiate as to which QFs
are eligible for such pricing.See 18 CFR ~292. 304 (c) (2)
(" (t) here may be put into effect standard tariff prices
for purchases from qualifying facilities with a design
capacity of more than 100 kW.For these reasons
PacifiCorp I s position is that the Commission should
continue to define the ceiling in terms of maximum
capacity and not average energy.
Does the Company have a specific
proposal as to how the 10 MW capacity ceiling should be
administered?
Yes.The Company proposes a two-part
approach whereby (1) there is an ini tial capaci
determination so standard tariff prices are limited to
QFs that have a maximum capaci ty of 10 MW or less and
(2) thereafter , the QF may only receive payment for up to
10 MW in any hour.Basically, this approach is the same
as Idaho Power I s proposed "Metered Energy Test" except
that it adds an initial capacity determination.I will
explain below why each of these two components
appropriate.
Please describe your proposal
CSB REPORTING
Wilder , Idaho
498 HALE (Di)
PacifiCorp83676
concerning initial capacity determinations.
PacifiCorp proposes that any QF
seeking to obtain standard tariff prices must
contractually represent that the maximum capacity of the
QF at any time, when operated consistent with the
manufacturer I S specifications, prudent utili ty practices
and actual operating conditions , does not exceed 10 MW.
This
CSB REPORTING
Wilder , Idaho
499 HALE (Di)
PacifiCorp83676
definition is consistent with the FERC I s "design
capacity" standard in that it focuses on how the QF will
be designed and operated.
Why is an initial capacity
determination appropriate?
An ini tial capaci ty determination
appropriate to ensure that standard tariff prices are
limited to QFs that have an aggregate capacity of 10 MW
or less.While Idaho Power's Metered Energy Test will
ensure that deliveries do not exceed the 10 MW ceiling in
any hour , it will not serve to adequately limit the
overall size of QFs eligible for standard tariff prices.
PacifiCorp I s position is that the 10 MW capacity ceiling
should apply to the actual capaci ty of the QF , not just
the hourly delivery limitation.As discussed by Idaho
Power witness Rick Gale on page 25 of his Direct
Testimony, the rationale in PURPA for standard tariff
prlces was to minimize transaction costs for small QFs
associated with individually-negotiated QF pricing and
contracts.In most of PacifiCorp's other jurisdictions
the ceiling for standard tariff prices is 1 MW.
Idaho , this Commission has determined that 10 MW should
be the ceiling for standard tariff price application.
Adopting Idaho Power I s Metered Energy Test , wi thout an
ini tial capaci ty determination , would allow QFs of any
CSB REPORTING
Wilder , Idaho
500 HALE (Di)
PacifiCorp83676
slze to get standard tariff prices by agreeing to limit
deliveries to 10 MW in any hour.Alternately, adopting
u. s. Geothermal I s average energy approach , wi thout an
initial capacity determination, would allow a QF of any
size to receive standard tariff prices provided annual
deliveries are limi ted to 10 aMW.Allowing QFs of
unlimited size to obtain the standard tariff prices
inconsistent wi th the transaction cost" justification.
An initial capacity determination is necessary to
preserve the integri ty of the 10 MW capaci ty ceiling.
CSB REPORTING
Wilder , Idaho
501 HALE (Di)
PacifiCorp83676
Are there other consequences
associated wi th allowing QFs over 10 MW to obtain
standard tariff prices?
Yes.Both Idaho Power and U. S .
Geothermal seem to contemplate in their testimony that a
QF developer may:(1) build a QF in excess of 10 MW (2 )
sell up to 10 MW to an Idaho utility at standard tariff
prices , and (3) market the remaining output to other
utilities or purchasers.This scenario is inappropriate
for several reasons.First, as noted above, allowing
developers of larger QFs to obtain standard tariff prices
violates the integrity of the 10 MW ceiling and the
transaction cost" justification on which it was based.
Second , it potentially allows QF developers to require
multiple utilities in Idaho to purchase up to 10 MW each
from the same QF at standard tariff prices.This would
effectively render the 10 MW ceiling meaningless.Thi rd
allowing QFs under standard tariff price contracts to
sell to mul tiple purchasers gives them an economic
incentive to (1) sell to other purchasers at market rates
during the most valuable delivery hours and (2) put the
remaining power to the purchasing utility at the standard
tariff prices during the least valuable delivery hours.
Particularly if the Commission were to adopt U. s.
Geothermal I S 10 aMW proposal , a scenario could be
CSB REPORTING
Wilder , Idaho
502 HALE (Di)
PacifiCorp83676
envisioned where a QF sold all of its output during peak
delivery hours to a power marketer at market rates,
deliver up to 10 aMW of off -peak energy to Idaho Power
standard tariff prices , and deliver any additional excess
power to PacifiCorp also at standard tariff prices.This
outcome is inconsistent with PURPA.Accordingly,
PacifiCorp requests that the Commission require an
ini tial capaci ty determination to verify whether a QF
eligible to be paid standard tariff prices.
CSB REPORTING
Wilder , Idaho
503 HALE (Di)
PacifiCorp83676
Al ternately, the Commission should clarify that QFs are
limited to one standard rate contract and may not
simul taneously sell to other purchasers.
Is an initial capacity determination
wi thout addi tional contract provisions , adequate to
preserve the integrity of the 10 MW ceiling?
No.As testified by Idaho Power I
witness Rick Gale on pages 27-28 and U. S. Geothermal I s
witness Kevin Kitz on pages 9-, typical capacity
definitions such as "nameplate capacity" or "design
capaci ty" may be subj ect to differing interpretations.
These differences may arise because manufacturers use
different assumptions concerning power factor and
operating conditions in describing the capacity of their
generating uni ts.The resul t is that QFs wi th a
nameplate capacity of 10 MW or less may in fact be able
to generate substantially in excess of 10 MW.PacifiCorp
has had experiences wi th QFs that generate or are capable
of generating substantially in excess of their stated
nameplate capaci ty.Thus, an initial capacity
determination is a necessary but not sufficient means of
preserving the integrity of the 10 MW capacity ceiling.
What addi tional measures does the
Company propose to preserve the integri ty of the 10 MW
ceiling?
CSB REPORTING
Wilder , Idaho
504 HALE (Di)
PacifiCorp83676
Contracts applying standard tariff
prlces should specify that the utility is not required to
pay for any energy delivered in excess of 10 MW in any
hour.This will effectively ensure that a QF which
claims to have a maximum capacity of 10 MW or less is in
fact subject to a 10 MW limit on deliveries.Idaho Power
makes a similar recommendation , which they describe as
the "Metered Energy Test.
CSB REPORTING
Wilder , Idaho
505 HALE (Di)
PacifiCorp83676
Can you describe the economlC
consequences of a decision to set the ceiling for
standard tariff prices at 10 aMW?
Yes.Under the 10 aMW proposal
endorsed by U. s. Geothermal , a QF regardless of Slze
would be enti tIed to standard tariff prlces for all
deliveries up to 10 aMW in any year.There would be no
limitations as to the time of day, month or year when
these MWh could be del i vered.There is a significant
economic cost associated with this type of delivery
optionality, as power has different value depending upon
the timing and extent to which the purchaser has notice
or control over delivery.To illustrate this point
consider the following three delivery scenarios, each of
which is possible under the approach adopted by U. s.
Geothermal:
(1) a 10 MW thermal- type resource,
delivering 10 aMW on a flat basis during
all delivery hours.This resource would
have a 20-year net present value of $55.
million , which corresponds to a firm base
load resource
(2 )a 30 MW resource (such as wind or
solar), making intermittent deliveries up
to 30 MW in any hour for a total of 10 aMW
CSB REPORTING
Wilder , Idaho
506 HALE (Di)
PacifiCorp83676
per year.This resource would have a
20 -year net present value of $49. 7
million , which corresponds to a non-firm
resource and
(3 )a 30 MW thermal- type resource,
delivering power to third-parties during
peak hours and del i vering 10 aMW to the
purchasing utility only in off-peak hours.
This resource would have the lowest
20 -year net present value of $45. 9
million , which corresponds to a non-firm
off peak resource.
CSB REPORTING
Wilder , Idaho
507 HALE (Di)
PacifiCorp83676
As these examples indicate, moving to a 10 aMW ceiling on
standard tariff prices without an hourly or aggregate
capacity limit can result in a variety of delivery
scenarios wi th widely differing values.The standard
tariff prices assume a proxy natural gas- fired
combined-cycle combustion turbine resource that
dispatchable by the purchasing utility.However , because
of the "one-size-fits-all" approach , no adjustment is
made when the actual value of the power to the utility
less than that associated with the proxy resource.
Therefore , QFs receiving standard tariff prlces are
effectively being overpaid to the extent their power
less valuable than the power associated wi th the proxy
resource.The less control or notice the utility has
over the timing and extent of deliveries , the greater the
overpayment , as shown in the examples above.
Effectively, this cost is a subsidy from ratepayers to
the QF.Exhibit 301 shows the calculation of the QF
values outlined above.
Of the three scenarios you outlined
above , which QF should be entitled to standard tariff
prices?
The first QF should be entitled to
standard tariff prices.In this case, the QF provides a
capacity benefit to the Company that can be relied upon
CSB REPORTING
Wilder , Idaho
508 HALE (Di)
PacifiCorp83676
for both planning and system operation.The last two QFs
provide the Company far fewer capacity benefits and
therefore should not receive standard tariff prices.
They require the utility to accommodate a much larger
amount of generation , with more variation from
hour-to-hour and less notice or control as to the timing
of deliveries. Under PacifiCorp I s proposal , the first QF
would be entitled to standard tariff prices , and the
second two QFs would not receive standard tariff prices
but would be eligible for prices calculated using an IRP
based method.By contrast,
CSB REPORTING
Wilder , Idaho
509 HALE (Di)
PacifiCorp83676
under u. s. Geothermal I s approach , all three QFs would be
entitled to standard pricing.
I s there another reason that
increasing the ceiling to 10 aMW might have an adverse
impact to the Company and its ratepayers?
Yes.Increasing the ceiling to
aMW might make Idaho a magnet for out-of-state QFs.
Idaho has the highest avoided cost prices of any of
PacifiCorp I S jurisdictions. With a ceiling of 10 MW , let
alone 10 aMW , Idaho also has the highest ceiling for
standard tariff price application of any state in the
Northwest.This provides an incentive for out-of-state
QFs to wheel their power to Idaho for sale to an Idaho
utility.In the past few years since the threshold was
raised from 1 MW to 10 MW in Idaho , PacifiCorp has been
approached by developers of out-of-state QFs seeking to
make sales to PacifiCorp in Idaho.Increasing the
ceiling to 10 aMW would increase the magnet effect.
Whether QFs Should be Required to Commit to Monthly
Delivery Schedules in Order to Receive Firm Pricing
Do you support Idaho Power I s position
that QFs under standard tariff price contracts should be
required to commit to monthly delivery schedules in order
to obtain firm energy prices?
Yes.PacifiCorp agrees that a QF
CSB REPORTING
Wilder , Idaho
510 HALE (Di)
PacifiCorp83676
should be required to make some type of enforceable
delivery commi tment in order to obtain firm pricing. As
explained above, standard tariff prices assume a proxy
resource that is dispatchable by the utility.The less
control or notice that a purchasing utility has with
respect to the extent and timing of QF deliveries , the
greater the effective subsidy to the
CSB REPORTING
Wilder, Idaho
511 HALE (Di)
PacifiCorp83676
developer.Idaho Power I s approach , which requlres
monthly (as opposed to daily or hourly) generation
commi tments , is a reasonable requirement in exchange for
the QF being entitled to firm prices.I daho Power I s
contract provision benefits QF owners , particularly those
of intermittent resources like wind , by allowing them to
obtain firm pricing for that portion of their generation
they commi t in a given month.The proposal benefits the
purchasing utility by giving it greater operation
certainty as to the extent and timing of QF deliveries.
In the event the Commission approves Idaho Power I
proposed section 6.2 of its standard contract, PacifiCorp
requests that it be allowed to fashion a similar
provision applicable to its standard purchases in Idaho.
Whether Utilities Should Be Able to Terminate QF
Contracts If Retail Deregulation Results in Unrecoverable
Stranded Costs
Does PacifiCorp support Idaho Power I
position that utilities should be permitted to terminate
QF contracts in the event that retail deregulation
resul ts in unrecoverable stranded costs?
Yes.The arguments advanced by Idaho
Power wi th respect to this provision apply equally to
other Idaho electric utilities.Power purchase costs
incurred through QF contracts represent a potential
category of stranded costs to the extent that retail
CSB REPORTING
Wilder , Idaho
512 HALE (Di)
PacifiCorp83676
deregulation occurs in Idaho.Utilities need to act
prudently to mitigate their potential exposure to such
costs.One such method is to pursue a contract provision
allowing for termination in the event that such costs are
deemed unrecoverable.Pursuit of such a provision will
help reduce the utilities I vulnerability to arguments
that they waived the right to recover these costs by
CSB REPORTING
Wilder , Idaho
513 HALE (Di) 10aPacifiCorp83676
failing to take prudent efforts to avoid them.In the
event the Commission approves Idaho Power I s proposed
section 23.2 of its standard contract , PacifiCorp
requests that it be allowed to fashion a similar
provlslon applicable to its standard tariff price
contracts in Idaho.PacifiCorp has similar concerns
regarding potential stranded costs in the event other
jurisdictions disallow recovery of its Idaho QF costs.
However , these concerns are being addressed in the
context of PacifiCorp I s proposed MSP allocation
methodology, and are not the subj ect of this testimony.
Does this conclude your testimony?
Yes.
CSB REPORTING
Wilder , Idaho
514 HALE (Di)
PacifiCorp83676
(The following proceedings were had in
open hearing.
MR . FELL:Mr. Hale is available for
cross - examina t ion.
COMMISSIONER SMITH:Thank you.
Mr. Strong, do you have questions?
MR . STRONG:I have no questions.
COMMISSIONER SMITH:Mr. Kline.
MR. KLINE:I have no questions.
COMMISSIONER SMITH:Mr. Woodbury.
MR . WOODBURY:Thank you , Madam Chair.
CROSS - EXAMINATION
BY MR. WOODBURY:
Mr. Hale, PacifiCorp has a greater amount
of wind in their resource portfolio than either Idaho
Power or Avista and I was wondering if you have any
thoughts as to the capacity and energy benefits that wind
brings as opposed to perhaps the other resources in your
port fol io , coal , gas and hydro.
Certainly.Wind provides specific
challenges to the utility by virtue of the fact that it
provides intermittent energy as opposed to the surrogate
resource which provides a firm resource , dispatchable
CSB REPORTING
Wilder , Idaho
515 HALE (X)PacifiCorp83676
resource.It also requlres or typically has a fairly low
capacity factor and that is once again compared with the
surrogate unit which has a very high capacity factor.
What that does is means there tends to be a fairly large
difference in the value that a wind resource delivers as
compared to the surrogate resource.
MR. WOODBURY:Thank you , Madam Chair.
Staff has no further questions.
COMMISSIONER SMITH:Thank you,
Mr. Woodbury.
Mr. Richardson , do you have questions?
MR . RI CHARDSON :Just a couple
Madam Chairman.
CROSS - EXAMINATION
BY MR. RI CHARD SON :
Mr. Hale , how many QFs does PacifiCorp
have on line in its Idaho service territory?
I don t have that particular piece of
information.I m not really sure.
So you wouldn t have any idea how much
megawatts of capacity, QF capacity, is on line in
Idaho?
, I I m not famil iar wi th that number.
CSB REPORTING
Wilder , Idaho
516 HALE (X)PacifiCorp83676
And do you know when the last QF contract
PacifiCorp signed in Idaho?
No, 11 m not familiar with that.
So you wouldn t be able to characteri
your QF program as successfully implementing the purposes
of PURPA or not , would you?
What I would say is that we do have a very
robust QF policy, but not in the State of Idaho.For
example, in the State of Utah , we just put into place
several fairly large QF facilities, but in the State of
Idaho , we have not put in any recently that I know of.
When you say "we put in " you --
We contracted for.
Okay so you have a robust QF pol icy in
Utah , what do you mean by "robust"
In that there tends to be more QFs that
have walked up to our door and said we would ike to have
QF rates.
And why do you suppose it I S more robust in
Utah than Idaho?
Probably because there I s more QF - - more
large industrial customers that have the capability of
doing a QF contract.Most recently the QFs that have
contracted wi th the company was , say, Desert Power.That
was, my recollection was , an 85 megawatt QF facility,
CSB REPORTING
Wilder , Idaho
517 HALE (X)PacifiCorp83676
$46.00 a megawatt-hour over a 20-year levelized period
wi th a 20 -year contract.We have several others that are
also being considered in that state.
And what about your other states?
Most of the QF activity that 11 m familiar
wi th tends to be in Utah.We do have some QF acti vi ty
Idaho.We haveWe have
- -
excuse me , not Idaho, Oregon.
a docket in place right now that has kind of held back QF
implementation and until that docket finishes there
probably won t be any QFs signed.
When was your last QF contract signed in
Oregon?
m not familiar with that particular
piece of information.
MR. RICHARDSON:Thank you.That's all
have , Madam Chairman.
COMMISSIONER SMITH:Thank you.
Mr. Ward , do you have questions?
MR . WARD:I do.
CROSS -EXAMINATION
BY MR. WARD:
Mr. Hale, I I m not representing wind
developers here, but I want to follow up just briefly on
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your response to Mr. Woodbury I s question.Assume for me
if you will , that a developer installs a multi-turbine
wind proj ect There are such things in existence , are
there not?
Certainly.
And that wind proj ect has a nameplate or
rated capacity, however you want to define it , of 100
megawatts.
Okay.
And in fact , on an annual basis, it only
generates 35 megawatts , okay?
Okay.
In terms of the value of the power, does
the capacity factor as we would traditionally define it,
i. e., production as opposed to maximum capabili ty, have
anything to do wi th the value of that energy?
Can you restate that question?
Well , let me ask it this way:Suppose
that project only produces 35 megawatts , but it produces
day in , day out hourly without any variation below 32 or
above 38 megawatts.In terms of capaci ty that the
utility can actually use, that a dispatcher can count on
that capacity has value, does it not?
I would first thing take issue with the
way you ve characteri zed it.A wind resource isn I
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somewhere bet ween , say, 30 and 38.It I S somewhere
between 100 and zero such that in any given hour it might
fluctuate drastically across that period.
I understand that to be the case, but the
point is you can I t automatically point to the difference
between capacity and annual output or monthly output and
say this establishes the fact that this proj ect has no
capacity value.We I d have to know what the real
operating constraints are , wouldn t we?
What I would indicate there is that the
surrogate resource has firm capacity available in every
hour whereas , the wind resource it is unclear whether or
not they would have capacity in a given hour.The
dispatcher cannot rely on that wind resource to be there
and so in that respect, they do not provide us capacity,
no.
All right, let's go to page 5 of your
testimony.Here you're talking about your opposition to
u. S. Geothermal I s proposed definition of the 10 megawatt
threshold and ines 9 through 11 you say, "Second, it
potentially allows QF developers to require mul tiple
utilities in Idaho to purchase up to 10 megawatts each
from the same QF at standard tariff prices.Has that
ever happened?
No.
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Is there any indication whatsoever that
u. S. Geothermal intends to do that?
No.
In fact, didn t they say they recognlze
you re only enti tIed to one PURPA contract per proj ect?
No.I would clarify that when
originally read over U. S. Geothermal I s testimony, it was
my original interpretation that they did intend to do
that type of transaction.My interpretation after having
listened to discussions is that no, they would not sell
to other utilities or they would not make multiple sales.
Okay, lines 16 through 21 we have another
horrible scenario.In this case a QF sold all of its
output during peak delivery hours to a power marketer at
market rates, deliver up to 10 average megawatts of
off -peak energy to Idaho Power at standard rates and
deliver any additional excess to PacifiCorp also at
standard tariff rates, has this ever happened?
No.
Is there any indication whatsoever that
U. S. Geothermal or , for that matter , any other developer
intends to do such a thing?
No.Once again , the contract provisions
as I understand them require that the entire generation
from a QF facility be acquired by the utility and so this
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kind of scenario is not correct.
Okay.Now , I don t know qui te what to do
wi th the rest of your testimony I must confess, Mr. Hale.
From page 7 on you re talking about the economlC value
essentially of QF power and let's go to page There
from lines 1 through 12 you suggest that the value of QF
power is in fact less than the avoided cost rate that the
Commission has determined.Don I t you think the
Commission considered all the arguments you re advancing
there when it determined the avoided cost rate?
Yes.
And in fact, the way it works out under
your definition of 10 megawatts as you acknowledge in
your testimony, the only way a 10 megawatt facility could
get full avoided costs under your recommendation would be
if it delivered 10 megawatts flat every hour of every day
throughout the year every year.
, I don't agree wi th that
characterization.
Well , let me refer you to your testimony.
And the first thing I would say is that
they really shouldn I t receive that entire payment.What
the Commission needs to be aware is to the extent that a
QF resource as compared with the surrogate unit is not in
an optimal location, is not a dispatchable resource,
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dispatchable being next day scheduled , next day delivery,
does not provide firm power , does not provide reserves,
does not provide pre - scheduled maintenance --
Mr. Hale , let me interrupt you.
- -
these resources should not receive the
same surrogate price.
Don t you think the Commission considered
those arguments when it determined the avoided cost
rate?
It determined what resource should be
selected as a surrogate resource , but as to the specific
application of those costs to a specific resource , I
would not know whether or not the Commission considered
that.
Now , let me go back to your prlor answer.
On page 7 you say, ines 12 through 14
, "
a 1 0 megawatt
thermal- type resource , del i vering 10 average megawatt s on
a flat basis during all delivery hours.I take it
tha ti exactly what my quest ion represented to you that
hours day,every day of the year for the
duration of the contract.You say,"This resource would
have a 20-year net present value of 55.8 million , which
corresponds to a firm base load resource.
Now , first of all , tell me where in the
world I can find a utili ty firm base load resource that
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delivers energy on a flat basis every hour of the year.
Okay, I would respond that that is not
possible; however , what I would point out is the purpose
of this particular exhibit where you re talking about
item 1 , 2 and 3 is to provide an example of the value, so
if you wanted to back down this to a 9 average megawatt
ln each instance , then you could have a resource that
would meet that criteria under the tariff and the example
being presented would still apply.
And on the next page of your testimony, at
line 15 you say, "The first QF should be entitled to
standard tariff prices.That first QF" refers to your
first scenario that I just quoted you; correct?
Yes.
So the ultimate result is that only a
producer , a 10 megawatt producer , who produced a flat
megawatts would get avoided cost prices.If the
Commission intended that , don t you think they could have
said that in the Order when they established avoided
costs?
Yes.
MR . WARD:That I S all I have.
COMMISSIONER SMITH:Do we have questions
from the Commission?
Do we have redirect, Mr. Fell?
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MR . FELL:Yes, Madam Chair.
REDIRECT EXAMINATION
BY MR. FELL:
Let I S go right back to Mr. Ward I s
cross -examination.You I re not saying, are you , that you
require flat delivery in order to be qualified for
standard posted rates?
Certainly not.
Let's move to Mr. Kitzl s direct testimony
and his Table 2 on page 17.Now , on that table when you
look at the last column , the net to Idaho Power , and if
this were a QF coming to PacifiCorp, this isn I
PacifiCorp, but if they were coming to you with a table
of this sort , what would you see under your idea of
maximum capaci ty, what the maximum capaci ty of that
facility is?
I would say it is 12.69 megawatts.
So it I S not 17.45?
, it is not.
And i ti s no 5. 93 --
MR . WARD:I m going to obj ect for the
record that thi s has nothing to do wi th the
cross - examina t ion.This is not proper redirect.
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COMMISSIONER SMITH:Mr. Fell , did you
hear hi s obj ect ion?
MR . FELL:I heard his obj ection.I think
Mr. Ward was challenging the witness on claiming that we
require flat delivery, that a proj ect has to deliver all
hours of the day the same amount of energy and I am
refuting that.
COMMISSIONER SMITH:Well , Mr. Ward, I'
golng to allow it and if you feel the need to ask more
questions later , then just speak up.
MR . WARD:That will be fine.
BY MR. FELL:Now , then your answers have
addressed some of the factors of a QF that may not be as
valuable as the SAR.There may be factors, this has come
up before, there may be factors that provide good value.
If you had a QF resource that was able to deliver on peak
in the summer hours , would that provide good value for
the QF and for the utility?
Absolutely.A good example of that is the
Desert Power contract which would tend to be dispatchable
on a day-ahead basis and as such , they got full avoided
costs.
And it I s possible for a QF to have a
locational advantage?
Absolutely.
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So in terms of balancing both sides of the
posted prlce issue , there are, would you agree, benefits
and detriments that a QF can present?
Yes , that I s true.
And the posted prices represent some
balance on that?
That is true.
Now , then I think you might have
misunderstood Mr. Woodbury I s question a bi t.I think he
asked whether there were benefits to wind and your
answers focused more on the kind of drawbacks that wind
presents or the challenges they present to a utility.
Wind does provide energy, doesn I t it?
It certainly does.
And your responses were focusing more on
the capacity benefit?
Certainly, and they provide clean energy
as opposed to energy that requlres the burning of a
fossil fuel , definitely a benefit.
And there are contracts that are available
to firm up the deliveries from a wind resource , aren I
there?
Yes, there is.BPA would provide one of
those contracts.
MR . FELL:I have no further questions.
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COMMISSIONER SMITH:Thank you , Mr. Fell
but your questions did generate one from me.
EXAMINATION
BY COMMISSIONER SMITH:
Looking at Mr. Kitz I s Table 2 , you said
that you would say this was a 12.69 proj ect?
Yes would.
Even it I designed the degrees?
Yes,would.The key issue here has
do with the fact that the company needs to have a bright
ine in order to make a determinat ion of when a QF should
be entitled to the tariff prices and when they shouldn I
What I put in my testimony is the comment that we need to
have a bright line.We al so need to have a mechani sm to
determine when that QF should or should not receive the
tariff rates and that I s the 10 average megawatts
excuse me, the 10 megawatts in any hour.That provides a
very clean way, a very administratively easy way of
determining whether or not a QF should receive tariff
rates.
Now , the fact that this tariff, that they
average 10 average megawatts is not really relevant to
us.What is relevant, what I think the Commission should
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consider , is what kind of meter test should be put into
place in order to enforce the tariff provision of
megawatts of capacity.
Should the utility care what goes on
behind the meter if no more than 10 megawatts ever passes
through the meter?
Certainly not.We shouldn I t care about
the nameplate and we shouldn t care about the parasitic
load.We shouldn't care about the pumps or anything ike
tha t .What we re interested is in the capacity and the
energy that I s being provided.We I re also concerned about
the price that is being paid and the value of that
powe r .
COMMISSIONER SMITH:Thank you.
Did that generate more questions from you
Mr. Fell?
MR. FELL:No further questions.Thank
you.
COMMISSIONER SMITH:Thank you very much
Mr. Hale.
(The wi tness left the stand.
MR . FELL:Madam Chair , may Mr. Hale be
excused if he I s able to find a flight to get him out
earlier?
COMMISSIONER SMITH:If there I s
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529 HALE ( Com)PacifiCorp83676
obj ection , Mr. Hale is excused.
Okay, Mr. Strong, I think we re ready for
your wi tness.
MR. STRONG:Yes, Madam Chairman , Avista
will call its witness Mr. Kalich , please.
CLINT KALICH
produced as a wi tness at the instance of Avista
Corporation , having been first duly sworn , was examined
and testified as follows:
DIRECT EXAMINATION
BY MR. STRONG:
Mr. Kalich , for the record , would you
please state your name , your posi tion and your business
address?
Yes.My name is Clint Kalich.I am the
manager of power supply planning and analysis and work
for the Avista Corporation at 1411 East Mission in
Spokane , Washington.
Are you the same Clint Kalich who had
prepared and filed in this proceeding direct testimony?
Yes , I am.
And do you have that in front of you
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now?
Yes, I do.
Do you have any corrections or additions
to that prepared testimony?
Yes, I do.I need to correct two
references to Order No., presently reading on page 3 at
line 18 Order No., 26017.It I S actually Order No. 25884
and the quote is actually taken at page 5 , so I would
change that to readj "In Order No. 25884 at page 5,
Would you for the ease of the Commission
agaln take us in your testimony where this reference
appears?
Oh, I I m sorry, I thought I did that.
page 3 at line 18 where the answer begins , "In Order No.
26017 " I would change that, "In Order No. 25884 at page
Okay, do you have any other correct ions or
addi t ions?
Yes.We need to go to the next page at
line No.5 where once again the same Order is referenced
incorrectly and that would read, "in Order No. 25884 at
page 5
Are you also the author of an exhibit,
Exhibit No.1 to your testimony?
And actually, I believe that was changed
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by Idaho Staff to Exhibit 401.I m not sure how it reads
on other folks I testimony, so I don t know if we need to
make that correction at this time or not.
Do you have any corrections or additions
to the exhibi
I do no t .
Were I to ask you the questions contained
ln your prepared testimony as you have changed them
today, would your answers be the same?
They would be the same.
MR. STRONG:Madam Chairman , I move that
Mr. Kalich I s prepared direct testimony as modified be
spread on the record and that his exhibit be marked as
401 for identification.
COMMISSIONER SMITH:Thank you
Mr. Strong, and I would think also on his testimony,
page 8 , "Exhibit 1" should read "Exhibit 401" so that
is referring to the correct exhibit, and with those
changes, we will spread the prefiled testimony upon the
record as if read and identify Exhibit No. 401.
BY MR. STRONG:Just for the record
Exhibit 1 refers to what I s been marked as Exhibit 401; is
that correct?
Tha ti s correct, and that I s a further
oversight on my part.
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(The following prefiled testimony of
Mr. Clint Kalich is spread upon the record.
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INTRODUCTION
Please state your name , the name of your
employer , and your business address.
My name is Clint Kalich.I am employed by
Avista Corporation at 1411 East Mission Avenue, Spokane,
Washington.
In what capacity are you employed?
I am the Manager of Power Supply Planning
& Analysis, in the Energy Resources Department of Avista
Utilities.
Please state your educational background
and professional experlence.
I graduated from Central Washington
University in 1991 with a Bachelor of Science Degree in
Business Economics.Shortly after graduation I accepted
an analyst position with Economic and Engineering
Services, Inc.(now EES Consul ting, Inc., a northwest
management-consulting firm located in Bellevue
Washington.While employed by EES, I worked primarily
for municipalities , public utility districts, and
cooperatives in the area of electric utility management.
My specific areas of focus were economic analyses around
new resource development, rate case proceedings involving
the Bonneville Power Administration , integrated
(least-cost) resource planning, and demand-side
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534 KALICH (Di)
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management program development.In late 1995 I left
Economic and Engineering Services, Inc. to join Tacoma
Power in Tacoma , Washington.I provided key analytical
and pol icy support in the areas of resource development,
procurement , and optimization , hydroelectric operations
and re-licensing, unbundled power supply rate-making,
contract negotiations , and system operations.I helped
develop, and ul timately managed , Tacoma Power I
industrial market access program serving one-quarter of
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535 KALICH (Di)
Avista Corporation83676
the utilityl s retail load.In mid-2000 I joined Avista
Utilities as a Senior Power Resource Analyst.Early in
2001 I was promoted to my current capacity.I assist the
Company in the areas of resource analysis, dispatch
modeling, resource procurement , integrated resource
planning, and rate case proceedings.
Why is Avista Corporation submitting
testimony in this proceeding?
After reviewing the test imony submi t ted
behalf of complainants and Idaho Power Company, it is
evident that the decisions in this case may have
precedential effect with respect to other utilities that
are subj ect to the Commission I S jurisdiction.The
purpose of my testimony is to present Avista I S Vlews on
some of the issues raised in this case.
What is the scope of your testimony in
thi s proceeding?
My testimony will first discuss the
ten-megawatt threshold for qualifying facility (QF)
proj ects to be eligible for administratively determined
(published) avoided cost rates.I will also briefly
discuss the proposal by Idaho Power related to the
possible impacts of deregulation that might occur in the
future.Finally, I will explain that while the 90%/110%
bandwidth may assist Idaho Power in scheduling its PURPA
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Avista Corporation83676
resources, the bandwidth will not protect Avista
customers against the additional costs associated with
the absence of capacity with wind and other non-firm
resources.I recommend that a capacity discount be
appl ied to these resources.
II.TEN MEGAWATT THRE SHOLD
Does the Company support a change to the
current ten-megawatt threshold for QF proj ects that are
eligible for published avoided cost rates?
No.Avista supports the ten-megawatt
threshold adopted by the Commission that determines
eligibility based on a generator nameplate rating or
dependable capacity.Federal law
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pursuant to 18 C.R. 292.304(c)requires only that
proj ect s wi th a generating capac i t Y of one - hundred
kilowatts or less have access to published avoided cost
rates.The Commission recently increased the eligibility
level to ten megawatts.Expanding eligibility further
for published avoided cost rates by, for example, using
average annual energy as proposed by U. S. Geothermal
would increase the financial and operational risks to the
Company and its customers.
The administratively determined avoided cost
rates were determined based on a base-load surrogate
resource that would deliver firm capacity and energy
during both heavy-load and ight -load hours.
eligibility for published avoided cost rates were to be
based on average energy,(average megawatts or aMW) on a
monthly or annual basis, it could lead to unintended
consequences for the purchasing utility and its
customers.For example, a qualifying cogeneration
facility with more than ten megawatts of generating
capaci ty could generate during off -peak and off - season
hours to sell up to ten average megawatts at published
rates, and then serve its own requirements or sell to
other parties when the additional power that it generates
is more valuable.This behavior could deprive the
utility of the QF power when it is most valuable.
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What were the reasons for adoption of a
slze distinction in determining eligibility for published
avoided cost rates?
In Order No. 28554 at page 5, the
Commission explained that tariff rates are used to
simplify and minimize the costs associated with
negotiating avoided cost rates for small qualifying
facility developers.It stated
, "
we find that the costs
of negotiation for proj ects larger than 1 megawatt should
not be so significant as to render an otherwise
financially viable proj ect infeasible.Additionally, in
the order , the Commission found that reducing the
threshold
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539 KALICH (Di)
Avista Corporation83676
correspondingly reduces the risks associated with
published rates being set either too high or too low.
Finally, projects with a capacity exceeding ten megawatts
are not precluded from obtaining a utility contract; the
Commission provides a methodology for developing avoided
cost rates for these larger facilities.
The IPUC adopted a methodology in Order No.
28554 at page 5 , to establish avoided cost rates for
qualifying facilities with a capacity in excess of ten
megawatts.The order states that the:
... proposed methodology would operate asfollows. First, the utility would determine
through its least-cost plan model the cost of
meeting load over the next twenty years.
Whenever a proposed QF proj ect were offered to
the utility, the latter would insert the
generation and capaci ty of the proj ect into the
model and determine what costs would be avoidedover twenty years.
In the case of Avista , the power supply model
(AURORA model) used to develop avoided cost rates for
larger proj ects is the product of our Integrated Resource
Planning process.A Technical Advisory Commi t tee
composed of customers and Commission Staffs from both
Idaho and Washington review the assumptions contained in
the power supply model.
Does the Company use this approach when
evaluating new utility generation?
Yes.The methodology is the basis for all
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Avista Corporation83676
ongoing utility power supply evaluations.
Do you have any comments related to the
Metered Energy Test proposed by Idaho Power?
Yes.The proposed Metered Energy Test
would be consistent with and complementary to the
existing threshold of a ten-megawatt generator nameplate
rating or ten megawatts of dependable capacity.
ten-megawatt threshold limits the QF capacity output to
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541 KALICH (Di)
Avista Corporation83676
ten megawatt-hours (MWh) per hour.There fore,
application of a Metered Energy Test to limit payment of
published avoided cost rates to only the first ten MWh
per hour would be consistent with the existing
ten-megawatt threshold previously adopted by this
Commission.
In addition , any QF selling power at a
published avoided cost rate should be required to sell
all of its generation output to the purchasing utility.
This requirement would insure that the utility and its
customers are not providing a backstop, or minimum price
but a price that represents the value of all output from
the qualifying facility.
If a QF were to generate energy in excess
of the ten-megawatt threshold, how would the Company
propose to compensate the QF for the addi tional energy?
The Company believes that any energy
generated above the lesser of 1) the ten-megawatt
threshold , or 2) any stated contract hourly amount
should be purchased at a percentage of market -based rates
reflecting the purchasing utility I s short-term avoided
cost.I recommend that the market -based rate be equal to
eighty-five percent of the Mid-Columbia daily index , and
be capped at the published avoided cost rate.Providing
all generation in excess of the contract amount at a
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Avista Corporation83676
market -based price to the QF would provide compensation
to the QF for all of its generation.However , it would
avoid a price signal that might reward a qualifying
facility for generating additional energy at times when
it is of less value to the Company than the published
avoided cost rate (e. g., spring runoff)
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III.CONTRACT PROVISIONS FOR EVENT OF DEREGULATION
Does the Company propose to include
stranded cost provisions in it PURPA contracts at this
time?
No.The Commission has jurisdiction over
retail end-use customers , and determines avoided cost
rates that are appropriate for QF facilities under
PURPA.
In the event of retail deregulation , 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 stranded cost issues , and/or the Commission
retain all necessary authority to address recovery of any
PURPA-related stranded costs.
IV.CAPACITY ISSUE
Does the Company have any comments with
regard to capacity and the 90%/110% bandwidth issues
rai sed in thi s case?
Yes.Avista is concerned that the
90%/110% bandwidth proposed by Idaho Power will not
address our concern that all QF developers deliver both
capacity and energy in exchange for the published avoided
cost rate.The 90%/110% bandwidth only requires that
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Avista Corporation83676
resources meet a monthly energy quanti ty.Capacity, on
the other hand, is an instantaneous or near-instantaneous
product.I f a resource such as wind cannot be expected
with a high degree of confidence to be available to the
system at times of peak need, the 90%/110% bandwidth
would not eliminate the need for backup capacity.Wind
and other non-firm resources should not be eligible to
receive the full , published avoided cost rate because of
the absence of firm capacity from these resources.
capaci ty discount is a good solution , as I will explain
below.
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What capacity costs is the Company suggesting
need to be addressed , and what resource types would be
subj ect to the costs?
The Company is concerned about the costs
associated with two services that historically have been
referred to as capacity costs.The first is planning
margin.The Company must acquire adequate capaci ty
serve its customer loads in the event of adverse weather
and/or hydroelectric conditions.To meet thi s
requirement, the Company carries capaci ty reserves equal
to approximately fifteen percent of its system peak
demand.Firm resources generally provide capacity that
may be used to meet our planning margin requirements.
Non-firm resources like wind, on the other hand, do not
provide capaci ty and require the Company to reserve
additional system capacity to meet these obligations.
The second capacity cost is generation
following, sometimes referred to as integration costs,
for wind and other generators that are either not able
, or choose not to, accurately forecast their
production levels hour to hour.For these resources the
utility system must be re-optimized , at additional cost,
to provide enough flexibility to respond to intra-hour
and hour-to-hour generation changes.
How would the Company go about quantifying
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a capacity discount applicable to wind and other non-firm
QF resources?
The Company is not proposing that the
Commission approve a specific capacity discount
applicable to published avoided cost rates in this
proceeding.One way to quantify such a discount,
however , is to consider what the Bonneville Power
Administration ("BPA") charges for the capacity products
necessary to firm and shape wind resources.The BPA
service requires a combination of products that equals
approximately sixteen dollars per megawatt-hour.This
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Avista Corporation83676
product contains the basic addi tional expenses that
Avista would incur to deliver wind energy to the BPA
system for firming and shaping, and then have
redelivered back to our system as firm energy including
capaci ty.Exhibit 401 shows how the sixteen-dollar
charge is developed.
If and when the Company is presented with a
non-firm QF resource like wind , we believe that the
capacity discount issue should be addressed at that time.
Does this conclude your pre-filed direct
testimony?
Yes it does.
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open hearing.
(The following proceedings were had in
MR . STRONG:I tender Mr. Kalich for
cross - examina t ion.
questions?
COMMISSIONER SMITH:Mr. Fell , do you have
BY MR. KLINE:
MR . FELL:No, thank you.
COMMISSIONER SMITH:Mr. Kline.
MR. KLINE:Just a couple.
CROSS - EXAMINATION
Mr. Kalich , on page 7 of your testimony,
you discuss the use of a capacity discount as a way to
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Wilder , Idaho
address the non-firm nature of wind resources, and I take
it from your testimony that Avista has not received any
proposals from QF wind resource developers; is that
We have acquired 35 megawatts of wind
power and have taken these issues into consideration in
that acquisi tion; however , as far as an unsolici ted PURPA
I guess anticipating that probably all
three of the Idaho jurisdictional electric utilities are
correct?
proposal , no.
549 KALICH (X)
Avista Corporation83676
eventually going to receive requests from QF wind
developers, would Avista support the Commission
initiating a generic proceeding to address this capacity
discount for non-firm QF resources?
Yes, we ve had the discussion internally
and I think the company would be open to that and that
may be the most appropriate solution to this issue.
MR. KLINE:That I S all I have.
COMMISSIONER SMITH:Thank you.
Mr.Woodbury,do you have questions?
MR.WOODBURY:Madam Chair Staff has
questions Mr.Kal ich.
COMMISSIONER SMITH:Mr.Richardson.
MR. RICHARDSON:Just a couple,
Madam Chairman.Thank you.
CROSS - EXAMINATION
BY MR. RI CHARDSON :
Mr. Kalich , tell us about your
megawatts of wind.Is that a company-owned resource?
Actually, that is a resource owned by
Florida Power & Light.We procure that energy, however
through, I guess the contractual ownership is through
PacifiCorp Power Marketing.
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550 KALICH (X)
Avista Corporation83676
On page 6 of your testimony, line 20, you
state that wind and other non-firm resources, what other
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Wilder , Idaho
resources are you referring to?
I m referring to any resource that is not
able to commit to the company a firm delivery of energy
Can you gl ve me an example?
I would have to give you a hypothetical
example.Is that what you re looking for?
That would be fine.
I can think of , let I s say, a mill operator
who's generating lumber and has a by-product and serves
their load substantially with the generation they have.
Christmas break comes along, the staff is home for two
weeks and there I s addi tional energy put on to our system
that we would have to pick up that would be
Is a run-of-river hydro project
No, it is not.
And it varies wi th weather , doesn I t it?
It varies wi th streamflows.
And streamflows are firm?
I think it I S back to the time frame you
I mean , our Cabinet, you know , our Clark
and capaci ty.
unscheduled.
non- firm?
talking about.
551 KALICH (X)
Avista Corporation83676
Fork proj ects, the Cabinet proj ect is arguably a
run-of -river proj ect.There is a substantial amount of
predictability in the runoff of that facility, so in that
case, we would consider that resource indeed to be
firm
And it I S predictable because you can
predict the weather?
No, it I S predictable to the extent
- -
and
here if you want to go to statistics , we can do that, but
you have a pretty good assurance to the extent that
streamflows don t move , for example, on a wind proj ect,
from zero to 100 megawatts on a 100 megawatt plant as
we I ve talked about earlier today and yesterday.
And cont inuing wi th that ine on ine 20,
page 6 , you say,"Wind and other non-firm resources
should not be eligible to receive the full , published
avoided cost rate because of the absence of firm capacity
from these resources.
Do you know whether this Commission has
issued any notice that the issue of avoided cost rates
would be addressed in this proceeding?
Could you restate that question , please?
Yes.Do you know whether this Commission
has issued any notice that the issue of avoided cost
rates would be addressed in this proceeding?
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552 KALICH (X)
Avista Corporation83676
MR. STRONG:Your Honor , I I m going to
obj ect That calls for a legal conclusion on the part of
the witness as to the sufficiency of notice issued by the
Commission.
COMMISSIONER SMITH:Mr. Richardson.
MR. RICHARDSON:Thank you
Madam Chairman.The question has no legal implications
whatsoever.It I S a factual question of whether or not
this wi tness knows whether this Commission has issued any
notice.
COMMISSIONER SMITH:I III allow the
question , Mr. Strong.
BY MR. RI CHARDSON :Do you want me to
repeat the question?
Please.
Do you know whether this Commission has
issued any notice that the issue of avoided cost rates
would be addressed in this proceeding?
MR. STRONG:May I ask a question?Is the
question intended to ask about the sufficiency of any
notice or is it just asking about his personal knowledge
about notice, whether notice has been given?
COMMISSIONER SMITH:I t sounded to me ike
it was his personal knowledge.
MR. STRONG:Do you know?
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553 KALICH (X)
Avista Corporation83676
THE WITNESS:I do not and the issues
presented in my testimony in my opinion are completely
pertinent to this case , so I m addressing the issues
the 10 megawatt capacity limit, the regulatory out
provision as I guess it I S called primarily.
MR . RI CHARDSON :So was that a no or a
yes?
For the record, no.
MR. RICHARDSON:Thank you.That I S all I
have, Madam Chairman.
COMMISSIONER SMITH:Mr. Ward.
MR . WARD:Just one , I think.
CROSS - EXAMINATION
BY MR. WARD:
Again , Mr. Kalich , following up something
that I asked Mr. Hale, on page 3 of your testimony at
lines 10 through 14 , you envision a scenario in which a
QF could essentially sell off its most valuable power
outside the PURPA contract and sell its least valuable
under a PURPA contract.Do you have any evidence that
such a thing has ever happened in Idaho?
Well the company support s
set rates for
- -
illustrate rates and value for a
a SAR resource
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554 KALICH (X)
Avista Corporation83676
firm resource.We have to recognize the fact that here
by setting that rate we re creating an example and
creating opportunities for resources and developers to
I don't want to use the word game the system because
don t think that I s a reality.I think contracts evolve
over time, but when we set up rules and we provide a rate
that is really a blunt instrument , I think it I S very
important to envision what I would define as a reasonable
scenario that the company could face going forward;
otherwi se , we end up in proceedings such as thi s one
today.
That I S very nice, but now would you answer
my question?
Could you repeat it again , please?
Do you have any evidence that any PURPA
resource has tried to do this in Idaho in the past or
intends to do it in the future?
I do not.
In fact, you could easily insert a
contract provision that would prohibi t such practices,
could you not?
And we would hope that the Commission
would support that , yes.
MR . WARD:Okay, that I s all I have.
COMMISSIONER SMITH:Are there questions
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555 KALICH (X)
Avista Corporation83676
from the Commission?
COMMI S S lONER KJELLANDER:Jus t one.
EXAMINATION
BY COMMISSIONER KJELLANDER:
Mr. Kalich , maybe you can help me
understand something.Through the course of the hearing
what I thought I understood, maybe I don t understand
from the way some people are describing it , and
specifically I guess I want to get to the averaging
proposal that is presented by U. S. Geothermal.Could you
just kind of give me what your view is of how that I
averaged over time?Is it over an hour?Is it over a
day?A year?A month?
Yeah , you know , U. S. Geothermal may be
able to maybe have some specifics , but the way I would
read the contract today is this would be an annual
number , so similar to the way we might look at one of our
gas plants.At the end of the year we would look at how
many megawatt hours were generated over the year and
divide by the number of hours in the year , 8 , 760 , in
three out of every four years to come up wi th an average
megawatt number , so it would be an annual , so it I S after
the fact.You wouldn I t know until the end of the year
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556 KALICH (Com)
Avista Corporation83676
how much energy ultimately even was generated and whether
you exceeded the 10 megawatts or not until literally the
last day of the year occurred.
I know this isn I t u. S. Geothermal I
proposal , but in theory, would that mean that if a
precedent was established to accept an average that in
theory, a QF could qualify and let I s say two seasons out
of the year produce 20 megawatts for delivery and then
two seasons of the year produce nothing and that would
average out to 10 megawatts and qualify under an
averaging scenario?
Yeah , under that scenario , I do believe
that I S entirely reasonable.
So let I s say, then , that you accepted some
type of averaging, should there be sideboards put on a
megawatt average and, if so, thinking out loud, what
might those sideboards look like or why would you need
sideboards if you were a utility
Yeah , I think getting back to
- -
I was
hoping I was going to get an opportuni ty to talk a it tIe
bi t about planning.That I S my function at Avista is on a
planning basis , so capacity is somewhat of a mysterious
concept to a lot of people, I think.When you look
forward and the discussion I had in my testimony about a
capaci ty discount , when I m looking forward at resources,
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557 KALICH (Com)
Avista Corporation83676
and witness Gale talked to this a portion , we're looking
at the ability on a planning basis to serve customer
requirements, so when we look out a year, two years, five
years forward and we procure resources, we are obligated
to not only meet the average energy load of our
customers, but we must carry reserves, planning marglns
and historically, the company has carried 10 percent plus
90 megawatts which covers some hydro and forced outage
variabi 1 i ty .
It equates to about 15 percent of our peak
demand , so those are real costs that we lncur above and
beyond the average value of the energy, so to the extent
we get a resource that comes in , like a wind resource
for example , we really have to look back and see not a
lot of capac i t Y there , not a lot of abi it y to serve a
planning margin , and we have to go and build additional
capacity to back that resource up, so that cost gets
transferred to customers, so back to the sideboards, the
proposal that I placed in front of the Commission in my
testimony was to limi t the contract to the greater of
megawatts nameplate or dependable capacity or whatever
the plant was.If it's a 5 megawatt plant, it I
reasonably expected to produce I think we should
still limit it to 5 megawatts because we re talking about
dependable capaci ty that on a planning basis my company
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558 KALICH (Com)
Avista Corporation83676
can plan to serve customers I requirements with , and then
back to
- -
I think actually Idaho has a very good concept
wi th the metered energy test.
To the extent the expected temperature
50 and they get a minus 25 degree day and somehow they
get to 10.2 megawatts on that contract, there's a way the
company can still compensate the party for that value,
but recognizing it doesn I t have the inherent value of the
SAR resource which assumes dispatchable firm energy, so
to me the sideboards are there and the contract is set up
in a manner to procure the energy even if it I S surplus to
the contract quantity and above 10 megawatts.
I don t know if that answered your
question.It doesn't look like it from here.
COMMISSIONER KJELLANDER:That I s why we
have a transcript.Thank you.
COMMISSIONER SMITH:Mr. Ward.
MR . WARD:Madam Chair?
COMMISSIONER SMITH:Do you want to bring
back your wi tness?
MR . WARD:I could try to get this done by
cross -examining the wi tness, but I I m going to have to put
him through documents obviously he I s not familiar with
which amount to the U. S. Geothermal draft contracts, so
what I I d like is leave to put Mr. Runyan back up for
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559 KALICH (Com)
Avista Corporation83676
brief rebuttal to clarify what is a completely erroneous
description of the contract.
COMMISSIONER SMITH:I believe that would
probably be fair given it I S Geothermal I s proposal and
contract that is being discussed.
Mr. Strong, do you have any redirect?
REDIRECT EXAMINATION
BY MR. STRONG:
Mr. Kalich , would you perhaps to follow up
on what the Commissioner I s questions were, can you
perhaps describe how the sideboards operate in your
discussion to limit the exposure of the utility and the
customers to the unanticipated cost risk, that I s
phrase, that you see associated wi th the type of
generation about which we've been talking?
I don t know that I welcome an opportunity
to further dilute the discussion , but maybe some
clarification is in order because this really is a
concept that I s rather complicated.I think it get s back
to asking the qualifying facility to commit to a level of
capacity that the utility can depend upon and use in its
future planning requirements , so that I s the first issue
at hand here, and to the extent u. S. Geothermal can
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560 KALICH (Di)
Avista Corporation83676
commit to 10 megawatts dependable capacity, that would be
a great resource to be there, but to the extent
additional generation is available to the utility and to
the utili ty I s customers, I mean , I can't speak for
Pacif iCorp, they have unique circumstances , but my
company is able to provide a substantial value for that
surplus energy and I think it I S reasonable to compensate
the developer for the energy value of that resource.
Now , we couldn't plan on it ahead of time,
we couldn I t use it in our planning documents and we had
to move and build our resource portfolio a little bit
differently because we had a resource that we couldn
necessarily guarantee more than 10 megawatts in this
example , but there still is an energy value that
substantial and 85 percent is a substantial value of what
the market is at the time and we I d propose to compensate
the developer that way for that addi tional energy, agaln
above the contract amount whatever it is , if it I S 10 or
, subj ect to the metered energy test.
I s there a way to take an annual average
number and put sideboards around it which address your
concerns?
I think that would be tremendously
difficult and my answer to that is probably I would not
be able to value that energy due to the fact that you
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561 KALICH (Di)
Avista Corporation83676
have to look clear back 8,760 hours to determine whether
the imi t was exceeded or not.
So you see - - is that to say you see an
inherent difficul ty with sys t em whi ch requires you to
look back after the year completed?
Yes,do.donl know how you value
energy because when was the threshold met.think it
would be nearly impossible to fairly compensate the QF
developer.
And would that requlre you to go back
MR . WARD:Madam Chair , I I m going to
obj ect This lS a complaint proceeding about a very
specific contract and we are proceeding down a road that
has nothing to do wi th this complaint and the contract
issue in this complaint.I don t know how it could be
more irrelevant.
COMMISSIONER SMITH:Mr. Strong.
MR. STRONG:Well , there has,
Madam Chairman , been considerable discussion about some
sort of limi t, however it's characterized , as an annual
average number and the Commissioner I s question referred
to that concept and I really only have one more question
about it.
COMMISSIONER SMITH:Okay, let I s get it
over wi th then.
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562 KALICH (Di)
Avista Corporation83676
BY MR. STRONG:Okay, my question is what
lS the difficulty associated with going backward after
the year is completed and valuing the energy?
The difficulty there is determining,
again , let I s say the generator generated one additional
megawatt-hour of energy at the end of the year , in what
hour and which market price should I value that energy to
be in since the developer did generate too much energy
relative to the contract , so I d have difficul ty
identifying should I value it at the lowest price in the
off-peak hours in the fish flush when prices are 5 or
$12.00 or should it be at the most valuable price that we
had in the energy crisis that hopefully never occurs and
I pay $500, so therein lies the difficulty.
MR . STRONG:Thank you.
COMMISSIONER SMITH:Okay, thank you , Mr.
Kalich.
(The wi tness left the stand.
COMMISSIONER SMITH:Let I S take a
10-minute break and then , Mr. Ward, do you want to do
that now or shall we wait until after Mr. Sterling?
MR . WARD:It probably actually would be
better now while it I s kind of in everybody's mind.
COMMISSIONER SMITH:All right.
(Recess.
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563 KALICH (Di)
Avista Corporation83676
Mr. Ward.
COMMISSIONER SMITH:All right,
MR . WARD:Madam Chair , I I d like to recall
Mr. Runyan to the stand.
COMMISSIONER SMITH:Mr. Runyan , you
still under oath.
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Wilder , Idaho
KI P RUNYAN
produced as a rebuttal witness at the instance of the
Complainant U. S. Geothermal , having been previously duly
sworn , resumed the stand and was further examined and
testified as follows:
MR . WARD:I f I may approach?
BY MR. WARD:
COMMISSIONER SMITH:Certainly.
document.
(Mr. Ward distributing documents.
DIRECT EXAMINATION
Mr. Runyan , li ve distributed a three-page
Do you recognize that document?
Yes.
And can you tell me what it is?
It I s the Purchase and Sale of Net Energy
564 RUNYAN (Di-Reb)
U. S. Geothermal83676
section of the power purchase draft that was attached to
the complaint of U. S. Geothermal.
And that was attached as Exhibit B , was it
not?
Exhibi t B , yes.
Okay.Now , wel ve had a --
MR . FELL:Madam Chair?For
clarification , can we just get clarification that this
table is the same one that was in Exhibit A on page
that I cross-examined one of their witnesses about?The
Exhibit A was just the red line version.I t hi nk i ti
the same.
They are the same.MR . WARD:I will
represent that they are the same.
COMMISSIONER SMITH:All right.
MR. WARD:I lost my train of thought.
COMMISSIONER SMITH:Very clever
Mr. Fell.
BY MR. WARD:Mr. Runyan , we have had some
discussion about what an average of 10 megawatts means or
more broadly about the 10 megawatt cap for posted rates.
Were you present when Mr. Kitz testified earlier in this
proceeding?
Yes.
And do you recall him saYlng that if in
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565 RUNYAN (Di-Reb)
U. S. Geothermal83676
fact because of an air-cooled thermal plant's variability
that if in fact he was limited to a nameplate capacity or
a rated capacity of 10 megawatts, he I d really have a
megawatt plant?
Yes.If his capacity was determined by
the maximum it could put out in any hour under the most
favorable condi tions , then really, you would have about a
6 megawatt rated plant under normal conditions.
Okay.Now , in order to try to get around
that and still stay within at least what U. S. Geothermal
believes to be the spirit of the limitation , what did
u. S. Geothermal propose regarding del i veries?
In order to deal with the 10 megawatt
lssue and the specific operating characteristics of this
binary geothermal proj ect, the contract contains, first
off , a defined term which is the maximum capacity amount
and in the contract that I s set at 12.megawatts.
Further in the contract it states that any deliveries in
excess of 12.7 megawatts in any hour is a material breach
under the agreement, so the contract has provisions to
limit the maximum deliveries that can ever be made under
this contract and there I s remedies for the seller or the
purchaser if that was to occur.
Secondly, what we did was we introduced a
new concept because we knew people would be concerned,
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566 RUNYAN (Di-Reb)
U. S. Geothermal83676
will you deliver all of it in one month and not in the
other month, et cetera, so what we created was, as
Mr. Kitz explained in his testimony, a new term, maximum
monthly energy amounts and those are in section 6.2 of
the agreement and what that does is track exactly
Mr. Kitz I s chart that shows the temperature variations by
month throughout the year and the expected generation
that would come from the proj ect during those months, so
that specifically keeps you from shifting generation and
producing 12.7 megawatts, let I s say, in the month of July
because July's annual kilowatt-hour output is limited to
500 megawatt-hours, so we introduced that level of
additional kind of comfort that we thought we would
provide to the buyer in this agreement.Wi th those two
contract provisions and the general understanding of the
contract, I don t believe any of the abuses that have
been discussed could take place.
So there was earlier a reference to
putting sideboards on the deal , in effect, isn't it true
tha t the net energy amount, the column that appears under
net energy, is what u. S. Geothermal intends to deliver on
a monthly basis; correct?
Yes , it is.
And in addition , we put on the sideboard
of a maXlmum monthly energy amount we could deliver in
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567 RUNYAN (Di-Reb)
U . S. Geothermal83676
any month?
That I S correct.
MR . WARD:Thank you.I think that I s aIl
I have.
THE WITNESS:I would like to add one
thing, though , Conley.After the allegations , these
broad-based allegations, of potential abuses, in our
rebuttal testimony, we went further and we said if the
purchaser would like a maximum monthly capaci ty amount,
we were willing to do that as well , and if the purchaser
wanted to introduce provisions in the contract to make
sure that the output was pro rata in regards to the total
capaci ty of plant , we said fine, so our intent is to
del i ver a normal plant as it varies through the year and
any contract provisions to that extent are acceptable.
MR. WARD:Thank you.That's all I have,
Madam Chair.
COMMISSIONER SMITH:Did this exchange
generate questions on the part of any party?
Mr. Strong.
MR. STRONG:I have two questions.
think they I 11 be rather short.
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CROSS - EXAMINATION
BY MR. STRONG:
This goes back to our discussion the other
day.These two particular contract proposals that you
are making wi th respect to Idaho Power , are you proposing
that these become standard provisions applicable to all
utilities in all contracts in Idaho?
My emphasis is on this particular
contract.
Therefore, question No., it would be
reasonable , would it not , for other utilities and other
contract types to look at other types of contract
provisions which might have the same sort of ultimate
obj ecti ve that your contract provisions have, wouldn I
that be reasonable?
Yes , I think you can get to the same
resul t from several different directions.
MR. STRONG:Thank you.
COMMISSIONER SMITH:Anyone else?
Commissioner Kj ellander.
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569 RUNYAN (X-Reb)
U . S. Geothermal83676
EXAMINATION
BY COMMISSIONER KJELLANDER:
Mr. Runyan, I know that Mr. Ward I s
approach was to try to move the clouds away so we could
see clearer, but in the course of this , the fog has set
in.As I look at this contract and maybe I glossed over
it before and it didn t make sense because I thought we
were talking about a 10 megawatt contract and as I look
at the maximum monthly energy under the kilowatt, I don I
see 10 megawatts even closely coming up to the mix or
even on an annual average bas i s that there I s
megawatts.Am I missing this?
The maximum monthly energy amounts, which
would be the expected output of the plant if it operated
at the historical temperatures that were used to
establish this, total an average of 10 megawatts for a
year I S period.If you take that right-hand column
maximum energy, and you total those amounts and divide by
760, you'll get 10 average megawatts, so in fact it
does and the fact that in certain months in the winter,
for example, November has 720 hours, you actually average
more than 10 megawatts is a function of the fact that the
temperature is colder than the design point, which is 48
degrees Fahrenheit, so there I s more than 10 in certain
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570 RUNYAN ( Com - Reb )
U . S. Geothermal83676
months and less than 10 in other months and that I s
exactly how a geothermal plant operates, especially when
it has an air- cooled condenser.
When I look at your last column, Maximum
Monthly Energy, on page 8 --
Yes.
- -
that I s an average, correct, per
month?
That I s the total kilowatt-hours in the
month; so for example , the month of January has 744 hours
times , let I s say, 11 megawatts or 11 000 kilowatts, that
would be the total , so these were the total
kilowatt-hours produced in that month.To get to a
capacity, you would have to divide that column by the
number of hours in the month.
COMMISSIONER KJELLANDER:Okay.Well
thank you.
COMMISSIONER SMITH:Mr. Ward.
MR . WARD:Maybe I can help a little bit,
if I may, Commissioner.
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571 RUNYAN ( Com - Reb )u. S. Geothermal83676
BY MR. WARD:
REDIRECT EXAMINATION
Mr. Runyan , in the Maximum Monthly Energy
column , perhaps we didn I t make this clear, is that the
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maxlmum that Idaho Power would ever be required to buy?
Tha ti s correct.Del i veries would vary
from that point down , but Idaho Power would have no
obligation to purchase energy in excess of that number.
And the net energy is what we think is the
most reasonable scenario of what we will actually
Right, taking into account planned
maintenance and unforced outages that typically occur.
MR . WARD:Okay, I hope that helped.
COMMISSIONER SMITH:Thank you,
(The wi tness left the stand.
COMMISSIONER SMITH:Okay, Mr. Woodbury,
produce?
think we re ready for your witness.
MR. WOODBURY:Thank you , Madam Chair.
Mr. Runyan.
Rick Sterling.
572 RUNYAN (Di-Reb)
U. S. Geothermal83676
RICK STERLING,
produced as a wi tness at the instance of the Staff
having been first duly sworn , was examined and testified
as follows:
DIRECT EXAMINATION
Mr. Sterling, will you please state your
BY MR. WOODBURY:
full name for the record?
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Wilder , Idaho
My name is Rick Sterling.
capaci ty?
And for whom do you work and in what
I work for the Idaho Public Utilities
Commission as a Staff englneer.
And in that capaci ty, did you have
occasion to prepare prefiled testimony in this case
consisting of 26 pages and five exhibits , Exhibits 101
through 105?
Yes , I did.
And have you had the opportunity to review
that testimony and those exhibits prior to this
Yes , I have.
And is your understanding of the forced
hearing?
573 STERLING (Di)
Staff83676
outage prOV1Slon in the contracts under discussion , is it
different now than it was when you prepared your
testimony?
Yes , it is.
And as a result of that difference, is it
necessary to make any changes to your testimony?
Yes , it is.
And does the first change occur on page
Yes, the first change is on page
beginning on line 14.There should be a period after the
word "outages" and the remainder of that sentence should
be stricken.
And does the next change occur on page
19?
Yes, on page 19 , line 5 "72 -hour" should
be replaced wi th "temporary," and beginning on ine 10
with the word "However," from the word "However" through
the end of the paragraph which ends on line 18 should be
stricken.
Having made those changes, are any other
changes necessary to your testimony or exhibits?
No.
And were to ask you the questions set
forth your testimony revised would your answers be
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the same?
Yes , they would.
MR. WOODBURY:Madam Chair , I'd ask that
the testimony be spread on the record, that the exhibits
be identified and I d present Mr. Sterling for
cross-examination.
COMMISSIONER SMITH:If there I s
obj ection, the prefiled testimony as amended will be
spread upon the record as if read and the exhibits will
be identified.
(The following prefiled testimony of
Mr. Rick Sterling is spread upon the record.
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Please state your name and business address for
the record.
My name is Rick Sterling.My business address
is 472 West Washington Street, Boise, Idaho.
By whom are you employed and in what capaci ty?
I am employed by the Idaho Public Utilities
Commission as a Staff engineer.
What is your educational and professional
background?
I received a Bachelor of Science degree in
Civil Engineering from the University of Idaho in 1981
and a Master of Science degree in Civil Engineering from
the Uni versi ty of Idaho in 1983.I worked for the Idaho
Department of Water Resources from 1983 to 1994.
1988, I became licensed in Idaho as a registered
professional Civil Engineer.I began working at the
Idaho Public Utilities Commission in 1994.My duties
the Commission include analysis of utility applications
and customer petitions.
What is your background and experience as
relates to avoided costs and QF contracts?
I have worked for the Idaho Public Utilities
Commission for over 10 years.Throughout that time , I
have been the primary Staff person assigned to all
matters related to avoided costs and Qualifying Facility
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(QF) contracts.I have been instrumental in developing
and employing methods to determine avoided cost rates.
have reviewed and commented on every QF contract that has
been submitted to the Commission for approval during the
past ten years , and I have been ei ther the wi tness or
sponsor of comments on every PURPA-related proceeding to
come before the Commission in that time period.
What is the purpose of your testimony in this
proceeding?
The purpose of my testimony is to present
Staff I s posi tion on the following:
1 )Definition of the 10 MW threshold for
eligibili ty for posted avoided cost rates; and
2 )Whether the contract provisions offered by
Idaho Power to U. S. Geothermal , Bob Lewandowski
and Mark Schroeder are reasonable, and if not
reasonable , to offer recommendations for
revised provisions which Staff believes are
reasonable; and
3 )Whether the " regulatory-out" contract provision
sought by Idaho Power is necessary and
enforceable.
Please summarize your testimony.
I believe that Idaho Power I s proposal to define
the 10 MW threshold for determining eligibility for
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posted avoided cost rates is reasonable.Staff has
al ways interpreted the threshold as a capaci ty 1 imi t, not
an average energy imi t .I believe that a 10,000 kWh per
hour interpretation is easy to administer.I do not
support using nameplate capacity to judge eligibility for
posted rates.
I support Idaho Power I s proposed concept of
establishing a performance band as the criteria for
distinguishing between firm and non-firm energy.
However , I bel ieve that the Company I s proposed band is
too narrow.I recommend that the band be set between
and 120 percent rather than the 90-110 percent band
proposed by Idaho Power.In addition , I support Idaho
Power I S inclusion of a contract provision to excuse
performance in the event of forced QF outages.
I do not support Idaho Power I s insistence on
inclusion of a "regulatory-out" clause in QF contracts.
Please briefly summarize the various types of
avoided cost rates available to QFs in Idaho.
Idaho has a 25-year history of QF development
in the state.In that 25-year period, an extensive array
of power sales and pricing options has evolved to
accommodate a very wide variety of proj ect types,
financing options, generation characteristics and
developer preferences.To more easily illustrate the
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variety of options , I have prepared Exhibi t No. 101.
Although this exhibit is specific to Idaho Power , both
Avista and PacifiCorp have similar options.
Beginning at the top of the flowchart, proj ects
either sell to the utility under a contract or under a
tariff. Under a tariff , proj ects have no obligation to
deliver power in any specified amount or for any
specified length of time.The proj ect is enti tIed to the
rates specified under the tariff as long as the tariff
remains in place.On the far right is Idaho Power'
Schedule 84 tariff for net metering customers.This
tariff is designed for small proj ects that basically wish
to "spin the meter backwards.
The center section of the flowchart shows the
options available for "non-firm" energy sales.proj ects
too large to qualify for the net metering tariff could
qualify for the Schedule 86 non- firm tariff.Non-firm
energy is that which is delivered on an "if and
as-available basis.Non-firm energy projects less than
10 MW in size are paid 85% of Mid-C market prlces.
proj ects 10 MW and larger would be subj ect to negotiated
rates beginning at a price equal to 85% of Mid-C.
date, there have been no non-firm energy projects 10 MW
or larger , and there have only been a few non-firm
proj ects smaller than 10 MW.
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By far , most proj ects developed to date have
chosen to sign long-term contracts with the utilities.
Long-term contracts are depicted on the left hand side
Exhibit No. 101.For proj ects smaller than 10 MW , the
Commission has developed avoided cost rates for
fossil-fueled and non-fossil-fueled projects , and rates
that are either levelized or non-levelized.Rates for
these contracts have been referred to in the past as
publ ished rates" or "posted rates.For proj ects 10 MW
and larger , contractual rates are determined using a
methodology that relies on utilities I Integrated Resource
Plans (IRPs) and their power supply models.The result
of applying the prescribed methodology is a
project-specific rate that recognizes the characteristics
of individual proj ects Since this methodology has been
ln place , it has been employed only once for a contract
between Avista and Potlatch.
Are there any other mechani sms for se 11 ing
power to utilities?
Yes , proj ects could also become certified as
Exempt Wholesale Generators (EWGs) under PURPA , or
merchant plants." In that case, they could sell power to
whoever they wanted under whatever terms they are able to
negotiate, as long as the sales are not retail.
Finally, proj ects could choose to respond to
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utilities I Request for Proposals (RFPs)Solicitations
to acquire power are made from time to time, usually for
some specific type of product.For example , PacifiCorp
recently issued an RFP for renewables , but has yet to
announce which , if any, bids will be accepted.The
utili ty intends to issue more RFPs in the future , as does
Idaho Power.Idaho Power I s draft 2004 Integrated
Resource Plan states that the Company intends to try to
acquire 100 MW of geothermal resources and 350 MW of wind
resources in the next six years through an RFP process.
The Company intends to issue an RFP for 200 MW of wind
before the end of this year , and another RFP for 100 MW
of geothermal resources next year.
Do you have any concerns about the RFP process
being used by utilities to acquire renewables?
I do not have concerns about using the RFP
process to acquire renewables, but I do have concerns
about inconsistencies between rates that might be paid
for renewables acquired under the RFP process and those
acquired as QFs under PURPA.
Do you believe that the tariffs and mechanisms
ln place for enabling non-utilities to sell power to the
utilities are adequate?
Yes, I believe that this Commission I s tariffs
and mechanisms are very extensive and can accommodate
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proj ects of nearly any type and Slze.In fact , my
experience has been that few people are aware and even
fewer understand just how many options there are for
selling power to utilities in Idaho.Many people have
had the mistaken impression for many years that proj ects
10 MW and larger could not even be developed in Idaho.
What is the advantage, if any, for a proj ect
be smaller than 10 MW in size?
The advantage is that there is a pre-determined
schedule of rates developed that utilities must pay under
contract.Wi th a pre-determined schedule of rates,
developers are relieved of being required to negotiate a
rate.Another possible advantage is that the "posted
rates" may exceed the rates determined using the
proj ect -specific IRP-based methodology.
Why do you say possible advantage?
I say there may be a possible advantage because
not possible know whi ch rates will be higher
unless the IRP-based methodology actually applied and
rate computed.The as sumpt ion most people seem to make
is that the "posted rates" will always be higher , but
contend this assumption is almost always made without any
information comparing the two rates.
Q .Without actually making a comparison of the
under- and over-l0 MW rates, which do you think are more
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likely to be higher?
I believe it depends on the generation
characteristics of the proj ect.For a proj ect that
generates as a mostly base-load type of proj ect, the
under-l0 MW rates will probably be higher.However, for
a proj ect that is able to generate more during on-peak
hours and during peak seasons, the over-l0 MW rates are
likely to be higher because the proj ect-specific modeling
is able to recognize the added value of peak generation.
Has a project-specific rate been determined for
any of the parties in this case for proj ect sizes larger
than 10 MW?
No, not that I am aware.Qui te frankly, I am
amazed that neither Idaho Power nor the complainants have
made any effort to determine what the rate would be
the proj ect were larger than 10 MW.
Would it be difficult for Idaho Power to
compute a rate for U. S. Geothermal for a proj ect size of
say, 20 MW?
I wouldn t say it is a trivial exerClse, but I
would say that Idaho Power should be quite capable of
doing it in a relatively short period of time.According
to the methodology description adopted in the settlement
stipulation in Case No. IPC-95-9, Order No. 26576,
utilities are required to make such a computation within
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30 days of the request.
If u.s. Geothermal simply cannot Slze its Raft
Ri ver proj ect to produce no more than 10, 000 kWh per hour
and remain cost-effective, does that mean that the
proj ect must be abandoned?
No, clearly not.If the proj ect must be sized
larger than 10 MW , it just means that the IRP-based
methodology would be used to establish its rate as a QF
proj ect , or that it must become a merchant generator or
participate in an RFP process.
Idaho Power seeks to define the 10 MW threshold
for eligibility for posted avoided cost rates as being
not to exceed 10,000 kWh per hour" while U. S. Geothermal
seeks to define the threshold as 10 average megawatts
(aMW) measured on an annual basis.How do you bel ieve
the threshold should be defined?
I believe that Idaho Power I s proposal to define
the threshold as "not to exceed 10 000 kWh per hour"
reasonable.Idaho Power has used this definition in the
past when 10 MW was formerly the threshold.While not
stated in any prlor Commission Order or formally endorsed
by ei ther the Commission or its Staff , Staff has
historically viewed this definition as reasonable and has
interpreted the threshold as an actual capaci
generation limit.Although capacity, by definition , is
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normally not associated with generation over any
specified time period , defining capacity by measuring
generation over a one-hour period has proven to be a
relatively easy method for Idaho Power to use.In many
respects, it is analogous to how demand is measured for
purposes of billing commercial , industrial and irrigation
customers , except that a one-hour period is used instead
of a IS-minute period that is used for demand billing
purposes.In the past , several QF contracts have
included this definition.
There has been a 10 MW threshold for posted
rates for most of the years PURPA has been implemented in
Idaho. Why has this issue not come up sooner?
I believe it has never been an issue before
because there have only been a few proj ects close to
MW in size.Of these, all have been ei ther hydropower
projects or wood waste fired projects with generally
higher capaci ty factors.Existing proj ects close to
MW in Slze can and do generate at their rated capacity a
large share of the time.The vast maj ori ty of existing
QFs are much smaller than 10 MW.Now , however , wi th the
recent introduction of lower capaci ty factor proj ects,
particularly wind , it is likely that some will rarely
generate at their rated capacity.For example, a wind
proj ect might be sized to be capable of generating 10 MWs
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of capacity, but it will likely do so only for a very
small
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portion of the year.Thus, for some generation
technologies, how the 10 MW threshold is defined is
crucial.
In the past, has Staff viewed the 10 MW
threshold as a capacity limit or an energy limit?
Staff has always viewed it as a. capacity limit.
Furthermore , I believe the utilities and developers have
also viewed capacity 1 i mi t .Al though there has
been some question recent years about how the imi t
should be measured,am not aware anyone un t i 1 now
who has ever suggested that it be viewed as an energy
limit.If 10 MW had been viewed as an energy limit,
Staff would have been careful to always specify it as "10
average megawatt s" or 1 0 aMW.Contrary to Mr. Kitz'
testimony, in the regulatory arena , plants are always
generally described by their rated capacities , not by
their average annual capaci ties.For example , Idaho
Power I S Danskin proj ect is normally referred to as a
MW plant because it has the capability to generate 90 MW
under normal condi t ions.If it were to be described
instead based on its average annual generation , it would
be described as a 5 or 10 MW plant due to its limited
hours of operation.Moreover , its capacity based on
average annual generation would vary considerably from
one year to the next because it would never consistently
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operate the same amount of time from year to year.Quite
frankly, I have never heard of a plant generally
described by its average annual energy unless it is
specifically stated as average megawatts.If the
Commission had intended for the threshold to be 10 aMW , I
believe it would have stated it that way in its prior
Orders.
Could the Commission choose to define the
threshold as 10 aMW?
Certainly; however , I think it could become
even more problematic to administer if it were to do so.
First, if a threshold of 10 average megawatts measured
over the course of a year were used, it could not be
verified except on an annual basis.A test based on
hourly metering would instead be able to provide almost
immediate verification.Second, if 10 aMW were used as
the criterion , it would take a complete year before
could be verified that a proj ect was or was not less than
10 aMW.Moreover , that same difficulty would persist
every year thereafter.If the QF were found to have
exceeded a 10 aMW threshold at the end of a year, I think
it would present administrative and accounting
difficulties to adjust for payments already made to the
QF in prior months based on an assumption that the
proj ect was less than 10 aMW.
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Do you believe it would be unfair to certain
technologies to define the 10 MW threshold as being
10,000
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kWh per hour?
No, I do not.One of the key reasons for
having any threshold at all is because there are better
more accurate ways to establish a value for proj ects
whose generation characteristics and timing differ
markedly from the SAR plant used as the basis for
computing posted rates.A case could be made that the
more sophisticated IRP-based methodology should be used
for all proj ects, especially those that are radically
different than a gas-fired CCCT.I believe it is very
reasonable to use the IRP-based methodology for wind or
geothermal projects with a capacity of 10 MW or more
because their generation is so different from the SAR I
If a different capaci ty threshold were chosen for each
generation technology, or if a 10 aMW energy threshold
were adopted, then I do believe certain technologies
would be given a preference over others.
Do you believe "nameplate capacity" is a
reasonable way to define the 10 MW threshold?
No, I do not.Other parties in this case have
pointed out the problems associated wi th this sort of a
definition so I will not reiterate them here.I don't
believe anyone in this case is advocating such a
definition.
Q. Idaho Power has proposed that a "90/110 percent
band" as described in Mr. Gale I s testimony be used to
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determine eligibility for posted rates.Using some
examples , can you illustrate how such a concept would
work?
To illustrate the concept , I have prepared
Exhibit Nos. 102 and 103.Exhibit No. 102 illustrates
three scenarios in which base energy prices (or the
posted energy rates) are less than the market energy cost
(or 85% of Mid-C prices) Scenario 1 shows the payment
if the proj ect produces exactly as expected.Scenario
shows the net payment in the event the proj ect fails to
produce at least 90 percent of its estimated monthly
generation.Note that it is possible in this instance,
if generation falls short enough , for the proj ect to owe
money to the utility if it fails to produce.Scenario
shows the net payment in the event generation exceeds 100
percent of the estimate.Exhibit No. 103 illustrates
comparable scenarios , except in the instance where base
energy prlces (posted rates) exceed market energy costs
(85% of Mid-C) .
Do you agree conceptually with the " 90/110
percent band" concept as proposed by Idaho Power?
Yes, I do for the most part; however , I will
propose modifications to the proposed contract terms that
I believe are fairer to both parties.Wind generation
generally considered non-firm in the traditional sense
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because it is not possible to know in advance how much
if any, generation will be available.However , wind
proj ects
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are not all alike.Some larger , more sophisticated
proj ects may have some ability to predict generation with
varying degrees of accuracy.For example, a
multi-turbine wind farm in a location with steady winds
and good historical data may be capable of forecasting
its generation to some extent, while a single , small "mom
and pop" turbine is unlikely to have any ability to
forecast generation.Idaho Power I s proposal gives the
opportuni ty to receive posted rates to those who can
predict their generation wi th some certainty.Those who
cannot would be relegated to selling power under Idaho
Power I s Schedule 86 for non-firm energy sales.
Are there other ways besides establishing a
"band" that could be used to properly discount the value
of non-firm energy?
Yes, I bel ieve there are.Many studies have
been done in the past few years to at tempt to determine
the cost of firming non-firm wind energy.Exhibi t No.
104 lists several recent studies.One of the purposes of
these studies is to quantify the capacity value of wind
generation and to evaluate the costs of integrating wind
into utility systems.The studies usually assume that a
gas-fired simple cycle plant must be built to provide
backup capaci ty for those times when the wind plant
cannot produce its rated capaci ty.The resul ts of these
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studies vary, but all conclude that there is some cost
associated wi th integrating wind.The resul ts often
depend on assumptions about how much wind generation
would be added in relation to the size of the utili ty I
existing generation fleet, along with how much peaking
capability the utility already has.The range of wind
integration costs from varlOUS studies is from
approximately $1.50 to $5.50 per MWh. Hirstl s April 2004
study showed a very broad range of integration costs,
from almost none for very small amounts of wind to as
much as $14 per MWh for large amounts of wind.
PacifiCorp I s studies have estimated integration costs
$5.50 per MWh.Another way of looking at these
integration costs is that they represent the decreased
val ue of wind energy as compared to some other type of
generation that does provide capacity whenever needed.
As I will discuss later in my testimony, BPA began
offering a wind shaping and storage service in which the
costs of the service are based on BPA studies of wind
integration costs. BPA charges $6.00 per MWH for its
storage and shaping service for wind energy.
Idaho Power proposes that proj ects be required
to produce at least 90 percent of their estimated monthly
generation in order to receive posted avoided cost rates.
Do you believe this percentage is appropriate as a lowerlimit?
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In the calculation of rates uslng the SAR, we
assume a capaci ty factor of 92 percent.In other words,
we assume that the gas-fired CCCT would operate
percent of the time.The remaining eight percent of the
time, the plant would not be operational due to forced or
unforced outages (e. g., scheduled maintenance is an
example of an unforced outage; equipment breakdown is an
example of a forced outage) Thus, there is a greater
than 92 percent likelihood that the SAR would be able to
generate at any specific time since unforced outages
would reasonably be scheduled during times when the plant
would not be expected to be needed.Requiring
non-utili ty generators to meet the same standard in order
to receive firm energy rates makes some theoretical
sense, however , I do not believe that many potential
proj ects could forecast their generation with such high
accuracy.
If you do not believe 90 percent would be
attainable by most QFs, what do you suggest as an
alternative?
First , I would recommend that a lower
percentage be set.I believe 80 percent is reasonable.
Idaho Power has been providing reports to the Commission
slnce December 2002 showing statistics concerning its
PURPA contracts.One statistic provided in the reports
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is a monthly comparison of contracted generation to
actual generation.
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In the past 19 months, Idaho Power's PURPA QFs have
delivered an average of 71 percent of their contracted
energy.None of the proj ects included in the summary
have ever been held to their contract amounts, nor have
any ever revised their original contract amounts based on
amounts the proj ect has proven able to deliver.With
incentives to deliver at least 80 percent of their
monthly generation estimates and periodic opportunities
to revise the estimates , I believe that 80 percent is
achievable by most proj ects.
Second , I would recommend that proj ect owners
be given more frequent opportuni ties to revise their
monthly generation estimates than has been proposed by
Idaho Power.Rather than an initial six-month revision
opportuni ty followed by two-year intervals thereafter , I
would recommend six-month intervals for the duration of
the contract.That way, Idaho Power will at least have
some certainty, but project owners will be able to adjust
for the effects of expected water conditions.
s. Geothermal witness Kitz states in his
direct testimony that Idaho Power I s draft contract makes
no allowance for forced QF plant outages , yet he points
out that in the event of a forced outage at one of Idaho
Power's own plants , it could recover 90 percent of any
resul ting higher power supply costs through its peA.
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What is you opinion on this issue?
First, as stated by Idaho Power witness Gale
and as included in section 14.1 of the draft contract,
Idaho Power does , in fact , make an allowance for forced
outages by allowing a temporary grace period during which
the QF I S inability to perform is excused.I believe
is completely reasonable to include provisions in the
contract that excuse the QF during forced outages such
equipment breakdowns because this is consistent wi th the
treatment Idaho Power I s own plants receive through the
peA.
(The following testimony was removed from the
transcript at the request of the witness.
I do not believe that QFs should be held to as
strict of delivery requirements as short-term firm energy
purchases utilities routinely make with each other.
However , I do believe it is reasonable to compare the
firmness requirements of QFs to those of the utilityl
own generating resources.
Complainants in this case have obj ected
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Idaho Power I s proposed contract provisions that requlre
developers to pay Idaho Power liquidated damages based on
the additional market purchase expenses Idaho Power may
incur if developers do not deliver 90 percent of the
energy they have agreed to provide in any month.
response to the complainants' concerns about unlimited
exposure to market prices, Idaho Power has offered to
limit developers I exposure to a dollar per MWh amount
equal to 150 percent of the net energy price for the
month in which the shortfall occurs multiplied by the
shortfall amount.Do you believe this is necessary, and
if so, do you believe it is reasonable?
Yes, I do bel ieve it is necessary to place a
cap on the potential exposure developers would face in
the event their proj ect is unable to meet the lower band
whether the band is set at 90 percent or 80 percent.
Furthermore, I believe that the 150 percent cap proposed
by Idaho Power as described in Idaho Power wi tness Gale I s
Exhibi t No.2 02 is reasonable.
What about the 110 percent upper bound?Do you
think this is appropriate?
Again , I believe there is good rationale for
imposing an upper bound, but I think it creates an
unrealistically tight band.I would recommend that the
band be symmetric wi th the lower bound; thus , I recommend
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an upper bound of 120 percent.
Are there ways for the non-firm output from a
proj ect to be firmed?
Yes, there are.One way is to purchase firming
servlce.BPA has developed a service for regional publ
utilities that buy fixed amounts of power from BPA as
well as for investor-owned utilities.The service
integrates the wind energy and stores it in the
hydropower system , delivering the power to the utility a
week later in a steady, predictable supply.For thi s
service , for utilities and other entities outside of the
BPA control area, BPA charges $6 per MWh.BPA provides a
similar service for publicly owned utilities within its
control area at a cost of $4.50 per MWh.I have attached
a brief description of BPA I s wind integration service
Exhibit No. 105.Under BPA I S program , participants are
required to pay any wheeling charges to deliver power to
and to receive power back from BPA I s system.
addition , participants are responsible for the cost of
any losses along the way.These charges would be in
addi t ion to the $ 6 . 00 per MWh storage and shaping charge,
so the total charge to participate in this program could
be much higher than $ 6 . 00 per MWh.For large wind
proj ects or those easily able to deliver to and recel ve
from BPA I S control area, BPA I s wind integration serVlce
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may be a viable option, but I acknowledge that this
servlce is not realistic for small wind proj ects.
Another possibility is to use a battery storage
system to store energy for short periods of time and
deliver it later at a specific time and amount.I am not
very familiar with this technology for large scale
applications, but I have been told by Idaho Power
personnel that a wind developer in Montana (the same
developer who is responsible for the recently signed
United Materials contract , IPC-04-01) has proposed to
use such a system and sell the output to Idaho Power if a
pricing mechanism can be devised to accommodate on-peak
and off -peak pricing.
A proj ect unable to perform wi thin the band
such as Idaho Power has proposed in this case might be
able to use ei ther of these two methods to firm its
output in order to qualify for the posted avoided cost
rates.The proj ect owner would have to weigh whether
would be better to pay for a firming service or install
bat teries and receive posted energy rates, or whether the
non-firm market-based rate (Schedule 86) would provide a
higher rate.
U. S. Geothermal wi tness Runyan discusses his
client's negotiations with Idaho Power in which he
alleges that Idaho Power had initially offered to
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purchase the first 10 MW of U. S. Geothermal I s output at
the posted avoided cost rate and any additional amounts
at a
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negotiated rate.He then goes on to explain that Idaho
Power has since withdrawn its earlier offer and he
suggests that U. S. Geothermal be "grandfathered" to allow
it such a contractual arrangement if the Commission rules
that the proj ect is in fact larger than 10 MW.What is
your response to his suggestion?
My posi tion is that U. S. Geothermal should not
be grandf thered It is true that the Commission
recently approved a contract for Renewable Energy of
Idaho wi th a pricing scheme like the one described by Mr.
(See Case No. IPC-04-, Order No. 29487)Runyan.The
Commission very reluctantly approved that contract , in
part because of Idaho Power I s stated inability to compute
a rate uslng the prescribed methodology, in part because
it did not wish to delay Renewable Energyl s progress on
completing the proj ect and in part because it did not
wish to penalize Renewable Energy for mistakes not of its
creation.This case differs in that U. S. Geothermal has
not presented a signed contract for Commission approval.
In addition , I specifically remember telling U. S.
Geothermal on one or more occasions that if it wanted to
pursue a project 10 MW or larger , it must request that
Idaho Power compute a rate using the IRP-based
methodology.Finally, just because the Commission
approved one contract with posted rates for the first
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, I do not bel ieve it should approve another.
did
If it
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all proj ects regardless of Slze could get posted rates
for the first 10 MW and Schedule 86 rates for all excess
generation.The size threshold would not matter except
for determination of how much generation would be paid at
posted rates.This approach would undermine the primary
rationale for the IRP-based methodology for over 10 MW
proj ects - that the IRP-based methodology produces more
accurate resul ts for large proj ects by being able to
account for proj ect specific generation characteristics.
Idaho Power has included a "regulatory-out"
clause (Section 23.2) in its draft contracts to U. S.
Geothermal , Lewandowski and Schroeder that in effect
permits Idaho Power to terminate its contractual
responsibili ties in the event deregulation is implemented
in Idaho in the future and Idaho Power is denied full
recovery of its QF contract costs.Do you bel ieve such a
clause is reasonable?
I do not support Idaho Power I s insistence on
inclusion of a "regulatory-out" clause in QF contracts.
While I would not characterize the utilityl s attempt to
include same as obstructionist or as anything other than
good faith , I believe such a clause is unnecessary to
protect the Company I s economic interest and is further
prohibi ted by PURPA and FERC regulations.
A utility has no discretion under PURPA as to
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whether or not to purchase QF power.It is a federal
obI iga t ion to purchase.Similarly, a QF is enti tIed to a
fixed rate contract for sale of power over a fixed period
of time.Once a QF contract and price are approved by
the Commission , QF costs pursuant to that price are no
longer at issue as to prudency.
The Company-proposed regulatory-out prOV1Slon
conditions termination on a change in state law resulting
in Idaho Power being unable to fully recover in its
retail revenue requirement all costs attributed to the QF
purchase.The very next section of the Company-proposed
firm energy sales agreement is a provision that
conditions contract approval on a Commission declaration
that all payments made to Idaho Power be allowed as
prudently incurred expenses for ratemaking purposes.
This provision alone gives the utility all the assurance
it should require regarding the recovery of costs.The
QF is also entitled to certainty, a certainty that
will receive a fixed price and stream of revenue through
the life of the contract, without a re-opener clause
without rate revision , and assuming compliance with
contract terms and condi tions, wi thout termination.The
QF should not be denied the certainty of an arrangement
and the benefits of its commitment as a result of changed
circumstances.
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Staff attorney informs me that the proposed
regulatory-out clause gives the Commission continuing
jurisdiction over the avoided cost rate and subj ects the
QF to the same "utility type regulations" precluded by
PURPA Section 210 (e); implementing FERC regulations,
R. ~ 292.602 (c) (1); by federal Courts; by State
Supreme Courts and by the Idaho Supreme Court.
Does this conclude your direct testimony in
this proceeding?
Yes , it does.
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(The following proceedings were had in
open hearing.
MR . WOODBURY:And I I d like to clarify
that al though Mr. Gale suggested that a technical
question regarding AURORA be asked of Staff wi tness , I I d
like to clarify that Mr. Sterling is Staff I S witness , not
the Company I s technical wi tness , so we I d proceed in that
fashion.
COMMISSIONER SMITH:Thank you,
Mr. Woodbury.
Mr. Fell, do you have questions?
MR . FELL:No questions.
COMMISSIONER SMITH:Mr. Strong.
MR. STRONG:No questions.
COMMISSIONER SMITH:Mr. Kline.
MR. KLINE:Well , I would ike to ask
Mr. Sterling one question about the production request
that Staff was provided , because yesterday there were
some questions about it and I think it would clarify the
record, so I I m not holding him as Idaho Power I
wi tness.
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CROS S - EXAMINA T I ON
BY MR. KLINE:
Earlier this week , Mr. Sterling, Idaho
Power responded to a production request that the Staff
had asked Idaho Power to produce and in that production
request , Staff asked Idaho Power to compute avoided costs
for the U. S. Geothermal proj ect using the IRP
methodology, I think , is the terminology you used in your
testimony.Yesterday we had a number of questions about
that production request and specifically the role of the
AURORA model in that production request, and so to make
the record clear in this case , could you describe how the
AURORA model interacts wi th the Company I s integrated
resource planning process and how it relates to the
production request that the Staff received?
Well , first of all , the AURORA model is an
hourly simulation model.The contract sought by U. S .
Geothermal in this case would be a 20 -year contract, so
that hourly simulation model is used to produce a rate
for a 20 -year contract.The AURORA model requires
numerous inputs about Idaho Power I s system , some of which
are what new resources does Idaho Power need to add in
the future in order to meet its expected load.
Those new resources and the choices of
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which new resources Idaho Power would pursue are things
that are contained in Idaho Power I s integrated resource
plan which is a 20-year , has a 20-year , planning horizon
so we have 20 years of resources or 10 years of
- -
excuse
, I misstated that.There are 10 years of resources
from the integrated resource plan that are used in the
computation and the remaining years are resources that
would be chosen by the AURORA model.
MR. KLINE:I think that provides the
clarification I was looking for.Thank you.
COMMISSIONER SMITH:Mr. Ri chardson, do
you have questions?
MR . RI CHARDSON :I have a couple,
Madam Chairman.
CROSS - EXAMINATION
BY MR. RICHARDSON:
Good mornlng, Mr. Sterling.
Good morning.
On page 3 of your testimony, beginning on
line 6 , you state that you support Idaho Power I s proposed
concept of establishing a performance band as the
criteria for distinguishing between firm and non-firm
energy.What role did you play in the development of
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that concept?
I played no role.
Were you here yesterday when the Idaho
Power witness testified that they engaged in
consul tations wi th the Commission Staff in developing
that concept?
I do have some recollection that we did, I
bel ieve , meet wi th a couple of people from Idaho Power
some time ago , I don't even remember how long ago it was,
and we discussed the idea of how could Idaho Power deal
with the issue of firm versus non-firm and eligibility of
proj ects for firm versus non-firm rates , but the proposal
itself and the concept was Idaho Power I Idaho Powe
created that , not the Staff.We discussed it with them
but we didn t make the proposal , we didn t originate it,
nor did we even propose to ref ine it.
On the bottom of that page beginning on
ine 24 , you reference , you state that to more easily
illustrate the variety of options, and here you I
referring to variety of options for selling power through
a utility, you have prepared Exhibit No. 101.Did you
develop this chart that I s contained on Exhibit 101
specifically for this case?
No.
When did you develop this chart?
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I don t remember exactly.I ti s been
probably at least two years ago and it I S been refined a
little bit from time to time as some of those options
have changed.
And you testify at the beginning of your
testimony that you re essentially the PURPA department at
the PUC; right?
I don I t think I used that term , but I have
worked on most of the PURPA issues, if not all of them
since the time I ve been employed here.
You state on page 1 that you re the
prlmary Staff person assigned to all matters related to
avoided costs and QFs; right?
That I S right.
So when someone calls the Commission with
a question about how do I sell power as a PURPA proj ect,
the question would probably be referred to you?
Most likely.
And so why did you develop this chart?
As I recall , I developed it a few years
ago as an aid in explaining the various options to
people.There is and has been a general perception for
quite some time that there I s only one option or few
options that people can choose and it was always
frustrating to me for people to have that perception and
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this particular flow chart made it eaSler for people to
understand that there was more than one way to sell power
to the utility.
And so this chart
- -
you used this chart
to help folks understand the various Commission-approved
methodologies for selling power to Idaho Power?
That I S right, and other utilities.
created similar charts for the other two utilities as
well.
Well , let I s take a look at the chart and,
if you will , let I s start at the bottom and work our way
up.In the lower left-hand corner there I s a series of
boxes that are tied to the box called Published Rates.
Do you see that?
Yes , I do.
And here a QF who fits into this published
rates box can branch out to either fueled or non-fueled.
Do you see that?
Yes , I do.
And what gives the developer that option?
Is there a Commission order that says you re ei ther
fueled or non- fueled and if one or the other you go down
whichever branch?
I can I t ci te the Commission Order number
but yes , there was a Commission Order a few years ago
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that said that fuel basically means fossil fuel.
So the genesis , and I m not interested in
the specific citation , but the genesls of those two
branches is indeed a Commission Order; correct?
That I S right.
And then underneath the fueled and
non-fueled box we see more branches for levelized or
non-levelized and what gives the QF developer the option
or the right to say I want levelized or non-levelized , is
there a Commission order that does that?
That one I I m not sure about.Wel ve had
levelized and non-levelized rates for many, many years,
think from the very beginning.Now , whether there was an
order that enabled that I can t say for sure.
Well , the last avoided cost rate Order has
the option in it for a QF to select levelized or
non-levelized because you published those rates; right?
Yes.
So there is a Commission Order setting
levelized and non-levelized?
That I S right.
Then going up that side there we see a
question under the word Capacity on the left-hand side,
do you see that?
Yes.
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And there a QF developer has the option of
golng down one of two branches, being less than
megawatts or over 10 megawatts and the genesis of those
branches is also a Commission Order; correct?
Yes.
So if I land in this capacity question
mark box , I'm either over 10 megawatts or under and itl
a Commission Order that you re explaining to a developer
what their options are?
Yes.
Okay.Over on the right-hand side we see
a box called Schedule and what Schedule 84?
That generally is referred to as Idaho
Power I S net metering tariff or situations where small
power producers want to basically run the meter
backwards.
And if I find myself in that box, you I
explaining again what the Commission has ordered for
deal ing wi th net metering proj ect s; right?
Yes.
Now, if we go to the middle section,
there's sort of the ul timate box that we start on our
journey down this decision tree that says Non-Utility
Genera t ion.Do you see that?
Yes.
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It I S a triangle, I guess, and we have a
branch leading out called Net Metering which takes us
over to Schedule 84 and a branch coming out called Firm
which takes us down to the Capaci ty question mark and
then there I s the middle branch called Non-Firm going down
the center.Is there a Commission order on that?
Yes.
And describe that for me.
Back when PURPA was first implemented in
Idaho, there was a lot of discussion at that time about
firm and non-firm energy.In accordance wi th PURPA
PURPA allows rates.They don t use the terms firm or
non-firm , but they use descriptions that are very, very
similar , and at that time there was recogni tion that
there would be firm and non-firm generation and so the
Commission in prior orders created options for tariffs to
be implemented for non-firm energy and Idaho Power has
had a tariff called Schedule 86 that goes back to 1981,
which was when PURPA when became implemented in Idaho,
and Avista has had a tariff called Schedule 62, which
with a non-firm option in that tariff as well , and those
tariffs originated in orders that were issued in about
that time frame by the Commission , so it I S not a - - this
firm and non-firm question is not a new question by any
The thing that was missing from some of thosemeans.
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orders was a preClse definition of what constitutes firm
and what constitutes non-firm.
So this branch of the tree is to capture
the Schedule 86 folks?
Well , it's to separate the Schedule
people from the Schedule 84 people from the people who
choose a contract approach.
Okay; so I come to you and I am a QF that
uses a canal drop for my motive force and 11 m under
megawatts, which branch would you send me down?And I I m
right here in this top triangle, where do I go?
Well , it depends on the characteristics of
your generation.If you re a canal drop, most likely you
would go to the left in a contract type of an arrangement
which is historically where almost all proj ects that used
irrigation systems have gone.
Okay, and I come to you and I am Mr.
Lewandowski and I have a wind proj ect that I s under
megawatts, which branch would you send me down?
Probably the non-firm Schedule 86 branch
which is where Mr. Lewandowski has gone with actually two
agreements so far.
And if Mr. Lewandowski thought that this
85 percent of Mid-C just isn t covering his costs, maybe
I want to go down the left branch and get a long-term
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contract, would this chart as you explain it to people
who come to you allow him to do that?
I think that I s the question that we re all
here for.I don I t think we have defined what the
cri teria are to be
- -
for a proj ect to be enti tIed to a
published rate and that particular question has been
asked many, many times of me and others in the last
several years and my response is always it I S a question
that has not definitively been answered by this
Commission and until it is , I can t say for sure whether
you could get a firm rate for that type of a proj ect.
Are you aware that the Commission I s orders
setting the avoided cost rates speak to the eligibility
for qualifying facilities are entitled to the avoided
cost rates?
Well , all qualifying facilities are
eligible for avoided cost rates.
And are wind proj ect s qual i fying
facili ties?
Yes , they are , but I would point out that
Schedule 86 is an avoided cost rate , Schedule 84 is an
avoided cost rate and so are the published rates.There
are lots of different
- -
the published rates are not the
only avoided cost rates that we have.
But it I S true that a wind proj ect as a
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qualifying facility according to the Commission I s orders
is entitled to the published firm avoided cost rates?
, that I s not true.
And what Commission order denies them that
rate?
There I S no Commission order that denies
them that rate, but there I s no Commission order that says
wind projects are entitled to these rates either.
But there are Commission orders, are there
not, that say qualifying facilities are entitled to those
rates?
I guess you I d have to ci te a Commission
order in that specific language, but I think the
Commission orders say qualifying facilities are entitled
to avoided cost rates.Now , how those avoided cost rates
are determined and what type of an avoided cost rate
appropriate in each instance, I think it I S for the
Commission to decide if it I S not specified what the
qualifying criteria are.
Isnl t it true that this Commission has
never issued an order distinguishing between firm and
non-firm QFs for wind proj ects or any other type of
generating technology?
, I have an Order right here and I 11
give you the Order number.It I S Order No. 15746.
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And you have that in front of you?
Yes , I do.There are other orders as
well.
Could you read the language in that Order
that distinguishes wind as a non- firm resource not
eligible for qualifying facility rates?
This is a 42-page Order , so it may take
me - - well , 45 pages.It may take me awhile to find it.
If you're willing to wait , I I m more than happy to look
for it.
m willing to wait and lid like to
actually have a copy of the document you re referring to.
MR . WARD:Madam Cha i r .
COMMISSIONER SMITH:Mr. Ward.
MR . WARD:I f I may interrupt , could we
also have the ti tIe of that proceeding?
COMMISSIONER SMITH:Okay, we re going to
take a brief recess where Mr. Woodbury is golng to get
coples of this Order and I hope that the copying machines
aren t being moved and we'll come back in about
minutes and everybody will have a copy.
(Recess.
COMMISSIONER SMITH:We I 11 go back on the
record.
Mr. Richardson, do you have further
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questions?
BY MR. RI CHARD SON :I m wondering if you
could read back the last exchange , Connie.
(The last question and answer were read
back by the Court Reporter.
BY MR. RI CHARDSON :Do you have the last
question in mind?
Yes , I do.
Can you respond to that now that youl
had an opportuni ty to look at the 42 -page Order?
Well , obviously, I haven t read all
pages in the last five minutes.
Well , if you need more time to respond to
the question, we can give you that.
Could you point to a section in the Order
where it addresses wind?
I cannot.
m not aware that it specifies which
resource types are considered firm or non-firm.My point
is that this issue has been around since the time that
PURPA was first implemented and tariffs were created for
non-firm energy projects , specifically for those types of
proj ects and wind has been generally considered a
non-firm type of a resource.
Has this Commission ever issued an order
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saying that?
Not that I m aware of.
Okay, and we re talking about non-firm
here, so let I s turn to this Order that you referenced at
Page 13.m referring to Order No. 15746 , Case
300-12.For the record , this is a Commission Order
dated June of 1980 and a number of the people in this
room were around at that time, actually, but turn to page
13 where it talks about avoided energy costs.Could you
read for me the first two sentences of that section IV?
Section 2 92 .304 (d) of the FERC rules
provides that qualifying facilities have the option of
selling power to the utility either on an I as available
basis or pursuant to a legally enforceable obligation
to deliver.This terminology corresponds to the familiar
distinction between non-firm power sales and firm power
sales.
So is that what you were referring to when
you talked about non-firm?
Well , that I s part of what I was referring
, yes.
What else were you referring to?
The full Order , actually, and the context
in which firm and non-firm are discussed in this Order.
If you go on and look at the Order , it talks capacity and
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energy payments and in the very early days of PURPA rates
in Idaho , we had separate capaci ty and energy payments.
We I re not talking about how the Commission
sets rates.We're talking about eligibility for a firm
power sales agreement versus eligibility for a non-firm
sale and here the Commission has stated that this is how
we distinguish between firm and non-firm either on an as
available basis or pursuant to a legally enforceable
obligation to deliver.
That I S not what the Commission says.
According to what this says, that I s what PURPA says.
Isn t this a Commission Order?
This is a Commission Order , but it says
Section 292.304 (d) of the FERC rules which is PURPA.
And typically, the Commission speaks
through its orders; correct?
Yes.
Okay, the Commission goes on to say in
thi s Order "In non-firm power sales (I as available I ) it
is the seller , not the buyer , who decides whether or not
the power is to be made available.Do you see that?
Yes.
So going back to your chart
Madam Chairman , I I m going to mark this as
Lewandowski/Schroeder Exhibit 59 for identification.
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COMMISSIONER SMITH:What are you marking?
MR. RICHARDSON:Pardon me?
COMMISSIONER SMITH:What are you marking?
MR. RICHARDSON:This Order.
COMMISSIONER SMITH:Okay.
(Complainants Lewandowski & Schroeder
Exhibit No. 59 was marked for identification.
BY MR. RI CHARDSON :So going back to your
chart that you used to inform the public and potential
QFs about what the Commission-approved options are for
selling power to the utility, you have the non-firm
branch here and you state that if I 1 m Mr. Lewandowski
comlng to you , I have to go down the non- firm branch
because of a Commission requirement?
, I didn t say that.
So if I m a wind proj ect , I I m entitled to
ask for a firm long-term contract at published avoided
cost rates?
Anyone can ask for that.
Am I enti tIed to it under
I think that I s the very purpose of this
case.I think that I s the purpose of your complaint is to
determine whether your clients are entitled to those
rates.
This Commission has never said that a wind
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proj ect is not enti tIed to published rates; correct?
No, and if they would have said that we
wouldn t be here today.
And this Commission has said that all
qualifying facilities are entitled to published rates;
correct?
No.
Where did it say that they re not?
It doesn I t say that they re not, but your
question was where does it say that the Public Utilities
Commission said all proj ects, all qualifying facili ties
are entitled to these rates and the Commission has never
said that.
Turn to page 13 of Exhibi t 59.Does not
that Order say just that, qualifying facili ties are
entitled to avoided cost rates pursuant to a legally
enforceable obligation to deliver and is that not a firm
contract embodied in the published rates?
It says ei ther on an as available basis,
which has been interpreted to be non-firm --
Which would be your Schedule 86?
That I S right
- -
or pursuant to a
contract.
And who makes that call?
The state commissions do.
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Okay, and youl ve taken it upon yourself to
fill in this gap that you believe exists in the
Commission I S orders by putting this non-firm branch on
your --
No, as I explained , every time that
question has come up, I have said this is not a question
that the Commission has addressed at this point.I ti s an
unanswered question.ve told people historically, wind
proj ects have been viewed as non-firm.
By this Commission?
By people in general.I don t know that
we can find a specific Commission order.
So your authority for this non-firm branch
lS people in general?
I don I t need authori ty from anyone to try
to explain to people what the options are.
Don I t you need authority from this
Commission to publish documents on this Commission I
letterhead informing them what you believe the
Commission I S rules are?
, and I might add , too , you know , part
of the reason that we do this is because perceptions get
created out there that certain options are not available.
For example , one perception for many, many years which
believe you have perpetuated is that you can t even
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obtain a contract if you re bigger than 10 megawatts and
to avoid those type of things happening, we put together
stuff like this to make it easier for people to
understand what the options really are.
And you re leading wind developers to
believe, as you suggest I lead folks to believe , that
theyl re not entitled to a contract over 10 megawatts, but
this documents leads wind developers as you present it,
leads wind developers to believe that they re not
entitled to a firm power purchase agreement; isn I t that
true?
I don t believe that they are unless there
are some provisions similar to the type that Idaho Power
is attempting to get approval for here to make that
proj ect a firm energy proj ect
You do not believe that wind proj ects are
entitled to firm long-term contracts?
Not unless they can meet some type of
performance criteria that will distinguish them as
firm.
And where do you get the authority to make
that statement?
PURPA.The section that we just read in
this Order that refers to PURPA , and ve got a copy of
PURPA here, too, if you want to look at that, in effect
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says that utilities can have rates for projects that can
deliver on an as available basis or it can have
contract-type rates.This Commission has implemented
both from the time that PURPA was first implemented in
this state and that authority comes from PURPA.
The question was where is the authori
for you to rely on that says a wind proj ect is not
entitled to published rates?
There is no authority.It I s simply my own
professional judgment.
It I S your belief?
It I S my belief that a wind proj ect unless
it can meet specific performance criteria to distinguish
it as firm is not entitled to Idahol s published rates.
And you re implementing that belief with
this non-firm box that you direct wind power generators
to on this chart , did you get approval from any of your
superiors at the Commission to do that?
No.
Would
change this
you agree wi th me that any maJ or
Commission I S implementation of PURPA would
have to come from the Commission itself and not you
personall y?
Yes, and I don t think
- -
I think you I
implying that I am making a change and I m not.
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On page 8 of your testimony, line 13
speaking of the AURORA model run and you state, "Qui te
frankly, I am amazed that neither Idaho Power nor the
Complainants have made any effort to determine what the
rate would be if the proj ect were larger than
megawatts " and that's the AURORA run model; is that
right?
That I S right.
And then going over to page 23 of your
testimony at line 12 speaking of why the Commission
approved the Renewable Energy contract which was more
than 10 megawatts, you state that one of the reasons the
Commission did that was because of Idaho Power I
inability to compute the rate using the methodology.
That I S right.
And so wi th that in mind , going back to
page 8, you re still amazed that the parties weren I t able
to do that?
The parties have since done that.
received the results of that two days ago.
But during this time frame that you
speaking of historically, you state that the Idaho Power
Company was incapable of doing it and then you state
youl re amazed that the parties didn't try to do it, isn'
that a little incongruous?
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, I don t think so.I think Idaho Power
was unable to do it several months ago and prior to that
because of inexperience wi th the model and the data sets
had not been developed , but they have since done that.
They ve also since made adj ustments to the model to more
appropriately model certain things in their system and
think they have much more capability now and they do have
the capability to make that analysis that they didn I
have six months or a year ago.
Were you also amazed yesterday when Idaho
Power's own wi tness wasn t able to testify as to the
workings of the model?
, that doesn't surprlse me at all.This
is an extremely complicated model that to really be adept
at it you have to work on it almost every day and
Mr. Gale , that I s not part of his job and I certainly
would not expect him to know the details of this very
sophisticated model.
How would you expect Mr. Lewandowski to
able to know all the details of the model had he wanted
to put in a 10-and-half megawatt wind project, how can
a QF , a small QF , play in that game?
Small QFs don't have to play that game.
Only if you re bigger than 10 megawatts do you have to
play that game and Mr. Lewandowski I S proj ect is not
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bigger than 10 megawatts.
What if I represented to you that he I s
considering putting in three turbines that would put him
slightly over 10 megawatts?
Then he would have to play that game , but
according to your witness I testimony, he I s proposing 9.
megawatts of capacity.
And you testified that in order to
understand the AURORA model , you have to work with
every single day.It seems to me - - well , I won t go
there.
Just an illustration of how complicated
this model is, I don t know how long it took Idaho Power
to make the one run that they did for U. S. Geothermal
but assuming you have all of the data sets properly put
together , which is very time consuming to begin with , the
simple run time of your computer , I don t think you could
do it overnight , qui te frankly.
On page 25 of yo~r testimony, line 17 , you
testify that the QF is also enti tIed to certainty, a
certainty that it will receive a fixed price and a stream
of revenue through the life of the contract , without a
reopener clause , without rate revision , and assuming
compliance with contract terms and conditions , without
termination.Isn t this 90-110 percent band a rate
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reopener , a rate revision and doesn t that inj ect
considerable uncertainty in what the QF can expect over
the life of the contract?
, the 90-110 percent band and the rates
and the , if you want to call them , penal ties associated
wi th that are very clearly spelled out in the contract.
Don I t they inj ect considerable uncertainty
in the revenue stream that the QF will receive over the
life of the contract?
No.Where the uncertainty comes about
from the developer I s side and his resource itself and the
uncertainty associated with how much he I s going to
generate.It I S very certain what he's going to be paid
if he generates.
Okay.When you testify on page 18 that
perhaps it would be good idea to allow a QF to adjust its
net energy target , if you will , on an annual basis - - oh
excuse me, six-month basis , you did that to allow the
proj ects some abili ty to adj ust for expected water
condi t ions?
That was one factor that I considered.
Did you read Mr. Runyan's rebuttal at page
12 where he talked about that issue?
m sure that I read it.Without looking
at page 12 , I don t know specifically what he said,
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but.
I can refresh your memory on that.Mr.
Runyan was appreciative of the direction you were going,
but suggested that even a six-month forecast is too long.
He goes on to say, "For example , who in their right mind
would place any credence in a November forecast of May
streamflows?If the Commission deems such forecasts
necessary, a month ahead forecast will resul t in much
more accurate information , while minimizing the punitive
nature of any penal ties Idaho Power may be allowed to
impose. "
Do you recall that?
Yes , I do.
I was just wondering if you had any
thoughts on Mr. Runyan I s comments having been a former
resource manager executive Idaho Powe r.
Well first lid point out that none the
Complainants in thi case have hydro resources but
you did have a hydro resource,then yes Mr.Runyan
correct that it might be a concern to you during certain
months of the year.I chose six months because I thought
the two years proposed by Idaho Power was too long, but I
didn t want it to be any shorter than
- -
you know
utili ties typically go out and make purchases quarterly.
They purchase for the first , second , third , fourth
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quarter , so I wanted it to be at least three months and
something less than two years, and six months in November
for a hydro project could be difficult.Six months for a
hydro proj ect in February may not be so difficul t or
March or April or any other month , so I thought that that
was about as short as I could go.
The objective standard that you were uslng
to benchmark the time period was the fact for your belief
that utilities go out and purchase on a quarterly basis,
so the obj ecti ve standard to use was three months and you
doubled it to six for what reason?
Because I think three months is a little
bi t short.
But that I s the number the utilities use?
They don't use that strictly for planning
They make quarterly purchases.purposes.They don I t
it necessarily every quarter.They may do it every day
or every week or once in every month or at an irregular
schedule , but they purchase ahead to cover themselves for
specific quarters.They may be buying now for the fourth
quarter of this year because of condi tions that they may
expect to occur later this year.
So you re expecting a
- -
imposing or
proposing to double the standard that you use
That wasn't the only standard I used.
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Isn t that an arbitrary number?
, I ve just explained how I reasoned
that six-month was a time frame that I thought was
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It wasn It arbi trary.I just finished
explaining how I chose it.
Was the one-year number or the two-year
number proposed by Idaho Power, do you view those as
You I d have to ask Idaho Power that
I m asking you how you view those.
I simply don t know whether it was
I don t know how Idaho Power came to
Well, you rej ected their numbers for a
Because I thought they were too long.
MR. RI CHARDSON :I think that I s all I
appropriate.
have, Madam Chair.
COMMISSIONER SMITH:Thank you, Mr.
Mr. Ward.
arbitrary?
question.
arbitrary or not.
choose two years.
reason.
Richardson.
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BY MR. WARD:
CROSS EXAMINATION
Well , let I s start by following up on this
business about firm and non-firm.You still have the
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Exhibit 59 in front of you?
Is that the Order that we made copies of?
Yes, it is.
Okay.
Now , I think maybe a better way to do this
is let me ask you to read starting with the section
Mr. Richardson took you through , I'd like you to read
that , that I s at the bot tom of page 13 on over through the
completion of that paragraph, to yourself will be fine
and let me know when you're done.
Okay.
All right.Now, Mr. Sterl ing, when the
Commission issued this Order , is it fair to presume
was well aware of the fact that many QFs would have
variable outputs, variable production?
I think that's a fair assumption.
And the obvious example is hydro; right?
It's one of many examples.
Okay, and - - well , first of all , there I s
nothing in this paragraph here, is there , that says
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anything about the difference between firm and non-firm
having to do with variability or lack thereof of
production?
MR . WOODBURY:Madam Chair.
COMMISSIONER SMITH:Mr. Woodbury.
MR. WOODBURY:I think that we proceeded
with Mr. Richardson to read into the record that
paragraph language and rather than just quote as to what
this additional language says or doesn t say, we're only
talking about from obviously through the end of the
paragraph and I I d ask that it be read into the record
al so, and then we wouldn t have to surmi se what it says
or what it doesn t say.
MR. RI CHARDSON :I ti s al ready an exhibi t
Madam Chairman.
COMMISSIONER SMITH:I gue s s I don
understand your point, Mr. Woodbury.
MR. WOODBURY:I think that essentially
what Mr. Ward is asking is for Mr. Sterling to interpret
the addi tional language and I m saying the language
speaks for itself and it should be read in the record
that's what at issue.
COMMISSIONER SMITH:Yes, but I think
Mr. Ward is entitled to ask the witness his opinion of
what it means and how he used it in his analysis.
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BY MR. WARD:Do you have my last question
ln mind?
No, would you please repeat it?
Let me ask it another way.As we just
discussed , the Commission when it signed this Order
presumably was well aware that QF facilities would vary
in their output; correct?
That's right.
And to take extreme examples, after this
Order was signed , there were QF contracts for things like
canal drops, were there not?
That I S right.
Which go completely off-line for portions
of the year; correct?
That I S true.
And for industrial facilities that did not
operate on a 24/7 basis?
That I S true.
So let me suggest something to you and see
if you can find anything that I s not consistent with this:
When this Order was issued , the Commission speaks of
non- firm as those , to ci te examples , operators who wish
to serve their own needs first and only sporadically to
provide excess power to the utilities; in other words
those parties don t take on an obligation to provide
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anything, do they?
No, they don I
All right , but in speaking of firm power
the Commission specifically refers to those who enter
into a legally enforceable obligation to deliver.Now
can you cite me anything that I s inconsistent with the
longstanding understanding at least of many of us that
the distinction between firm and non-firm for these
purposes , that debate is over when the seller enters into
a legally enforceable obligation to provide power , that I s
firm power by the Commission's defini tion , isn I t it?
, I think you need more than that to
determine whether or not it I s firm power or not.
But --
For example , someone could contract to
provide a million megawatt-hours in the year without
specifying delivery at any particular time in any
particular amount as long as it I S a million
megawatt-hours a year.That alone does not mean or does
not make it firm energy.Simply because it I S contracted
doesn t make it firm.
But, Mr. Sterl ing, let me suggest you
mlxlng two concepts here.The question of firm and
non-firm for QF purposes is a question that has to do
with what type of obligation the seller is going to
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undertake , would you agree wi th me?
I think you need to specify what you mean
by that.
Well , your hypothetical you just gave us
the million kilowatt-hours or whatever you used as a
figure, depending on how the seller contracts to deliver
that , an operator may look at that in a variety of ways,
as firm, non-firm or most generally in most cases a mix
of all of the above , right, that I s an operational view?
Yes, it is.
And that operational Vlew would view
resources as perhaps non-firm if they can t be counted on
at all for any capacity or even any energy, but does that
have anything to do with the firm and non-firm
distinction for PURPA purposes?
Yes , I believe it does.
Until today - - well , until this
proceeding, had anyone ever suggested to the best of your
knowledge in these proceedings or in similar proceedings
that a cogenera tor or small power producer had to fit
within an operating parameter in order to qualify for
firm rat e s " ?
Not to my recollection , but I would also
add that as long as ve been here we have never had a
wind developer seek a firm energy contract.
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Well , be that as it may, the only
difference between wind and other resources that I can
see is that there may be more variabili ty hour to hour
but is there anything in the Commission I s orders that
would suggest that some, that there I s some threshold of
variability that no longer entitles you -- youl re no
longer qualified for a PURPA contract?
, and again , I would say I think that'
what we re here for is to determine what that threshold
shoul d be.
All right , let I s talk about the threshold.
Regardless of whether a band , whether we choose a 90-110
band or an 80-120 band, it seems to me the logical way to
approach this, if you re going to approach this new
requirement, I mean , if you re going to implement this
new requirement for QF facilities , one would want to know
what purpose is being served; right?
I presume so , yes.
All right, and in thinking about this and
in looking at the utili ty testimony and in looking
your testimony, as best I can come up wi th , I
only seen - - I can only devise four possible reasons why
a band might serve a legitimate purpose and let me
summarize the first three for you.First, arguably, we
could be imposing this band in order to in some way
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require QFs to maximize production or improve the
efficiency of their production.That I S a possibility;
right?
Certainly.
Second, we could be doing it because we
want to have better forecasts of what the QFs are going
to produce for utility planning purposes and thus, we
lmpose a penal ty if their forecasts are not accurate
enough.That I S another possibility?
That I S true.
And third , we could be doing it for some
operational reason; that is, to force the QFs to in some
manner firm up, if you will, to call Mr. Gale I S, I think
inapposite phrase, their actual deliveries.Now , those
are the first three reasons I could come up wi th.Now
let I S go back to them one by one.Isn t it virtually
beyond dispute here that the QFs as the matters now exist
have every incentive to maximize their production and the
efficiency of their production because they don t get
paid if they don I t produce?
Yes, that I s true , but if I could , I I d like
to go back to the reasons that you were citing.There I s
one reason and to me it I s the primary reason and it's one
that you didnlt include , the primary reason for imposing
some sort of a band is to ensure that the prices that the
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Commission requlres utilities to pay for this power are a
fair reflection of the product that they I re receiving.
don't expect this Commission to require utilities to pay
a premium price for a product that doesn I t meet certain
premium cri teria and I think that's the primary obj ecti ve
ln my mind of imposing such a band.
All right, let I s talk about that for a
momen t .I take it what you re referring to is the fact
that the surrogate avoided resource operates at a high
capaci ty factor and that, therefore , you think that the
resources that are priced on that basis should operate
a similar capacity factor?
Yes , I do.
Isn t it true that the surrogate avoided
resource is only the methodolgy by which the Commission
prices avoided cost?Avoided cost is the definition in
the Act, is it not?
Yes , it is and the surrogate is one method
we use to establish avoided cost rates.
Yes , but the avoided cost could come from
any technology that the utility might itself be using or
in fact even purchasing; isn t that true?
No, because the Commission has established
through prlor orders that the surrogate is a very
specific plant with very specific characteristics.
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But Mr. Sterling, there's no Commission
order that suggests anywhere, is there , that the QF must
have similar operating characteristics?Where did you
get that?
I don t think you III find language to that
effect in an order.Qui te frankly, I would think that
u. S. Geothermal I S proj ect has very similar
characteristics to the SAR.In fact , I would expect that
u. S. Geothermal I s proj ect would have an even higher
capaci ty factor than the SAR would and be even more able
to meet a band than any other technology I can think
of.
I don t dispute that, Mr. Sterling, but
m trying to make a broader point here.Let me try to
do it this way:The Commission has had various
methodologies of determining avoided cost , has it not,
over the 25 years or so that wel ve been doing this?
Yes.
All right , the latest one is a surrogate
avoided resource, but that I s not the only one that I s been
used , that I s true?
That I S true.
Now , by adopt ing - - the adopt ion of the
surrogate avoided resource for determining avoided cost
is for determining the entire gamut of a utili ty I
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avoided cost; would you agree wi th me on that?
No, I don t think
The avoided cost doesn t literally have to
be a SAR , does it?
It wouldn t have to be and I think
that's --
Wouldn t that - - I'm sorry.
I think that I s one of the reasons, again
why we re here today is I think one of the primary things
that has triggered the need for such a band is things
ike wind when they cannot proj ect whether they I re going
to be able to deliver a kilowatt-hour on July 15th at
4 : 00 in the afternoon.
Well , we keep coming back to that and
don I t want to chase that rabbi t a very long ways, but
you re not proposing, neither did the utility, that the
band only being applied to wind , did you?
, I think it should apply to all
resources.
All right.Now , let I s go back to this
avoided cost business.Are you aware that Idaho Power
itself has developed some or has made hydro investments
itself in the last few years?
I don t know when the last hydro
investment was made in a new plant.It I S been quite a
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number of years.
All right , let I s go back a ways , I can I
recall them all , but let I s go back to there I s been a Swan
Falls rebuild , right, in the last 10 years or so?
Yes.
And I don I t know how far back Cascade
goes, but maybe a decade?
Okay.
Didn t all of those , to the best of my
knowledge at least, but let me ask it this way:D i dn I
all of those facilities cost more than the avoided
cost?
I don t know that.
If that were true
- -
and the Commission'
records obviously would show whether or not that I s true
because it approved those proj ects ei ther for ratemaking
purposes or in advance, did it not?
Yes, they did.
Okay.Now , if that were true and let us
say that the utility was faced with another hydro rebuild
at X dollars and an avoided cost resource could avoid
that investment, do you have that in mind?
Yes,do.
Now let I s that factsuppose
hydro facility with the same generating characteristics
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does it make any difference in that sense , does it make
any - - in that instance does it make any sense whatsoever
to force the replacing hydro , the avoiding if you will
hydro , facility to operate like a SAR in order to get
full avoided costs?
Well , the Commission has - - we've had
different surrogate resources over the years.There was
a time prior to the combined cycle gas-fired plant that
we use now , we had a coal-fired plant that was a
surrogate.The surrogate has changed as the utilityl
needs have changed.That surrogate has always been a
base load plant and perhaps an argument could be made
that maybe that I s not an appropriate surrogate any more
but the Commission I s orders have required us to compute
avoided cost rates based on a surrogate for proj ects
smaller than megawatts and un t i 1 the Commi ss lon
changes that surrogate,we are bound to use the
basis for those avoided cost rates.I f you re bigger
than 10 megawatts, then you could say well , the surrogate
becomes whatever is in the utility's integrated resource
plan which could be lots of different resources.
Let's go back to my explanation , so in
sum , it's your testimony that wel ve got to do it this way
because in fact we selected the natural gas-fired plant
as the surrogate avoided resource and therefore, QFs have
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to ape that plant I s operating characteristics in order to
qualify for the full rate?
Under that methodology, yes, that I s true
but again, I would point out that if you re bigger than
10 megawatts, we have a different methodology that will
look at what the utilityl s real avoided resource is and
U. S. Geothermal is enti tIed to a rate calculated based on
that methodology if you prefer.
All right , let me go back to the - - well
let me ask one more question.Isn t it true that
historically, and in fact this Order here that we ve been
discussing, Exhibit No. 59 , isnlt it true that
historically, the great bulk of the utility I s resources
of various operating characteristics have been viewed as
base load plant?I mean , you have a rather sizeable
block of resources that really are dedicated to base
load , don t you?
Which resources was it that you re --
resources?
Most of them have been base load prior to
It could be hydro, coal.
You mean the utilityl s resources or QF
The utilityl s for the moment.
the last couple.
All right , and isn I t it true , also, that
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QF resources have been viewed in the same fashion and
utilized in the same fashion?
No, I wouldn t say that I s the case.
think Idaho Power has looked at QFs as we take what we
get whenever we get it and we do our best to predict what
we I re going to get based on past history, but I think
some of them are very similar to a base load resource and
some of them are not.
All right , let me go back to my
rationales.I think you agreed wi th me that one
possibility is to force maximum production and clearly,
the bands don t contribute anything further to that
incenti ve; wouldn t you agree about that?
I think that I s true, I don t think they
do.
Now , the other possibili ty I mentioned is
that somehow these penal ties could improve the forecasts
as a plant is developing for utility planning purposes;
in other words,could give them bet ter numbers for
planning purposes.That I s a possibility;right?
Yes that I s a possibility,but it I not
argument that made my testimony.
And in fact , the Respondents in this case
or the Respondent in this case hasn t provided any
evidence that there I s been any significant planning
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di srupt ion , has it?
Not wi th any of the proj ects that they
have existing contracts wi th.I think there I s a fear
that they will have that sort of difficulty going forward
wi th some of the new types of technologies ike wind, for
example , that if they don t do that , they will have those
sort of problems.
All right, let I s go to the third and
think this is the one I have some difficul ty following
the entirety of the rationale, but I think this is the
one maybe Mr. Gale focused on which is we could - - the
band could be used to constrain variations that might
affect operational purposes; i. e., the dispatcher'
ability to actually serve the load he has to serve every
day, is that a possibili ty?
It is.
All right.Now , you mentioned in your
testimony that the QFs are providing about 71 percent of
their contracted capacity on average , I believe;
correct?
are they not?
I 11 accept that number.
But some of those contracts are very old
Yes , they are.
And to the best of your knowledge , has
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anyone ever asked the QFs to update the contract , the
contract numbers?
Not that I m aware.
And in fact , the dispatcher doesn't care
about the contract numbers, does he?
, but I think Idaho Power relies on
their own records of past generation history.I know
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they keep very close tabs on what proj ects have generated
in the past and so they know what to expect based on
prior performance and they use that information , I
Certainly, and do you have - - that's the
whole point of the analysis Mr. Runyan undertook , is it
not, to compare the operating history of the QFs as a
whole wi th the Company I , wi th Idaho Power I S, operating
You I d have to ask Mr. Runyan what his
Well , let I S go to 4., if you would.
4 . 2 of what?
It's Exhibi t 4., I' sorry.
Of Mr. Runyan I
Of Mr. Runyan I s rebuttal.Do you have a
believe.
Gi ve me a minute and I 11 be there.Okay,
history?
purpo s was.
copy?
651 STERLING (X)Staff83676
I m there.
Now , do you recall Mr. Runyan testifying
that collectively the QFs in terms of reliability of
generation compared very favorably with the Idaho Power'
own resources?
Yes, I do.
All right.Now , I want you to look at
first of all , the right-hand column of the top listing in
Exhibi t 4., the seven thermal proj ects.Do you see
that?
Yes, I do.
Would you agree wi th me that those
proj ect s are operating wi thin a very narrow band?
Yes, they are and I would expect u. S
Geothermal to be very similar , and I think what that
shows me is that thermal proj ects can very, very easily
even meet the 90 to 110 percent band proposed by Idaho
Power , let alone the 80 to 120 percent band I proposed.
Does it really show that, Mr. Sterling?
Yes, if you look at the bottom table in
the right-hand column , the percentage variation , the low
is 93 percent , the high is 106.
But isnl t it entirely possible,
Mr. Sterling, that collectively these resources could
produce this resul t and individual members of this
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resource group could nevertheless be hi t wi th penal ties
because in their specific case in a specific month they
were not producing within 10 percent of their projected
load?
Yes , that I s possible, but I would also
point out that Mr. Ki tz , one of your own wi tnesses , gave
an example of extreme weather variations in the month
November , a month when temperatures can be unusually high
or unusually below the average.Even that extreme
example showed that U. S. Geothermal I s output in the month
of November would only decrease 5.5 percent , well within
the 10 percent band proposed by Idaho Power.
And it wouldn t take much of an outage or
a temporary reduction in capacity to put you over the
percent limit , would it?
As has been pointed out several times in
testimony, a forced outage is an excused outage and
that I S accommodated in the contract.
After three days.What I s the percentage
of three days in a month?10 percent roughly by my
calculation; right?
Yes, it is.
All right.Now , let I s look at hydro
proj ect s Again , we have the same thing, we have
Excuse me, though, I would point out that
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if a proj ect is out, you can be out more than three days.
You could be out the entire month because of a forced
outage and not face a penalty.
Yeah , but you don t get paid.
And you shouldn t get paid.
What remedy is that?
Well , you shouldn t be paid if you re not
produc ing Why would anyone pay for a kilowatt-hour if
you re not receiving it?
That's fine, and that should be the
remedy, but why are we imposing these additional
penalties?That I s the question.Now , look at the hydro
proj ects.Here we have a wider variation
notwithstanding the fact that obviously hydro is going to
be more variable than the thermal proj ects, but doesn I
it seem intuitively obvious to you that these hydro,
these 58 hydro , proj ects , the individual members will
vary greater than this variation and that many of them
will be outside the 80-120 or 90-110 bands quite often?
Not necessarily.Excuse me, if you III let
me answer.
All right.
The 90 to 110 percent band is a proj ect
owner I S estimate of what he will produce in each month.
If he knows that his
- -
that he simply does not have
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water during the non-irrigation season or in October when
the stream dries up or if his plant is down for
maintenance certain months of the year , he adj usts his
estimate accordingly.He may be able to produce
megawatts in one month of the year and zero in other
months of the year.If that was the case, those are the
kinds of estimates he would provide to Idaho Power and
would face no penalty.
But Mr. Sterling, you re talking about a
world we don I t even have under discussion here.The
question is
- -
I mean , by any of the band proponents, the
forecast has to be made a minimum of six months ahead and
in Idaho Power I s world two years , how is he going to
forecast that?
I think in the case of U. S. Geothermal
the primary variable is ambient air temperature and we
have many, many years of that , of record of that sort of
data and I think U. S. Geothermal could very easily
estimate its production in each month of the year and , if
necessary, make adj ustments at six months or two-year
intervals and stay within that 90 to 110 percent band.
think it's a red herring in my opinion.
How much of a red herring is it to a hydro
developer in the future?Are we going to stop hydro
development?
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I think it I S a much more severe problem
you're a hydro proj ect than if you re U. S. Geothermal.
Well , admittedly, but you don t care
whether hydro gets developed in the future or you think
maybe hydro should not be developed as a QF?
No, I'll just make the point that I made
earlier is that I think the Commission I S job is to
properly price the product that they re being required to
purchase and if it can be delivered in a firm manner , it
should receive the firm price.If it can I t, it should
receive something less.
And the firm manner should be bet ter than
the utilityl s own hydro resources; isnl t that what youl
telling us?
No.The utilityl s own hydro resources,
first of all , shouldn't be used as the measuring stick.
The surrogate resource is the appropriate measuring
stick.Second of all , even the utility's own hydro
resources get dispatched and operated for reasons other
than economlCS.
Certainly, but we just went through a
discussion that hydro resources can be the avoided cost.
The avoided cost is not a designated technology, it is
the cost the utility avoids by purchasing the QF; isn I
that true?
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No, it is a designated technology for
proj ects under 10 megawatts.It is a 270 megawatt
natural gas-fired combined cycle combustion turbine for
proj ects under 10 megawatts.
Exhibi t 58.
Do you have Exhibit 58 with you?
I may, but I may not have labeled it as
It I s the one Mr. Richardson introduced.
It I S Recent Brownlee Inflow History.
(Mr. Richardson approached the wi tness.
BY MR. WARD:Do you have that now?
N ow I do, ye s .
All right.Now , it occurred to me that
there I S a fourth reason that I didn t discuss regarding
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the use of bands and that is the intended obj ecti ve could
be to impede the financing of QFs and to decrease the
rate actually paid to QFs.That I S a possibili ty, is
I don t believe that I s Idaho Power'
not?
intent in this case.
Well , were you here when Mr. Sutherland
testified?
Yes, I was.
And do you have any reason to disbelieve
him that at the very least , this is a significant
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increase in the obstacles to financing proj ects?
It was an obstacle for him and his
company.Like as has been pointed out, other proj ects
have been financed with these sorts of provisions, so 11
not a financial expert.
MR. RICHARDSON:Madam Chairman, it wasn
pointed out that other proj ects had been financed under
these provisions.It was pointed out that other
contracts had been signed under these provisions.
THE WITNESS:I III accept that
clarification.
COMMISSIONER SMITH:Thank you.
BY MR. WARD:All right.Now , if you have
Exhibit 58 in front of you, what we have here is the
inflows to Brownlee over the last 10 years starting with
1993 and do you see that column to the right of the
inflow column that says Rank?
Yes , I do.
What do you take those figures to mean?
It's not clear from the heading just
exactly what they mean.I can speculate - - well
actually, I can t even speculate.
Well, look at the two columns to the right
of that and then compare the ones where there are X I s and
then I think you can answer the quest ion.
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Well , rank would refer somehow generally
to which years were higher and which years were lower.
The low numbers in the rank column would be the high
inflow years.
And if you look at the Worse Than 70th
Percentile Planning Criterion, wherever you see an X
you III see that the number, the corresponding rank
number , is higher than 70, so that suggests to me, at
least, that that I s how that year ranks in the planning
criteria for inflows.
Yes.
All right.Now , admittedly, inflows are
not necessarily exactly identical to generation , but they
certainly have strong relationship,do they not?
Yes,but I would point out though,that
first all these are yearly numbers and these are
actuals; whereas, the estimates that a QF developer
required to provide to Idaho Power are monthly.I woul d
speculate that even in a lot of these years Idaho Power
could have been fairly accurate in predicting in advance
what its generation was going to be by month even in a
low or a high water year.
Well, how could it do that?How c an you
predict bet ter than average a year before?
I didn't say a year before.I said in
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advance and --
Six months before?
For most months I think you could come up
wi th a fairly reasonable prediction.As I stated before,
I think Idaho Power has a very good idea, for example, in
April of what their generation is going to be for most of
the remainder of the year.
m certain that I s true, but that doesn't
mean they can estimate two years in advance, does it?
, and I haven I t proposed using two
years.That was Idaho Power I s proposal.
All right , that I s Idaho Power I s proposal
and yours is six months in advance?
That I S right.
Now , I want to walk you through something
that I find kind of interesting.I went through - - well
were you here yesterday when Mr. Gale was asked by
Mr. Richardson if you were a QF , if this were a QF , where
would you set your proj ected output and I I m qui te
confident the record will confirm that he said well
probably about 3.3 in terms of inflow.Okay, do you
recall that?
Yes , I recall that that I s what he said.
And that would make sense , would it not
because you've obviously got to stay down to the lower
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end of what I s a reasonable bad scenario or you re going
to get shortfall penal ties; right?
Yes , but I mean , I think that I s a complete
misuse of this information , because again , this is annual
information and the estimates that a developer are
required to provide are monthly and I think Idaho Power
has a much better idea on a monthly basis of what the
inflow or what the production at Brownlee will be.
All right.Frankly, Mr. Sterling, I don I
care whether you think what I m asking is reasonable.
I d like you to follow my questions.Mr. Gale suggested
and let I s just assume it I S not true , of course , that the
acre feet flows corresponded exactly to megawatt-hours
okay?Now , he suggested that a reasonable developer
would set his target price at roughly 3.3 and isn I t it
obvious that the reason is you cannot afford the risk of
incurring the downside penalties?
, for example , these were monthly
numbers instead of annual numbers , then I would accept
that , yes , that I s what a reasonable person probably would
do.
All right.Now , I then went through this
exhibit and calculated out what the average would be.
Well , first of all , if you set that target at 3., would
you agree with me that an 80 percent-120 percent band
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would produce figures of and 3. 96?
would accept that.
All right and if we look at this data
here, that means that under the inflow column , any time
it was outside 2.64 or 3.96, yould be taking a penalty.
Well , again, yes , but let me also state I
totally disagree with the use you re trying to make of
these numbers.I donl t think it I S appropriate at all.
Well , you may not agree wi th the analogy,
but maybe the Commission will.Now , I also calculated
the average number of these numbers and if you would
accept , subj ect to check S. 25 represents the 50th
percentile as near as I can tell.Will you accept that,
subj ect to check?
Yes, I will.
Now , look what I s happened to our QF
developer if he I s forced to proj ect based on similar data
to what Idaho Power actually is experiencing with its own
hydro resources.He has to proj ect 3.3 or some similar
number to protect himself from what could be at least as
Idaho Power originally proposed it unlimited shortfall
penal ties and any time he I s over 3.96, he I s out of the
120 band that you proposed, using the numbers you
proposed, and his rate then goes to the lesser of
percent of Mid-C prices or the posted rate; correct?
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Tha ti s correct.
And what it amounts to , then , is at the
average of 5., roughly 40 percent of that hydro QF' s
production will be at 85 percent of Mid-C , the same as a
non-firm rate you can get with no obligation to deliver.
That I S true, but again , I would say this
is not u. S. Geothermal's si tuation and the most extreme
si tuation that u. S. Geothermal could conceive of showed
only a fi ve-and-a-half percent reduction in a month due
to variations in weather that could
- -
you would reduce
your estimate in the month of November by five-and-a-half
percent if you knew that that was a possibility which
is well within the 10 percent band proposed by Idaho
Power --
Bu t how do you know
- -
so to use this as an example for U. S.
Geothermal's case I think is totally inappropriate.
I m not contending thi s is U. S .
Geothermal's case.m just showing what effect the band
is going to have on , among others, hydro developers.
It's going to destroy their rate , isn I t it?
No, again , I think you re totally misusing
this data.This is not actual monthly generation data
from an actual proj ect
MR . WARD:Madam Chair , I have enough that
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we probably ought to break for lunch here.
COMMISSIONER SMITH:Mr. Ward, there is no
unch today.
MR . WARD:, okay.How about a short
recess, then , and then I III be faster.
COMMISSIONER SMITH:Okay, 10 minutes.
(Recess.
COMMISSIONER SMITH:Okay, Mr. Ward.
MR . WARD:All right, Madam Chair , I will
try to speed this up.
COMMISSIONER SMITH:Oh, we ve got all
afternoon.
MR. WARD:I don It.
BY MR. WARD:I want to talk wi th you a
bi t about the posi tion you've taken on grandfathering
u. S. Geothermal's plant , and you discuss this beginning
on page 23 at line Now , let me describe what
believe U. S. Geothermal is asking for and make sure it I S
consistent with your understanding.Would it be fair to
say that prior to the Renewable Energy Order in Idaho,
the Commission had approved contracts in which the
facility had arguably at least a greater generating
capacity, instantaneous generating capacity, than
megawatts, but it nevertheless entered into a contract
for posted rates?
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Yes , I think there have been some that had
the capability to generate more than 10 megawatts.
All right.
But I am aware of instances where when
they did generate more than 10 - - well , actually when
they generated more than 10,000 kilowatt-hours in an
hour , Idaho Power made them stop.
I understand , but prior to the Renewable
Energy Order , there were contracts in which , at least if
you read the Commission I s decision, it appears that the
QF had capacity in excess of 10 megawatts and Idaho
Power's position was that they would only use the posted
rates up to the 10 megawatt limit; isn t that true?
Yes, that's true.
Okay, and to speed this up, I I m going to
summarize the testimony.You disagree if you don'
agree.I sn I t it true that u. S. Geothermal I s wi tnesses
have testified that up until the complaint was filed and
even thereafter that the parties were negotiating on that
basis; that is , that u. S. Geothermal wanted the posted
rates for 10 megawatts and what was not agreed upon
how to define the 10 megawatt limit.Now , do you have
any reason to believe that I s not an accurate
representation of both Idaho Power's and U. S.
Geothermal's negotiating position?
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, I don I t have any reason to doubt
that.
All right , and then comes the Renewable
Energy Order in which the Commission chastises the
Company for not using the AURORA model for a proj ect wi
a capaci ty of , as I recall , 1 7 -and-half megawatts;
that correct?
Tha ti s correct.
And , of course, then , again , this is well
after the complaint is filed, Idaho Power then puts U. S.
Geothermal on notice that it can no longer take the
negotiating position it had been using previously and
you re aware of that , are you not?
Yes , I I m aware of that.
Now , and you re aware that U. S. Geothermal
has testified it spent about a million-and-half dollars
to date on this proj ect?
I believe that I s what the testimony
said.
Now , are you aware , did you hear Mr. Ki t z
testify yesterday that if in fact the most extreme
definition of the 10 megawatts is adopted, that is, a
megawatt nameplate max and a 10 megawatt hourly delivery
max that he I d have a 6 megawatt proj ect which would never
be buil t?
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Yes, I believe he did state that.
Now , your response
- -
and on that basis,
Mr. Runyan has asked in his testimony that even if the
Commission somehow finds that U. S. Geothermal I s proposed
definition of 10 megawatts is not correct that it be
grandfathered on the same basis as Renewable Energy.
you recall that testimony?
Yes, I do.
And you oppose that and as near as I can
tell , you present two grounds , and the first is you say
at 23, lines 18 through 19 or 17 through 19
, "
This case
differs in that U. S. Geothermal has not presented a
signed contract for Commission approval.That I S one
your reasons; right?
Yes.
Would you agree with me that but for this
complaint , in the normal contracting process , u. S.
Geothermal would have had a signed contract prior to the
time this complaint was filed and prior to the time the
Renewable Energy decision issued?
Well , there are more things than that
particular issue that U. S. Geothermal disagrees with , so
whether those other things could have been resolved or
not, I don t know.
Sure, the complaint asked for the
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resolution of three lssues , there wasnl t just one lssue,
the 10 megawatt.
That I S right.
And that I s a fair statement, but
those - - if it had not been necessary for U. S. Geothermal
to bring a complaint on those three issues , in the
ordinary course , you would have expected that contract to
have been executed; isn t that a fair statement?
Well , it could have been.I t depends on
how quickly the parties would have completed their
negotiations.
Now - - all right , I III accept that.The
second reason you give is "In addition , I specifically
remember telling U. S. Geothermal on one or more occaSlons
that if it wanted to pursue a proj ect 10 megawatts or
larger , it must request that Idaho Power compute a rate
using the IRP-based technology," and that I s your second
reason for opposing grandfathering, I take it?
Yes.
First of all , you recognlze , don I t you,
that it I S U. S. Geothermal I s position that its project
does not exceed 10 megawatts?
I understand U. S. Geothermal I s argument.
All right; so in order to accede to your
request , U. S. Geothermal would have to abandon its
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position , would it not?
Yes , but I'm not exactly sure which
posi tion you re referring to.
Well , its position that the contract it I s
proposed is consistent with the 10 megawatt limit for
posted rates.
Yes , they would.
And it would never get that in front of
the Commission?
, they wouldn I
Okay, and you I think already recognized
that up until the Renewable Energy decision , both parties
were negotiating on a basis which , at least arguably, the
Renewable Energy decision suggests is no longer
acceptable to the Commission?
Tha ti s correct.
And so if we were to adopt your position
on grandfathering, would the consequence be that a QF
that's negotiating with a utility would have to accept
the responsibility of policing the utility I s negotiating
position and ensuring that it I S consistent with
Commission orders?
I think all parties in the negotiations
have some responsibility to be aware of
But it I S not disputed , is it, that until
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well after the filing of the complaint at least Idaho
Power and U. S. Geothermal had no understanding or no way
of knowing the Renewable Energy decision was coming?
, I don't think that they would have;
however , when I say that I ve advi sed U. S. Geothermal
before that they should seek an IRP-based rate and
request such a calculation from Idaho Power , one of the
times that I recall specifically, a U. S. Geothermal
person was sitting in Idaho Power I s lobby waiting to meet
with Idaho Power and I said when you meet with them , you
better ask them for this type of a rate , an IRP-based
rate , if you intend to develop a proj ect bigger than 10
megawatts.
We I ve already discussed the fact that if
U. S. Geothermal - - that U. S. Geothermal did not agree
with your position that it was greater than 10 megawatts
did it?
There was never a discussion that I had
wi th U. S. Geothermal on the details of how they measured
the 10 megawatt threshold.We didn t get into certainly
any of the type of detail that we ve got into in this
hearing.
And again, to ask the question again, if
they were to accept your position , then they would have
to accept your decision on what 10 megawatts means , not
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the Commission I s and in fact abandon their own case?
Well , they wouldn t have to abandon their
case, but yes, they would have to accept the
def ini t ion.
Now , you mentioned the AURORA model , do
you have - - I don t have the one that I marked.Does
anybody remember what the
- -
can we go off the record for
a second?
(Off the record discussion.
BY MR. WARD:Do you have Exhibi t 5 wi th
you , Mr. Sterling?
Can you describe it?
It is the Idaho Power response to the
Staff discovery request requesting an AURORA model run.
Yes , I do have that.
All right.Now , if you turn over to page
4 of that exhibi t , what did the model run come up wi
for a purchase price?
According to Idaho Power I s response to the
production request , the 20-year levelized purchase price
was $46.13 a megawatt-hour in year 2006.
Okay.Now , in the first place is U. S.
Geothermal even requesting a levelized price?Aren
they requesting a non-levelized contract?
I don t know.
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Well , it I S in the contract , isn I t it?Let
me refer you to
I assume it probably is , but I don t know
which they re requesting.
Well , do you have the excerpt from Exhibit
B that we passed out this morning
Yes , I do.
- -
the three -page excerpt?Look over on
the second and third pages.That would have been pages
and 10 from the contract.That I s obviously a
non-levelized energy prlce , is it not?
Yes , it is.
Okay; so qui te apart from the fact that
the levelized price called out by Idaho Power would be
considerably lower than the posted price , it's also not
the non-levelized option that U. S. Geothermal is seeking;
correct?
, but non-levelized rates could very
easily be produced using AURORA.In fact , if you look at
some of the attached pages that Idaho Power has included
wi th their response , they effectively include a lot of
non-levelized rates that they have converted to a
levelized number.
All right , and in fact , you re referring
to the avoided cost calculations in the right-hand column
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of the following pages?
Yes.
And those
month don'they?
vary all over the place by
Yes they do.
Does that necessarily represent
non-level i zed rate?They go up,they go down?
These numbers on this production request
are monthly numbers.The levelized rates that have
typically been included in contracts are annual numbers
in other words , a number for each year as is shown in the
section of the contract that you just referred to , so the
difference is one set of numbers is monthly, the other
set is annual.
Okay, and returning to page 4 of Exhibi
5, right under the price , doesn I t Idaho Power say,"Idaho
Power acknowledges that there are aspects of this
response that require additional analysis.If the
Commission determines that AURORA should be used to
determine the avoided costs attributable to the U. S.
Geothermal proj ect, the AURORA analysis should and could
be refined " and then it later on characterizes this
response as "generally representative of costs.Did I
read any of that inaccurately?
, that I s accurate.
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So even if we were to use the AURORA
model - - well , first of all , I I m going to ask a question
similar to Mr. Richardson I s but slightly different.
you believe it is reasonable to believe that QF
developers should be able to understand, review and in
fact calculate potential rates using AURORA?
I think they should be able to review and
understand it.I would not expect them to calculate
because it requires some proprietary software that I s
qui te expensive and requires a lot of training to use it,
but I would point out that Potlatch, we used that for the
Potlatch contract which was recently approved by the
Commission.
Obviously, I can I t testify, but do you
know that that was used by Potlatch?I understand you
were told by Avista that it was the basis for the
agreement , but did Potlatch make any use of that model or
in fact even review it or understand it?
I know for a fact that Potlatch did not
use it.Now , whether they understood it, I don I t know
but they certainly had the opportunity to review it.
Well , but as you just testified , in order
to review something that I s so complex , you I d have to A
have access to a proprietary model; and B , if you can
run it , if you weren t sufficiently skilled to run
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which takes a high level of expertise, you certainly
can I t review it either , can you?
No.There are certain things that you can
review that are easy to review.For example, some of the
critical input into AURORA are assumptions about fuel
prices , natural gas prices, for example.You have to
forecast what those prices are going to be for the period
you re going to do the simulation.
Okay.
There are other things about resource
costs and characteristics that go into the model.All of
the input data is reviewable.It takes some effort, but
it can be reviewed.
Well , let I s turn to what I could review in
my limited expertise.If you I d look at the last two
pages of this document
COMMISSIONER SMITH:Is that Exhibit
MR. WARD:Exhibi t 5, I'm sorry.I don I t
believe there are any pages numbers , so you III have to
look at
- -
the heading in the upper left of both of these
pages is U. S. Geothermal Raft River proj ect and then
there I S a table below that that I s laid out like a
traditional load and resource forecast.
BY MR. WARD:Do you have that in front of
you , Mr. Sterling?
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Yes do.
Now there I s several things that jump out
a t he re not the least of which is that on both pages
if you look at Resource Running Totals, that I s the second
resource summary, down under the fourth or third entry, I
see for the year 2014 , geothermal 50 megawatts for 2014.
Do you see that entry?
Yes, I do.
And I see that ramplng up at 50 megawatts
a year to 850 megawatts in the year 2030.Do you see
tha t ?
Yes,do.
Now that an assumption that the AURORA
mode 1 has spit out?
Yes , it would be for the -- what youl
looking at here, and I have not discussed this wi th Idaho
Power , but my interpretation of what you re looking at
there is that in the year 2014 through the year 2030
certain resources need to be added in order to meet load.
That period from 2014 onward is a period that I s beyond
the duration of Idaho Power I s integrated resource plan
and so these resources are ones that AURORA would pick to
satisfy load in the years shown.
Yes , and so AURORA picks , this
sophisticated model that gives us a picture of what we
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can deem the likely reality and the likely avoided cost,
spits out 850 megawatts of additional geothermal
generation , as I interpret it, by 2030 in addition to
what I S been acquired prior to 2014; is that correct?
work,not
see.
this.
I bel ieve Again, this is Idaho Power'
own , so I m only trying to interpret what
Well , we're supposed to be able to review
Well, I only got it Tuesday mornlng, so I
haven t had a lot of time to look at it.
Me , too.How many megawatts of geothermal
capaci ty exists in the State of Idaho today, commercial
geothermal capaci ty?
capaci ty exist Idaho today.
The re are none existing.
Okay.Now the other thing,again I 1
it?
existing?
I have no idea.
Well , don t you really?Itl s zero, isnl
How many potential megawatts or how many
No, how many existing commercial megawatts
only guessing at what I I m seeing, whether I 1
interpreting it properly, but it looks like to me that
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the next to last page is a run with
- -
it says down at
the bottom if you look at the chart, it says U. S.
Geothermal Raft River Off -Line and I take it what that
really is is that I s a run that calculates the resources
that would be
- -
that would come into existence wi thout
u. S. Geothermal contribution?
That I S also my interpretation.
Okay, and then the next page, it looks
like to me, says U. S. Geothermal Raft River On-Line, so
this is a run wi th U. S. Geothermal , assuming U. S.
Geothermal I S resource has been purchased; correct?
I would assume so, yes.
Now , the only difference I can see between
the two of these is that in the first one wi thout U. S.
Geothermal , in the year 2030 what I take to be a
combustion turbine of 162 megawatts comes on line.
you see that on the right-hand side of the graph?
Yes , I also see a difference in 2014.
There are 6 megawatts of combined heat and power that are
added in 2014 that wouldn I t be added if the U. S.
Geothermal proj ect was on ine
And aren t those 6 megawatts on both
graphs, I mean on both lists, if you look at the top
column , the resource online dates?
No, they re not in the year 2014.There I s
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an addi t ional megawatts on the last page in 2014 that
does not appear on the second to last page.
Okay,but really,there I s total
megawatts in the array you re looking at , the three
6 megawatt years and all it does is just change, shift
the year of that by one year; correct?
That I S correct , from the year 2014.
would also point out that from the current year through
year 2014 is not displayed on here.I don t know why
wasn t included , but I would also expect to see some
differences in resource additions prior to 2014.
Okay, but it looks like to me from what
can see here , at least, that the - - well , let me back up.
The reason for using the AURORA model , as I understand
, is that we calculate the utility I s costs or resource
costs with and without the resource to be acquired;
correct?
Tha t 's correct.
And from that we derive the cost of the
resource to be acquired?
Yes.
Now , it looks like to me that what this
model does is primarily
- -
the primary impact of this
model run is to defer a combined cycle turbine in the
year 2030 for some unknown period of time.Doesn't that
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look like that's the biggest impact to you, too?
I ti s the biggest impact from 2014 onwards
but again, I would say I think the biggest impact will
occur in the first 10 years , not after 2014.
But wouldn t we expect if that were to
have taken place in the model , wouldn I t we expect to see
differences all the way across from 2014 to 2030?
Not the way this chart is prepared.
doesn t show anything prior to 2014.
But starts with a base,does not?
No.
All right let me return to my combined
cyc 1 e turbine.the biggest impact on a resource
acquisi tion , relatively small number of megawatts , is to
defer a resource in 2030 , now
Again I think that I s an incorrect
assumption because I think the biggest impact won t occur
in 2030.It will occur in the first 10 years which are
not shown on the tables.
Well , but Mr. Sterl ing, we re supposed to
be able to read and understand this and know what
be i ng done to us and looking at what have here that I s
the biggest impact see isnl it?
Again think you only seelng a part
of the picture here.
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All right, regardless of whether or not
that's true , isnl t it a fact, Mr. Sterling, that if you
defer a resource 30 years in the future , if that I s the
primary capacity credit you re getting and you discount
the value of that deferral back to the present, the value
of that deferral is going to be peanuts, is it not?
It will be.
MR . WARD:That I S all I have.
COMMISSIONER SMITH:Let I S see if we have
questions from the Commission.
EXAMINATION
BY COMMISSIONER SMITH:
Mr. Sterling, in general , would you say
that you prefer using the IRP method for pricing than
using the avoided cost methodology that the Commission
has now?
I think the IRP methodology is a better
methodology for larger proj ects.I think it takes a lot
of things into account that can't be taken into account
wi th the other methodology, but I don t think it I S a
methodology that should be used for every proj ect
especially the small ones, because it does take some work
to do.It does take some time and it does take some
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effort to understand how it works and for the developer,
you know , it is a big model, it is complicated and it can
very easily be viewed as a black box.
So that, I guess , leads me to wonder about
what I S small and what's large and I think in determining
avoided costs, the Commission has varied over the years
in what it called small and large , hasnl t it?
Yes , it ha s .
Ten seems pretty small to me.I guess
maybe do we need something to compare it to?What are we
comparing small to?I mean , if you re comparing it to
Idaho Power I S, you know , peak , then maybe 100 is small
so when you re thinking about small and large, do we need
to think about that?
Yes , we do, and if it helps , just as an
example, the last several contracts that have been
approved by this Commission, all in approximately the
last year , have been 10 megawatts, 17.5, 9, 7., U.
Geothermal is asking for 10, I think those come up to,
like , 54 megawatts, in the past roughly year
year-and-half.Idaho Power I s last plant that they
built, which not counting Bennett Mountain which is under
construction , was Danskin which was 90 megawatts, so, you
know, it was mentioned earlier , I think , in testimony
that the average size of the QF if we go all the way back
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to the start of PURPA was two-and-a-half megawatts, but
we I re not seeing any of those two-and-a-half megawatt
proj ects anymore, or very few of them.They're 10,
they're 9 and they add up pretty quickly, so in my
example, we're talking about more than half of a Danskin
plant in the last year-and-half , so that gives you an
idea of what we're talking about size-wise.
And you had a discussion , I think, with
either Mr. Ward or Mr. Richardson or both where you
talked about your idea that it I s the Commission I
responsibility to properly price what it I s buying; is
that correct?
Tha ti correct.
seems that when you look that
issue you have a very narrow and rigid view of,guess
properly priced and I m wondering, do you ever take into
consideration other public policy considerations, such as
resource di versi ty, ownership di versi ty, any of those
other things that some public policy makers think are
important to be encouraged and do that through PURPA?
Well, I think all of those things are
important;howeve r still have to abide by PURPA and
PURPA says that the utility shall pay the avoided cost.
For example,when we use an IRP-type methodology,if the
IRP and the policies that the Commission follows in
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approving IRPs includes renewables or other sorts of
resources wi th other public policy benefi ts , those sorts
of values would be reflected in an IRP-type analysis, but
in an SAR type of an analysis that we use for proj ects
under 10 megawatts , all we re doing is replicating the
cost of a 270 megawatt gas-fired power plant and there
are no public policy or public benefits built in to that
type of an analysis.We can t say that
- -
we can t use a
gas plant and compute an avoided cost rate and say well
because this is a wind proj ect or a geothermal proj ect
and we think those types of resources have some
additional value , we donlt have the mechanism to do that.
The legislature, for example, could do it through various
means, but as long as we have an SAR methodology and
PURPA , I think it I s difficult for us to do that.
Doesn t the Commission have an extreme
degree of flexibility in determining what and how to
calculate an avoided cost?
Yes,believe that they do.
So are just doing wrong?Have we
done wrong or at least not optimally?
I don I t believe that we have done
wrong.I think, for example, if you look back
historically at the avoided cost rates that we have had
in Idaho and compared them to what the utilities I real
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avoided cost rates really were, I think most of the past
25 years you I d have to say that avoided cost rates have
probably exceeded what the utilities really ended up
having to pay for new resources.
Well, that didn t seem to be the case when
we put the Twin Falls upgrade into rate base, as
recall and I think that has been pointed out to us
several times by others that what the avoided cost rate
pays was less than what the utility got for its
resources.
Well , and I m well aware of that and it I s
been wi th more than jus t the Twin Fall s proj ect , it I S
also included Swan Falls or Cascade , but in every case
those were existing hydro power plants and again , I
wasn t here or participated in all those proceedings , but
I think there were other reasons for approving those
types of upgrades.
So the Commission could have other reasons
for approving the contract provisions that u. S
Geothermal is proposing?
I think they could as long as you don I
violate PURPA.
MR . WARD:May I ask one more question?
promise it I S only one.
COMMISSIONER SMITH:Yes , Mr. Ward.
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CROSS - EXAMINATION
BY MR. WARD:
Of the last three thermal plants buil t by
the utilities, Idaho Power and Avista , that 11 m familiar
wi th , Danskin , Boulder Park , Coyote Springs , my
understanding you re familiar with all of them , are any
of those going to get within shouting distance of the
published rate for PURPA resources?
MR. KLINE:They re peaking resources.
think that I s an unfair question.I m sorry.
COMMISSIONER SMITH:Mr. Ward, did you
hear Mr. Kl ine I s obj ect ion?
MR . WARD:Coyote Springs is almost
exactly identical to the SAR and besides that, the
question is what can be avoided.It doesn t matter what
kind of resource it is.I promi sedThat I S all I have.
only one question.
COMMISSIONER SMITH:Well , Mr. Sterling,
think this gives you an open mic , if you choose to take
it and if not, that I s fine, too.
THE WITNESS:Yeah , I would like to
comment.As was pointed out in the obj ection , Boulder
Park , which is an Avista proj ect, is clearly a peaking
plant, as is Danskin , as will be Bennett Mountain.
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Coyote Springs
- -
and so those three plants in particular
I don I t think are in any way comparable to the SAR that
we use to compute avoided cost rates.The Coyote Springs
II proj ect , on the other hand, is a similar type of a
project to the SAR and does -- the rate per kilowatt-hour
for Coyote Springs II , I don't know exactly what it will
be, but it is in the very same range as our avoided cost
rates, extremely close.
COMMISSIONER SMITH:Mr. Woodbury, do you
think that you have any redirect?
MR. WOODBURY:I appreciate the way you
put that, but yes , I do.
COMMISSIONER SMITH:Well, I was going to
ask you if you were so unwise as to attempt any.
MR . WOODBURY:I III risk it.
REDIRECT EXAMINATION
BY MR. WOODBURY:
Mr. Sterling, is the SAR supposed to be
representative of the utilityl s existing resources?
No.
Was it
- -
isn't the SAR that the
Commission has adopted in its avoided cost methodologies
used for all three of the utilities before us today,
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687 STERLING (Di)Staff83676
Idaho Power , Avista and PacifiCorp?
Yes, it is.
Was it supposed to be representative of
each utility's next acquired or built resource?
No, it I s the same surrogate that we use
for all three utilities.
Okay.Would you agree that there are some
resources that are more predictable than others?
Certainly.
And resource unpredictable
as valuable to the utility?
, I don't believe that it is.
And doesn t the SAR represent a proxy for
costs that the Company avoids or defers future costs?
Yes, that I S its intent.
And does the Company avoid purchasing a
firm resource by purchasing from a non-firm QF?
Absolutely not.
And isn't it true that the SAR is used for
simplicity for establishing a QF rate for small and in
this case under 10 megawatt QFs?
Yes, simplicity is one of the reasons.
And in fact, wi th respect to the greater
degree of reliability, doesnlt the Commission have an
IRP-based methodolgy for larger QFs?
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Yes , we do.
And if the IRP-based methodology was used
wouldn t the calculated QF price reflect the operating
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characteristics of the QF proj ect?
m sorry, could you repeat that?
If the IRP-based methodology was used,
wouldn t the calculated QF price reflect the operating
characteristics of the QF proj ect?
Yes, it would.
And would you agree that what I s
accomplished by the proposed contract band, either 90-110
or 80-120, doesn't that also provide for the operating
characteristics of the QF?
Yes, it does.
Mr. Sterl ing, you ve been wi th the
Commission since 1994?
I don I t recall the specific year.
It I S reflected in your testimony.The
Order that we were discussing in Case No. P-300-12 was
1980, did you do an extensive search of the Commissionl
orders to identify all language dealing with firm or
non - firm genera t ion?
No, li ve not done an extensive search , but
I have done some search.
And were you requested to do that?
689 STERLING (Di)Staff83676
No, I was not.
And are you aware of whether there is a
search engine available to the parties to look at the
Commission I S prior orders?
Yes, there is.I would point out, though
that that one particular Order that I think we were
looking at , actually I could not find it using our search
englne.I think it predates some of our orders that are
available electronically.
Would you agree that the landscape has
changed Slnce PURPA was initially passed in 178?
Certainly.
And that when this Commission first
considered PURPA , there were
- -
there weren t any wind
proj ects or QF geothermal proj ects that were offered to
utilities?
MR. RI CHARDSON :Madam Chairman?
I m going to obj ect MR . WARD:There'
no evidence in the record for that.
MR. RICHARDSON:In fact, there
evidence in the record that this Commission specifically
contemplated wind and geothermal projects in 1980 when
issued this Order , Madam Chairman , I I d like to point that
out.
COMMISSIONER SMITH:Mr. Richardson , your
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point is well taken.Mr. Woodbury, we really don t have
any idea what you re doing with these questions.
MR . WOODBURY:I stand corrected and
withdraw that question , and I guess I would just rephrase
it.
BY MR. WOODBURY:Mr. Sterling, would you
agree that until only the last few years Idaho Power has
not acquired by contract any wind proj ect?
That I S true.I think there was a non-firm
wind contract many years ago , probably in the early 18 Os
and the proj ect never actually materialized , but it was
the only one that I know of.
MR . WOODBURY:Madam Chair , I have no
further redirect.Thank you.
COMMISSIONER SMITH:That I s good.
(The wi tness left the stand.
COMMISSIONER SMITH:All right, all
exhibits previously identified in the record are now
admi t ted if there I s no obj ect ion.
(All exhibits previously marked for
identification were admitted into evidence.
COMMISSIONER SMITH:Do any of the parties
feel the need for further briefing or process in this
mat ter?Mr. Ward.
MR . WARD:Madam Chair , I think we need
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perhaps a couple of weeks for a short brief on what has
become an extremely muddled confusion of what firm and
non-firm means in the QF context and that would be the
only issue I would intend to brief.
COMMISSIONER SMITH:Are there others
wishing to comment on Mr. Ward I s suggestion or make their
Mr. Ri chardson own?
MR . RI CHARDSON :Thank you, Madam
Chairman.I thinkI would second what Mr. Ward stated.
the firm/non-firm issue is almost a sidetrack , a
distraction from the real issues in this case, and I
would hate to see it not go clarified which it was not
subj ect to on cross -examination.
COMMISSIONER SMITH:Mr. Kline.
MR. KLINE:I guess I m trying to
understand what we would be briefing.Are we looking at
the Commission orders to make a determination as to
whether this Commission has sometime in the past made a
ruling, is that all we re limiting it to?
MR. WARD:m not suggesting anybody be
limited in their briefing, but that I s what I intended to
do.
MR. KLINE:I think we ve covered
awfully well in this proceeding, but that I s my opinion.
COMMISSIONER SMITH:Well, seeing no help,
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I guess it would be my intent, two weeks , to allow two
weeks for such filings of memos or briefs or whatever.
think this issue came up at the very end and I think
that's appropriate , so two weeks from today?
MR. KLINE:Would be an initial brief,
would there be an opportunity for reply briefs?Wi thout
knowing what I s coming, I guess
COMMISSIONER SMITH:Well , we could just
extend this forever.
MR. WARD:Well , it seems to me since we
know what the issue is that simultaneous ought to work.
COMMISSIONER SMITH:I think what would be
of assistance to me and I hope the other members of the
Commission is just a statement of the parties view on
firm or non-firm and how that is applied in the context
of the determination of eligibility for the posted rates
in a QF contract.
Commissioner Kj ellander.
COMMI S S lONER KJELLANDER:Whether or not
this is relevant, I guess perhaps a piece of that might
be how the parties perceive the word intermittent as
deals with firm and non-firm.That might be a helpful
clarification as well.
COMMISSIONER SMITH:Commissioner
Hansen.
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COMMISSIONER HANSEN:, I agree wi
you, Commissioner Smith.I think that I s far enough.
COMMISSIONER SMITH:All right, is
everyone clear?
Mr. Fell.
MR . FELL:I would just like to make one
thing very clear.I gather, then , that we are not going
to be briefing the 10 megawatt issue or the termination
provision for legislation.That I s fine, I'm not looking
for work on this one.
COMMISSIONER SMITH:That's also my
understanding.
MR . FELL:Very good.
COMMISSIONER SMITH:All right; so two
weeks from today we I 11 get these filings , the record will
be closed and the Commission will issue an order as soon
as it can, recognizing, I think , that this area is as
difficult for us as it is for everybody else, but
recognizing that developers have money at risk and
proj ects under deadlines and we I 11 do our very best to
get an answer.
Thank you.We are adj ourned
(The Hearing adj ourned at 1: 00 p. m. )
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T I C T I O
This is to certify that the foregoing
proceedings held in the matter of U. S. Geothermal , Inc.,
an Idaho corporation , Complainant , versus Idaho Power
Company, an Idaho corporation , Respondent, and Bob
Lewandowski & Mark Schroeder , Complainants , versus Idaho
Power Company, an Idaho corporation , Respondent
commencing at 9: 30 a. m., Thursday, September 2 &
continuing on Friday, September 3 , 2004 , at the
Commission Hearing Room , 472 West Washington , Boise,
Idaho, is a true and correct transcript of said
proceedings and the original thereof for the file of the
Commission.
Accuracy of all prefiled testimony as
originally submitted to the Reporter and incorporated
herein at the direction of the Comission is the sole
responsibility of the submitting parties.
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