20050803Vol II Hearing.pdf

I .
ORIGINAL
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
' ~, "
IN THE MATTER OF THE PETITION OF
IDAHO POWER COMPANY FOR AN ORDER
TEMPORARILY SUSPENDING IDAHO
POWER'S PURPA OBLIGATION TO ENTER
INTO CONTRACTS TO PURCHASE ENERGY'
GENERATED BY WIND-POWERED SMALL
POWER PRODUCTION FACILITIES
) CASE NO.IPC-05-
BEFORE
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COMMISSIONER PAUL KJELLANDER (Presiding)
COMMISSIONER MARSHA SMITH
COMMISSIONER DENNIS HANSEN
PLACE:Commission Hearing Room
472 West Washington
Boise, Idaho
DA TE :July 22 , 2005
VOLUME II ~ Pages 84 - 426
CSB REpORTING
Constance S. Bucy, CSR No. 187
17688 Allendale Road * Wilder, Idaho 83676
[phone] * [phone]
Email csb~spro.net
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For the Staff:Scott Woodbury, Esq.
Deputy At torney General
472 West Washington
Boise , Idaho 83720 - 0074
For Idaho Power:Barton L. Kline, Esq.
and Monica B. Moen, Esq.
Idaho Powe r Company
Post Office Box
Boise , Idaho 83707 - 0070
For Windland Inc.BATT & FISHER, LLP
by William J. Batt, Esq.
and John R. Hammond, Esq.
Post Office Box 1308
Boise , Idaho 83701
For Exergy Development
Group of Idaho, LLC:
RI CHARDSON & 0' LEARY , PLLC
by Peter J. Richardson, Esq.
517 North 27th StreetBoise, Idaho 83702
For Avista Corporation:David J. Meyer, Esq.
Avista Corporation
Post Office Box 3727
1411 East Mission Avenue
Spokane , Washington 99220
For PacifiCorp:Lisa Nordstrom, Esq.
and Dean Brockbank, Esq.PacifiCorp
825 NE Multnomah , Suite 1800Portland, Oregon 97232
For Magic and Cassia:McDEVITT & MILLER LLP
by Dean J. Miller, Esq.
420 West BannockBoise, Idaho 83702
CSB REPORTING
Wilder , Idaho
APPEARANCES
83676
A P P A R N C E S (Continued)
For Energy Vision LLC:Glenn IkemotoPrincipal
Energy Vision LLC
672 Blair Avenue
Piedmont , CA 94611
William M. Eddie
Advocates for the West
Post Office Box 1612
Boise , Idaho 83701
For Renewable NW proj ect
& NW Energy Coalition:
CSB REPORTING
Wilder, Idaho 83676
AP PEARANCE S
WITNESS EXAMINATION BY PAGE
John R. Gale
Idaho Powe r )
Mr. Ikemoto (Cross)Mr. Eddie (Cross)
Commissioner Smith
Commissioner Hansen
Commissioner Kj ellander
Mr. Kline (Redirect)
Rick Sterl ing
(Staff)Mr. Woodbury (Direct)
Prefiled Testimony
Mr. Meyer (Cross)
Mr. Miller (Cross)
Mr. Ikemoto (Cross)Ms. Nordstrom (Cross)Mr. Eddie (Cross)
101
107
132
135
137
154
155
Bruce Griswold
(PacifiCorp)Ms. Nordstrom (Direct)
Prefiled Testimony
Mr. Kline (Cross)
Mr. Woodbury (Cross)Mr. Richardson (Cross)
Mr. Ikemoto (Cross)
Mr. Eddie (Cross)
Ms. Nordstrom (Redirect)
159
162
189
190
195
199
212
216
Robert Lafferty
(Avista Corp.
Mr. Meyer (Direct)
Prefiled Testimony
Mr. Woodbury (Cross)Mr. Richardson (Cross)
Mr. Ikemoto (Cross)
218
220
235
238
245
Glenn Ikemoto
(Energy Vision)
Mr. Richardson (Direct)
Prefiled Testimony
Mr. Kline (Cross)Ms. Nordstrom (Cross)
Mr. Eddie (Cross)
247
251
278
283
285
Michael Heckler
(Windland Inc.Mr. Hammond (Direct)
Prefiled Testimony
Mr. Kline (Cross)Mr. Richardson (Cross)
Mr. Ikemoto (Cross)
Commissioner Hansen
287
289
303
305
309
314
CSB REPORTING
Wilder , Idaho
INDEX
83676
WITNESS
Jared Grover
(Cassia Wind)
(Cont inued)
EXAMINATION BY PAGE
Mr. Miller (Direct)
Prefiled Testimony
Ms. Moen Cros s
Commissioner Smith
Commissioner Kj ellander
Commissioner Smith
Mr. Miller (Redirect)
316
318
330
334
338
338
340
Armand Eckert
(Magic Wind)
Mr. Miller (Direct)
Prefiled Testimony
Ms. Moen (Cross)Ms. Nordstrom (Cross)
Commissioner Smith
Mr. Miller (Redirect)
343
345
364
370
371
373
Troy Gag 1 i ano
(RNP & NWEC)
Mr. Eddie (Direct)
Prefiled Testimony
Ms. Moen (Cros s)
Mr. Woodbury (Cross)Mr. Richardson (Cross)
Mr. Hammond (Cross)
Mr. Ikemoto (Cross)
374
379
395
399
402
406
408
CSB REPORTING
Wilder , Idaho
INDEX83676
NUMBER DESCRIPTION PAGE
FOR AVISTA CORPORATION:
201 Tables & 2 Stateline Wind Premar kedEnergy Center sponsored by Admitted 425Mr.Lafferty
FOR CASSIA AND MAGIC WIND LLC:
600 Interconnection Application for PremarkedSmall Generators wi th less than Admitted 425
20 megawatts
601 Let ter from Armand Eckert to Premarked
Randy Alphin dated June 14 Admi t t ed 4252005
602 Interconnection Application for Premar ked
Small Generators with less than Admitted 425
20 megawatts
603 605 Admi t t ed 425
FOR ENERGY VI S ION LLC:
701 Comparison of Judi th Gap,Premar ked
Montana and Idaho RFP prices Admi t ted 425
702 Testimony of Michael Milligan Identified 208
in Docket No. 04A-214E before Admitted 425
the PUC of the State of Colorado
703 - Not admi t ted into evidence
704 Comparison of Idaho & Oregon Identified 248
Wind QF Prices PacifiCorp Admitted 425
705 Comparison of Idaho & Oregon Identified 248
Wind QF Prices Idaho Power Admi t t ed 425
CSB REPORTING
Wilder , Idaho
EXHIBITS83676
(Continued)
Premar ked
Admi t t ed
FOR RENEWABLE NW PROJECT & NW ENERGY COAL I T I ON :
PAGE
425
425
425
425
NUMBER DESCRIPTION
FOR PACJFICORP:
801 - Procedure for QF Wind Pricing
1001 - Wind Power Impacts on Electric
Power Systems Operating Costs
1002 - Ancillary Services Cost
Comparison
1003 - Wind is Least Cost
FOR IDAHO POWER COMPANY:
1 -
CSB REPORTING
Wilder , Idaho 83676
Premar ked
Premar ked
Admitted
Premar ked
Admitted
Admitted
EXHIBITS
BOISE , IDAHO, FRIDAY , JULY 22, 2005, 1:00 P. M.
COMMI S S IONER KJELLANDER:We'll go back on
the record and before we broke for lunch , Mr. Gale was on
the stand and I believe we were ready for Mr. Ikemoto
you had any cross.
MR . I KEMOTO :Thank you , Mr. Cha i rman .
JOHN R. GALE
produced as a witness at the instance of the Idaho Power
Company, having been previously duly sworn , resumed the
stand and was further examined and testified as follows:
CROSS - EXAMINATION
BY MR. I KEMOTO :
Mr. Gale, what would be the problem with
asslgnlng more than 350 megawatts of wind?
Ultimately, that may be fine.I think the
Company and others involved in the resource plan had
thought that we would add wind systematically and put in
the first traunch , figure out the integration issues , put
in the second traunch, so it is 350 ultimately or more
may be fine.We just don't really have any idea right
CSB REPORTING
Wilder , ID 83676 GALE (X)
Idaho Power Company
now.
But in terms of the 2004 IRP , the net
resul t would be sl ipping back the coal plant?
, I wouldn't necessarily draw that
conclusion.
Currently the Company is continuing to
purchase geothermal energy and biomass and hydro at the
posted prices and you feel comfortable that that
represents a fair and reasonable price?
The Company has bought a geothermal or
entered into an agreement with a geothermal QF , small
hydro and what was the third?
Biomass.They were on your list of
in-process negotiations.I mean , for you , those are not
suspended , you're prepared to sign those contracts?
Yeah , to be very specific, we think the
suspension should be applied just to wind.
And that's strictly due to its operational
intermi t tency?
It I S due to all the things we listed in
our petition and testimony, including the operational
intermi t tency
Okay, just some further information for
me, your average RFP price of $55.00 a megawatt-hour
does that include transmission system upgrades?
CSB REPORTING
Wilder , ID 83676 GALE (X)
Idaho Power Company
I don t believe that the
- -
actually, I'
hesitant to answer.I don't know.
Okay, on page 15 , line 5 of your
testimony, you state in item 2 , "Idaho Power would
prepare and file with the Commission a proposal for
computing avoided costs specifically tailored to the
attributes of intermittent wind-powered resources.
. . . "
Now , the 90 -110 performance band that
already exists, in order to fulfill the requirements of
that condition , wind developers need to either
substantially lower their output proj ections or bear an
occasional defaul t of that clause, both of which , would
you agree, would lower our revenues?
It has the potential to lower your
revenues.
So do any of the other technologies
biomass or geothermal or hydro , have a similar problem
with the performance band?
I think different technologies can conform
to the performance band easier than others and wind
probably the least of all technologies.
So in a sense, you al ready have a wind
adjusted posted price, don't you?
Well , my view of that performance band was
to enable what up until then we considered a non-firm
CSB REPORTING
Wilder , ID 83676 GALE (X)
I daho Power Company
resource to be considered firm and offered those prices
so it was improving the quality of that product and the
reliability or the Company's ability to rely on it for
planning purposes and operating purposes.
And the function of the clause is that
wind proj ects already receive a significantly different
effective price than the other QF technologies?
The practical resul t could be that.
MR . I KEMOTO :Thank you.That's all, Your
Honor.
COMMISSIONER KJELLANDER:Thank you.
Let I S move now to PacifiCorp.
MS. NORDSTROM:I have no questions of
this wi tness.
COMMISSIONER KJELLANDER:Thank you , and
to Mr. Eddie wi th Renewable Northwest proj ect and
Northwest Energy Coalition.
MR. EDDIE:Thank you , just a few
questions.
CROSS - EXAMINATION
BY MR. EDDIE:
Mr. Gale, I think you referenced the 200
megawatt figure in the integrated resource plan , 2004
CSB REPORTING
Wilder , ID 83676 GALE (X)
Idaho Power Company
plan.It seemed like a ball park figure, a level that
the Company fel t safe in investing in and that was based
on an analysis of expected low integration costs for that
level of wind power on your system?
I think the answer is yes.The Company
analysts and engineers thought we could integrate that
level and accommodate that level.
There's no particular magic in the number
200?
As opposed to 201 or 199 no.
Or 250?
250 might make a difference,but there'
no certain magic in 200 exactly.
Does the Company see any value in
continuing forward wi th reviewing responses to your
request for proposals for wind power?
The Company sees a lot of value in an
ability to complete at least part of that RFP.There are
things that RFP brings that acquiring through PURPA does
not.
Would you expect after resolution of this
case that you would continue forward with that RFP
process?
Well , the way I think the order of things
has to play out is to know whether or not the suspension
CSB REPORTING
Wilder , ID 83676 GALE (X)
I daho Power Company
lS authorized and then to know what the grandfathering
provl s lons are.I think from that point you have a
reasonable expectation of what's left between that amount
and the 200 magic or not magic number and if there's an
ability to go ahead and finish that RFP , then we would
like to do so because we do see benefits in finishing the
RFP.
Would you agree that at least on an annual
basis hydropower resources also are uncertain in the
exact amount of megawatts they'll produce?
Well , working for our Company I can say
that yes, the annual energy is uncertain.I think the
operating energy in smaller time increments , I would
think hydro is more certain.
But on a planning basis , am I correct to
say that the Company deals with that uncertainty by using
conservative assumptions in its planning?
Part of the way that we deal wi
uncertainty wi th hydro is to be conservative in our
planning assumptions , yes.
Would you believe or are you aware
there are other similar planning tools or technological
tools that can be used in the wind industry to reduce
some of the uncertainty such as, for example , forecasting
service for wind power?
CSB REPORTING
Wilder , ID 83676
GALE (X)
Idaho Power Company
There may be, but you're getting away from
I f a wind developer could provide a
forecasting service , would that be of value to the
CSB REPORTING
Wilder , ID 83676
Company in addressing some of the uncertainty that you
highlight in your testimony?
Well , there very well may be things that
can lmprove the situation and I think that's in large
part the Company's eagerness to maybe get into some type
of around-the-table discussion on how to settle some of
Do you recall what the forecast price in
the 2004 integrated resource plan was for natural gas at
Not of f the top of my head.
Subj ect to check, the number $4.85 per
I would accept your representation.
Are you aware of current gas prices on the
Generally aware that they're, I think
Has the Company suspended consideration of
its responses to the RFP for peaker resources that'
currently pending?
my ability.
these lssues.
this time?
million BTU?
market today?
above seven.
GALE (X)
Idaho Power Company
We have an RFP for peaking resources
underway and it's not suspended and I would say the one
for wind is not suspended.It I s just awai ting to see
what the resolution of this proceeding is.
MR. EDDIE:Nothing further.Thank you.
COMMISSIONER KJELLANDER:Thank you , Mr.
Eddie.
Let's see if there are questions from the
Commission.Commissioner Smi th.
COMMISSIONER SMITH:Thank you.
EXAMINATION
BY COMMISSIONER SMITH:
Mr. Gale , have you had a chance to review
Mr. Sterling's testimony?
Yes , I read Mr. Sterling I s testimony.
Does the Company have a reaction to his
proposal which is to modify your purchase obligation, to
have a cap of 100 kilowatts for intermittent?
I think it provides another al ternati ve.
We prefer ours obviously, but I think it provides another
alternative that would accomplish the same thing.
Okay, have you had an opportunity to
review Mr. Gagliano's testimony?
CSB REPORTING
Wilder , ID 83676 GALE (Corn)
Idaho Power Company
ve read his testimony.
And does the Company have a react ion to
hi s proposal?
On the configuration?
His was to modify or to implement some new
PURPA implementation policies to prevent what he called
gaming, dividing a large proj ect into smaller.
I don't know that we formed any conclusion
on that proposal , whether we're positive or negative.
read it and understand it , but I don t know if we formed
a posi tion on it.
You had a discussion in some
cross-examination questions and the discussion pointed
out that the energy expected from a wind proj ect is less
than its nameplate capaci ty, do you recall that?
Yes.
When the Company put the 200 megawat
number into the IRP , were you planning for nameplate or
were you taking into account that the energy would be
less?
, all those capacity numbers that we
reviewed and talked about earlier , they are capacity,
nameplate , if you will , nameplate capaci ty for wind , let
me be very specific.
And that's what you put in your IRP?
CSB REPORTING
Wilder , ID 83676 GALE ( Com)
Idaho Power Company
Yes.
Did you expect that
- -
and when you put
that much nameplate in your IRP , how much energy were you
anticipating?
Applying a capaci ty factor of between
and 35 percent.
So you took account of that?
So average megawatt would be
COMMISSIONER SMITH:All right , that's all
I have.Thank you.
COMMISSIONER KJELLANDER:Commi s s i one r
Hansen.
EXAMINATION
BY COMMISSIONER HANSEN:
Mr. Gale , just a couple of questions.
the IRP a plan or a guide for Idaho Power or is it a set
of rules that you feel that the Company must follow?
The IRP is a plan.It I S an important plan
and I think that if we're not following it, then we
should have some reasons why we're not following it, but
we don't just follow it blindly and events enter into our
decision making on resources.
In the past has Idaho Power at times not
CSB REPORTING
Wilder , ID 83676 GALE (Corn)
Idaho Power Company
followed the plan or the IRP that's currently filed with
the Commission?Can you recall times when maybe you
haven t followed this plan?
Well , very clearly and I think one that we
all will remember is during 2001 when the energy crisis
was upon us and we were in a drought year , we did a
number of things , including building a peaking plant that
wasn't contemplated specifically in that manner and so we
do adj ust according to changing circumstances, but there
ought to be a reason why we deviate.
I guess as I'm trying to figure out why
Idaho Power is asking for a temporary suspension of wind
purchases under PURPA and wanting to study and have a
review , I guess the one item that we just talked about
right now it doesn't conform wi th your IRP and then on
page 14 , lines 10 through 16 , it seems to me that you '
talking about Idaho Power's concern of additional wind
and power over the 200 megawatts.I'll give you a minute
if you want to find that.
Sure.
And I guess is it correct that you'
saying to go over the 200 megawatts or what's in your IRP
that there's a problem , you see a problem with
reliability and cost; is that correct?
We see a potential for it.Basically, we
CSB REPORTINGWilder, ID 83676 GALE ( Corn)
Idaho Power Company
are arguing that, first of all , the IRP was well thought,
well considered by a wide variety of people, including
people in this room , and that the plan is a pretty good
plan and I think your Order on the IRP probably confirmed
that.Our concern is taking on wind in the portfolio
faster and in larger magnitudes than planned, because
while we were comfortable we could integrate the first
200, that magic number or not , that's kind of where our
comfort ends and putting on more than that starts to
raise these concerns.All we're saying is let's address
them before we get into them.
Well , I guess I'm a little concerned on
say, 350 megawatts of wind power versus 200 megawatts of
wind power and looking at that at cost , wouldn't no
matter if the cost stays as it is , isn't the Company
going to recover that cost in their PCA and if so, is the
cost that you re concerned about firming up to pay for
power that you don't think you'll have because the wind
isn't there, the power isn't there?I guess I'm trying
to get in my mind what is so critical about this cost to
you right now and why it I s so important that it stop at
250 rather than 350 because of the PCA mechanism for you
people to recover.
There's a lot there to chew on.The first
thing is to put it back in perspective, our peak load
CSB REPORTING
Wilder , ID 83676 GALE ( Corn)
Idaho Power Company
3 , 000, so we can compare the 200 and the 350 to our peak
load just for perspective, so when you go from 200 to
350 , that to me is material.The second item is we felt
tha t we could accommodate 200, get it in and get some
experience and then take the next bi te .We plan to take
the next bite, but we thought systematic acquisition of
that resource makes sense to us, and the third thing
which may be hard or difficult for some to understand
it's not the fact that we can recover it in a PCA.
for instance , 200 megawat ts of wind acquired under an RFP
is 51 mills , 51 bucks, and the same 200 under PURPA
, I mean , that's 5 to $6 million a year and we'll get
it through the PCA , likely get it through the PCA.It'
not the cost recovery that's the determinant for us in
that , on that piece.
So just one last follow-up on the cost.
With the PURPA contracts, you've had contracts out for
years and the Company has never been stuck with any of
the costs on those.You've always been able to recover
whatever that contract was for through the 30 years;
isn t that correct?
Yes, sir, but it's not a cost recovery
issue to us.
Just my last question , then, if you also
are going to look at reliability, in terms of reliability
CSB REPORTING
Wilder , ID 83676 GALE (Corn)
Idaho Power Company
again, is it the backup for the wind that you're worried
about if you go over 200?Where is the reliability?
Maybe you've mentioned it, I just missed it , but where is
that in the additional 150 wind megawatts or what causes
that reliability?
Well , I guess the first 200 we think we
can integrate and accommodate without extra studies and
extra considerations and so forth.Before we go past
that , that's some of the areas we'd like to
investigate.
COMMISSIONER HANSEN:That's all I have.
EXAMINATION
BY COMMISSIONER KJELLANDER:
Mr. Gale, I had some questions about the
interconnection application process and if you're not the
right witness, then I'll just move on.
You can try.
Okay, the first question that I had with
that is, is it possible to get a contract wi thout having
gone through the interconnection application process?
It I S my understanding you can do one or
the other.You can certainly get a contract first and
there's two different approaches, as I understand it , for
CSB REPORTING
Wilder , ID 83676
GALE (Corn)
I daho Power Company
a developer.Some pursue the contract, some pursue the
interconnect as a first action.
And I guess that I s where I'm having some
difficul ty maybe understanding the interconnection
application process, I guess , from my perspective which
is obviously not the case is that wouldn't you have to go
through the application process for interconnection
before you knew whether or not you could actually deliver
any power to get a contract?Is there a chicken and egg
thing that I'm missing?
I think some view it that way and that'
why some of the developers do that first, other
developers pursue the contract before they pursue the
interconnect.You do have to put money up for the
interconnect.The complication with our Company and the
way we have to do business these days is different parts
of the Company do different pieces.
Okay; so wi th the interconnection
application process , I put my money up as a developer, I
move forward wi th that , what do I see at the end of that
process?If I haven't yet got my contract, what do
see?
As I understand it , and I'm sure my
counsel will be good on redirect if I misstate, but as
understand it , you put your money up actually to get the
CSB REPORTING
Wilder , ID 83676 GALE ( Com)I daho Power Company
study firmer and better estimates of what's involved to
get your proj ect connected.In some ways it's like
engineering costs on a line extension.
Would the Company actually sign a contract
with anyone before the interconnection application
process had been completed?
If you're talking about the Company
signing, I don't believe that we would.m not
absolutely sure about it, but I don't believe that we
would.
COMMISSIONER KJELLANDER:Okay, thank you.
Let's move now , I guess, to redirect.
MR. KLINE:Just a couple real quick ones.
REDIRECT EXAMINATION
BY MR. KLINE:
Mr. Gale , Staff counsel Woodbury asked you
a question about the 193 megawatts of QF wind power that
were identified in your testimony as being potential QF
resources and he asked whether there was a
differentiation between or which ones were in state and
which ones were out state , do you recall that question?
Yes , I do.
And over the lunch hour we talked about
CSB REPORTING
Wilder , ID 83676 GALE (Di)
Idaho Power Company
that a little bit, do you have an answer for that now?
Well --
Do you want me to glve it to you?
I want you to give it to me.
Would you accept, subj ect to verification
that 164 of the 193 megawatts are located in the State
Idaho?
That's the neighborhood that we talked
abou t .
Just hopefully, this will be beneficial to
clarify a little bit about the interconnection process,
questions that Commissioner Kj ellander asked you, isn't
it true , Mr. Gale , that the interconnection process at
Idaho Power Company as a result of the FERC orders that
we've received over the last few years is a separate and
distinct process from the QF contract process?
Yes, it's true.
And it's entirely possible that someone
could make a request for interconnection, have that
process go all the way through to the point where the QF
knew exactly how much was going to cost
interconnect hi s proj ect or at least have a very good
estimate of what it would be and not necessarily have a
contract at that point?
That could happen.
CSB REPORTING
Wilder , ID 83676
100 GALE (Di)
Idaho Power Company
And the reverse could also be true, he
could sign a contract to sell power to Idaho Power and
then go and determine how much it was going to cost him
to interconnect that proj ect to the Company's system?
It could start ei ther way.
MR. KLINE:That's all I have.
COMMISSIONER KJELLANDER:Thank you, and
thank you, Mr. Gale.
(The wi tness left the stand.
COMMISSIONER KJELLANDER:We're ready now
for the Commission Staff witness.
MR. WOODBURY:I call Rick Sterling.
RI CK 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
BY MR. WOODBURY:
Mr. Sterling, will you please state your
full name and spell your last name for the record?
My name is Rick Sterling,
CSB REPORTING
Wilder , ID 83676
101 STERLING (Di)
Staff
And for whom do you work and in what
capaci ty?
COMMISSIONER KJELLANDER:Before you move
further, if we could get you to switch microphones with
Mr. Eddie.I think you have a microphone that is less
than perfect.
(Pause in proceedings.
BY MR. WOODBURY:Back on the record.
Mr. Sterl ing, for whom do you work and in what
capaci ty?
I work for the Idaho Public Utilities
Commission as a Staff englneer.
And in that capacity, did you have
occaslon to prepare prefiled testimony in this case?
Yes, I did.
Does that testimony consist of 21 pages?
That's correct.
And have you had occasion to reVlew that
testimony and is it necessary to make any corrections?
No, there are no correct ions.
If I were to ask you the questions set
forth in the testimony, would your answers be the same?
Yes, they would.
MR. WOODBURY:Mr. Chairman, I'd ask that
the testimony be spread on the record as if read and
CSB REPORTINGWilder, ID 83676
102 STERLING (Di)
Staff
answered and I'd present Mr. Sterling for
cross-examination.
MR. RICHARDSON:Mr. Cha i rman ?
COMMISSIONER KJELLANDER:Yes.
MR. RICHARDSON:In aid of a motion to
strike, may I speak?
COMMI S S IONER KJELLANDER:Yes.
MR. RICHARDSON:Mr. Chairman , I
respectfully move to strike the testimony of Mr. Sterling
in thi s docket.By way of explanation , I observe that
the Commission's notice of this proceeding clearly stated
that the purpose of this proceeding was to "develop a
record of decision on the limited issue as to whether a
temporary suspension of Idaho Power's PURPA obligations
should be granted.
At page 3 of his testimony, Mr. Sterling
lS asked the question , "What is your recommendation
regarding Idaho Power's request for a temporary
suspension of its obligation to offer to purchase power
from qualifying facilities at published avoided cost
rates?"
His answer is, "Rather than suspension , I
recommend that the eligibility cap for published avoided
cost rates for intermittent generation projects without
firming be temporarily reduced to 100 kW.
CSB REPORTING
Wilder , ID 83676
103 STERLING (Di)Staff
Mr. Sterling's testimony does not address
the limited issue" that has been noticed up for this
hearing.It al so expands the scope of thi s proceeding to
the considerable prej udice of the other parties who have
not had an opportunity to file rebuttal testimony.
unilateral change in the avoided cost rules wi thout such
an opportunity would be a breach of the other parties'
and my client I s due process rights.
COMMISSIONER KJELLANDER:Thank you, Mr.
Ri chardson
Mr. Woodbury.
MR. WOODBURY:Mr. Chairman , I can'
really speak to whether Mr. Richardson feels his due
process rights have been compromised.I think at the
initial phase and comments in this case I said I believe
that parties should be provided the opportunity to file
rebuttal testimony and reply briefs if they so desired
but with respect to Staff's recommendation , it's a
procedural recommendation and I think that I s equivalent
to what the Company is asking and I think it comport
with what PURPA , the jurisdiction and authority provided
in PURPA to the Commission.
I am -- I think it's a little less onerous
than what the Company proposed.Essentially we're not
indicating that QFs should be prevented from contracting.
CSB REPORTING
Wilder , ID 83676
104 STERLING (Di)
Staff
What we , Staff I s recommendation was that we reduce the
cap to no more than what the FERC requires , that we
requlre larger QFs to individually negotiate with the
utility and also that we accept from the application any
wind proj ect that comes in firmed up, so I think we'
prepared and Staff would recommend that if Mr. Richardson
wishes to file rebuttal testimony that he be entitled to
do so, but we would oppose his motion to strike.
COMMISSIONER KJELLANDER:Thank you.
MR. RI CHARDSON :Mr. Chairman , this
witness' testimony is much more than a procedural matter.
It proposes significant substantive changes in the rules
this Commission has developed for QFs over the 20 years
that you've been doing it and it goes well beyond the
scope of the notice which did say it was a limited issue
of simply whether or not we should temporarily suspend.
COMMISSIONER KJELLANDER:I s there anyone
else who would like to weigh in on the motion to strike?
MR. KLINE:I f I could , please,
Mr. Cha i rman .
COMMISSIONER KJELLANDER:Mr. Kline.
MR. KLINE:Well, first of all , I believe
that Mr. Sterling's testimony certainly is within the
scope of the not ice.I think the whole idea of what
we're trying to accomplish in Commission proceedings
CSB REPORTING
Wilder , ID 83676
105 STERLING (Di)Staff
to make sure that the Commission has sufficient
information in front of it that it can make good
decisions.I think what's troubling about this motion to
strike right now is if this has been a problem
Mr. Richardson could have filed a motion a long time ago
noting his obj ection , moving to strike the testimony, the
rest of us then would have had an opportunity to respond
to that mot ion and have it in front of you wi thout --
where you could really see some of the legal issues
discussed and the merits discussed and I think his delay
until now really is unfair.
COMMISSIONER KJELLANDER:Thank you,
Mr. Kline.I think at this point we're going to go off
the record for just a moment and we'll be back in just a
few moments.
(Pause in proceedings.
COMMISSIONER KJELLANDER:We'll go back on
the record.The Commission has decided to reserve its
judgment on the motion to strike, so at this point what
we will do is allow the cross-examination of the witness
to proceed and then the Commission will rule on that
motion at a later time and at this point, then , we have
the opportunity now to spread the testimony across the
record as if it was read.
(The following prefiled testimony ofMr. Ri ck S ter 1 ing is spread upon the record.
CSB REPORTING
Wilder , ID 83676
106 STERLING (Di)Staff
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 capacity?
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 at
the Commission include analysis of utility applications
and customer petitions.
What is the purpose of your testimony in this
proceeding?
The purpose of my testimony is to address Idaho
Power Company's request for temporary suspension of its
obligation to purchase energy from small wind-powered
generation proj ects.My testimony will provide
CASE NO. IPC-05-
07/15/05 STERLING, R.(Di) Staff
107
recommendations regarding the Company's request and
describe the relevant factors that I believe the
Commission should consider in making its decision.
Please summarize your testimony.
I believe there are currently four critical
factors that create sufficient cost uncertainty to
justify temporarily limiting Idaho Power I s obligation to
purchase intermittent wind generation.The four factors
1) the application of a firm energy price toare:
intermittent wind generation; 2) the large number of wind
generation contracts at the published rate that are
ei ther signed or in process; 3) a publ ished avoided cost
rate for Qualifying Facilities (QFs) that is based upon a
high cost resource not in Idaho Power's IRP (Integrated
Resource Plan) resource portfolio , and 4) an Idaho Power
wind RFP (Request for Proposals) that may have attracted
proposals wi th bid prices influenced by the published QF
rates.
The purpose of limiting the Company's purchase
obligation is to pause long enough to gather information
and to assess whether published rates are reasonable
under current circumstances and in the best interest of
Idaho ratepayers.I suggest that the public interest
will be well served if the Company's obligation to
purchase intermittent wind generation is temporarily
CASE NO. IPC-E- 05 -07/15/05 108 STERLING, R.(Di)
Staff
modi f i ed .I recommend that the Commission set a proj ect
size cap of
CASE NO. IPC-E- 05 -
07/15/05 109 STERLING , R.(Di) Staff
100 kW for published rate eligibility for intermittent
generation.I believe that uncertainty about the
reasonableness of the price Idaho Power is obligated to
pay to purchase wind generation , combined with the number
and size of wind proj ects seeking contracts, warrants
such action until more information can be gathered and
studies completed.I recommend that proposed wind
proj ects wi th contracts already signed or ready to be
signed by the developers be exempt from the limitation.
I recommend that wind proj ects offered as firmed be
exempt from the proposed restriction.I recommend that
the change in published rate eligibility commence
immediately, apply to all three electric utili ties, and
remain in place until more information can be gathered
and studies completed that will allow the Commission to
determine how to wisely proceed further.
What is your recommendation regarding Idaho
Power's request for a temporary suspension of its
obligation to offer to purchase power from qualifying
facilities (QFs) at published avoided cost rates?
Rather than suspension , I recommend that the
eligibility cap for published avoided cost rates for
intermittent generation projects without firming be
temporarily reduced to 100 kW.FERC's rules implementing
PURPA (USC ~ 292.304 (c) (1)) require that states have
CASE NO. IPC-E- 05 -07/15/05 110 STERLING, R.(Di) Staff
standard rates available for proj ects wi th a design
capacity of 100 kW or less.I would require individual
negotiation of contract rates for wind proj ects greater
than 100 kW uslng an IRP-based methodology that
proj ect specific.
What standard do you believe should be applied
by the Commission in determining whether a temporary
change in published rate eligibility should be granted?
At this ini tial stage of the proceeding,
believe the Commission only needs to decide whether to
temporarily limit the obligation to purchase the output
from intermittent generating resources such as wind.
Consequently, I believe that the proper standard is to
determine whether there may be a problem developing and
whether that problem is serious enough to justify
immediately limiting published rate availability.I do
not believe that Idaho Power at this stage needs to make
a convincing case that a problem has already occurred or
that harm has already been done to Idaho Power or its
ratepayers.The purpose of restricting published rates
is to pause long enough to gather information and to
assess whether Idaho is headed in the right direction
before proceeding further on the current path.If the
Commission agrees , I would not view that as a judgment on
the price, the quantity, or the prudence of acquiring
CASE NO. IPC-E- 05 -07/15/05 111 STERLING, R.(Di) Staff
wind generation , but instead as a "timeout" while we
evaluate our position and determine a future direction
that is in the best interests of Idaho's ratepayers.
Why do you believe a change in published rate
eligibility for intermittent wind generation is warranted
at this time?
There are four primary reasons:
1 .Wind generation is intermittent, yet the
applicable published avoided cost rates reflect firm
energy prlces.
2 .The large number of wind generation
contracts at the published rates that are either signed
or in progress magnify the impact if avoided cost rates
are set too high.
3 .Published QF avoided cost rates are based
upon a high cost resource that is not in Idaho Power'
IRP resource portfolio.
4 .Idaho Power's wind RFP may have attracted
proposals with prices influenced by the published QF
avoided cost rates.
I will discuss each of these reasons in more
detail later in my testimony.
In termi t tency
In Case No. IPC-04-8/10 , the combined case
invol ving U. S. Geothermal and wind developers Lewandowski
CASE NO. IPC-05-
07/15/05 112 STERLING, R.(Di) Staff
and Schroeder which was concluded seven months ago
culminating in Order No. 29632 , the Commission imposed a
90-110% performance band to address firm vs. non-firm
resources.Doesn't the performance band adequately
address the intermittent nature of wind generation?
I believe that the decision of the Commission
to impose a performance band to address the intermi t tency
of wind resources was a reasonable compromise at the
time.However , Slnce that Order was issued, Idaho
Power's IRP has been accepted for filing, raising
questions over the appropriateness of a high cost SAR
resource not included in the IRP being used as a
surrogate for calculating the Company's avoided cost.
Meanwhile, more PURPA contract capacity has been added in
the past eight months than any other time in the history
of PURPA in Idaho.I believe that wind integration costs
ci ted by the Company are real , but at this point still
very uncertain.The performance band establishing firm
monthly generation as opposed to hourly firm generation
could result in significant additional costs when applied
to a large number of intermittent wind projects.While
the performance band partially addresses the
intermittency of wind generation, it may not produce fair
and accurate rates for wind generation given the
integration requirements and operational demands placed
CASE NO. IPC-05-
07/15/05 113 STERLING, R.(Di) Staff
on the Company's system by wind.
Are there other cost factors unique to
intermittent generation that should be considered?
Yes, there are.Wind integration costs can be
an important factor to consider , especially as greater
amounts of wind are added to a utility's system.
Utilities must provide long and short-term reserve
capacity, and maintain ability to provide load following
and other ancillary services.Each utility, because of
its existing resource mix and load requirements, will
have different abilities and costs to accommodate wind on
its system.To my knowledge, Idaho Power has not
conducted any studies or analysis to determine whether
intermittent generation presents additional costs not
captured in the simple application of the SAR avoided
cost methodology.
Large Number of Contracts
PURPA has been implemented in Idaho for over
years.Why is potential overpayment for PURPA resources
such a cri tical lssue now?
PURPA has a long history in Idaho and many
contracts have been signed between regulated utilities
and small power producers.However , until the past year
almost no contracts had been executed for intermittent
genera t ion such as wind.Previously, the few
CASE NO. IPC-05-
07/15/05 114 STERLING , R.(Di) Staff
intermi t tent generation proj ects sold power under
non-firm tariffs
CASE NO. IPC-E- 05 -
07/15/0S 115 STERLING, R.(Di)
Staff
rather than long-term contracts.Since the U. S.
Geothermal case was concluded seven months ago, eight out
of the nine contracts that have been signed by Idaho
Power and approved by the Commission have been with wind
generation proj ects.Furthermore, all but one of the
contracts signed during this short period have been for
the maximum 10 aMW size.In addi t ion, three geothermal
contracts (two have yet to be sent to the Commission for
approval), and one 2.5 MW hydro contract (now pending
before the Commission) have also been signed.
Collectively, the generation added in the past year alone
represents about a 50 percent increase in Idaho Power'
PURPA generating capacity since PURPA' s implementation in
Idaho 25 years ago.This pace of development, in terms
of number of contracts and especially in terms of size
far exceeds that during any time in the history of PURPA
in Idaho.As a resul t, the consequences of maintaining
potentially inaccurate, obligatory rates for PURPA
proj ects are greater than ever before.
SAR Methodology
Is it still reasonable to continue to use a
gas-fired CCCT as the surrogate resource for establishing
a prlce for intermittent resources like wind?
While the SAR method that has been used in
Idaho for many years is a relatively simple and
CASE NO. IPC-E- 05 -
07/15/05 116 STERLING, R.(Di) Staff
straightforward method for establishing avoided cost
rates , it has become a somewhat poor match for the types
of generation proj ects seeking power sales contracts ln
recent years.The SAR method is based on the premi
that the SAR represents a reasonable proxy for the type
of resource a utility would build if it were to construct
a plant to supply its needs. In the early years of PURPA
implementation in Idaho, a coal plant was used as the
surrogate avoided resource.In more recent years, a
gas - f ired combined cycle plant (CCCT) has been used as
the surrogate.Both surrogates have been considered base
load plants.PURPA resources , on the other hand,
especially the predominance of wind proj ects experienced
in the past year , are radically different than the CCCT
surrogate.Using a highly dispatchable base load plant
as the basis for establishing rates for an intermittent
wind generator is awkward at best.Because wind
generation has such unique characteristics, perhaps a
different method for establishing avoided cost rates for
wind would be warranted.At this point in time,
published rates reflect the costs of a CCCT at very high
gas prlces. Utilities may be able to acquire comparable
or superior energy products at lower costs.Ironically,
Idaho Power has for the first time included wind as a key
element of its preferred resource portfolio, yet we are
CASE NO. IPC-05-
07/15/05 117 STERLING , R.(Di) Staff
continuing to use a gas-fired CCCT - a resource no longer
part of the Company I S IRP resource portfolio - as the
basis for establishing avoided cost rates for new QF
resources that are primarily wind.
RFP Resul ts & Prices
Why is there any relationship between wind
generation acquired by Idaho Power as PURPA QFs and wind
the Company is seeking to acquire through an RFP?
Wind proj ects are unique because they consist
of mul tiple individual wind turbines , each usually wi th a
capacity of about 1.5 MW , spread over many acres.
Because wind is such a dispersed resource, it is possible
to configure clusters of wind generators such that they
meet both the FERC eligibility requirements of a
qualifying facility and the Commission published rate
eligibili ty requirements of an under 10 aMW proj ect.
Large proj ects utilizing most other types of generation
resources are not able to be conf igured into 10 aMW
blocks to qualify for the published avoided cost rates,
nor does the concentrated nature of other resource lend
the proj ects to being spread over a wide geographic area.
As a result , unlike most other types of generation , many
wind proj ect s can be conf igured such that they are
eligible to participate in two different utility
acquisi tion mechanisms regardless of original proj ect
CASE NO. IPC-E- 05 -07/15/05 118 STERLING, R.(Di)
Staff
S 1 ze .Because each mechanism employs completely
different pricing methods, whichever pricing mechanism
produces the lowest rates is likely to be rendered
ineffective.To the extent a developer can configure a
proj ect to receive the published rates, it is unlikely
the developer would submi t a lower priced proposal under
a wind RFP.
Are you familiar with the RFPs which Idaho
Power has outstanding?
Yes, I am.Idaho Power issued an RFP for 200
MW of wind generation on January 13, 2005.Bids were
submitted on March 10, 2005.The Company anticipated
acquiring energy from approximately 200 MW of nameplate
generation by the end of 2007 , and 100 MW were to be
available no later than year-end 2006.It is my
understanding that the Company is still in the process of
eval ua t ing the bids.
In addition , on March 30, 2005 Idaho Power
issued an RFP for 80-200 MW of peaking resources to be
online in April 2007.The peaking resources bid in this
RFP are most likely gas-fired simple cycle combustion
turbines.Bids were received by Idaho Power on June 2
2005.Bids are currently being evaluated and Idaho Power
has stated that it expects to make a selection in the
fall of 2005.
CASE NO. IPC-05-07/15/05 119 STERLING, R.(Di)
Staff
Idaho Power indicated that its own IRP calls
for the addition to its portfolio of 350 MW of wind
CASE NO. IPC-E- 05 -07/15/05 120 STERLING , R. (Di) 11aStaff
generation.What plans have Avista and PacifiCorp
indicated for acquiring wind generation?
PacifiCorp's 2003 IRP called for the
acquisition of 1400 MW of renewable resources (presumably
mostly wind) through 2013.Its 2004 IRP maintains the
same target.PacifiCorp issued an RFP in February 2004
to attempt to acqulre up to 1100 MW of this total.
date , the Company has announced only one contract under
the RFP for 64.5 MW from a proposed wind proj ect
eastern Idaho.Over 6000 MW of offers were received, of
which the Company initially believed up to 1400 MW could
be cost -effecti ve.
Avista is in the final stages of completing its
2005 IRP.The IRP is expected to be submitted in
September 2005.The preferred portfolio selected in the
plan includes approximately 650 MW of wind generation
capaci ty to be added through 2026.
Have you reviewed the bids Idaho Power received
in response to its wind RFP?
, I have not reviewed the bids.The bids are
conf ident ial and Idaho Power has not yet made a formal
filing with the Commission.However, Staff has met wi
the Company and reviewed a summary of the bids.Based on
the information presented in Idaho Power's petition , the
bids received, on average , propose purchase rates ofapproximately 55 mills/kWh ($55 per MWh)
CASE NO. IPC-05-07/15/05 121 STERLING , R.(Di) Staff
interconnection , transmission and wheeling costs are
added, the bid prices are substantially higher.
How do the bids Idaho Power received in its RFP
compare to the cost of wind assumed in its 2004 IRP?
The average $55 per MWh cost of the bids
received in the RFP is considerably higher than the $43
per MWh levelized cost that Idaho Power assumed for wind
in its 2004 IRP.Even the lowest bids were substantially
higher than the $43 per MWh price for wind assumed by
Idaho Power in its 2004 IRP.
What cost for new wind resources do PacifiCorp
and Avista assume in their IRPs?What is the Northwest
Power and Conservation Council's assumption?
PacifiCorp's 2005 IRP assumes a levelized cost
of $42-44 per MWh (2005 dollars, including integration
but not transmission) Avista's Draft 2005 IRP assumes a
levelized cost of $56-71 per MWh (2005 dollars, including
transmission and integration) The Northwest Power and
Conservation Council in its recently released Fifth Power
Plan assumes a levelized cost for new wind generation of
$33-43 per MWh (2000 dollars , includes some
transmission). All estimates depend on location.Without
a more detailed analysis, however , it is very difficult
to compare these costs directly.In order to have an
apples to apples" comparison, the assumptions used to
CASE NO. I PC - E - 05 - 2207/15/05 122 STERLING, R.(Di) Staff
develop the costs must be consistent.For example
interconnection , transmission and integration costs must
be consistently applied , and economic assumptions about
such things as inflation rates, discount rates, and
whether costs are presented in real or nominal terms must
be carefully considered.More time and analysis would be
needed in order to make a fair comparison between the
assumed wind costs of various utilities.
Why are the cost assumptions for wind in
utili ties' IRPs relevant?Aren't the prices bid in RFPs
a better indication of the actual cost of new wind
generation?
Prices bid in RFPs should be a bet ter
indication of the actual cost of new wind generation
because presumably, the bids are competi ti ve.However
the amount of new wind generation that a utility plans to
acquire is dependent on the cost assumptions used in the
development of the IRP.For example , if Idaho Power had
assumed that the cost of new wind generation would be $60
per MWh instead of $43 per MWh , it may not have concluded
that it should include 350 MW in its future resource
portfolio.Most likely, the preferred resource portfolio
would have included less wind generation.
Have you reviewed the bids PacifiCorp received
in response to its recent wind RFP?
CASE NO. IPC-E- 05 -07/15/05 123 STERLING, R.(Di)
Staff
No, I have not.As with nearly all utility
RFPs, bids are kept confidential.Furthermore,
PacifiCorp is still in negotiations to acquire the
remaining port ions of the 1100 MW it had hoped to acquire
through the RFP.Disclosure of the bid prices or of the
prlce already agreed to for the 64.5 MW it has committed
to in Idaho would jeopardize its ongoing negotiations
wi th other bidders.
Do you believe that the prlces Idaho Power
received in response to its RFP are reflective of a fair
price for wind generation in Idaho?
Until more information can be gathered
concerning the resul ts of RFPs in other parts of the
region , it is difficult to say.It is difficult to
determine whether the bid prices may have been influenced
by the published PURPA avoided cost rate being viewed as
a defaul t rate for unsuccessful bidders.I believe
further investigation is warranted.
I f the prices bid in Idaho Power's RFP are
indeed reflective of today' s going rate for new wind
generation , do you believe that indicates that the
published PURPA rates are a fair price for wind
generation?
Not necessarily.Whenever there are two
different resource acquisition mechanisms for the same or
CASE NO. IPC-E- 05 -
07/15/05 124 STERLING, R.(Di) Staff
similar types of resources as there are now , proj ect
developers will naturally participate in the mechanism
they believe will produce the highest prlce.In the
current situation with Idaho Power , there is little
incentive for the developer of a wind proj ect to bid a
price in the RFP that is any less than the price he could
otherwise be guaranteed as a PURPA QF as long as the
proj ect can be disaggregated into separate 10 aMW pieces,
each meeting the requirements of a QF.In fact , losing
bidders in the RFP , if they meet the requirements of a
, would be paid a higher rate than the "winning" bidder
in the RFP if the bid is less than the published rate.
This creates a perverse incentive that on its face could
create an absurd outcome.Only bidders in the RFP who
could not disaggregate their proj ects into 10 aMW pieces
seemed to have incentive to bid below published avoided
cost rates.
In my opinion, the fact that the bids received
ln response to the RFP are close to the published avoided
cost rates or substantially higher indicates either of
two things: a) that bidders did view the published rates
as a default price and had little incentive to bid less,
or b) that the bids were truly honest bids that reflect
the current higher cost of wind generation.To the
extent that utilities are acquiring wind generation
CASE NO. IPC-E- 05 -
07/15/05 125 STERLING, R.(Di)
Staff
through RFPs , it is important that utilities and the
Commission have
CASE NO. IPC-E- 05 -
07/15/05 126 STERLING, R. (Di) 16aStaff
confidence in the true cost of wind generation.
What factors might currently be causing the
cost of wind generation t o be higher than utilities have
previously assumed in their IRPs?
One factor that could be causlng higher prices
is higher costs for wind generation equipment.Equipment
costs have reportedly increased due to increases in steel
prices.Demand for equipment is also currently high due
to the recent extension of federal production tax
credits, while availability of equipment is limited due
to manufacturers' inability to rapidly ramp up
product ionin response to increased demand.
What evidence is there that large blocks of
wind can be acquired at prices significantly below the
published rates?
Given the short time frame for this case so
far , I have not had time to investigate the prices that
have been paid by other utilities in the region to
acquire wind under RFPs.In its Petition , Idaho Power
ci tes the recent commi tment by NorthWestern Energy to
acquire 135-150 MW from the Judith Gap project in Montana
at a cost of $31.71 per MWh.I am uncertain , however , as
to what things are included in this price.I am aware
that several other regional utilities have either
recently made commitments for new projects or have
CASE NO. IPC-E- 05 -07/15/05 127 STERLING, R.(Di) Staff
conducted RFPs.As I mentioned earlier , PacifiCorp is
still in the process of trying to acquire approximately
1100 MW of wind through its RFP , and had already acquired
prlor to the RFP 41 MW from the Wyoming Wind proj ect and
41 MW from the Eurus Combine Hills proj ect.Puget Sound
Energy recently committed to acquire 150 MW from the
Hopkins Ridge proj ect and 230 MW from the Wild Horse
proj ect Portland General Electric recently announced
plans to acqulre 75 MW from the Klondike II expansion
proj ect BPA is planning to acquire generation from five
new wind proj ects.Finally, Sierra Pacific received bids
three weeks ago for up to 200 MW through a renewables
RFP.
Addi tional Recommendations
If the Commission agrees to grant a change in
published rate eligibility, do you believe that the
change should apply only to wind generation proj ects?
I believe that the change should apply to all
intermittent generation , whatever the technology
employed. For the most part , however , this would impact
wind generation proj ects to the extent firming is not
provided. I propose that the modified rules not apply to
intermittent generation projects that provided firming.
Do you recommend that the change commence
immediately?
A . Yes , I do.However , there are approximately a
CASE NO. IPC-E- 05 -07/15/05 128 STERLING, R.(Di)
Staff
dozen wind proj ects that have been pursulng contracts
wi th Idaho Power.If the Commission agrees to a change
in eligibility, it must also determine a fair disposition
of these proj ects.
What do you believe is a fair disposition of
these proj ects?
I believe that a fair disposition would be to
exempt all of those proj ects that have signed contracts
prior to Idaho Power's initial filing in this case.
Whether Idaho Power already had signed the contracts by
that time , or whether it has still yet to sign the
agreements , I believe is immaterial as long as the
contracts in each instance are materially the same as
wind contracts that the Commission has recently been
approving. Any proj ects for which the developer and Idaho
Power can agree had completed final negotiations and for
which contract signature was imminent should also be
exempt from any change in published rate eligibility.
proj ects that have only entered into preliminary
discussion or had not reached agreement by the time
Idaho Power's ini tial filing should be subj ect to the
proposed change in eligibility.
Should the Staff recommend that the change
apply only to Idaho Power or should it apply to Avista
and PacifiCorp as well?
CASE NO. IPC-E- 05 -
07/15/05 129 STERLING, R.(Di) Staff
I recommend that the change apply to all three
utilities.While Idaho Power appears to have the most
interest from developers, the other two utili ties may
have some as well.Furthermore, if published rate
eligibility rules were modified only for Idaho Power
developers could shift to either of the other two
utilities seeking higher priced contracts.
How long do you believe that the eligibility
change should remain in place?
I believe that the change should remain in
place for whatever length of time is necessary in order
to gather information on reasonable wind costs, conduct
wind integration studies to determine both the amounts
and cost to integrate wind into each utility's system
and to develop, if the Commission ultimately believes
. is necessary, al ternati ve pricing mechanisms for wind
generation.Idaho Power witness Gale states in testimony
that the Company believes 6-9 months would be needed in
order to conduct the necessary acti vi ties and analysis.
I agree that this approximate time frame seems
reasonable, but I also agree that consideration of ending
or extending a suspension could be made earlier
studies could be completed sooner.
What harm would be done if the Commission does
not agree to Idaho Power's request for a suspension or
CASE NO. IPC-E- 05 -07/15/05 130 STERLING, R.(Di) Staff
other changes recommended by Staff?
If the Commission does not agree to impose a
suspension or other changes recommended by Staff , Idaho
Power would continue its ongoing obligation to offer to
purchase a substantial quantity of intermittent wind
generation at the published avoided cost rates.Whi 1 e
the amount of wind generation currently seeking a power
sales agreement may not be problematic by itself , paYlng
a rate that is higher than the rates being paid in other
areas of the region for such a substantial amount of wind
greatly magnifies the effect on Idaho Power and its
ratepayers.Idaho Power passes all of its PURPA contract
costs at 100 percent through its annual PCA.The effects
of overpriced contracts are thus fully borne by
ratepayers.Staff believes that it must be an advocate
for ratepayers and seek to insure that the prices
utilities are obligated to pay for purchase from QFs are
fair and reasonable.
Does this conclude your direct testimony in
this proceeding?
Yes, it does.
CASE NO. IPC-E- 05 -
07/15/05 131 STERLING, R.(Di)
Staff
(The following proceedings were had in
open hearing.
COMMISSIONER KJELLANDER:And I believe
that Mr. Woodbury had tendered his wi tness for
cross-examination and we will begin with Mr. Kline.
MR. KLINE:I have no questions for this
wi tness, Mr. Chairman.
COMMISSIONER KJELLANDER:Thank you.
Let's move to Avista Corporation.
MR . MEYER:Just a few , thank you.
CROS S - EXAMINA T I ON
BY MR. MEYER:
Good afternoon , Mr. Sterl ing .
Good aft e rnoon
In your test imony, I think you phrase
ln one instance as taking a time-out or taking a pause in
the event that there's a suspension of the obligation to
purchase at the stated rates; correct?
Tha t 's correct.
So if that is the course of action and
there's this pause or if there is this time-out , what
should be accomplished by the parties or by the utilities
during this time-out?
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Well , part of it depends on how much we'
able to resolve through the current phase of the
proceeding.For example , if there is some type of a
suspension or limitation of availability of the published
rates , we obviously need to deal wi th how people who are
somehow in that process already need to be treated and
whether we deal wi th that
- -
to the extent we're not able
to handle that through this phase of the proceeding, we
need to do that.
Other things that I would see as issues to
be addressed are the pricing mechanism, whether the
current methodology creates a realistic and fair price
for wind, whether a different methodology is warranted or
modifications to the existing methodology.We would also
take the time to try to acquire addi tional information.
I think that's part of the difficulty that we have had so
far in this proceeding is that there simply is
information that we have not ei ther been able to obtain
yet or is not available to us that would perhaps shed
some light particularly on the pricing issue , so those
are some of the things that I would envision would happen
ln some subsequent process.
So if the Commission were to order a
suspension of some sort , would it be helpful early on in
that process , whatever that process might ul timately look
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133 STERLING (X)Staff
like , to come to agreement among the parties the sort of
issues that should be addressed as you work through this
investigative period?
Absolutely.
So in a workshop or part of that process
might that be an early item to take up?
Yes , I would think so.
MR. MEYER:That's all I have.Thanks.
COMMI S S IONER KJELLANDER:Thank you.
Let's move to Mr. Richardson.
MR . RI CHARDSON :Thank you , Mr. Chairman.
No quest ions.
COMMISSIONER KJELLANDER:Thank you.
Let's move to Mr. Batt.
MR. BATT:No questions.
COMMISSIONER KJELLANDER:Mr. Miller.
MR. MILLER:Thank you, Mr. Cha i rman ,
Members of the Commission , again without conceding or
appearing to concede Cassia and Magic's view that the
Company has not established adequate factual or legal
grounds for a suspension , I'll not cross-examine on that
issue with Mr. Sterling, but did want to ask Mr. Sterling
just a couple of questions.
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CROSS - EXAMINATION
BY MR. MI LLER :
First, Mr. Sterling, I take it that it'
the Staff's view that starting in very general terms that
proj ects that have expended measurable or somewhat
considerable time , effort and money in reliance on the
Commission's current rules should be exempt from any
suspension or modification of the eligibility criterias;
is that a generally true statement?
Yes, I generally would agree wi th that.
Have you had an opportunity to review the
brief that was filed by Magic and Cassia on July 15th?
Yes , I have.
And in that brief , Magic and Cassia set
forth a proposal to specifically implement the general
proposition we have just discussed , which is that
developers who have filed an interconnection application
should be exempt from any suspension or modification of
the eligibility rules.I wanted to ask , what is Staff'
reaction to that proposal?
I think it's a reasonable proposal.Staff
made its proposal and Magic's is also a reasonable
proposal and Cassia.
What would happen in your view
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135 STERLING (X)Staff
implementation of that proposal somehow came into
conflict with the Company's 200 megawatt RFP desires?
Well , I think it's unfortunate that we
have this conflict with the RFP; however , I think we are
where we are today and I think the fact that people have
relied on the existing rules and progressed with their
contracts or their interconnection applications , it may
ul timately destroy Idaho Power's RFP and I think that'
unfortunate, but I think that's where we are today.
don't think that it would be fair to preserve Idaho
Power's RFP at the expense of people that have in good
fai th relied on the existing rules.
Having said that , though , I think that
illustrates the very problem that has caused this
proceeding to happen in the first place and that is that
Idaho Power will be obligated or could be obligated,
depending on how the Commission decides this case , to
purchase from PURPA proj ects at prices that are
considerably higher than they otherwise would purchase
comparable resources if they could proceed under an RFP
but again , I don't think we can undo what's already
happened.
MR. MILLER:ve been instructed to stop,
so I I 11 stop.
COMMI S S IONER KJELLANDER:Thank you,
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136 STERLING (X)Staff
Mr. Miller.
Let's move now to Mr. Ikemoto.
MR . I KEMOTO :Thank you, Mr. Cha i rman .
CROSS-EXAMINATION
BY MR. IKEMOTO:
Mr. Sterling, refer to page 6 , line 6 of
your testimony.It's a paragraph where you discuss the
overvaluation problem with intermittent resources
beginning with the fact that the SAR , the surrogate
avoided resource, is no longer in the resource plan of
the Company is that correct?
Yes.
So the fact that a gas plant is used to
set the posted prices would tend to set the posted prices
ln your mind too high?
Well , I think what I would conclude
that there's a mismatch between the resource that we'
using to set the avoided cost rates and the resources
that we're trying to apply those rates to.Now , the
rates that we determine or the avoided cost rates that we
determine using a gas-fired SAR may still be appropriate
for other resources.They just may not be appropriate
for wind particularly.
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Well , aren't all fossil fuel plants
dispatchable?
To varying degrees, yes.
So are you proposing that avoided costs
for wind be set by some other means other than in
comparison to the cost of a fossil fuel plant?
m not proposing any of that sort of
thing in this testimony at this stage in the proceeding.
I would concede, though , that I think those are issues
that might be ripe for consideration in the future.
I guess I'm confused again by the
paragraph on page 6 , line 6, where you're suggesting that
part of the overvaluation problem is created by the use
of a SAR , so it's just created by the use of any fossil
fuel deferral as a basis for calculating avoided cost.
I don t think I say that , if you could
refer me to a particular line in that paragraph.
"However , since that Order was issued
Idaho Power's IRP has been accepted for filing"
Tell me which line you're on , please.
Line
Page
Page 6, line "However , since that
Order was issued , Idaho Power's IRP has been accepted for
filing, raising questions over the appropriateness of a
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138 STERLING (X)Staff
high cost SAR resource not included in the IRP being used
as a surrogate for calculating the Company's avoided
cost"; so I take it that you believe the SAR resource
high cost in comparison to what is actually in the IRP.
No, I'm simply saying that the SAR
historically has been assumed to be a resource that the
utility would turn to in the future to meet load , a
resource that the utility would be likely to acquire or
build.That resource over time and in the early days
was a coal plant, then it was a combined cycle gas-fired
plant, both of which are resources that historically have
been included at some time or another in the utility'
IRPs.
Now , I think this is probably the first
time that we ve actually continued to use a SAR that'
not even in the utility's IRP and even more ironically,
we've got a resource or resource type, wind resources
that actually are in the RFP for the first time that
we're not using as a means for setting the price for wind
resources , PURPA proj ect wind resources.
Okay.
So I think all I'm really trying to say
that we've got a real mismatch, I think, between the SAR
resource and the types of proj ects that those prices
apply to and it's creating kind of an awkward situation
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139 STERLING (X)Staff
particularly for wind.
You are familiar, are you not, with the
economlc theory of competi ti ve markets, marginal price
equals marginal cost, marginal cost being highest cost,
so even if you were to look at a resource plan which
contained only wind and only coal, which of those is the
marginal resource in your mind?
Well , first of all , I'm not an economist,
but various resources have varlOUS characteristics and
are chosen to meet varlOUS types of needs that the
utili ty may have.Some are base load resources, for
example, some are peak load resources.They re all
different.
m not aware of anything in PURPA which
directs you to match resource characteristics , only to
pick the highest cost resource, cost it out, use those
costs as the baseline for making decisions about
renewables.
Is that a question or is that a statement?
Are you aware of anything in PURPA that
allows you to do that?
Let me see if I understand your question.
Are you saYlng am I aware of anything in PURPA that
allows us to distinguish between resource types?
Yes, doing your avoided cost by resource
CSB REPORTING
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140 STERLING (X)Staff
type.
I don't bel ieve there's anything in there
that allows us to distinguish by particular resource
type however , there is, I believe, enough provisions in
PURPA that allows us to distinguish between various
characteristics of certain resource types, firmness, for
example.
Well, I think a mechanism that works
usually works in the extreme and I usually like to test
with an extreme.I f you're saying that in the resource
plan you have wind and coal, wind matches wind, so wind
should price wind.In that resource plan if wind was a
10 resource , I would suggest that you would be up there
telling us but we can't pay
$ .
10, look at the cost of
coal and I think we're sitting here saying you need to
look at the cost of fossil fuel.That's the marginal
resource , that sets the bar.Concerns about mismatches
are handled all across this country.Are you aware of
any utility that does not use a fossil resource in its
avoided cost methodology?
m not aware what other utilities use in
their avoided cost methodologies other than the three
that are regulated by this Commission.
I need to gather my thoughts for a minute,
Mr. Cha i rman .You are familiar withI got off track.
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141 STERLING (X)Staff
the 2004 IRP coal cost assumptions?
ve reviewed the 2004 IRP.I couldn I
site the specific assumptions.
Right now the SAR has established a posted
prlce for a 2006 project without performance requirements
at $61.00 a megawatt-hour; is that correct?
$61.00 a megawatt-hour is approximately
the avoided cost rate for a 20-year levelized contract
with Idaho Power Company.
Okay.The 2004 IRP cost of power
assumption for a coal plant if escalated to 2006 is
$61.00 a megawatt-hour , so even if you were to say that
the SAR is no longer in the resource plan , we'll use
something that should, that something should be coal , it
turns out that coal is exactly the same price, is
not?
I can't confirm or not confirm your
assumption about the coal price that's in the IRP.
don't believe it's presented that way, but I don't know
what the number would come to if it was computed.
The number in the IRP is $57.63 for 2004
so if you escalate that to 2006, it's $61.00 a
megawatt-hour and would you agree that $61.00 a
megawatt-hour is in fact the posted price and is in fact
the calculation that results from the SAR?
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142 STERLING (X)Staff
Again , it's not clear to me what numbers
you're pulling from the IRP.I'd have to actually see
the IRP and see what that number is identified as
representing.I can't simply confirm it off the top of
my head.
Unfortunately, the IRP page numbers aren
numbered, but it's the levelized resource cost table
2004 integrated resource plan.Does the SAR methodology
account for any uncertainties in capi tal costs, fuel
costs, environmental regulation or operational
intermi t tency?
There are no assumptions made about any
those things in our computation of avoided costs using
the SAR methodology.
No assumptions, meanlng there's no
monetary values associated with those?
Not explicitly, no.
And yet , you're suggesting now it'
appropriate that we should account explicitly for
operational uncertainty but not for planning uncertainty
such as fuel or environmental regulations.
m not suggesting anything in this
testimony or the proceeding as far as changes to the
methodology.m suggesting that it may be appropriate
to look at some of those things.
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143 STERLING (X)Staff
Okay, just a couple of mlnor clean-
items.You state that current posted rates reflect high
cost of natural gas; is that correct?m talking
about --
MR. WOODBURY:What page are you referring
to?
MR . I KEMOTO :Page 9, line 20.
BY MR. I KEMOTO :"At this point in time,
published rates reflect the costs of a CCCT at very high
gas prices.Are you aware that current gas prices are
at least 50 percent higher than the assumptions made in
the 2004 IRP for 2006?
Well , first of all , we don't use gas
prices from the IRP in our avoided cost calculations.
Second of all , the prices that we do use are a 20-year
forecast of natural gas prices, not a single year , and it
certainly is true that gas prices today, for example, are
much higher than gas prices were a year ago.
Would your expectation for the next
years prlces of natural gas be higher today than it was
two years ago?
Well , I'm not a forecaster, but the
forecasts that I have seen do tend to indicate somewhat
higher prices , particularly in the next several years,
certainly not 50 percent higher over the course of
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144 STERLING (X)Staff
years , though.
I completely agree.I'd like to turn now
to page 11 , line The topic here is the actions of a
large developer to take advantage of posted prices and
you surmise that large producers would in fact be serving
their own economic interests by pursuing what appears to
be a higher price under the posted price mechanism , but
would suggest to you that it's proceedings like this
which move large developers to absolutely bid their best
price because they know the rules can be changed at any
time in the world of posted prices, won't you agree with
that?
Not necessarily.
might have
going on?
have been.
Okay, page 12 , line 12 , you discuss
Would you think that large developers
anticipated that this sort of hearing might be
I have no idea what their anticipation may
Avista's upcoming IRP and the inclusion of 650 megawatts
of wind generation.I f the winds are bet ter in
Washington , would you expect any of that 650 megawatts to
ultimately be developed in Idaho?
It may not be developed in Idaho, but
may be sold in Idaho if prices are more attractive
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145 STERLING (X)Staff
he re.
absent
better wind resources Washington would probably lead
a PURPA requirement in Idaho,
to all of this 650 megawatts being built in Washington?
Probably, yes.
Wouldn't the same be true for PacifiCorp
slnce there are bet ter winds in Wyoming?
Certainly.
Okay, finally, let's see, how many PURPA
contracts have been signed by Avista and PacifiCorp?
I don t know exactly.Roughly, I probably
could give you a rough approximation.
I'll accept that.
I think Avista has probably four to SlX
maybe.PacifiCorp has probably 10 or 12 , roughly.
m talking about PURPA contracts that
resul ted from the January decision of this Commission.
You mean since January of
, 05.
-- of 'OS?
This current vintage of contracts.
Neither PacifiCorp nor Avista have had any
PURPA contracts signed since January of 2005.
Do you find that acceptable as a result?
Acceptable, you know , we take what comes
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ln the door and we review them and recommend approval or
not approval.It's not a matter of finding it acceptable
or not acceptable.m not in the -- it's not my role to
try to determine the rate at which PURPA proj ects get
developed.
No, I think you created a policy and the
question is has that policy run long enough to accomplish
your goals and I'm saYlng is the accomplishment of no
signed proj ects in either Avista or PacifiCorp' s
territory an acceptable result given your goals?
Well , first of all , they're not my goals
and I don't establish the policy, but I think really the
goal is to meet the requirements of PURPA and I think we
have done that regardless of how many proj ects have or
have not come in.
You support the suspension of PURPA for
the other two utilities because you believe that
developers will simply move their proj ects from Idaho
Power's territory to PacifiCorp or Avista; is that
correct?
Tha t 's correct.
How can they do that?
Developers can sell to any utility that
they want to sell to.
And how do they get the power there?
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They pay a wheeling charge in most
instances.
Are you aware of the magnitude of a
wheeling charge in Idaho?
We don't regulate transmission , so I'm not
really that familiar with wheeling charges.We don'
administer any wheeling tariffs.
It's quite typical that a wheeling charge
is in the ne ighborhood of 1. 5 cent s ki Iowa t t - hour.
Would you think that a proj ect that starts off at 6.
cents and then has to deal with a performance band and
then has to deal wi th a 1. 5 cent wheel ing charge, do you
believe that that project has a remote possibility of
being economlC if wheeled?
I think the evidence is the fact that even
in Idaho Power's case , they've got qui te a number of
proj ects that are not only located outside of their
service terri tory but outside of the State of Idaho , some
many, many miles outside of the State of Idaho, who have
negotiated contracts and are now today selling power to
Idaho Powe r .
I think the issue here , though , is
projects within Idaho moving around to the utilities
within Idaho versus a large wheeling source area,
available transmission at a low cost and hydro shaping
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services available also at low cost, that's not the
general condi t ion.The general condi tion is a proj ect
located in Idaho Power's terri tory being wheeled to
either Avista or PacifiCorp economically.
I still think it can be done and I'
fairly confident people would attempt to try to do that
even at the prices that you have cited.
Okay.Page 21 , line 8, "paying a rate
that is higher than the rates being paid in other areas
of the region for such a substantial amount of wind
greatly magnifies the effect on Idaho Power and its
ratepayers.
Mr. Chairman , I'd like to enter an exhibit
which is the new Oregon avoided cost rates for wind or
any QF generation.
COMMISSIONER KJELLANDER:Okay, and it'
your intent , then , to ask questions in relationship to
that of this witness?
MR.IKEMOTO:Yes.
COMM IS S IONER KJELLANDER:Okay,please
proceed.
(Mr.Ikemoto distributing documents.
COMMI S S IONER KJELLANDER:Mr.Ikemoto the
exhibi ts you passed out are numbered 701 and 702 and i
701 the same Exhibit 701 that you have already prefiled?
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MR . I KEMOTO :No.
COMMISSIONER KJELLANDER:It is not?
MR . I KEMOTO :No, it's not in my
test imony .I just did this.
COMMISSIONER KJELLANDER:Okay, I believe
there is an exhibit already marked 701.
MR . I KEMOTO :I did have an exhibi t ,
sorry.
COMM IS S IONER KJELLANDER:Okay.
MR . I KEMOTO :I was ill-advised by my pro
bono counsel.
COMMISSIONER KJELLANDER:Pay him
accordingly; so it will be 702 as numbered and then the
document that you've just handed us that is 701 will
actually be 703.
(Energy Vision LLC Exhibit Nos. 702 & 703
were marked for identification.
COMMISSIONER KJELLANDER:Please proceed.
BY MR. I KEMOTO :Mr. Sterling, these are
the prices filed on July 12th , 2005 , with the Oregon PUC
for the purchase of , among other things , wind energy.
There is no performance band in Oregon and the purpose of
this table is to compare the current posted prices in
Idaho with the new posted prices in Oregon.Would you
agree that these tables indicate that the prices in
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Oregon are higher than the prices in Idaho?
MR. KLINE:Mr. Chairman , I'd like to ask
a question in aid of an obj ection.The two documents
702 and 703, Mr. Ikemoto , are these documents that you
have prepared?Is this a comparlson that you've created?
MR . I KEMOTO :Yes.
MR. KLINE:And you're a witness in this
proceeding, I would think it would be appropriate for you
to introduce these as a wi tness rather than to present
them to him as if they were something that was filed in
Oregon because they're not, so I'm going to obj ect
COMMISSIONER KJELLANDER:Mr. Woodbury.
MR. WOODBURY:Mr. Chairman , I think not
all of the exhibi ts have been distributed.We've got 702
but not 703 , so if cross is allowed to proceed , I think
would ike coples.
COMMISSIONER KJELLANDER:Le t 's take a
quick break and make sure that everything gets
distributed so you can see what you've got and then we'll
be back to deal with the objection and, Mr. Ikemoto, you
may want to prepare a quick response to that obj ection
so we'll take about five minutes.
(Recess.
COMMISSIONER KJELLANDER:Okay, why don'
we go ahead and then go back on the record and before we
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left , we had some exhibi ts that needed to be distributed.
Those have been distributed and if I could get Mr. Kline
to rei terate his obj ection.
MR. KLINE:Sure, I have a couple of
concerns wi th the document.No., there really hasn't
been any foundation laid for it.Mr. Ikemoto is a
wi tness in this case.He certainly could have sponsored
it as a witness.We could have had an opportunity to do
discovery and do cross-examination on it.I would al
notice that Idaho Power is one of the people that filed,
made a compliance filing in Oregon.Those prices and the
tariffs that consist of that compliance filing have not
been approved by the Oregon Public Utilities Commission
so I believe foundation and frankly, the accuracy of
them, I think , are in question.That's my obj ection.
COMMI S S IONER KJELLANDER:Thank you,
Mr. Kline.
Mr. Ikemoto.
MR . I KEMOTO :Your Honor , I believe I can
accommodate Mr. Kline by sponsoring it in my direct and
modifying my question to Mr. Sterling.
COMMISSIONER KJELLANDER:Okay, let's move
forward , then , and we'll deal with the exhibits at the
appropriate time during your direct and , Mr. Ikemoto , if
you would ike to proceed.
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20 '
BY MR. I KEMOTO :Mr. Sterling, are you
aware that the compliance filings in Oregon would
indicate an avoided cost price for wind energy that
higher than Idaho?
If I could assume that these prlces are
available to wind proj ects in Oregon.I 1 m not sure
that --
COMMISSIONER KJELLANDER:Mr. Sterling,
those documents are officially no longer in your
possession.
THE WITNESS:Will you ask the question
again , then , please?
BY MR. I KEMOTO :m asking if you are
aware that the proposed prices in Oregon are higher than
the current prlces in Idaho?
, I'm not aware of that.
MR . I KEMOTO :Thank you, Mr. Sterling.
That's all , Mr. Chairman.
COMMISSIONER KJELLANDER:Thank you.
Let's move now to PacifiCorp,
Ms. Nordstrom.
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CROS S - EXAMINA T I ON
BY MS. NORDSTROM:
Good afternoon , Mr. Sterling.You
mentioned earlier that you believed the reason why any
changes to avoided cost rates as a resul t of this
proceeding should apply to Avista and PacifiCorp
because you have concern that developers will switch
service territories if only Idaho Power's rates or
obligations are suspended;that correct?
Tha t 'correct.
Are there any other reasons why you'
concerned about suspending for onl y one utility?
Well , yes, I think it makes sense to me
that if we suspend it for one we suspend it for all
because I think a lot of the concerns should be shared by
the other utilities , just like Idaho Power.I don'
think the concerns are specific to one particular
utility.
Is there value in having a comprehensive
approach and similar treatment and obligations for all
three utilities?
MR . RI CHARDSON :Mr. Chairman, I'm going
to obj ect This is blatant friendly cross-examination.
PacifiCorp has a witness addressing these very issues.
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COMMISSIONER KJELLANDER:Ms. Nordstrom.
MS. NORDSTROM:But he's offering his
opinion and that's what I'm asking for in his capacity
an expert of Staff.
COMMISSIONER KJELLANDER:Please
proceed.
THE WITNESS:Could you repeat the
question?
BY MS. NORDSTROM:I s there value in
having a comprehensive approach for all three utilities
with regard to these issues?
Yes , there is.
MS. NORDSTROM:Thank you.I have no
further questions.
COMMISSIONER KJELLANDER:Okay, let's go
to Mr. Eddie.
MR. EDDIE:Just a few questions.
CROSS - EXAMINATION
BY MR. EDDIE:
Mr. Sterling, does Staff Vlew that there
lS val ue wi th Idaho Power proceeding ahead wi th the
competitive RFP for wind and ultimately choosing a
resource on a competitive basis?
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Well , in the sense that they can obtain
wind resources at an attractive price , yes , there is;
however , I wouldn't want Idaho Power to proceed ahead and
acquire resources that it doesn't need at this point in
time to serve its customers' load.
Did you have a chance to review
Mr. Gagliano's testimony and particularly what was filed
as Exhibi t I?It was a review or survey of other wind
integration studies that was performed under the name
the Utility Wind Interest Group?
I do recall the exhibit generally, yes.
Just subj ect to check , would you based on
that recollection , would you agree with me that the cost
of integration of wind determined by a variety of
utilities around the country as reported in that document
was between about $1.00 per megawatt-hour for relatively
low levels of penetration and up to less than $5.00 for
higher levels of penetration , for example, 20 percent
penetration?
I do recall that, yes.
Assuming that those figures are accurate
based on a number of utilities having performed similar
studies , do you believe that those types of costs or that
level of cost presents a financial emergency if Idaho
Power were to go ahead and acquire 200 megawatts of wind
CSB REPORTING
Wilder , ID 83676
156 STERLING (X)Staff
a financial emergency from the ratepayer's perspective or
from the Company's perspective?
Well , I don't think that our only interest
should be guarding ratepayers from emergencles.I think
we as the Commission Staff have an obligation to protect
ratepayer's interests under all circumstances , not just
emergency circumstances.
This case is proceeding on an expedited
basis, wouldn't you agree?
Yes, it is.
With respect to -- at page 16 of your
testimony in lines roughly 4 through 10, you discuss the
risk that a large commercial proj ect may view the avoided
cost price as something of a floor because they may be
able to disaggregate their proj ect into 10 megawatt
chunks.Would you agree that there are perhaps
procedural protections that the Commission could adopt
that would simply prevent that type of disaggregation
for example, ownership limitations, interconnection
limitations?
It's difficult for me to say because
think I would suspect that a lot of those lssues are
legal issues that I don't know whether we could have
those sorts of rules or safeguards or not from a legal
standpoint.
CSB REPORTING
Wilder , ID 83676
157 STERLING (X)Staff
Assuming that it would be legal , can you
imagine the practical efficacy, if you will , of
preventing disaggregation of large proj ects through some
sort of ownership limitation or interconnection
limi tation?
Well , there certainly may be some meri t to
that.
MR. EDDIE:That's all I have.Thank
you.
COMMISSIONER KJELLANDER:Thank you , Mr.
Eddie.
Are there any questions from members
the Commission?None.
Ready for redirect.
MR. WOODBURY:Staff has no redirect.
COMMISSIONER KJELLANDER:Thank you.
Thank you, Mr. Sterling.
(The wi tness left the stand.
MR. WOODBURY:Staff has no further
wi tnesses.
COMMISSIONER KJELLANDER:Thank you.
believe we're golng to move to PacifiCorp at this point
and , Ms. Nordstrom, if you would like to call your
wi tness
MS. NORDSTROM:Thank you.PacifiCorp
CSB REPORTING
Wilder , ID 83676
158 STERLING (X)Staff
would call Mr. Griswold as its witness.
BRUCE W. GRI SWOLD ,
produced as a wi tness at the instance of PacifiCorp,
having been first duly sworn , was examined and testified
as follows:
DIRECT EXAMINATION
BY MS. NORDSTROM:
Please state your name and spell your last
name for the record.
Bruce W. Griswold, G-
By whom are you employed and in what
capaci ty?
I work for PacifiCorp as manager in
origination.
Are you the same Bruce Griswold that filed
direct testimony on July 15th , 2005 and prepared Exhibit
No.
Yes, I am.
After the notice of parties was issued
did you make changes to the label ing of your exhibi
Yes, I did.
And how has that exhibi t been revised?
CSB REPORTING
Wilder , ID 83676
159 GRISWOLD (Di)
PacifiCorp
When we originally filed it, it was
Exhibi t We were assigned a number 801 , so it's now
Exhibit 801.
MS. NORDSTROM:May we approach to hand
out revised exhibits?
COMMI S S IONER KJELLANDER:Yes.
(Ms. Nordstrom distributing documents.
BY MS. NORDSTROM:Mr. Griswold, did you
also change the labeling at the top of pages 1 and 2 to
reflect pages 1 and 2 instead of Exhibits 1 and 2?
Yes , I did.
Other than thi s change to the numbering
and labeling of Exhibit 801, do you have any corrections
or changes to your testimony?
No, I do not.
I f I were to ask you the quest ions set out
in your prefiled testimony, would your answers be the
same today?
Yes, they would.
MS. NORDSTROM:I would move that the
prefiled testimony of Bruce Griswold be spread upon the
record as if read and Exhibit 801 be marked for
identification.
COMMISSIONER KJELLANDER:Thank you , and
without objection , we'll spread the testimony across the
CSB REPORTING
Wilder , ID 83676
160 GRISWOLD (Di)
PacifiCorp
record as if read and mark Exhibi t 801.
(The following prefiled testimony of
Mr. Bruce Griswold is spread upon the record.
CSB REPORTING
Wilder , ID 83676 161 GRISWOLD (Di)
PacifiCorp
Please state your name, business
address and position with PacifiCorp (the Company)
My name is Bruce W. Griswold.
business address is 825 N. E. Multnomah, Suite 600
Portland , Oregon 97232.I am a Manager in the
Origination section of the Company's Commercial and
Trading Department.
Please briefly describe your
education and business experience.
I have a B. S. and M. S. degree in
Agricul tural Engineering from Montana State and Oregon
State , respectively.I have been employed wi
PacifiCorp over eighteen years ln various positions of
responsibili ty in retail energy servlces , engineering,
marketing and wholesale energy services. I have also
worked in private industry and with an environmental firm
as a proj ect engineer. My responsibilities are wholesale
qualifying facility and large retail transactions
including the negotiation and management of the
non-tariff power supply and resource acquisition
agreements with PacifiCorp' s largest retail customers.
Have you previously appeared in any
regul a tory proceedings?
Yes.I have appeared in proceedings
ln Utah and Idaho.
162 GRI SWOLD , Di
PacifiCorp
What is the purpose of your
testimony?
I will outline PacifiCorp' s position
on Idaho Power Company ("IPC") Petition for an Order
Temporarily Suspending IPC' s PURPA Obligation to Enter
into Contracts to Purchase Energy Generated by
Wind-powered Small Power Production Facilities and
explain why a temporary suspension is justified for all
Idaho electric utilities.To this end, I will describe
and explain the issues affecting PacifiCorp related to
wind QF proj ects in Idaho.I will also summarize a
series of actions the Company is willing to
163 GRI SWOLD , Di
PacifiCorp
undertake in support of this proceeding.
Please provide a summary of your
testimony.
The Company agrees wi th the issues
as outlined in Idaho Power's petition and supports a
temporary suspension to enter into any new QF contracts
wi th wind resources at current avoided cost rates for all
utilities in Idaho until the issues are vetted in this
proceeding or a separate docket to be opened by the
Commission.In order to help the Commission understand
the magni tude of the impact from these issues, the
Company has prepared and included in this testimony its
proposed methodology for computing avoided costs
specifically tailored to the attributes of intermittent
wind-powered resources.
Background
Please summarlze the procedural
background of this proceeding.
IPC filed a petition on June 17 , 2005 requesting
the Idaho Commission issue an order to temporarily
suspend IPC' s PURPA obligation , as defined in Sections
201 and 210 and its state obligation per specific
Commission orders, requiring it to enter into any new
contracts to purchase energy generated by wind-powered
qualifying facilities ("QFs"The request does not
164 GRISWOLD , Di
PacifiCorp
apply to any existing wind QF or new non-wind QF
contracts.The petition asks that the Commission
investigate the impacts on IPC' s ratepayers resulting
from significant number of wind QF proj ects being added
particularly: 1) the cost associated wi th acquiring wind
resources in IPC' s overall resource portfolio,
electric system reliability with additions of a large
number of intermi t tent wind resources, and 3) the need
for adj ustments to the current avoided cost methodology
to correctly reflect the actual power supply costs IPC
avoids
165 GRISWOLD , Di
PacifiCorp
through wind resource addi t ions.The Commi s s i on issued a
Notice of Petition and Scheduling on July 1 , 2005 seeking
testimony and written briefs regarding IPC' s request.
Please describe PacifiCorp' s efforts
to incorporate wind into its resource portfolio.
PacifiCorp has achieved national
recognition for its strong commitment to renewable
energy, particularly wind power. In 2003, PacifiCorp'
Integrated Resource Plan (" IRP") contained a diverse
resource mix to meet the proj ected load growth need over
the next ten years including 1 400 MW of renewable
energy.Based on a cost effectiveness test , these
resources were primarily characterized in the IRP as wind
resources.In 2004 , the Company released its 2003B
Request for Proposal (RFP) seeking to acquire 1 100 MW of
cost effective renewable resources over a period of six
years.PacifiCorp successfully signed a contract in 2005
wi th Wolverine Creek Energy LLC, for the purchase of the
output of a 64.5 MW wind farm to be buil t southeast of
Idaho Falls, Idaho and has targeted 200 MW of additional
economic renewable resources in 2006 and 2007.The RFP
has provided the Company a competitive process for
acquiring wind resources, thereby allowing the Company to
include adjustments for project specific operating and
location characteristics into determining the overall
166 GRISWOLD , Di
PacifiCorp
cost effectiveness of the resource proposals.PacifiCorp
continues to pursue other opportunities through the RFP
process and are responding to numerous requests from wind
QF developers across our multi-state territory.
167 GRISWOLD , Di PacifiCorp
Need for a Temporary Stay
What is PacifiCorp' s position
regarding Idaho Power's petition?
First, the Company stands behind its
obligation to purchase power from all QF proj ects
regardless of the generation technology.The Company ha
supported and continues to support the "ratepayer
indifference" standard as a principal consideration in
developing an avoided cost methodology and acquiring QF
proj ects in its resource portfolio.While PacifiCorp
actively participates in this proceeding because of the
value it places on renewable resources , the Company will
continue to be responsive to QF proj ects.For exampl e ,
when this petition was filed, PacifiCorp was close to
completing a power purchase agreement with a published
rate (less than 10 aMW) wind QF proj ect in Idaho.While
the issues raised by IPC were considered by PacifiCorp
during the contract negotiation , Commission Order No.
29646 on published rate QFs does not presently allow
these factors to be addressed through any price or cost
adjustment mechanism.In the spirit of good faith
negotiations, PacifiCorp felt obligated to finalize the
agreement and will be submitting it in the near future to
the Commission for its review and approval.Howeve r ,
PacifiCorp is concerned that approval of this particular
168 GRISWOLD , Di
PacifiCorp
QF contract could lead to an overpayment to the QF , in
the event that the Commission orders price adjustments
that reduce the published avoided cost rate for wind QF
proj ects in this proceeding.That would clearly not meet
the ratepayer indifference" standard for QFs and place
additional costs on Idaho customers.
PacifiCorp agrees that IPC has raised a
number of valid issues that need to be addressed before
the Commission , specifically as they apply to
intermi t tent resources
169 GRISWOLD , Di
PacifiCorp
such as wind.These issues apply whether the wind
resources are acquired as QF contracts or through
commercial transactions; however , commercial transactions
through a RFP or direct bi-lateral negotiation provide
for price adj ustment mechanisms to be taken into
consideration.PacifiCorp increasingly faces these same
issues across its system as more wind proj ects come forth
as proposed QF proj ects rather than participating in a
RFP.Consequently, these issues are now the focus of
docket number 03-035-14 in Utah and phase II of Oregon
Docket UM-1129.These issues affect PacifiCorp and in
fact, ALL electric utilities in Idaho, not just IPC.
Ordering a temporary stay for IPC alone threatens to
simply shift most QF proj ects from IPC to PacifiCorp or
other utilities in Idaho.Therefore if the Commission
decides to grant IPC' s request in this proceeding,
should do so for Idaho Power , PacifiCorp and Avista.
Because of the magnitude and potential cost to Idaho
ratepayers in acquiring wind QF resources at other than
avoided costs , the Company believes the Commission should
open a docket to address the impact of each of the
relevant issues in detail.
Does PacifiCorp face the same wind
resource issues and concerns as Idaho Power?
On a general level , yes, all
170 GRI SWOLD , Di
PacifiCorp
utilities face the same issues of integrating an
intermittent resource into their portfolio.Howeve r ,
because the Company has a much different load and service
area , transmission system , and resource portfolio than
IPC and other Idaho utilities , the impact of these issues
on the Company could be different in magnitude.Let me
explain each.
Electric System Reliabili ty Impact.Wind
resource output depends on wind
171 GRI SWOLD , Di
PacifiCorp
availability and speed.Wind speeds cannot be predicted
with complete accuracy and the wind often fluctuates
significantly over an hour.As a resul t of the Company'
study in the 2003 IRP , and through PacifiCorp'
experience with several wind farms, PacifiCorp' s system
planners and operators have determined that these
variations increase the overall operating costs of the
PacifiCorp system. System operators maintain a balance
between the system supply and demand for power on a
continuous basis.The balancing relies on the operating
characteristics of power plants in PacifiCorp' s resource
mix and computer automation.The variability of wind
plant output causes additional volatility in system
balance that must be compensated by other power plants to
maintain system balance , causing power plants to further
deviate from economically optimal operating conditions.
Additionally, it is important to understand that the key
issue is not whether a system with a significant amount
of wind capacity can be operated reliably, but rather to
what extent the system operating costs are increased due
to the variability of the wind and/or what other system
upgrades must be put in place to integrate the resource
in quest ion.A study was performed by the Company during
its IRP process to estimate the integration cost of a
wind resource added to its system. These costs are
172 GRISWOLD , Di
PacifiCorp
referred to as ancillary services costs such as
incremental reserve or system dispatch costs (termed
"imbalance" costs in the 2003 IRP)Incremental reserves
are the cost associated with holding additional operating
reserves to maintain system reliability as greater
amounts wind resources are added and the increased
volatility in system load imposed by the variability of
wind plant output.System dispatch costs capture the
increased operating costs associated with operating other
power plants to balance the system with the addition
173 GRISWOLD , Di
PacifiCorp
of rapidly changing wind resources.In the 2003 IRP, the
cost of incremental operating reserves for a wind si te
with a capacity factor of 30 percent was determined to be
$2.72/MWh. Combined with the $3.00/MWh estimate for
incremental system dispatch; the total integration cost
was approximately $5. 50/MWh.An update to the costs was
done for the 2004 IRP in which the assumption for
imbalance costs have remained unchanged at $3. OO/MWh but
the cost of incremental reserves has been updated for new
market prices. In the current updated IRP the cost of
integration is estimated to be $4. 64/MWh.Absent site
specific integration costs, PacifiCorp considers these
costs to be a reasonable approximation to the costs of
integrating wind and should be included as a cost the
Company incurs in the calculation of avoided cost for
wind resources.
QF versus RFP.The Company's current
experlence across its service territory is that some wind
proj ects that were not successful in the 2003B RFP , chose
to pursue QF certification for avoided cost pricing on
their proj ect and re-approach the Company as a QF.With
the increase in the proj ect size cap for published
avoided cost rates, many wind developers are tailoring
their' ini tial proj ect into separate smaller proj ects to
fit under the cap, whether it is 10 aMW in Idaho, 3 MW in
174 GRI SWOLD , Di
PacifiCorp
Utah , or 10 MW in Oregon.Because a contract under the
published QF rate has minimal flexibility to adjust
pricing or terms and condi tions in the contract , wind
resources have found the QF path more conducive to
gaining a long term power purchase agreement wi thout the
integration cost or other adjustments they would
encounter in a competitive RFP process or through
bi-lateral negotiation.This divergence between a
competi ti ve process for acquiring the lowest cost wind
resource and the defaul
175 GRISWOLD , Di
PacifiCorp
pricing nature of the QF process does not account for
system impact costs and will lead to Idaho ratepayers
carrYlng the burden of a higher-cost (i. e., above avoided
cost) QF resource than they would otherwise pay for.
Therefore the Company believes a temporary stay should
put in place to allow for investigation of how the gap
between the competitive process and the QF process can be
closed.
Avoided Cost for Wind Resources.The
Company is currently participating in an open docket in
Utah , Docket 03-035-, which focuses on the avoided cost
methodology for QF proj ects greater than 3 MW.As part
of that docket , PacifiCorp has outlined the cost
adj ustments that should apply to the avoided costs
specifically for wind and other intermittent resources.
I will describe PacifiCorp' s proposed process and
adjustments later in my testimony.The Company al
expects that the same issues will be addressed in Oregon
Docket UM-1129 later this year.Historically the
generation threshold for published avoided cost rates has
been low , and the costs associated with capacity
contribution and integration for an intermittent resource
have been deemed to have minimal impact on the Company'
electric system.Wi th current thresholds increased in
Idaho to 10aMW , Oregon to 10 MW and 3 MW in Utah , the
176 GRISWOLD , Di PacifiCorp
cost to the Company and thus to the ratepayer for
integration and capacity contribution are of greater
significance and need to be revisited in determination of
avoided costs for intermittent resources.
In those cases where a resource is added
in Idaho and there is insufficient load , then the added
QF power must be moved elsewhere to be useful to the
system.This is primarily expected to be the case in the
off -peak time period when customer loads are normally
lower but also may occur with the addition of numerous QF
proj ects
177 GRISWOLD , Di PacifiCorp
and/ or large QF proj ects If there is inadequate
transmission capacity to move the power elsewhere in the
system, the Company has two options: back down use of its
own low-cost resources to serve the load in the area or
upgrade the transmission system to accommodate moving the
resource output to load elsewhere.In the penul timate
scenario, where there are no Company resources to
curtail , the Company may be faced wi th not being able to
accept QF power. In the first case, the avoided cost that
the QF receives should be adjusted down to reflect the
Company's obligation to accept the QF' s higher cost power
and back down the lower cost resources such as a coal
plant.If a new QF resource has triggered a transmission
system upgrade, the QF should bear the cost of the
transmission system upgrade to move their power out of
the load pocket to serve the network load.While the
Company recognizes that locational transmission
constraints and the need for transmission upgrades should
not prevent proj ect development , the incremental cost
reflecting the constraint or upgrade should be borne by
the developer and not the ratepayer as is presently the
case. Analysis of transmission system constraints and the
cost of options for dealing with those constraints should
be made available to QF proj ect developers as part of the
QF pricing and contract process so that appropriate
178 GRISWOLD , Di PacifiCorp
adj ustments can be made.The approval of a temporary
stay in this proceeding would allow each utility to
prepare and demonstrate the need for such adj ustments
the determination of avoided costs.
PacifiCorp I S Proposed Actions if a Temporary Stay
Granted
How does the Company propose to
address these issues?
The Company bel ieves the three wind
QF issues posed by IPC can be adequately addressed
through specific adjustments to the avoided cost paid to
the individual QF
179 GRI SWOLD , Di
PacifiCorp
proj ect for that QF' s operating or locational
characteristics regardless of the QF proj ect size.This
is true whether it is system reliability, the impact to
the overall cost of a utility's resource portfolio, or
the appropriate avoided cost for an intermittent
resource.
Is the Commission allowed to make
such prlce adjustments?
Yes.The factors allowed under PURPA
are for adjustments to reflect an individual QF project'
operating characteristics when finalizing the avoided
cost prices. These factors include:
The type of power being del i vered
the utili ty by the QF project.One of the key factors
affecting the prices paid to the QF is the type of power
delivered to PacifiCorp.Rates for purchases should
reflect the duration and firmness of the energy and
capaci ty provided.When the QF has contractually
committed to make capacity and energy available on a firm
basis , the QF is entitled to capacity and energy payments
that reflect the energy and capacity costs it allows the
Company to avoid.If the QF will only agree to make
power available on a non-firm basis , it is entitled to
only an energy payment.
The QF' availabili ty during daily
180 GRI SWOLD , Di
PacifiCorp
and seasonal peak peri ods.The Company's standard
avoided cost prlces assume that energy and capacity from
a QF will be available during the Company's daily and
seasonal peak periods. If the QF cannot or will not
commit to provide energy and capacity during peak
periods , then no capaci ty payments should be made to the
QF proj ect for those months when the QF is not providing
capaci ty and energy during the peak periods.
181 GRISWOLD , Di lOaPacifiCorp
The abili ty of the utili ty to
dispatch the QF.The ability of a utility to schedule or
dispatch QF generation on demand is a key consideration
that should be taken into account when establishing
proj ect specific avoided costs. Any QF that offers to
sell PacifiCorp capacity and energy must match the
availability of the avoided resource to receive the full
avoided costs including capacity payment.Since this
analysis is resource specific , it can only be applied on
a case by case basis.
The reliabili ty of the QF.The
specific rates paid to the QF should be adjusted to
reflect the facility's actual , or valid operator estimate
, operating reliability and capacity production
capabili ty as compared to the avoided resource.
The type of genera ti on technology and
fuel source.The type of generation and fuel source can
also affect avoided cost prices.For example , wind
resources are dependent upon wind for fuel and therefore
considered an intermittent resource.
How do these factors apply in
determining the avoided cost price paid to an
intermi t tent QF proj ect?
The factors discussed above with
respect to QFs also generally apply to renewable QF
182 GRI SWOLD , Di PacifiCorp
proj ects.For example, wi th respect to a wind proj ect
performance is based on mechanical turbine availability
as well as wind performance (speed and variability) The
probability that the wind resource may not be available
when needed to meet peak load is significant.As a
resul t , a separate calculation of planning reserve
contribution is required and should reflect the
variability of wind generation during
183 GRI SWOLD , Di 11aPacifiCorp
the system peak.Several factors drive the measure of
wind's capacity contribution to PacifiCorp' s system.The
first of these factors is site performance.For example,
wind speed and duration are characteristics which
directly impact site generation and the capacity factor
a particular wind si te Second seasonal and
time-of -day patterns determine wind contribution during
peak hours.Third, the composition of the existing
resource mix as well as volatility in area system loads
and resources affect how wind's capaci ty contributes to
the Company's system.
How should the avoided cost for an
intermi t tent resource such as wind QF be determined?
The Company proposes an adj ustment
procedure for calculating the wind resource avoided cost,
which I have attached as PacifiCorp Exhibit No.1 for a
generic wind proj ect.Thi s procedure is the same
proposed by PacifiCorp in Utah Docket No. 03-035-14.The
only difference is the initial methodology for each
jurisdiction.In this case, I have applied the
adjustments to the published avoided cost prices per the
Commission Order 29646 to illustrate the adjustments for
a wind resource.
How should capaci ty payments be
determined and structured for wind QF proj ects?
184 GRI SWOLD , Di
PacifiCorp
Under the Company's proposal , the
Company will pay twenty (20) percent of the avoided
capacity costs as determined using the Commission
approved avoided cost methodology for QFs.The twenty
percent capaci ty payment covers capaci ty contribution
only and does not include other costs or adjustments.
The Company proposes that a wind QF resource receive a
volumetric price structured as on-peak and off-peak
prices where the 20 percent capaci ty payment would be
incl uded only wi thin
185 GRISWOLD , Di 12aPacifiCorp
on-peak hours.The wind QF receives the 20 percent
capaci ty payment in the on-peak energy price assuming
they maintain a 35 percent wind capacity factor through
the on-peak period.A 35 percent wind capacity factor
was selected as a reasonable estimate of the annual
on-peak capaci ty factor of a proxy wind resource.A wind
plant is "fueled" by the wind , which blows steadily
sometimes and not at all other times.Whi 1 e
utility-scale wind turbines are now designed to be
available a high percentage of the time, they often run
at less than full capability due to wind availability.
Therefore, a wind capacity factor of 25 percent to 40
percent is not uncommon and this range has been
documented throughout the wind industry.
What other adjustments or factors are
appropriate for consideration in pricing for wind QF
proj ect s?
Wind integration cost and its
components have been previously described and explained
in my testimony. Avoided costs should be reduced by the
Company's cost to integrate the wind energy delivered
into its system.Current estimated cost of wind
integration is $4.64 per MWh , but it must be recognized
that the magnitude of the costs are strongly dependent on
the amount of wind already connected to a system or
186 GRISWOLD , Di
PacifiCorp
subsystem , and the Slze of the system into which the wind
interconnects. The second adj ustment should be made in
the event that the resource exceeds the load.This
adjustment should reflect any transmission constraints or
transmission upgrades necessary to move the QF power from
the point of receipt where it is excess of the load
pocket to a point of use for serving network load.The
adjustment would be a reduction in the price paid per MWh
for the QF power due to backing off of Company low cost
resources when the resource exceeds the load or the QF
could pay for the
187 GRISWOLD , Di 13aPacifiCorp
transmission upgrade cost to move the power.
Are the other actions that should
undertaken if a temporary stay is ordered?
Yes.The Company al so recommends an
analysis be conducted to assess the total amount of
addi tional wind resources the Company's system in Idaho
can absorb at the above stated costs, wi thout adversely
affecting the Company's overall power supply costs and
system reliability.Such an effort should take into
account the effects of both proposed RFP and QF wind
proj ects and include the impact, if any, of load pockets
and transmission constraints.
Does this conclude your testimony?
Yes it does.
188 GRISWOLD , Di
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(The following proceedings were had in
open hearing.
MS. NORDSTROM:I tender this witness for
cross-examination.
COMMISSIONER KJELLANDER:Let's begin with
Mr. Kline.
MR. KLINE:Thank you, Mr. Cha i rman .
CROSS - EXAMINATION
BY MR. KLINE:
Mr. Griswold , I'd like to direct your
attention to page 6 of your testimony on line 15.Are
you there?
Yes.
Okay, there you talk about the fact that a
study was performed by PacifiCorp during its IRP process
to estimate the integration cost of adding wind resources
on to its system.Several parties in this case have
argued that it's not necessary for Idaho Power to perform
a Company specific analysis of the incremental cost of
integrating wind resources.They suggest that studies
performed on other utility systems would be adequate.
Based on PacifiCorp' s experience in performing this kind
of an analysis , do you have any opinion as to whether or
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Wilder , ID 83676
189 GRI SWOLD (X)
PacifiCorp
not a company specific study is preferable to a generic
study?
Yes.I can't speak specifically to Idaho
Power , but every utility has different resource mixes
load and because of that and because of geographical
location , transmission, an integration study should be
very specific to the utility and actually apply
specifically to the proj ect.Whether it's any resource
that's added to the system , there should be an
integration study done for that specific resource.
MR. KLINE:Thank you.That's all I have.
COMMI S S IONER KJELLANDER:Thank you
Mr. Kline.
Mr. Woodbury.
MR. WOODBURY:Thank you , Mr. Cha i rman .
CROSS - EXAMINATION
BY MR. WOODBURY:
Mr. Griswold , how are you?In the 2003
IRP , the company went out for 1 400 megawatts of
renewable energy within 10 years.Based on a
cost-effectiveness test, you indicated primarily wind.
Are the wind cost assumptions in the 2003 IRP different
from those that appear in your 2005?
CSB REPORTING
Wilder , ID 83676
190 GRISWOLD (X)
PacifiCorp
The 2004 IRP?
Yes.
Yes, we did, when we updated the IRP in
2004 , we made
- -
we went through and redid our
assumptions and checked validity and checked things
specific to, well, to the whole IRP and specifically to
renewables.
And what assumptions changed?
There was a couple of assumptions that
changed.First, our cost of integration , our integration
cost actually came down a bit.While the cost that we
believe is reasonable for imbalance costs remained the
same , the costs for holding reserves to meet our
requirements around renewables reduced because of market
prlces.
The Wolverine Creek Energy proj ect over
near Idaho Falls is 64.5 megawat ts , is that a contract
that's been finalized by the company?
The contract has been signed , yes.
And you acquired that through an RFP
process or just an individual commercial contract?
I t was done through our RFP.I t was the
2003 (B) RFP.
And is that contract in the public domain
now?
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No, I do not believe it is.I believe
it's still confidential.
On page 4 you indicate that the company
in the process of final i zing another wind contract for
less than 10 average megawatts.Where is that proj ect
sited?
It's si ted in Idaho.
Okay, and that's pursuant to the published
avoided cost rate?
That is correct.
And when do you anticipate that that
contract will be finaled and submitted?
The contract terms and conditions have
been agreed.The company has taken it through its
governance process and approved the contract and it'
been signed.We're waiting for the QF developer to
provide two exhibits prior to sending it over to them for
signature and then it would be an application made and
filed with the Idaho Commission.
You state on page 5 that it's the
company's experience that more wind proj ects across its
system are coming forth as proposed QF proj ects rather
than part i ipa t ing in an RFP.
Could you restate that?
It's your testimony on page 5, line 5 , you
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state that more wind proj ects across the company's system
are coming forth as proposed QF proj ects rather than
participating in an RFP.
Yes, that is correct.We've had in our
RFP 2003 (B) which was the renewable , we had a substantial
amount of megawatts come across and we're continuing to
work through a short list of negotiations with those
proj ects.We're also finding that a large amount of QF
proj ects specifically, and not necessarily all wind
proj ects, but a high volume of QF proj ects have renewed
their interest in securing PURPA contracts wi th the
company.
Has it been the company's experience , I
don't know where you are in that 2003 (B) RFP , but have
you made the first cut?
We've developed a short list, that is
correct.
And for those proj ects that have been
released , has it been your experience that they are
disaggregating and restructuring their proj ects and
pursulng PURPA contracts?
Yes , but I'll qualify that because
depends on the jurisdiction that the QF is located in.
We've had a number of larger proj ects , and when I say
larger , let's say their nameplate is 30 to 50 megawatts,
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those proj ects and depending on the jurisdiction who have
decided to or been rej ected out of the RFP have come back
and asked to have prices as a QF.A number of those are
actually over the threshold for the standard contract and
the company has a process, depending upon the
jurisdiction , to provide them indicative prices on a
negotiated basis.
It's my understanding in reading your
testimony on page 13 that the current estimated cost of
wind integration on the company's system is $4.60 per
megawatt-hour.Is the company comfortable with that
number or do you feel that more study is needed?
At the present time we believe that the
number is a reasonable number absent any site specific
integration cost study that would be done for using a
specific resource.
Where that resource might happen to be
located and what the load is on your system at that
point?
Tha t 's correct.
MR. WOODBURY:Mr. Chairman , Staff has no
further questions.Thank you, Mr. Griswold.
COMMISSIONER KJELLANDER:Thank you,
Mr. Woodbury.
Let's move to Avista.
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MR. MEYER:And I have no questions.
Thank you.
COMMISSIONER KJELLANDER:Let's move to
Mr. Richardson.
MR. RI CHARDSON :Thank you
Mr. Cha i rman .
CROSS - EXAMINATION
BY MR. RICHARDSON:
Mr. Griswold , you were just asked a
question about your recent RFP for wind and you said that
there was a short list established.Do you recall
that?
That is correct.
Do you know whether PacifiCorp has asked
the participants on that short list to restate their
prices because of the recent sharp increase in the cost
of wind turbines?
I don't know.
Is PacifiCorp being deluged with wind in
its Idaho serVlce terri tory?
I wouldn't say we're deluged with them.
We respond to all QF inquiries.Some of those inquiries
proceed to proj ects and some do not , but we have had an
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increased amount of inquiries relative to QF proj ects
wind QF proj ects , in Idaho.
And how many wind QF contracts in Idaho
does PacifiCorp have?
None at this date, none approved.
In your opinion , is PacifiCorp fulfilling
its obligation under PURPA to encourage the development
of QF resources in Idaho?
Yes , we're fulfilling our PURPA
obligation.
When was the last time PacifiCorp signed a
new QF resource in Idaho?
don'know specific answer to that.
On page your testimony,you talk
about ordering a temporary stay not just for Idaho Power
but for PacifiCorp because at line 9 you state
threatens to simply shift most QF proj ects from Idaho
Power to PacifiCorp.Do you see that?
Yes, I do.
And can you tell me physically how a QF
located in Idaho will move its power to PacifiCorp
located in Idaho?
Physically, it's actually quite simple.
Depending on the host utility service territory they'
located in , they could interconnect with that utility,
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request wheeling to another utility and we're still
obligated to purchase it.
And when you say "request wheeling,
wha t 's involved in that?
m not familiar with the specific
requirements of other utilities specific to Idaho and
qui te frankly, because of the separation between the
merchant part of the company and transmission , I can'
specifically state how the requests are done with
PacifiCorp on transmission.
So you don't know how a QF would
accomplish that goal even though in your testimony you
say that most QFs are going to do it?
If you read PURPA' s statutes , there is an
obligation for wheeling rights by QFs to other utilities
as long as there is an interconnection point between the
utilities.
And you don't know how that
accompl i shed?
I can't tell you specifically for Idaho
Power or any other utility in Idaho.
Do you know if the QF would have to
acqul re firm transmission path?
do no know the answer to that.
Do you know i f would be
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point -to-point or a network transmission agreement?
I can't answer that.
So what's the basis of your testimony here
that most QFs are going to take advantage of this and you
don't know how it's done?
It's very simple.PURPA says that there'
an obligation to do that and the requirements are up to
the transmission business of each respective utility.
It's their responsibility, the transmission business
responsibility, to deal with that, not the merchant
part.
MR . RI CHARDSON :I have no further
questions, Mr. Chairman.
COMMISSIONER KJELLANDER:Thank you,
Mr. Ri chardson
Let's move to Mr. Batt and Windland
Incorporated.
MR. BATT:No questions.
COMM IS S IONER KJELLANDER:Thank you, Mr.
Batt.
Mr. Miller, Magic and Cassia.
MR. MILLER:No questions.
COMMI S S IONER KJELLANDER:Mr. Ikemoto.
MR . I KEMOTO :Okay.
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CROSS - EXAMINATION
BY MR. IKEMOTO:
Mr. Griswold , I want to begin by
expressing the great regard I have for PacifiCorp.
know when the history of the wind industry is going to be
written that PacifiCorp will be a pivotal part of that
history.
Thank you.
Now , you put an ugly number in the record
and I have to go after you.Have you reviewed the
available studies of ancillary costs?
Could you be more specific?
The ones that are summarized in the
exhibit of Troy Gagliano's testimony.
I have not reviewed them in detail, no.
Would you be surprised to know that
PacifiCorp's number , $4.64 per megawatt-hour , is the
highest number ever calculated for ancillary services?
I couldn't tell you.I don't know what
the range of numbers are.
Would you agree that ancillary costs are a
function of penetration?
I would agree, yes.
What is the penetration level of the study
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that resul ted in $4.64?
It would be whatever was reported in the
IRP.I believe it was approximately 20 percent, but I'
not certain wi thout looking at the IRP.
That is correct, and what is your current
penetration level of wind on your system?
I don't specifically know the answer to
tha t
Would it be in the realm of 20 percent or
would it be far from 20 percent?
It would be less than 20 percent based on
the existing proj ects that we have and the size of our
system.
Far less than 20 percent?
I don't know the number.
Do you know Ken Dragone?
Yes.
He was the principal author of the work
PacifiCorp would you say?
I know Ken participated in the work
yes.
He coauthored a paper wi th Michael
Milligan who is also an expert at ancillary costs and
Michael just testified in Docket No. 04A-214E in Colorado
and I'd like to read you an excerpt from his testimony.
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"The PacifiCorp study compared the load following
requirements with wind to the requirements if wind were a
constant generator through the year , which probably
increases integration cost above what would actually be
experienced" so do you believe that $4.64 probably
represents a conservative estimate of ancillary costs?
MS. NORDSTROM:m going to obj ect
this document that Mr. Ikemoto is referring to going to
be submitted into the record or allowed for review by any
other party other than relying on his representations of
what the document is?
MR . I KEMOTO :I cited a docket in another
state.I believe there's some rules about recognizing
documents in other states.
MS. NORDSTROM:But you're quoting
directly from someone' s words.
MR . I KEMOTO :Well , I'm quoting his
testimony in that docket.
MS. NORDSTROM:Are we to rely on his
representa t ion?
COMMISSIONER KJELLANDER:What we probably
need is an exhibit to be distributed and we need to be
able to review it.
MR. IKEMOTO:Do I mark it and deliver
now?
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COMMI S S IONER KJELLANDER:I f you c an make
copies for us, yes , and while we're waiting for that to
happen, do you have any other documents like that that
you think may need to be dealt with accordingly?
MR . I KEMOTO :I have one more exhibit for
this wi tness.
(Pause in proceedings.
MR . I KEMOTO :Mr. Cha i rman ?
COMMISSIONER KJELLANDER:Yes.
MR . I KEMOTO :I can cover another question
while we're waiting for copies if you'd like.
COMMI S S IONER KJELLANDER:Let's go ahead
and proceed wi th that and then as soon as the other
information gets here and it gets distributed and we deal
wi th it as an exhibi t , we'll go forward.
BY MR. IKEMOTO:m referring to page 9
ine 3, you describe the problem of backing down
resources in off peak hours because of the existence of
significant wind generation.Are you familiar with that?
I found it , yes.
So the problem is that when cheap off peak
power lS available , the fact that you're already
purchasing wind creates in your mind additional cost?
That's correct, and I would like to
clarify that.It's just not wind resources.It could be
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any other resource that we're required to purchase.
You are familiar with the process of
economlc dispatch?
I am familiar with that concept.
Now , what happens wi th the avoided cost
resource , the marginal resource, the surrogate resource
what happens to that resource within economic dispatch?
Isn't it only committed to generation if there's no
cheaper power available?
m not familiar with how a surrogate
resource would be dispatched.
Well , let's say a deferrable resource, an
avoidable resource , in a production simulation , the
capaci ty factor of that resource would represent only
those hours in which there were no cheaper resources; is
tha t correct?
Tha t 's correct.
So in the hypothetical you present where
there's low cost off peak power available , but wind is on
line blocking your ability to take advantage of that,
that's already captured in the capacity factor of the
avoided resource , is it not?
, it's not.In the surrogate resource
that you see in Idaho , that is calculated at a specific
load factor or capaci ty factor.
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And that capacity factor is about
percent , lS it not?
That's what I've seen ln the model , that'
correct.
Would the average price at that capacity
factor , which is the maximum capaci ty factor probably of
that uni t , wouldn't that be the lowest average prlce
possible , that any lower capaci ty factor means the
average prlce from that uni t would be higher?
I don't understand your question.Woul d
you restate it?
In a cost of power calculation you have
fixed costs and variables costs.
Right.
Fixed costs decline as the unit produces
more and more energy and the total cost of energy is the
fixed cost plus the variable cost.
Correct.
So the higher the capacity factor of the
uni t, the lower the cost of power from the plant.
The overall cost, correct.
So my point is that the surrogate avoided
resource already presents the lowest average cost of
power from the surrogate plant and the issues about cheap
off peak power being blocked by wind are in a sense
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already captured in a surrogate calculation because its
capacity factor does not represent economic dispatch , it
represents maximum run time; is that correct?
If you look at my testimony, it'
specifically referring to site specific situations where
in the case , and Idaho is a good example, where we have
what we call a load pocket where we only have so much
load and if there is more resource than load and we'
obligated to purchase a QF proj ect and we're required to
purchase that at the higher prlce, the kilowatt-hour
that's coming in and use it to serve our load and back
down one of our other resources and they're into ight
load hours when you're running basically base load coal
plants, we would be backing down probably a coal plant if
we find no market to sell it to.
Yes , and my point being that in a
surrogate calculation , that's in a sense already captured
because you're getting already the lowest average cost
from the surrogate unit.If you were to run an actual
combined cycle through a production simulator , it would
have a much lower capacity factor , it would have a much
higher average price , then you would have al so a set of
hours at lower prices, but on average it may or may not
be higher or lower than the surrogate resource, but
certainly, a surrogate calculation already captures the
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fact that there may be dump power available because the
capacity factor is set at maximum level.
MS. NORDSTROM:Was that a question?
THE WITNESS:Is there a question there?
BY MR. IKEMOTO:Is that correct?
Could you just restate the specific
question you would like me to answer?
What I would like you to answer is you
assert the fact that you cannot utilize dump power or
have to back down a coal plant because the existence of
wind is not particularly captured in avoided cost
calculations, that the avoided cost may be too high
because of hours where cheap power is available and you
can't use it , that's your assertion; is that correct?
My assertion , my testimony is to the fact
that in the case where there's load less than the
resource, then we're obligated to purchase the power at
whatever prlce it is for the resource and potentially
back off another lower cost resource or , as you can see
in my testimony, the second option is to look
transmission , upgrading the transmission system to allow
that power to be moved elsewhere for use wi th network
load.
And my question is do you agree that
avoided cost calculations to a certain extent already
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capture that because the surrogate resource is not being
economically dispatched but being extended to full
opera t ional hours?
What I would probably
- -
the best way for
me to answer that is simply that I do not have the
detailed background in the surrogate avoided cost or
surrogate avoided resource in Idaho.In some of our
other jurisdictions they do take that into account in
calculating avoided cost , so I'm not familiar with the
specific details at that granular of a level for the
resource.
Okay.Just a quick question , how does
PacifiCorp handle out-of-state projects that want to sell
power in Idaho?Would you charge wheel ing for those
proj ects?
I guess I'm confused.Are you saying --
let me restate it back to you.If you're a QF proj ect in
Wyoming and you wanted to deliver it into Utah , for
example, and you were going to interconnect wi
PacifiCorp, but you wanted Utah QF prices, yes, you would
have to acqulre transmission to get it to Utah.
Earlier you agreed with Idaho Power that
independent studies are appropriate because each
utility's resource situation is different , but in fact,
aren't the resul ts of all the ancillary cost studies
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which cover qui te small control areas and qui te large
control areas, aren't all the resul ts ln a very, very
tight range , between 2.00 and $4.50 a megawatt-hour?
Without looking at the results and I guess
subj ect to check of the resul ts, I believe they probably
are in a close range.
COMMISSIONER KJELLANDER:Mr. Ikemoto , is
thi s your exhibi t
MR . I KEMOTO :Thi s is the exhibi t of the
testimony from Utah.
(Mr. Ikemoto distributing documents.
COMMISSIONER KJELLANDER:We're ready for
what number from you?
MR . I KEMOTO :702 , 702 and 703.
(Energy Vision LLC Exhibit Nos. 702 & 703
were withdrawn and a new Exhibit No. 702 was marked for
identification.
COMMISSIONER KJELLANDER:Mr. Ikemoto?
MR . I KEMOTO :Yes.
COMMISSIONER KJELLANDER:Before you
proceed , 703, is that something you've prepared?
MR . I KEMOTO :No, it's not original work.
It's just an excerpt from a WAPA ancillary cost study.
MS. NORDSTROM:May I have a copy of
Exhibit 703?
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COMMISSIONER KJELLANDER:That's going to
be necessary.It needs to be distributed to all the
participants.Are there copies coming?
MR . I KEMOTO :There are copies coming,
yes.
COMMISSIONER KJELLANDER:Okay; so you'
not ready for 703 yet , though?
MR. IKEMOTO:Apparently not.
COMMISSIONER KJELLANDER:Okay, I'll give
you a little bit more leeway.Let's get roll ing wi
this.
MR . I KEMOTO :I don't have any quest ions
for other wi tnesses, though , Mr. Chairman.
BY MR. IKEMOTO:Mr. Griswold , you'
looking at the demand of a steel plant and what strikes
me --
MS. NORDSTROM:Excuse me, I'd like to
obj ect to this particular exhibi There's no foundation
laid , there's no indication of where this data came from
or how old it is or any of the supporting foundation
required for such an exhibit.
COMMISSIONER KJELLANDER:Whi ch one are
you referring to?
MS. NORDSTROM:Well , at the moment
Exhibit 703.
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COMMISSIONER KJELLANDER:And is that the
one that you're discussing at this point?
MR . I KEMOTO :Yes.
COMMI S S IONER KJELLANDER:Okay, the
obj ection is there.
MR . I KEMOTO :Again , I don't have a
particular ci tation other than it's from a WAPA exhibi t
from a WAPA study and I'm sure by tomorrow I can produce
the study in its entirety.
COMMISSIONER KJELLANDER:Sustained.
Le t 's move on.
BY MR. IKEMOTO:Mr. Griswold, it's true,
lS it not, that load also creates the need for ancillary
costs , ancillary services?
Yes , it does.
And a steel mill would be an example of
something that creates a lot of need for ancillary
services?
That is correct.
And one of your largest customers is Nucor
Steel in Utah, is it not?
Yes , it is.
And Nucor operates under a special tariff
a special agreement, with PacifiCorp and that agreement
requires an independent cost of service study specific
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only to Nucor; is that correct?
That is correct.
And do you for the purposes of that study
calculate the ancillary costs created by Nucor?
m not responsible for cost of service
studies, so I'm not sure how ancillary services are
incl uded in it.
Would you be able to find out for
whether they charge anything near $4.64 a megawatt-hour
for ancillary services?
Well , you could probably do a data
request.
It's a proprietary agreement?
Yes.I guess could you define ancillary
services for me?
It's whatever you said they were for
$4.64.
Then if you read my testimony, it includes
two things:It includes operating reserves , which is the
unloaded part of the plant we have to hold for
contingencies, and it also includes imbalance fees,
imbalance charges, and when you look at
- -
and let'
speak to your load here, when you look at a load like
this and frankly, this doesn't represent Nucor at all
it's far from Nucor and Nucor is 80 megawatts, 80 , 90
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megawatts , that cycles 80 to 90 megawatts over a matter
of seconds and there's a very expensive cost of carrying
the imbalance costs on that, so if you're telling me you
want to compare a steel mill to a wind farm , then maybe
we're not charging enough for wind farms.
m just asking in the Nucor cost of
servlce study, do you know the magnitude of the
I do not know the magni tude.
MR . I KEMOTO :Okay, thank you.That'
all , Mr. Chairman.
COMMISSIONER KJELLANDER:Let's go to Mr.
Eddie.
MR. EDDIE:Two very brief questions.
CROS S - EXAMINA T I ON
BY MR. EDDIE:
Mr. Griswold, I believe you agreed that in
the 2004 integrated resource plan the ancillary cost
study that resul ted in the $4.64 number , that was based
on an assumed integration level or penetration level of
wind of 20 percent; is that right?
I bel ieve so, yes.
Do you know how that 20 percent
calculated?Is that average product ion of the wind
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facility over average load?Is it nameplate capacity of
the wind facility versus peak?
I don't specifically know that.I think
if you check the IRP , and I bel ieve it's Appendix J,
should clarify that.
Okay, page 7 of your testimony under the
heading QF versus RFP starting at about line 12 , you
refer to larger proj ects that bid into your RFP coming in
subsequently and seeking QF status and QF prices.Have
you considered or has the company considered other
procedural ways to keep the division clear between large
commercial proj ects that you would like to see come in
competitively versus small distributed generation sources
and not allow this type of splitting or disaggregation?
It's a similar question that I asked Mr. Sterling
earlier.
Well , first, I think you have to recognize
that the company has its PURPA obligation to purchase
from QFs, so you can'
- -
if a proj ect whether it's been
through a competitive process or not comes to us and
seeks pricing as a QF , large, small or in between , we
have an obligation with that QF.Second to that , the one
thing that we have done that I'm aware of and I believe
PURPA does make some references to it , al though I can'
tell you which statutes , is they have some requirements
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around contiguous proj ects , in other words, not allowing
proj ects to simply break up from big proj ects down into
small proj ects in order to continue to be QFs.
One of our company requirements is that a
proj ect that comes to us and wants to be instead of a 30
megawatt proj ect, but wants to be 10 - - I'm going to use
Utah as an example because this is exactly what happened
came to us as a 30 megawatt QF wind proj ect and wanted to
be 10 three megawatt QFs so they could meet the three
megawatt threshold and the company's policy and
requirements is if they wanted to pursue that they would
require an interconnection agreement and a separate point
of interconnection for each of those and 10 separate QF
power purchase agreements , so that's one way, I believe
that --
If I may interrupt , so that proj ect you'
referring to , were they able to disaggregate into
three megawatt proj ects?
They chose to remain one proj ect, one
point of interconnection , one interconnection study, et
cetera.
So there could be interconnect or
ownership limitations placed on QF projects that would
prevent this type of occurrence?
I think that's all subj ect to what PURPA
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allows to be done.You know , I don't think the company
wants to shirk its duties and its obligations with PURPA.
I don't know if that's under the purview of the
jurisdiction that it's in , but I think there's some ways
to do that.I also know that there's actually work golng
on right now at the federal level to make sure that there
are none and this really doesn't apply to wind , but to
make sure that there's verification that the steam host,
for example , in a thermal QF is a bona fide steam host
that in fact it's not just what they call a PURPA
machine, so I think there's ways to do that.
MR. EDDIE:That's all I had.Thank you.
COMMISSIONER KJELLANDER:Thank you
Mr. Eddie.
Questions from members of the Commission?
No?We're ready for redirect.
MS. NORDSTROM:Thank you.
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REDIRECT EXAMINATION
BY MS. NORDS TROM :
Mr. Richardson spoke to you about whether
or not PacifiCorp had wind QF proj ects in Idaho, does
PacifiCorp have other types of QF proj ects in Idaho?
I believe we do.
Would it surprise you to know that there
are 13 QFs totaling 21 megawatts here in Idaho?
, I don't have the exact number , but
subj ect to verification , I'd say we probably do.
You mentioned the example in Utah of a
large commercial project considering splitting into
smaller proj ects , has PacifiCorp observed that elsewhere
in its service terri tory?
Yes , we ve had the same observation in
Wyoming and I don't have the specifics of it.It's just
that we get a lot of inquiries, QF inquiries , that never
actually lead to proj ect development and those inquiries
are generally from somebody who's looking for information
mainly and a lot of times what they will say is I've got
this QF proj ect and if we use wind for an example and
they'd say I'd like to get your standard avoided cost
prices , but I've got a proj ect bigger than that , so I'd
like to split it into two or three projects in order to
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go through the standard process, so there are those
examples.
And were any of those proj ects originally
part of an RFP?
Yes.The one that we talked about earlier
in Utah was , that was, yes.
Are there other instances that you are
aware of?
Yeah , I don't have the specifics.The RFP
process is run by a separate part of the company and
generally if they come back out as a QF , then they come
into my shop.
MS. NORDSTROM:Thank you.No further
questions.
COMMISSIONER KJELLANDER:Thank you , and
thank you , Mr. Griswold.
THE WITNESS:Thank you for making
adjustments in my time , appreciate it.
COMMISSIONER KJELLANDER:You're welcome
and let's move now to Avista.
MR. MEYER:Call to the stand Mr.
Lafferty.
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ROBERT J. LAFFERTY
produced as a wi tness at the instance of the Avista
Corporation , having been first duly sworn , was examined
and testified as follows:
DIRECT EXAMINATION
BY MR. MEYER:
For the record , would you please state
your name and employer?
Robert Lafferty with Avista Corporation.
And have you prepared and prefiled direct
testimony in this case?
I have.
Any correct ions to that?
I have none.
So if I were to ask you the questions that
appear in that direct testimony as prefiled, would your
answers be the same?
They woul d .
Are you also sponsoring what has been
preliminarily marked for identification as Exhibit 201?
am.
Any change s to that?
None.
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Avista Corporation
Was that prepared by you or under your
direction and supervision?
It was prepared under my direction and
supervision.
MR. MEYER:Thank you.Wi th that,
Mr. Chairman , I would ask that Mr. Lafferty's testimony
be spread as if read and that Exhibi t 201 be marked and
admitted as identified.
COMMISSIONER KJELLANDER:Thank you
Mr. Meyer.Without objection , we will spread the
testimony and mark the exhibit.
(The following prefiled testimony of
Mr. Robert J. Lafferty is spread upon the record.
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219 LAFFERTY (Di)
Avista Corporation
INTRODUCT I ON
Please state your name, employer and
business address.
My name is Robert J. Lafferty and
am employed as Manager , Wholesale Marketing & Contracts
at Avista Corporation (Avista or Company) and my business
address is 1411 East Mission Avenue , Spokane, Washington.
Please state your educational
background and professional experlence.
I began my career at Avista Corp. in
1974 after graduating from Washington State University
with a Bachelor of Arts degree in Business Administration
and a Bachelor of Science degree in Electrical
Engineering.In 1979, I passed the Professional
Engineering License examination in the state of
Washington.I have served in a variety of posi tions in
the engineering, marketing, and energy resources
depart men t s .I began work in the energy resources area
(electricity and natural gas) in March 1996, and have
held various posi tions involving the planning,
acquisition and optimization of energy resources.Since
December 2003 , I have served as Manager , Wholesale
Marketing & Contracts where my responsibilities include
acquisition and management of long-term electric
resources.
220 Lafferty, Di
Avista Corporation
What is the scope of your testimony
in this proceeding?
My testimony will address the unlque
characteristics of wind resources and the current
circumstances that indicate that it is time to reassess
how avoided costs should be computed for intermittent
wind-powered resources.I will explain why Avista joins
in Idaho Power's Petition that the Commission temporarily
suspend the obligation to enter into new contracts with
Qualifying Facilities (QFs) to purchase wind-powered
221 Lafferty, Di
Avista Corporation
generation output at Commission approved published prlces
and terms. This suspension would be for a period of time
during which an investigation would be conducted to
consider the impacts and costs associated with
integration of substantial amounts of wind resource.
What recent circumstances have
manifested themselves with regard to acquisition of
intermittent wind-powered resources in the state of
Idaho?
Idaho Power , in its Petition
indicates that it has received contacts representing a
significant amount of QF wind resource since the issuance
of Order No. 29646.Idaho Power states that it has
received approvals for contracts totaling 61.5 megawatt
(MW), have pending contracts before the Commission of
contracts representing 21 MW , and have further inquiries
representing an additional 193 MW of wind resource.This
represents a total of 275.5 MW of wind resource.This
amount exceeds Idaho Power's Integrated Resource Plan
acquisition goal for wind resource in 2005 of 200 MW.
Idaho Power expresses concern regarding the incremental
system impacts , including those to reliability, and
associated system costs that may resul t from the
acquisition of such large amounts of wind.Idaho Powe
notes in its Petition , at the time that the Commission
222 Lafferty, Di
Avista Corporation
adopted the combined cycle combustion turbine as the
surrogate avoided resource for set ting avoided costs,
that neither the Commission nor Idaho Power had much
experlence with the integration of intermittent wind
resource.
Avista has also been gaining experience
with regard to integration of intermittent wind
resources.On November 18 , 2004 , Avista began receiving
the dynamic signal that integrated 35 MW of wind resource
that it had acquired for a ten-year contact term.This
represents Avista' s first experience dynamically
integrating a substantial wind resource
223 Lafferty Di
Avista Corporation
into its system.The quanti ty and speed wi th which wind
resources are being proposed in Idaho points toward a
need now to review the potential impacts and to assess
the appropriate application of costs associated with
integrating large amounts of wind resource.
Does wind-powered generation bring
the same capacity and energy attributes to the purchasing
utility as a combined-cycle combustion turbine (CCCT)
which serves as the basis for the avoided cost resource
in the state of Idaho?
No.Wind-powered generation is only
able to generate energy in an intermittent fashion. As
such , wind-powered generation does not provide the
schedulable capacity characteristics that are available
f rom a CCCT.In contrast to a CCCT , addi tional system
capacity must be made available in order to integrate a
wind-powered resource into the power grid in a reliable
fashion.
As discussed above, Avista purchases a
MW wind resource output under a ten-year agreement and
integrates it into its system on a dynamic basis.
Avista's system provides all capacity for shaping and
ancillary services necessary to integrate this wind
resource.Tables 1 and 2 contained in Exhibit No. 201
show the output from the 35 MW wind resource purchase
224 Lafferty, Di
Avista Corporation
contract.Table 1 , shows Avista' hourly average output
from that portion of the Stateline wind proj ect for the
month of January 2005.Table 2 shows Avista' s share of
daily average output from the proj ect over the period
January 1 , 2005 through June 30, 2005.These two tables
show the variability associated with wind resource power
production and illustrate the challenge of "firming" or
shaping large
225 Lafferty, Di
Avista Corporation
amounts resource with this type of output characteristic
in order to match load requirements.
How are integration or "firming"
services provided?
As explained by Idaho Power wi tness
Gale , firming of wind-powered generation can be provided
by the purchase of "firming" services from third-party
providers, if those services and necessary transmission
are available on a firm basis or , al ternati vely, firming
service can be provided by the utility purchasing the
wind-powered generation using its own physical generating
resources.In either case, physical equipment capacity
must be available to provide the necessary firming.
Such additional system capacity is not required in the
case of a CCCT.
Is there a cost associated with
providing the firming services associated with the
integration of wind-powered generation resources?
Yes.Third parties providing firming
servlces charge for those services and for necessary
transmission costs.Alternatively, utilities that
provide their own firming services must dedicate plant
capacity and make corresponding changes to system
operations which results in a cost to the utility from
using its physical capacity in a manner different from
226 Lafferty, Di
Avista Corporation
the way in which it is optimized today.Therefore, in
ei ther scenario , there are unique costs associated wi
integrating wind-powered resources.
Are there costs of integrating, or
"firming," wind resources that are not part of
integration of a CCCT resource?
Yes.Avista agrees with Idaho
Power's comments that there are costs associated with
integrating intermittent wind-powered resources onto a
utility's power system that are not reflected in the
published avoided cost rates approved by the
227 Lafferty, Di
Avista Corporation
Cornmi s s ion.As discussed above , dedication of physical
capacity and changes in system operations result in
incremental costs associated with shaping and firming
intermi t tent wind power output.As the amount of wind
resource acquisition increases , the overall system
impacts, along with associated costs, can also be
expected to be more significant.It would be appropriate
now to reassess how avoided costs should be computed for
intermittent wind-powered generation.
Are other factors present, in
addi tion to the administratively determined avoided cost
rates , that are influencing the interest in and the
amount of wind-powered generation development?
Yes.Avista concurs with Idaho Power
that federal and state tax incentives, including the
federal income tax credit equal to approximately $18 per
megawatt-hour (MWh), have been recent significant factors
stimulating wind-powered generation development.
indicated by Idaho Power in its Petition, the Federal
income tax credit for wind resources was reinstated just
prior to the issuance of Order No. 29646.The Northwest
Conservation and Power Council data indicates that
approximately 730 MW of wind-powered generation
capability is currently in operation in the region and
that another approximately 3 000 MW of wind-powered
228 Lafferty, Di
Avista Corporation
generation capability is under construction or planned
for construction.There is an active and competitive
market for wind-powered generation development.
Has Avista issued specific RFP' s for
wind-powered generation resources?
Yes.Avista issued an RFP in 2003
for wind-powered resources and , through that process, was
able to acquire a competitively priced 35 MW wind
resource
229 Lafferty, Di
Avista Corporation
for a ten-year term.That transaction was completed in
2004 and Avista began taking deliveries in April of that
year.As mentioned earlier , Avista began integrating
that wind resource on a dynamic basis beginning in
November 2004.
Does Avista share Idaho Power'
concern that the prices and terms available to wind
resources under PURPA could adversely affect future wind
resource RFP' s?
Yes.Avista's draft 2005 Integrated
Resource Plan (IRP) preferred resource strategy includes
the planned acquisition of up to 400 MW of wind resource
capability by the year 2016.Avista hopes to acquire a
mix of geographically diversified wind resources
primarily through competitive RFP or negotiation
processes.As mentioned earlier , Avista has already
acquired 35 MW of wind resource at a favorable price for
a ten-year term through a competi ti ve RFP process that
took place prior to Commission Order No. 29646.Idaho
Power ci tes Northwestern Energy's recent Montana
Commission approval of an agreement with Judith Gap LLC
under which Northwestern will purchase 135 to 150 MW of
wind resource at a competitive price of $31.71 per MWh.
Avista shares Idaho Power's concern that the Commission
approved published price , of approximately $60 per MWh
230 Lafferty, Di
Avista Corporation
coupled with the term offered for wind resources will
cause the cost of the wind resources acquired to be much
higher than if they were acquired from the market through
competi ti ve RFP or negotiated processes.
Are there other factors that could
affect the cost of wind resources to the purchasing
utility?
Yes.Another unique characteristic
of wind-powered generation is that proj ects can be
configured in any number of different power output
amounts.Wind
231 Lafferty, Di
Avista Corporation
resource proj ects consist of greater or lesser numbers of
relatively small (approximately 1 MW to 1.5 MW each)
generators.Therefore, wind developers can configure
their proj ects to meet different proj ect output
definitions.As noted by Idaho Power , it would not be
difficul t for a wind proj ect greater than 10 MW to be
reconfigured into multiple projects less than 10 MW in
order to qualify each proj ect for the Commission approved
published rates.Avista supports Idaho Power I s Petition
which recommends a suspension of wind resource
acquisition at this time, in part to prevent an
unintended si tuation where wind proj ect developers
reconfigure their projects so that they fall below the
threshold in order to qualify for posted rates.
It is important that a suspension apply to
Avista to avoid creating an incentive for developers that
are currently making their proposals to Idaho Power to
shift their proposals to Avista.Accordingly, the rates
terms and condi tions for all new contracts from the date
of Avista I s petition forward for wind QF developers
delivering power to Avista' s system in Idaho should, as
with Idaho Power
proceeding.
period?suspenslon
be governed by the outcome of this
What work will be done during the
232 Lafferty, Di
Avista Corporation
During the suspension period, an
investigation would take place that would assess the
impacts to system costs and reliability related to the
integration of significant amounts of intermittent wind
resource onto Avista' s electric system.The analysis
should include an assessment of the total amount of
intermi t tent wind resource that Avista' s system can
reasonably absorb, wi thout affecting reliabili ty, and the
level of costs associated with different amounts of wind
resource acquisi tion.The investigation
233 Lafferty, Di
Avista Corporation
should consider appropriate application of those costs to
the published avoided costs applicable to intermittent
wind-powered resources.
Does that conclude your pre-filed
direct testimony?
Yes it does.
234 Lafferty, Di
Avista Corporation
(The following proceedings were had
open hearing.
MR . MEYER:He's available.
COMMISSIONER KJELLANDER:He's available
for cross and let I s begin wi th Idaho Power.
MR. KLINE:We have no questions of this
wi tness.
COMM IS S IONER KJELLANDER:Let's move to
Mr. Woodbury.
MR. WOODBURY:Thank you, Mr. Cha i rman .
CROSS - EXAMINATION
BY MR. WOODBURY:
Mr. Lafferty, with respect to the
megawatts that Avista current 1 has of wind t hat'the
Stateline wind proj ect?
That correct.
And was that acquired
- -
you said was
on line on November 18th of 2004 , what was the date of
the contract?
I believe the contract date, subj ect
check, was ln April , earlier that year.
Apri 1 of 2004 , and was that pursuant to
was that a commercial contract or pursuant to an RFP or
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Avista Corporation
how was that acqui red?
It was pursuant to an RFP and we initially
started taking deliveries under scheduled deliveries and
then later , as mentioned in testimony, we began to
integrate that amount of the Stateline proj ect directly
into our system through dynamic scheduling, so we see the
direct variations from that proj ect at this time.
What was the price of that purchase?
That's a non
- -
the price has not been
made public.It's confidential.
You indicate that Avista provides all the
capaci ty for shaping and ancillary services necessary to
integrate that, has Avista calculated total wind
integration costs for that proj ect?
We made some study and assigned a cost to
the RFP bidders when we evaluated that proj ect and at
that time we were using approximately, as I recall , $3.
a megawatt-hour at that time and we continue to study
those types of costs.
That was total cost?
For integration.
Has Avista done a penetration study as to
how much wind you can absorb without affecting your
reliabili ty?
Not the complete type of study that's been
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236 LAFFERTY (X)
Avista Corporation
contemplated , I think , in this proceeding.
Okay.Avista has a draft 2005 IRP?
That'in progress,yes.
And that includes planned acquisition of
up to 400 megawatts of wind resource capability by
2016?
That is correct.
What are the wind cost assumptions that
you're using?
We chose in this IRP to use the Power
Planning Council costs for wind integration.
And do you know what those costs were?
Roughly speaking, I recall that the Tier
Power Council costs were in the neighborhood of $4.95 per
megawatt-hour.
What are Avista' s total average and peak
load requirements?
Average load, approximately 1 000 average
megawatts.Peak load is somewhere between , say, 1 600,
700 megawatts.
MR. WOODBURY:Mr. Chairman , Staff has no
further questions.Thank you.
COMMISSIONER KJELLANDER:Thank you,
Mr. Woodbury.
. Let's move to Mr. Richardson.
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Avista Corporation
MR. RICHARDSON:Thank you, Mr. Cha i rman .
CROSS - EXAMINATION
BY MR. RICHARDSON:
Mr. Lafferty, is Avista being deluged with
wind QFs in Idaho?
We have just in general regular
conversations wi th wind developers.They come in from
time to time and discuss potential projects with us
looking for ideas, what our needs might be and how they
may fit our needs just in general.
How many wind QF contracts does Avista
have under contract in Idaho?
We have no wind contracts that I'm aware
of in the State of Idaho.
Would you say that Avista has been
successful in supporting the goals of PURPA by
encouraging the development of QF purchases in Idaho?
I think Avista has been very supportive
wind development as evidenced by our integrated resource
plan and the work that we continue to do to investigate
how to appropriately accommodate and integrate wind into
our system and make it part of our resource portfolio.
You state at page 7 that any suspenslon
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238 LAFFERTY (X)
Avista Corporation
that Idaho Power gets should be applied to Avista as well
because of your concern that developers currently making
their proposals to Idaho Power will shift their proposals
to Avista.
Yes.
Can you tell me how they will physically
do that?
Well , as I think mentioned by other
wi tnesses , a wind developer can wheel their power to a
different system.In fact, the Stateline purchase that
we currently make is just such a project.
It's located in Idaho?
It's located in the State of Washington.
m asking you how someone would
physically move their power from Idaho Power's service
territory in Idaho to your service territory in Idaho.
I would assume that they would make a
standard OASIS request on Idaho Power's system , secure
the transmission , they'd pay the tariff rates and the
losses and then proceed to schedule the power , if that'
the nature of your question.
So they would schedule the power ahead
time; correct?
It could be done in a number of different
ways.As I mentioned , similar to our Stateline proj ect,
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239 LAFFERTY (X)
Avista Corporation
we started out wi th scheduled power.I t can al so be set
up so that the power is dynamically scheduled , which
means that the meter at the wind proj ect is telemetered
electronically to our control system and we see the
entire signal, and then in that case, Idaho Power would
not see that signal and we would absorb all the capacity
requirements that that proj ect could bring in that
case.
And they would have to buy a firm
transmission path?
They would need to buy a firm transmission
path.
Is there firm transmission available from
sou thern Idaho to Avista?
do no t know.
You don't know that but you state the
Commission should take the dramatic step of suspending
your obligation under federal law because all these PURPA
proj ects are going to be shipping their proj ects up north
and you don't know?
I think for those reasons and also just
for equity reasons across all utilities.I t makes sense
I think, if we're going to take a pause and review the
different impacts to the different utility systems that
we do that in concert with all the utilities in the
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Avista Corporation
state.It makes sense.
But you're not facing the same issues
Idaho Power is.You re not alleging to be deluged with
QF resources.In fact, you don't have a single QF
contract.
But I think as we look forward to the
amount of wind in our IRP as we begin doing RFPs similar
to what Idaho Power has done, we would share the same
concerns and have the same issues.Again, we'
supportive of wind integration.We just want to make
sure that we are attentive to getting the appropriate
prlce here for PURPA-acquired wind acquisitions.
You've already integrated wind into your
system.
We have.
So why should you be excused from PURPA
requirements for the reason that Idaho Power doesn't know
how to do it?
MR . MEYER:Obj ect to the form of the
question.It assumes that we are being somehow excused
from PURPA requirements and ask that it be rephrased.
MR. RI CHARDSON :That's exactly what
you re asking to happen in this proceeding is to be
excused from PURPA requirements.You're asking to
suspend your obligation under federal law to purchase
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Avista Corporation
PURP A powe r .That's exactly what you're asking this
Commission to do.
MR . MEYER:And that I submi t has been the
subj ect of briefing which the Commission has already
entertained.
COMMI S S IONER KJELLANDER:Mr. Richardson
is there another way to get about your question?
BY MR. RI CHARDSON :You're not facing the
same lssues Idaho Power alleges it is facing; correct?
We have not issued the type of RFP and
experiencing some of those types of pressures.
Are you being deluged wi th QF wind power?
MR . MEYER:That question has been asked
and answered.
MR. RI CHARDSON :He hasn't actually
answered the question.He gave us a long-winded response
regarding how they re support i ve of wind.He didn'
answer the question yes or no.
THE WITNESS:And I also spoke to the fact
that we talk regularly with wind developers.
BY MR. RI CHARDSON :Pardon me?
We speak regularly with wind developers.
And do you have a problem integrating them
into your system currently?Right today are you facing
problem wi th integrating QFs into your system?
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I think in this proceeding we look ahead
to future acquisitions.
Do you have any pending QF contracts that
are signed?
Other than the one we just mentioned and
other non-wind proj ects which are already approved by the
Commission, we don't have any pending, if that's the
nature of your question.
So is it your testimony that you're facing
the same dramatic problem that Idaho Power is such that
we I re having this expedited proceeding?
What I'm trying to say is that as we look
ahead and we look at our IRP , we have some substantial
needs that we've targeted for wind and we'd like to take
this opportunity to do an assessment and do it across the
board with other utilities and make sure that as we'
acquiring wind ei ther through the QF process or RFP or
negotiated processes that the QF process is going to
match up and be consistent wi th those other processes and
get the price right.We're really just talking about
let's make sure that we're getting the price right as the
volume is increasing looking ahead.
But your volume of wind QFs is zero right
now; right?
We don't have any pending in the State
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Idaho that are mature-type proj ects like that.
So I guess my question is you're saying
you need to study these issues and looking ahead, what'
the emergency here?Why do you have to suspend?
Well, we would agree with the Commission
Staff, it makes sense to suspend and just take a pause so
that we sort of freeze frame right at this moment and
then look at how we should move ahead from this point in
time.You have to put a stake in the ground at some
point and this looks like an appropriate place to do
that.
How do you freeze frame something that'
already frozen?You don't have any contracts pending,
you don't have any QF wind contracts , why do you need to
freeze frame?
So I would submit in the case of Avista
Utilities, the suspenslon would have essentially no
effect because of that.
MR. RICHARDSON:I have no more questions,
Mr. Cha i rman .
COMMISSIONER KJELLANDER:Thank you, Mr.
Ri chardson
Let's move to Mr. Batt or Windland
Incorporated.
MR. HAMMOND:We don't have any questions
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Avista Corporation
of this wi tness.Thank you.
COMMISSIONER KJELLANDER:Thank you.
Let's move to Mr. Miller with Magic and
Cassia.Thank you , Mr. Miller.
Mr. I kemoto .
CROSS - EXAMINATION
BY MR. I KEMOTO :
I just want to make sure I get a couple of
things clear in my own mind.You talk about your
continuing discussions wi th wind developers, are those
developers located wi thin Idaho, because I know that area
pretty well , there's not that much resource up there?
I would say they're for the most part in
Washington.
So these are Washington developers?
Washington and Oregon.
Washington and Oregon developers who want
to sell under Idaho posted rates?
I didn t say that.We have discussions on
a regular basis wi th them about their proj ects, about the
opportunities those proj ects might present to our
company, the timing of those proj ects and whether or not
there's an opportuni ty to work towards a proj ect where we
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Avista Corporation
would sign a contract.
What is Avista' s policy about proj ects
Idaho and Washington delivering power over your lines to
your Idaho terri tory in terms of wheel ing?
m not familiar with any policy specific
to the question that you just asked.
Would you charge them wheel ing to
accomplish that?
If a party needed to secure transmission
they would go to our OASIS as we've just discussed and
they would secure transmission and they would move the
power to where they desired to move it.
Under your standard transmission rates?
Yes, sir.
MR . I KEMOTO :Thank you.That's all.
COMMISSIONER KJELLANDER:Thank you.
Move to PacifiCorp and Ms. Nordstrom.
MS. NORDSTROM:I have no questions for
this wi tness.
COMMISSIONER KJELLANDER:And Mr. Eddi e .
MR. EDDIE:No questions.
COMMISSIONER KJELLANDER:Thank you, Mr.
Eddie.
Are there any questions from members of
the Commission?None.
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Ready for redirect.
MR . MEYER:, redirect.Thank you.
COMMISSIONER KJELLANDER:Appreciate you
being here today to provide your testimony and si t for
cross.
(The wi tness left the stand.
COMMISSIONER KJELLANDER:Let's move to
Mr. Richardson.
MR. RICHARDSON:Mr. Chairman , I will put
Mr. Ikemoto on the stand and spread his testimony on the
record and he'll be available for cross-examination.
GLENN I KEMOTO ,
produced as a witness at the instance of Energy Vision
LLC, having been first duly sworn , was examined and
testified as follows:
DIRECT EXAMINATION
BY MR. RI CHARDSON :
Would you please state your name and
address for the record?
Glenn Ikemoto, 672 Blair Avenue, Piedmont,
California.
By whom are you employed and in what
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247 IKEMOTO (Di)
Energy Vision LLC
capaci ty?
Energy Vision LLC as a principal.
Have you caused prefiled testimony and an
exhibit preliminarily marked No.1 to be prepared and
filed in this case?
I did.
Do you have any corrections or additions
to make to your testimony or exhibits?
I d like to offer two additional exhibits
now.
MR. RICHARDSON:Mr. Cha i rman ,
circulated earlier , Mr. Ikemoto circulated earlier , two
exhibits , one entitled Comparison of Idaho and Oregon
Wind QF prices PacifiCorp and the other entitled
Comparison of Idaho and Oregon Wind QF prices Idaho
Powe r .I would ike to have those marked as Exhibi t No.
704 and 705 respectively and I would like to have Exhibit
No.1 marked as Exhibit 701 , if you could make that
correction.
(Energy Vision LLC Exhibit Nos. 704 & 705
were marked for identification.
BY MR. RI CHARD SON:Mr. Ikemoto, could you
please tell us who developed and from what information
Exhibits No. 704 and 705 were developed?
They are just simply a tabulation of the
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248 IKEMOTO (Di)
Energy Vision LLC
filings of Idaho Power and PacifiCorp with the Oregon
What
They
contract forms
Commission.
filings are you referring to?
just filed their proposed new
and prices for the purchase of 10 megawatt
And that would be in Oregon Commission
Yes.
And this a compilation that you created
uslng information that you gleaned from the respective
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utilities' filings?
Yes, they file off peak and on peak prices
and all we simply did was weight them by the number of
of f peak and on peak hours.
And Mr. Ikemoto, what is the information
you would like the Commission to understand as a result
of having prepared and filed these exhibits?
I would like the Commission to know that
the prices that are currently posted in Idaho are
comparable or lower than the prices that are being filed
currently in Oregon.
And that's what these two exhibits show?
Yes.
Do you have any other correct ions or
QFs and under.
Docket UMl129?
249 IKEMOTO (Di)
Energy Vision LLC
additions to make to your prefiled testimony or
exhibits?
No.
MR. RICHARDSON:Mr. Chairman , Mr. Ikemoto
is available for cross-examination.
COMM IS S IONER KJELLANDER:And be f ore you
move forward , just for clarification because I'
scratched some numbers off of some of these in the past,
the ones that are 704 and 705 , is it the Idaho Power one
that is 704 and the PacifiCorp one being 70S?
MR. RICHARDSON:It's just the opposi te of
the way I presented it just now , Mr. Chairman.I marked
the PacifiCorp one as Exhibit No. 704 and the Idaho Power
one as be ing Exhibi t No.7 0 5 .
COMMISSIONER KJELLANDER:Thank you , and
without objection , then , we would spread the testimony
and mark the exhibi ts as referenced by Mr. Richardson.
(The following prefiled testimony of
Mr. Glenn Ikemoto is spread upon the record.
CSB REPORTING
Wilder , ID 83676
250 IKEMOTO (Di)
Energy Vision LLC
Please state your name and business
address.
My name is Glenn Ikemoto and my
address is 672 Blair Avenue, Piedmont, CA.
By whom are you employed?
I am a Principal of Energy Vision
LLC.
Describe your educational background.
I have a Bachelors of Science degree
in Electrical Engineering from the Uni versi ty of
California at Berkeley and a Masters of Business
Administration from Stanford University.
Please describe your work experience.
I joined Kenetech Windpower , Inc.
(formerly u.s. Windpower) in 1982 , at the beginning of my
second year of graduate school.Prior to graduation , I
negotiated a 120 MW non-standard wind contract with
Southern California Edison.After graduation , I
represented Kenetech in the negotiation of California'
Standard Offer I then progressed through a series of
finance and development positions, ultimately becoming
Vice President - Business Development in 1989.In that
position , I was responsible for all sales, marketing,
product development , proj ect acquisi tion and proj ect
development acti vi ties of the world's largest wind energy
251 Ikemoto, Direct
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company.
In 1991 , I became head of Kenetech
International , Ltd. wi th headquarters in Chester
England, UK.As Managing Director, I led the company'
entry into Europe and oversaw development acti vi ties
wind , biomass, industrial cogeneration and demand side
management.We successfully developed green-field wind
projects in 4 countries, won a major competitive bid in
the UK and negotiated power contracts and j oint ventures
with major international utilities.
After leaving Kenetech in 1995, I
continued to work primarily in Europe until the end
2004 .My partners on the Idaho proj ects and I have had
executive, leading and/or
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financing responsibility for over 600 MW of wind projects
in eight countries and raised over $1 billion in
renewable energy financing.
Do you have any other relevant work
experience?
Yes, prior to Business School , I
worked for four years in the Generation Planning
Department of the Pacific Gas and Electric Company
(PG&E) .As a Senior Resource Planner , I directed the
unit responsible for the economic analyses of generation
alternatives, evaluation of marginal (avoided) cost
methodologies and the calculation of avoided costs.
was a member of the California Marginal Cost Pricing
proj ect , negotiated the first long term renewable energy
power purchase agreement in the country and obtained CPUC
approval of that contract, designed the pricing
provisions of PG&E' s Standard Offers 1 , 2 and 3 , buil t
the generation production simulation module used in the
company's Corporate Planning Model participated heavily
in the Company's load forecasting and resource planning
processes and helped develop the company's PURPA policy
(which it supported)
Have you previously testified in
hearings such as this?
Yes, I have served as an expert
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witness for PG&E on issues related to utility economics,
resource planning, power contracts and marginal cost
methodologies in hearings before the CPUC and the
California Legislature.
What is the purpose of your
test imony?
I oppose the suspenslon of PURPA
contracts on the grounds that it is economically harmful
to customers, bad public policy and bad regulatory
procedure.In my testimony, I will counter all of Idaho
Power's unsubstantiated economic and reliability
assertions.Contrary to Idaho Power's position, current
Posted Prices are a bargain for customers.Wi th the luck
of timing, the current prices were set before much of the
maSSl ve run-up ln energy prlces.The issues Idaho Power
raises are trivial compared to the spread between Posted
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Prices and current market prlces.The Commission should
encourage signing QF' s under the present prices before
they have to be updated.
m sure the Commission's prlmary concern
is determining what is in the public interest.Idaho
Power pointed to the extension of the Production Tax
Credit (PTC) and the recently enacted state sales tax
exemption for wind energy as problems.I see these as
the clearest indication of the public interest.Both of
these decisions were made by our elected representatives.
They are the people most responsible for determining what
is in the public interest.As recently as April of this
year , Idaho's legislature and administration spoke
strongly in favor of developing wind energy in Idaho by
enacting the sales tax exemption.
At the federal level , the PTC debate
expanded beyond the environmental benefits of wind energy
to include substantial consideration of the need for wind
energy to bolster our national energy security.Absent
any economic justification , a suspension of the PURPA
wind contracts would be contrary to both state and
federal energy policy.
As for regulatory procedure, I'm sure
others wi 11 make a bet ter case than me.I would just
like to point out that the Commission is being asked to
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set aside the results of an extensive, formal multi-party
procedure by a claim of "new " issues.Idaho Power has
not provided studies, analyses or other meaningful
evidence to support its claim.The intermittent nature
of wind deliveries was certainly a maj or consideration in
Case IPC-04-10 and resulted tin the 90/110 Performance
Band.The only real new fact is that a meager 27 aMW of
wind contracts have been signed.So there was a formal
procedure, all parties had the right to make their case,
there was a period for reconsideration and then a final
decision.How is it appropriate for one party to now
introduce new information.Idaho Power is really just
appealing a final decision.I sn 't the correct avenue for
an appeal the courts?Doing it simply with a new IPUC
petition is a terrible precedent.
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In the Commission's Notice of Petition in
this case, we were all notified that Idaho Power'
Petition "alone provides insufficient basis to grant the
temporary suspension" and directed Idaho Power to submit
additional testimony and exhibits.They re sponded by
reformatting their petition into testimony and adding no
new significant information.This cavalier approach has
led many to question whether the outcome of this
proceeding hasn't been pre-determined.This certainly
isn't good for the credibility of Idaho's regulatory
process.
My testimony will also address options the
Commission may wish to consider to rationalize the PURPA
Contracting process.These suggestions avoid a
suspension of PURPA Contracts.
Should the Commission find that a
suspension is in the public interest , we urge you to
imi t the damage.First, any moratorium should not to
apply it to Avista or Pacificorp.The other utilities
have not yet executed any PURPA Contracts.Idaho Power
has raised issues which focus primarily on the percentage
of wind generation on their system (penetration)
Ancillary costs are a function of penetration.
Avista's case , there is very little wind resource in
their Idaho service territory, so there is no penetration
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issue.In Pacificorp' s case, they have a large
generating base, so again , penetration is not an lssue.
Including the other utilities in a moratorium would be
rewarding them for slower implementation.Second , any
new proceeding should not re-litigate closed issues.
should focus solely on the impact of operating
uncertainty, the 90/110 Performance Band and accounting
for uncertainty in avoided costs.
FEAR, UNCERTAINTY AND DOUBT (FUD)
What is your general view of Idaho
Power's filings?
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In the days when IBM completely
controlled the computer industry, it's competitors
created a term for the marketing strategy of a
monopolist.FUD is the fear, uncertainty and doubt a
monopolist attempts to create in the minds of customers
(or their representatives) when they consider new
al ternati ves.It was applied to IBM during the initial
years of "IBM compatible" mainframes and then the era of
PCs, as they replaced mainframes.Today it is often
applied to Microsoft.It also describes the strategy of
many regulated companies, such as airlines, as they faced
deregulation.Idaho Power's filings are classic examples
of FUD.However , the changes that drove the other
industries will also drive the utili ty industry.In the
1950 's, economies of scale in power generation propelled
today s utility model.With new technologies in power
generation and finance, those economies no longer exist.
Just as IBM's mainframes gave way to distributed
computing, utilities will ultimately yield to distributed
generation.
In Mr. Gale's testimony, he states
that it became "evident" that the availability of PURPA
prices influenced the RFP process.Do you agree?
, "
evident" is a great FUD word.
It implies the existence of evidence, which was seriously
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lacking in Idaho Power's filings.They simply point to
the Judith Gap project's 32 $/MWh price to demonstrate
that wind proj ects should be far cheaper than prices they
received in the RFP.They provided no side-by-side
analysis and possibly didn't even check on how the
contract was structured (which isn't standard)Ra ther
than bid gaming, all we have here is a simple case of
greed and gravity.
Wind developers, right now , are digesting
the most severe lncreases in turbine prices in the
history of the industry.This has been caused by huge
increases in the cost of steel and other raw materials
and a lack of turbine supply due to poor federal policies
and the high value of the Euro (increasing the dollar
price of European turbines) Manuf act urers
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are taking advantage of this to push through previously
unimaginable price increases for 2006 deliveries.
Much of the sticker shock from Idaho
Power's RFP is caused by bad timing.To my knowledge,
is the first RFP in the country based on the new turbine
prlces.The only other announced proj ect based on 2006
prlces is the Los Angeles Department of Water and Power'
120 MW Pine Tree Wind Farm.According to their May 2005
budget documents, the proj ect was originally planned for
$167 million and must absorb a $37 million increase in
wind turbine costs.Since turbines represent
approximately 75% of proj ect cost (based on old prices)
this implies an approximately 30% increase in turbine
prices since 2004.They proj ect a power cost of 53 $/MWh
(levelized) using lower cost public financing.
As for gravi ty, air, like everything else
is subj ect to it.It is common knowledge in the wind
industry that you want to locate a proj ect on the
downwind side of a hill.On the upwind side , wind speeds
slow down as the air is pushed uphill.On the downwind
side, it's a sleigh ride, as gravi ty pulls the air
downhill.When the hill is the Rocky Mountains, there
going to be a BIG increase in wind speeds.The
difference between the average RFP price and the Judith
Gap price can be entirely explained by the differences in
261 Ikemoto, Direct
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energy production , turbine prlces and property taxes
(which are not included in Judith Gap's price), as
demonstrated in Exhibit 701 of my testimony.I should
note that some news articles state that the capacity
factor of Judith Gap is 37%.Actually the Montana PSC
filings only state that the capacity factor will be at
least 37%.Developers are very protective of their
energy estimates.They often use lower numbers or
minimums in public documents.Based on my experience,
believe the actual capacity factor is expected to be
significantly higher.
Does this mean that wind energy in
Idaho is not economic?
No, Idaho Power notes that it's 2004
IRP assumption for wind energy was only 43 $/MWh, and
implies that a price of 55 $/MWh would change the plan.
That's is just another
262 Ikemoto, Direct 7 a
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FUD technique.I f the resul ts don t support your
position then pick out an isolated fact that does and
skip the resul ts.They are well aware that planning
results are based on relative costs, not absolute costs.
Al though the cost of wind energy has increased 28% from
the 2004 IRP assumption, natural gas prices have
increased over 50% and coal-fired energy has also
certainly increased above it's IRP assumption.To a
certain extent, all energy technologies are driven by the
cost of oil because of materials and transportation
So if we want to reassess the validity of the IRPcosts.
results in light of new cost information, we have to look
at all costs, not just the cost of wind energy.At 55
$/MWh , wind still beats natural gas and it still beats
coal.Demand would probably decline a little due to
price elastici ty, so a new resource plan would just delay
the coal plant.I think that's what we all want, isn'
it?Wind is still the lowest cost resource, whether by
RFP or PURPA Contract.
The 2004 price assumption of 43 $/MWh for
wind energy would have been appropriate at the time.
This underscores the need to avoid further delay as costs
lncrease.Otherwise, Idaho Power may file a petition in
2007 saying that in 2006 they planned for wind energy
only 55 $/MWh, but now it's 70 $/MWh and that's too
263 Ikemoto, Direct
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expens i ve .
Can you summarl ze other areas of
unsubstantiated assertions by Idaho Power?
Sure, they hi t all the classics.
We've got a FUD tsunami here , so I'll just cover the
highlights.Idaho Power states that the addition of
large amounts of wind energy could aversely affect system
reliability.That's always FUD number 1 - the system'
going to crash!It's an easy thing to say if you don't
have to def ine "large"I would say at a minimum they
should be comfortable wi th the amount of wind energy in
their IRP.Those plans are subject to reliability
analyses and they can't say they aren't ready for what
already in their plan.Also, there are states with
Renewable Portfolio Standards (RPS) targeting 20% of
energy product ion.Much of this is expected to come from
wind proj ects since they are
264 Ikemoto, Direct
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usually the lowest cost renewable energy option.This
implies a far higher percentage of capacity, well beyond
what's being considered in Idaho.
Here's another classic, which is typically
FUD number from Page 12 of the testimony, line 23, "
10 MW wind facility may be at full output at one moment
and minutes later be at a very low to no output.That
could just as easily be the description of any power
plant's forced outage.So what is the logic here?
the wind plant loses output because of mechanical failure
and stays broken (like a thermal outage) then is that
supposed to be better than being able to come right back
on line when wind conditions permit?Utilities deal with
power plant forced outages, load variability and
transmission failures.Wind energy won't be any
different.
This one is pretty popular:" PURPA
Contracts will lock the customers into high prices"How
many times have we heard that one?We've all seen
natural gas prices rise and fall.In the past, that was
caused by market manipulation by fossil fuel traders.
The current run up in prices is being driven by far more
permanent conditions.Any ancillary costs associated
with wind energy are minor compared to existing fossil
fuel lncreases.As things stand now , the current Posted
265 Ikemoto, Direct
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Prices are a bargain for the customers.They'
effectively getting gas at a 50% discount.Lock-ins
(fixed prices) work both ways, so given the large
increases in all energy costs since the Posted Prices
were set, it is far more likely that PURPA Contracts will
lock the customers into low prices.
Idaho Power has thrown out a number of 193
MW of potential PURPA wind proj ects wai ting in the wings.
Without any documentation , it is impossible to know
whether these represent real proj ects wi th viable
transmission options or just wishful thinking.Absent
any meaningful information, this is just a scare tactic.
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ANCILLARY COSTS
Do you agree that wind energy
projects create ancillary costs for the utility?
Surprisingly, yes I do.I think
there are three important points:the cost is small , the
cost is adequately offset by the 90/110 Performance Band
and the avoided cost methodology ignores all uncertainty.
There have been numerous studies of wind
related ancillary costs conducted by other utilities.
These companies were not necessarily friends of wind
energy and the wind energy community has several
criticisms of their methodologies.However , at the
penetration level in Idaho Power's IRP , they estimate
costs of 2.5 $/MWh or less.We predict the 90/110
Performance Band has about the same effect.Compare thi s
to natural gas prices, which are up 14 $/MWh on an SAR
basis.Why stop wind energy when, in the worse case,
economics have improved 11.5 $/MWh.
Ancillary costs are created by the
scheduling uncertainty associated with the wind resource.
All uncertainty creates costs.If it appropriate to
include operating uncertainty in avoided costs, then it
should be equally appropriate to include planning
uncertaint ies In a case where all uncertainties are
incl uded in avoided costs, Posted Prices would be higher.
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Do you agree with Idaho Power that
issues related to the intermittent nature of wind have
not previously been considered by either Idaho Power or
the Commission?
Absolutely not, as I have mentioned,
the intermittent nature of wind was a fundamental part of
It was the wind developers' obj ectionCase IPC-04-10.
to the 90/110 Performance Band that was one of the
primary issues in the case.This dealt specifically the
operating reliability of wind deliveries.The Commi s s ion
considered all the evidence that was presented and
decided, over the obj ections of the wind energy
community, to leave in a form of the 90/110 Performance
Band.Idaho Power did not obj ect to this new form or
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anything else in the decision.Now we have a situation
where Idaho Power won the point and they are still using
it against wind proj ects.
INTERACTION OF RFP AND PURPA PROJECTS
If 55 $/MWh is a fair price for wind
energy in Idaho, why have PURPA Contracts at 61 $/MWh?
PURPA Contracts will not receive
$/MWh.The 90/110 performance band and seasonality
factors do not apply to RFP contracts.These terms lower
the effective price of PURPA Contracts.We expect
average revenues at our proj ect in Idaho Powers territory
to be reduced by 6%, with a 1% reduction for seasonality
and 5% reduction for the 90/110 performance band
requirement (based on a proprietary analysis) Al t houg h
we consider our analysis confidential, I will represent
that we would trade the 90/110 provision for a 5% fee to
the utilities for ancillary services anytime.Therefore
our price would be 57 $ /MWh in Idaho Power's territory,
not far above the average RFP Price.I suspect most
other PURPA developers would also make this trade.
Since the price is about the same, the
most important reason to keep PURPA Contracts is that
they are important for the agricul tural communi ty and
rural counties.Large proj ects are typically located on
high ridges which tend to be owned by the federal
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government.PURPA proj ects are primarily located on
agricul tural land.Wind proj ects uniquely coexist with
agricul ture.They take up only a couple of percent of
the land and all of the original agricultural uses of the
land continue.As for counties , almost 7% of our
revenues go to property taxes - that's 4 $/MWh.Because
renewables are more capi tal intensive, our taxes per kWh
are far higher than fossil fuel proj ects.The S urrog ate
Avoided Resource (SAR) only pays 1 $ /MWh.So when you
exclude property taxes that are going to rural counties,
our net price is effectively only 53 $/MWh.
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In every industry, there are small and
large competi tors.Small companies survive by finding
proj ects that big companies overlook.Since there
little price difference, Idaho should continue with both
paths.It is always wise to avoid a concentration of
risk.The mortality of wind proj ects during development,
like all power proj ects, is pretty high.You never know
when something like habitat for the sage grouse or
transmission constraints will eliminate one of the few
large proj ects.It diversifies risk to have many small
developers working to beat fossil fuels.As long as
there are fossil fuelled resources in a utility'
generation expansion plan , there is a societal need and
federal mandate to give renewable energy proj ects access
to the market.PURPA is about renewables competing with
fossil fuels, not wi th each other.
What would prevent the losing RFP
proj ects from simply reforming into PURPA proj ects?
Now this is a legi timate concern.
it is in the publ ic interest to prevent this, then there
is a solution.There is already a federal prohibition
against two proj ects being wi thin 1 mile of each other
wi th common ownership.Developers can work around this
by using two independent owners.To make this rule more
effective, the rule needs to be applied to the developer.
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This can be accomplished by simply adding a clause into
the PURPA Contracts requiring a representation that the
proj ect is not wi thin 1 mile of any other proj ect wi th a
PURPA Contract which has been developed under common
control by the same developer and inking the
representation to a defaul t Al though it seems ike thi
can also be worked around, it probably would be very
effective.Financing sources would not sign on to such a
contract without extensive due diligence on this issue
since it could default the power contract.Although this
is discriminating between QFs, Idaho is already doing
that with the size limit.
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GRANDFATHERING
Idaho Power recommends grandfathering
a project which had substantially completed its
negotiations with Idaho Power before they started
refusing to sign contracts.Did you want to comment on
that?
Yes, I would simply like to point out
that Idaho Power's contract doesn't really require any
negotiations.Using the standard of "substantial
completion" penalizes developers that were following a
disciplined approach to developing their proj ects and
relied upon the long term commitment of Idaho Power and
the I PUC to PURPA wind development.These developers
avoided wall papering the Commission wi th power contract
approvals for infeasible proj ects.Thi s was supposed to
be about market access, it wasn't supposed to be a race.
There are certainly better ways to handle grandfathering.
RECOMMENDATIONS
What changes would you suggest to
improve the PURPA contracting process?
I think the wind industry was being
very responsible about requesting PURPA Contracts.The
proj ects that have been approved, if there are no maj or
transmission problems, should be good.However , now that
Idaho Power has asked for a suspension , the credibility
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of the process has been destroyed and everyone wi th any
chance is flying through the window.Clearly it is in
everyone's interest to restore the credibility of the
process and the proj ects.I believe this can be done
wi thout suspending access to PURPA Contracts by providing
some guidance from the Commission.
I think three things need to be done to
make demand for the contracts more manageable.First,
the Commission should give some guidance regarding
out-of-state projects.My understanding is that Idaho
Power's position is that they do not charge wheeling to
out-of -state proj ects that connect to their network.
PURPA rights exist at the
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point of interconnection.A proj ect in Oregon does not
have the right to sell its power in Idaho without making
physical delivery here.Therefore, even if the Oregon
connection is with Idaho Power , they don't need to wheel
it for free.In fact, it may be against the FERC open
transmission rules to do so.We are act i ve in Oregon , so
I can say that it is highly unlikely that a project could
economically sell power under the Idaho Published Prices
if it had to pay wheel ing charges.By focusing on
proj ects in Idaho, the Commission preserves the economic
benefits for Idaho's farmers, ranchers and county
governments.
Second , there needs to be an entry fee for
Like anything else that is free, itPURPA Contracts.
will be oversubscribed by proj ects that may have no
chance of success.This is detrimental to both the wind
industry and utility planning.The issue is to find some
way of making this self administering so neither the
Commission or Idaho Power are put in a position to have
to evaluate a proj ect 's chances for success.I suggest
that no PURPA Contracts be signed until the proj ect makes
its deposit for a Transmission System Impact Study.
this point the Transmission Feasibility Study is complete
and the developer knows if it has an economic
interconnection and path.For a good proj ect, this is a
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necessary step anyway, so it is not an extra expense.
For a questionable proj ect, it may be enough to stop a
frivolous request for a contract.
Third, as I pointed out earlier, large
proj ects should be discouraged from bypassing the RFP
route by extending the one mile limit to included common
development.This will also help spread the PURPA
contracts over a wider number of proj ects and si tes.
Besides these recommendations, I would
also like to suggest that the Commission indicate its
support for paying 5% of the Posted Price to utilities in
lieu of the 90/110 performance band.The band is really
an inefficient mechanism that provides little valuable
information.The 5% fee would be a better use of funds.
The Commission would not need to modify it's preVlOUS
order.Utilities are not required to follow a strict
contract form and
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may be encouraged to negotiate this al ternati ve wi th the
Commission's guidance.As I said, I believe this would
be the preferred option for most developers.
You've been ranting for an awfully
long time.Does this finally conclude your remarks?
Yes it does.
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(The following proceedings were had in
open hearing.
COMMISSIONER KJELLANDER:And we will
tender the witness now for cross and begin with Idaho
Power.
CROSS - EXAMINATION
BY MR. KLINE:
Mr. Ikemoto, could you please turn to page
13 of your testimony?
Okay, I have it.
And on line 24 of that testimony, you
state, "My understanding is that Idaho Power's position
is that they do not charge wheeling to out-of-state
proj ects that connect to their network.Do you see
tha t ?
That was my understanding at the time,
yes.
You go on to talk about Oregon situs
proj ects, this is over on the next page , you go on to
talk about Oregon situs projects being charged for
wheeling if they were trying to deliver their power into
Idaho.Now , obviously, with the exhibit that you just
introduced, you're aware that Idaho Power has avoided
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278 IKEMOTO (X)
Energy Vision LLC
cost rates in the State of Oregon and they're set by the
Oregon Public Utilities Commission , are they not?
That's correct.
Oregon si tus
Oregon situs
And you're al so aware, then, that if an
proj ect wants to sell electric energy, an
QF proj ect sells, to Idaho Power , they
receive Oregon avoided costs, don't they?
In your service territory, that's correct,
which I distinguish from your transmission system.
If it's an Oregon situs project, it gets
Oregon rates, doesn't it?
m not sure whether a proj ect that'
simply along your transmission corridor can connect to
your transmission system and demand Oregon prices.
bel ieve it has to be your service terri tory, but I I m not
an expert on that.
Okay, you go on to say on ine 6, on the
top of page 14 "By focusing on projects in Idaho, the
Commission preserves the economic benefi ts.
. . . "
You
not suggesting, are you, that Idaho Power can refuse to
purchase Oregon QF energy at Oregon avoided costs, are
you?
No.
Now , also on page 14 , on line 12 , let me
read it to you here, "I suggest that no PURPA contracts
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279 I KEMOTO (X)
Energy Vision LLC
be signed until the project makes its deposit for a
Transmission System Impact Study.Is it your suggestion
that this would be a good standard for determining if a
proj ect should be grandfathered in this proceeding?
It's my hope that that would avoidNo.
grandfathering.
Okay.Throughout your testimony, Mr.
Ikemoto, you use the ini tials FUD and that's an acronym
for fear, uncertainty and doubt; correct?
Yes.
And you accuse Idaho Power of using FUD in
thi s case; 1 s that correct?
Yes, I did.
Mr. Ikemoto, you filed a petition for
reconsideration for Energy Vision in the U. S. Geothermal
and Lewandowski cases in 2004, did you not?
Yes.
And in that petition , you stated on
numerous occaSlons that unless the Commission reversed
its decision to require the 90 percent-110 percent
performance band , the QF projects would be unfinanceable.
Do you recall that statement in your petition?
I do, yes, sir.
Go ahead and distribute that.MR. KLINE:
m going to distribute a copy of the petition for
CSB REPORTINGWilder, ID 83676
IKEMOTO (X)
Energy Vision LLC
280
reconsideration that Mr. Ikemoto filed on behalf of
Energy Vision.
(Ms. Moen distributing documents.
And if you 'd look on page BY MR. KLINE:
of your petition and also on the top of page 5, these are
the specific instances that I was talking about where you
advise the Commission that the retention of the
performance band would make PURPA proj ects unf inanceable
Mr. Ikemoto, would you agree that your dire prediction
turned out to be unfounded as the Commission retained the
110 percent - 90 percent performance band and numerous QFs
have already signed contracts containing that provision
and there are numerous people in the room who are ready
to sign contracts that contain that provision?
ve seen many signed contracts that
failed to get financed.I would agree that one developer
has figured it out.
Would you also agree that there's a lot of
people in this room who have handed us contracts who have
nothing to do wi th that developer who are prepared to
slgn contracts containing that provision?
I readily agree that there are people
ready to slgn the contract.I didn't say that that made
it f inanceable I said that one developer has
demonstrated financing and it's been helped an awful lot
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281 IKEMOTO (X)
Energy Vision LLC
by a 50 percent increase in natural gas prices.
Mr. Ikemoto, when you made your assertions
that the performance band would make QF proj ects
unfinanceable, you were trying to FUD the Commission,
weren't you?
I was advocating at the moment, I would
have to say that.
MR. KLINE:Okay, thank you.That's all
ve got.
COMMISSIONER KJELLANDER:Thank you.
Let's move to Mr. Woodbury.
Mr. Woodbury not in the room?We will assume, then , that
Mr. Woodbury probably has no questions and we will move,
then, forward to Avista.
MR . MEYER:No questions.Thanks.
COMMISSIONER KJELLANDER:Thank you.
Let's go now to Mr. Richardson who is in
very awkward position , so I will assume you have no
questions.
MR . RI CHARDSON :I have absolutely no
questions.
COMMISSIONER KJELLANDER:We will now move
forward to Windland Incorporated.
MR. HAMMOND:John Hammond for Windland,
we have no questions of this witness.
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282 IKEMOTO (X)
Energy Vision LLC
COMMI S S IONER KJELLANDER:And Mr. Miller
from Magic and Cassia?Thank you, and let's see,
PacifiCorp, Ms. Nordstrom.
MS. NORDSTROM:Thank you.To be honest,
m a little confused about the exhibit number for the
document that I would like to refer to.It's the one
that says Comparison of Idaho and Oregon Wind QF Prices
for PacifiCorp.
MR . RI CHARDSON :Mr. Chairman , that would
be Exhibit 704.
MS. NORDSTROM:Thank you.
CROSS - EXAMINATION
BY MS. NORDSTROM:
Are you aware that this docket in Oregon
I believe it's Docket UEl129
MR . RI CHARDSON :Mr. Chairman, it'
UMl129.
MS. NORDSTROM:Thank you.
BY MS. NORDSTROM:
- -
UMl129 cont inues
address the specific items that are at issue in this
proceeding?
The docket is actually divided into two
The second part primarily is concerned withparts.
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283 IKEMOTO (X)
Energy Vision LLC
non- standard QFs, not standard QFs.I do agree that the
issue of intermittency is going to be allowed in the
second phase.
And isn't it true that the prices that are
listed on Exhibit 704 have not been approved and are the
subj ect of debate at this present time?
Yeah, that's true.
Within the last six months have you
inquired of PacifiCorp regarding QF proj ects in Idaho?
First level contact, yes.
And was this in regard to an Idaho QF
project or one to be built in Oregon?
Idaho.
I f Oregon prlces are higher as these
proposed prices that
you wheel powe r from
Oregon?
this QF that you have inquired of to
you list in Exhibit 704 are, will
Zero chance.
Why not?
Because wheeling would run about 1.5 cents
a kilowatt-hour and the difference in those two prices
isn't anywhere close to that.
But it's something you would consider?
No, I'd never consider it.It costs more
than it's worth.
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284 IKEMOTO (X)
Energy Vision LLC
Thank you.MS. NORDSTROM:I have no
further quest ions.
COMMISSIONER KJELLANDER:Thank you,
Ms. Nordstrom.
Let's move to Mr. Eddie.
MR. EDDIE:Just briefly.
CROSS - EXAMINATION
BY MR. EDDIE:
Mr. Ikemoto, judging from your testimony,
you've been involved in some capacity in the development
of a number of different wind proj ects in a number of
different locations around the country and around the
world?
Yes.
And you're familiar with the wind resource
profile generally at least in a good number of those
proj ect s?
You mean the monthly shape?
The shape.
Yes.
Is it fair to say that the shape of
proj ects in different geographies varies between
proj ect s?
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285 IKEMOTO (X)
Energy Vision LLC
Yes.
If you have a number of wind proj ects
spread across a reasonably large geography, you could
expect that some proj ects would be even though each
individually is intermittent at some time some would
perhaps be producing less energy and some producing
more?
Absolutely.
And the net effect of the spread of
geography would tend to reduce uncertainty about the wind
resource?
Portfolio effects always reduce
uncertainty, yes.
Thank you.Nothing further.MR. EDDIE:
Thank you.COMMISSIONER KJELLANDER:
Are there questions from members of the
Commission?
Is there any redirect?
MR. RICHARDSON:No, Your Honor.
Thank you.COMMISSIONER KJELLANDER:
Thank you, Mr. Ikemoto.
(The wi tness left the stand.
(Recess.
I believe we'COMMISSIONER KJELLANDER:
ready to go back on the record now and before we took a
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I KEMOTO ( X )
Energy Vision LLC
286
much needed break, we need to now move to Windland
Incorporated.
Thank you, Mr. Cha i rman .MR . HAMMOND:
Windland would call Michael Heckler to the stand.
MI CHAEL HECKLER,
produced as a wi tness at the instance of Windland
Incorporated, having been first duly sworn, was examined
and testified as follows:
DIRECT EXAMINATION
BY MR. HAMMOND:
Sir , could you please state your name and
spell your last name for the record?
m Michael Heckler, last name
H-e-c-l-e-r.
Mr. Heckler , could you tell us by whom you
are employed and in what capacity?
I work for Windland Incorporated as a
director of marketing and development.
Have you previously caused to be filed in
this case direct testimony, the direct testimony of
Michael Heckler?
Yes, I have.
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HECKLER (Di)
Windland Incorporated
287
Do you have any addi t ions or correct ions
to that testimony today?
No, I do not.
I f I asked you the same quest ions as
contained in the testimony, would the answers that you
provided in that direct prefiled testimony be the same?
They would be the same.
Mr. Chairman, I would moveMR . HAMMOND:
to spread Mr. Heckler's testimony across the record as
it was read and we would make Mr. Heckler available for
cross.
COMMISSIONER KJELLANDER:Thank you,
Mr. Hammond.Without objection , we will spread the
testimony across the record as if read.
(The following prefiled testimony of
Mr. Michael Heckler is spread upon the record.
CSB REPORTING
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288 HECKLER (Di)
Windland Incorporated
I. INTRODUCTION OF WITNESS
PLEASE STATE YOUR NAME AND BUSINESS
ADDRESS.
My name is Michael Heckler and my
business address is 7669 Riverside Dr, Suite 102 Boise,
Idaho 83714.
BY WHOM ARE YOU EMPLOYED AND IN WHAT
CAPACITY?
I am employed by Windland Incorporated
as the Director of Marketing and Development.I ha ve
served in this capacity since 2002.
WHAT DOES WINDLAND DO?
Windland owns, operates and develops
wind farms.We have been in the wind farm business
continuously since 1982.We currently are in the process
of developing wind farms in the western US including two
in Idaho.We bid the output of one of the wind farms we
have under development in Idaho - specifically, the
Cotterel Mountain wind farm east of Burley in Cassia
County, Idaho - into the Idaho Power Wind 2005 RFP issued
pursuant to that Company's 2004 Integrated Resource Plan,
which the Commission accepted for filing on April 22,
2005 in Order No. 29762.
PLEASE DESCRIBE YOUR EDUCATIONAL
BACKGROUND.
289 Heckler (DI)
Windland Incorporated
I hold a Bachelor of Arts in Business
Administration and Accounting from Seattle University
well as a Master of Business Administration in Finance
and a Juris Doctorate from the Uni versi ty of Washington.
DESCRIBE YOUR WORK EXPERIENCE.
I have worked as an Economic Analyst
and a Financial Reporting Officer for a large commercial
bank and held a variety of management assignments for a
large aerospace company.These assignments included
several instances where I held proj ect
290 Heckler (DI)
Windland Incorporated
management responsibilities for contracts valued in tens
and hundreds of millions of dollars.I have al so worked
as a consultant handling regulatory affairs for an
international partnership that launches commercial
satellites.For the last three years I have worked
primarily as proj ect manager on Windland' s two Idaho wind
farm development proj ects.
II.TOPICS TO BE ADDRESSED IN TESTIMONY
WHAT TOPICS WILL YOU ADDRESS IN THIS
TESTIMONY?
I will discuss the status of Idaho
Power's Wind 2005 RFP from the perspective of Windland,
whose bid price is substantially lower than the $55
average quoted by Idaho Power - and which bid was
unequivocally not affected by avoided cost rates.
Then I will briefly discuss the potential
effect of this proceeding on that RFP process.I will
discuss the value of developing cost-effective wind
resources as an electric generation source to not only
Idaho Power , but also to the state and citizens of Idaho
generally.
I will also address whether Idaho Power'
expectation that would "average" low-priced utility
scale wind resources wi th high-priced PURPA wind
resources suggests that the current avoided cost for wind
291 Heckler (DI)
Windland Incorporated
QFs is not set at an appropriate level.
Finally, I will suggest that the
Commission encourage Idaho Power to proceed expeditiously
in completing the Wind 2005 RFP , even if the Commission
chooses to implement Idaho Power's request for a
temporary suspension of the Company I s obligation to
purchase the output of wind QFs.Completing the RFP will
not only secure cost-effective wind generation resources
to supply Idaho Power's growing customer load,
292 Heckler (DI)
Windland Incorporated
it will also harness competitive forces Vla the RFP to
provide an indication of true market prlces for wind
power in the Idaho Power terri tory.The market price for
wind power established by the RFP process could be used
by the Commission as an input in any revision of wind QF
avoided costs.
IDAHO POWER "BELIEVES" ITS ONGOING
WIND 2005 RFP HAS BEEN "UNDULY INFLUENCED" BY THE PURPA
AVOIDED COST RATES AND IS THUS NOT REFLECTIVE OF MARKET
PRICES.DO YOU AGREE WITH THIS POSITION?
No. As the individual responsible for
preparlng Windland' s proposal submitted under the Idaho
Power 2005 Wind RFP, I can unequivocally state that our
bid prices were not in any way influenced by PURPA
avoided cost rates.On the contrary, the prices we bid
are based on the specific characteristics of the wind
resource on Cot terel Mountain, market prices for wind
turbines and other equipment, and the costs we expect to
incur for construction and operation of a wind farm on
Cot terel Mountain.
Because Idaho Power has put the RFP
process on hold and its evaluation of our bid - together
with all the other bids submitted - is still pending, we
are unable to reveal the precise levels of the prices we
bid in this testimony. However, I can testify that our
293 Heckler (DI)
Windland Incorporated
bid prices are significantly lower than $55/MWh "average"
that Idaho Power quoted.
Additionally, any suggestion that the $55/MWh "average"
price under the Wind RFP is comparable to the $61/MWh
PURPA prlce ignores substantial differences between the
standard PURPA contracts and the terms implied in the
Our bid included a wind forecasting service, anRFP.
integration of our SCADA control system wi th Idaho
Power's control systems , offered Idaho Power an ownership
interest in the proj ect
294 Heckler (DI) Windland Incorporated
and transferred all the Renewable Energy Credits (REC or
"Green Attributes") to Idaho Power.The standard PURPA
contract (such as that approved under Order 29770)
includes none of these provisions.Depending upon how
the RECs are valued (the carbon released from 1 MWh of
coal generated electricity is currently trading in Europe
for more the $25) these additional factors cause
substantial difference in the two prices.
WHAT DOES IDAHO POWER ASK THI
COMMISSION TO DO WITH RESPECT TO ITS PENDING 2005 RFP
PROCESS IN THIS PROCEEDING?
Nothing.However, Idaho Power has
stated in its Petition and testimony, without any stated
basis or rationale, that it may have to modify its Wind
2005 RFP process as a result of wind powered QF
development, the Company's obligation to purchase from
wind QFs at avoided cost rates, and its belief that these
rates have impacted its current RFP.Windland disagrees
with Idaho Power on these matters, and believes the RFP
should go forward, not only out of fairness to those who
have invested substantial time and money in the process,
but more importantly in pursuit of all the goals and
reasons memorialized in the 2004 Integrated Resource
Plan.
Moreover , Windland urges the Commission to
295 Heckler (DI)
Windland Incorporated
encourage the completion of the current RFP so as to
establish , or at a minimum provide an indication, of
market prices for wind power in the Idaho Power terri tory
- even if the Commission decides the PURPA rate for wind
powered QFs must be reviewed in detail.
296 Heckler (DI)
Windland Incorporated
WHAT ARE THE BENEFITS OF USING WIND
POWER AS A GENERATING RESOURCE?
Wind generated electrici ty is cost
effecti ve.Wind generation is the fastest growing form
of electric generation both in the US and worldwide.
Wind generators are not exposed to future fuel price
increases or price volatility for such resources.They
don't burn fossil fuels so they aren't exposed to any
future charge for carbon dioxide emission or any other
air pollution controls.Wind generation produces clean
renewable energy from a currently unused resource and
broadly viewed as good social policy.Any delay in
beginning to use wind resources in Idaho on the
substantial scale that is currently cost effective
increases the exposure of Idaho Power ratepayers to high
and volatile natural gas prices.
WHY I S WIND POWER A GOOD POWER
GENERATION ALTERNATIVE FOR IDAHO AND A COMPANY LIKE IDAHO
POWER?
Wind generation protects Idaho
ratepayers from fossil fuel price volatility.Recent
high and volatile natural gas prices reduce the
desirability of generating electricity with gas turbines.
The increasing likelihood of future carbon emission
restrictions also adds a significant risk element to
297 Heckler (DI)
Windland Incorporated
building new coal fired generation.Many utilities see a
benefit in diversifying their generation portfolio
through the addi t ion of wind powered generation.After
receiving substantial input from all conceivable
constituents over a two-year period , and reviewing
mul tiple al ternati ves Idaho Power selected a diversified
portfolio of new generation types in Idaho Power's 2004
Integrated Resource Plan. The Plan includes as a
component the acquisi tion of power from wind proj ects
like that being proposed by Windland.
298 Heckler (DI)
Windland Incorporated
DOES IDAHO POWER'S EXPECTATION THAT IT
WOULD "AVERAGE" LOW-PRICED UTILITY SCALE WIND WITH
HIGH-PRICED PURPA WIND SUGGEST THAT THE CURRENT AVOIDED
COST I S NOT SET AT AN APPROPRIATE LEVEL?
Yes.Ideally, wind-QF avoided costs
should be set at the price of "al ternati ve electric
energy" so that the rates paid would be approximately
equal regardless of whether the wind generator is a large
facility procured under an RFP or a small producer
selling under PURPA.What it would cost Idaho Power to
procure wind power from a competitively selected willing
seller is good evidence of the price for "alternative
electric energy"This price could possibly be used to
set PURPA rates at a level where the ratepayer would be
indifferent to whether the energy source is a small or
large facili ty.
All energy prices have risen dramatically
since Idaho Power collected the data used in their 2004
IRP analysis.Current natural gas spot prices of $7.
are 61% higher than the $4.85 estimated 2006 price stated
in IRP Technical Appendix.Wind turbine prices have also
risen more than 20% during that period.While the
current Wind RFP may not resul t in level prices at the
$43/MWh mark proj ected in the 2004 IRP, if carried to a
successful conclusion , the RFP can provide needed
additional cost-effective generating capability.
299 Heckler (DI)
Windland Incorporated
IF THE COMMISSION DECIDES THAT PURPA
OBLIGATIONS SHOULD BE SUSPENDED AND A NEW AVOIDED COST
RATE SET, WHAT SHOULD THE COMMISSION DO WITH REGARD TO
IDAHO POWER'S CURRENT WIND RFP?
The Commission should encourage the
expeditious resolution of Idaho Power's Wind 2005 RFP
both as a method for supplying needed additional
cost-effective energy generation and also as a way of
determining the market price in southern Idaho and
eastern Oregon for wind generated electric power.The
market price established under that RFP could be used as
a high quality indicator of the price for "alternative
electric energy " if the Commission seeks to update the
avoided cost for wind QFs.
III.CONCL US ION
PLEASE SUMMAR I ZE YOUR TESTIMONY.
Idaho Power's expectation that they
would average" low priced ut i 1 i ty scale wind resources
wi th high priced PURPA wind resources suggests that the
current avoided cost for wind QFs is not set at an
appropriate level.Idaho Power needs additional
generating capability.Utility scale wind resources
like the Cotterel Mountain wind farm that Windland bid in
Idaho Power's Wind 2005 RFP, can cost-effectively meet
thi s need.At least some of the bids, Windland'
300 Heckler (DI)
Windland Incorporated
included, submitted under the Wind 2005 RFP were not
"tainted" by the current high avoided cost levels.The
Wind 2005 RFP can harness competitive forces to establish
a market price for wind generation in the Idaho Power
terri tory.The Commission should encourage Idaho Power
to expeditiously complete the Wind 2005 RFP and use the
market prices established under that RFP in developing
any revisions to its current wind QF avoided cost.
301 Heckler (DI)
Windland Incorporated
DOES THI S CONCLUDE YOUR TESTIMONY?
Yes.
302 Heckler (DI)
Windland Incorporated
(The following proceedings were had in
open hearing.
COMMISSIONER KJELLANDER:And we will
begin cross wi th Mr. Kline at Idaho Power.
MR. KLINE:Thank you, Mr. Cha i rman .
CROSS - EXAMINATION
BY MR. KLINE:
Mr. Heckler, you testified that your
company Windland did not consider PURPA rates in
developing its bid that it submitted in the Idaho Power
RFP; correct?
Yes, I did.
Obviously, Idaho Power believes that's the
way all the bidders should have developed their bids, but
wouldn't you agree with me, Mr. Heckler , that if QF rates
are higher than the competi ti ve market prices that might
be developed via a bidding process, a bidder that could
repackage its proj ect into one or more QF proj ects might
at least be tempted to consider that capability in
developing its bid?
Wi th all due respect, I just don't see
that.Developing a bid, a proposal, in response to an
RFP is a significant undertaking.The proposal that we
CSB REPORTINGWilder, ID 83676
303 HECKLER (X)
Windland Incorporated
submitted was, I don't know, 30, 40 pages long.We have
many thousands of dollars , hundreds of hours in
developing that.The implication that costs would be
gamed up based on PURPA makes no sense.The re 's a
constant tension between what are your estimates of the
production of your site, the cost of your equipment, the
cost of your operation and construction , and the
accountants and engineers always want you to bid higher
and the marketing people always want you to win , they
want you to bid a lower price.
I f somebody thought that they weren't
going to bid a low enough price to win , in other words,
they picked PURPA and used that as their target , I don
see why they would submi t the bid in the first place.
Certainly, we didn't consider PURPA rates in the bid that
we developed.
MR. KLINE:Okay, that's all I had.
COMMI S S IONER KJELLANDER:Mr. Woodbury.
MR. WOODBURY:Thank you, Mr. Cha i rman .
Staff has no questions of Mr. Heckler.
COMMISSIONER KJELLANDER:Thank you,
Mr. Woodbury.
Let's move to Mr. Meyer.
No questions.MR . MEYER:Thank you.
COMMISSIONER KJELLANDER:Thank you,
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304 HECKLER (X)
Windland Incorporated
Mr. Meyer.
Let I s look to Mr. Richardson.
MR. RICHARDSON:Thank you, Mr. Cha i rman .
CROSS - EXAMINATION
BY MR. RI CHARDSON :
Mr. Heckler , in your testimony you
encourage Idaho Power to complete its wind RFP; correct?
think it would be beneficial for the
wind RFP to be completed,yes.
take it you disagree wi th Mr.Gale
when he testifies that large amounts of wind power would
be unmanageable?
I could envision a solution in which the
RFP is completed and large amounts of wind power are not
integrated on to the Idaho Power system.I don't see
those two conditions as being inconsistent.
So then you do disagree with Mr. Gale'
statement that large amounts of wind are unmanageable?
m sorry, I didn't focus on your answer.
Perhaps misunderstood your question.
Would you ike me to repeat
thought you were suggesting that if the
RFP went forward, it would result in large amounts of
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Wilder , ID 83676
305 HECKLER (X)Windland Incorporated
wind being integrated on Idaho Power's system.I don't
agree with that statement.
You testify that ideally, this is page
of your testimony, ideally, line 5, "Ideally, wind QF
avoided costs should be set at the price of al ternati ve
electric energy so that the rates paid would be
approximately equal regardless of whether the wind
generator is a large facili ty procured under an RFP or a
small producer selling under PURPA.Can you tell me why
the words al ternati ve electric energy" are in quotation
marks?
I believe that alternative electric energy
lS used in the statutes establishing the PURPA
regulations.The concept here was that if PURPA prices
are set appropriately, they represent the incremental
cost of getting the same product from an alternate
suppl ier In an ideal world, the prices offered to a
PURPA supplier would be the same as those offered to,
offered by a winning bidder under an RFP.
So you were quoting a statute or a
regulation when you put those words in quotes?
Look at page 2 of the petition , I think
that the same words show there.
Page 2 of Idaho Power's petition that
ini tiated this docket?
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306 HECKLER (X)Windland Incorporated
Correct, yes.
Do you know whether this Commission has
considered and rej ected the proposals to use a bidding
process for setting avoided cost rates?
, I don'
Do you know whether this Commission
legally permitted to discriminate between two different
QFs based upon their motive force?
, I don't.
You're an attorney, are you not?
I did go through law school , yes.I don'
practice law and I certainly am not familiar with the
idiosyncrasies of PURPA law.
Do you know how recently this Commission
considered and set Idaho Power's avoided cost rates?
I think it's been set a couple of times,
once in December under 29646.
And are you familiar with prohibitions
against collaterally challenging final Commission orders?
MR . HAMMOND:Mr. Chairman , I think
would obj ect Al though he has gone to law school, he'
not licensed in the State of Idaho to practice law and
don't know that he's aware of the state of the law
regarding collateral attacks on orders before this
Commission.
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307 HECKLER (X)
Windland Incorporated
MR. RICHARDSON:Mr. Chairman , I wasn't
asking him for his legal opinion.I was asking him if he
was familiar , just as Mr. Hammond suggested , I was just
asking him if he was aware of those prohibitions.
COMMI S S IONER KJELLANDER:Well , I believe
you could respond as to whether or not you're aware.
THE WITNESS:No, I'm not.
BY MR. RI CHARDSON :Can you point me to
the part of this Commission's Order opening this docket
where it states that one of the issues in this docket is
the methodology for setting avoided cost rates?
I think that you could look at the
Commission's suggestion that scope should be whether they
can suspend and you had said that implies setting a
different price, that is, the price to zero, and whether
they should suspend.I believe under the consideration
of whether they should suspend the quest ion might come
up.
MR . RI CHARDSON :Thank you, Mr. Heckler.
That's all I have, Mr. Chairman.
COMMISSIONER KJELLANDER:Thank you,
Mr. Ri chardson
Let's move to Mr. Miller.Thank you.
And Mr. Ikemoto.
MR . I KEMOTO :Just a few questions.
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Windland Incorporated
CROS S - EXAMINA T I ON
BY MR. IKEMOTO:
On page 4 , starting on line 19 of your
testimony, you say that there really is no comparison
wi th the RFP prices and PURPA prices and you go through a
series of differences that the RFP prices contained,
including integration into the power control system and
forecasting service , et cetera, et cetera.Does your
price include a performance band?
The terms , the contract terms, that we
assume would be implemented under an RFP will have
significant differences from those in the PURPA
One of those might be not having acontracts.
perf ormance band.Others might be including additional
servlces such as those listed here.
If your price included the 90-110
performance band, do you believe you could live with the
same price that you bid or would you need a higher
price?
I think that if it included a 90-110
performance band, we would have an issue similar to those
that you rai sed in U. S. Geothermal.I think that that
does affect financing.
Does your price include transmission
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Wilder , ID 83676
HECKLER (X)
Windland Incorporated
309
system upgrades?PURPA proj ects have to pay for system
upgrades, do you have to pay for system upgrades?
Our price is at the point of delivery and
that point of delivery does include our substation, our
switching capabilities and about 20 miles of new connect.
Some of those are transmission related, transmission
system costs, anything where you tap the system.The
process that Idaho Power's transmission folks are
undertaking now has not moved through
- -
just completed
the feasibility study, we have an indication of
transmission costs.We don't know the final values for
sure.
m not talking about your point of
interconnection.m talking about your upstream
transmission upgrades.I f they need a substant ial
reconductoring of a line, is that a part of your price?
No, as I understand the RFP process, the
costing for any upgrades is included by the evaluators.
All bidders bid busbar.
Okay, I would like to turn to page 5, line
Here you note that the value of the RECs 5 .
substant ial in Europe, quot ing a number of $25. 00 per
megawatt-hour and I wish that were the price of RECs in
this country, but it's certainly not.You are aware,
aren't you, that the REC market has two maj or segments:
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310 HECKLER (X)
Windland Incorporated
one is the mandatory segment where states that have
renewable portfolio standards require that the utilities
acqulre a certain number of RECs, percentage of RECs , for
their customers and that those prices tend to be quite
high, but Idaho would fall into the voluntary market,
wouldn't it?
In other parts of the testimony and in
other parts of the petition , we've looked at prices
levelized over 20 years.Over the next 20 years, it'
very possible that the value of RECs in Idaho will be
dramatically different than they are today.The
indication of a price of $25.00 in Europe was put there
just to show that having the RECs go to the QF transfers
significant potential upside to the QF.It's a
dramatically different price wi th the QF holding the REC
compared to a bidder under the RFP who tendered their
RECs .
Could I sell you my RECs for $2. 50?
I think we'll take all that you've got for
a quarter as far into the future as you want.I f you
think they're not worth anything, we'll buy them from
you.
You're under oath.Are you aware of any
REC transaction of a five- or ten-year nature for any
significant quantity of RECs for anything above $.50 a
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Wilder , ID 83676
311 HECKLER (X)
Windland Incorporated
rnegawa t t - hour?
Whether I'm aware of that at this time
maybe not disposi ti ve of what's going to be the condi tion
over the next 20 years.
Okay, I'd like to turn now to page 7
paragraph 1.Basically, I'd like to get at the notion
that you think the appropriate avoided cost methodology
for posted prices in Idaho should be whatever the
- -
guess your proposal is that it should be whatever the RFP
bid price is; is that correct?
I think that my testimony shows that we
think that market prices for an al ternate source of the
same product developed in this state are a pretty good
indication of one factor.We don't say, I'm not saying
how that should be used.It's just a pretty good
indicator of what a fair price for wind should be
considered.
And your partner is Shell Oil , isn't it?
Technically, our partner is Shell Wind
Ene rgy .They re a wholly-owned subsidiary of the Shell
Group, not the Shell Oil Company.
And I believe it was your testimony that
you were not affected by posted prices and you bid
aggressively; is that correct?
The testimony is that PURPA prices did not
CSB REPORTINGWilder, ID 83676
312 HECKLER (X)
Windland Incorporated
affect our bid.
And do you have a classified wind resource
at Cotterel Mountain?
We have an excellent resource at Cotterel
Mountain.
It's on a ridgetop?
Yes.The southernmost component you might
think of as more plateau, but, yeah , the northern
component is on a
- -
technically, it's a thrust block.
It's level and then drops off on the side.
So if we set avoided costs based upon your
bid, then unless your partner Shell Oil and you have a
classified resource, you don't have much chance of ever
successfully developing the proj ect, do you?
It was one of the factors that could be
considered as an indication of market value in this
You might take the second best bid as anstate.
indication of what is the real alternative price of that
product in this state.
Under PURPA what you pick is the plant
that you would like to defer or eliminate and I don't
think that's a classified Shell Oil wind proj ect, would
you agree?
MR . HAMMOND:Is that a question?
BY MR. I KEMOTO :Would you agree?
CSB REPORTINGWilder, ID 83676
313 HECKLER (X)
Windland Incorporated
m not sure what question you're asking
there.
MR . I KEMOTO :That's all I have,
Mr. Cha i rman .
COMMISSIONER KJELLANDER:Ms. Nordstrom
from PacifiCorp.
MS. NORDSTROM:I have no questions for
this wi tness
COMMISSIONER KJELLANDER:Thank you.
Mr. Eddie.
MR. EDDIE:My questions have been
covered.Nothing further.Thank you.
COMMI S S IONER KJELLANDER:Let's move now
to members of the Commission.Commissioner Hansen.
EXAMINATION
BY COMMISSIONER HANSEN:
I just had one quick question.I thought
I heard you say at the beginning that you believed a
large amount of wind power would not be integrated on
Idaho Power's system and if that is correct, if that'
what you said, why do you believe that?
Commissioner , I see the issue in front of
the three of you today as fundamentally being one of
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314 HECKLER ( Corn)
Windland Incorporated
what's a fair prlce to pay PURPA developers for wind.
fundamental belief is that if the price were set based on
the RFP that both the ratepayers would be protected and
perhaps some above-market price proj ects would not be
viable and thus, would not be introduced on to Idaho
Power's system.
To put it in different words, if we'
paYlng too much for PURPA right now , you get a whole lot
of it.I f you pay the true market price, you probably
won't get 350 megawatts of PURPA.Mr. Gale's supposition
that if he buys 200 megawatts of wind under the IRP or
under the RFP , he's then going to get another 150 or 200
worth of PURPA I don't think holds water.Tha t 's why I
don't believe that you'll get the full 350.
Thank you.That'COMMISSIONER HANSEN:
all I have.
Commi s s i one rCOMMISSIONER KJELLANDER:
Smi th.
No, that was myCOMMISSIONER SMITH:
question.
Okay.COMMISSIONER KJELLANDER:
Let's look to redirect.
Mr. Chairman , we don't haveMR . HAMMOND:
any redirect.
Thank you, andCOMM IS S IONER KJELLANDER:
CSB REPORTINGWilder, ID 83676
HECKLER (Corn)
Windland Incorporated
315
thank you for your testimony.
(The wi tness left the stand.
COMM IS S IONER KJELLANDER:Let's move to
Mr. Miller.
MR. MILLER:Thank you , Mr. Cha i rman .
would call Jared Grover.
JARED GROVER
produced as a witness at the instance of Cassia Wind LLC
having been first duly sworn , was examined and testified
as follows:
DIRECT EXAMINATION
BY MR. MILLER:
Sir , would you state your name, please
and spell your last name?
Jared Grover , G-r-o-v-
And what is your business address?
3635 Kingswood Drive , Boise , Idaho.
Mr. Grover , did you previously have
occasion to prefile with the Commission written testimony
consisting of six pages?
Yes , I did.
And accompanying your testimony was there
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316 GROVER (D i )
Magic Wind LLC
an exhibit, Exhibit No. 602?
Yes.
Are there any additions or corrections
that need to be made to your written testimony?
No.
If I asked you the questions that are set
forth today, would your answers as written be the same?
Yes, they would.
And are those answers true and correct to
the best of your knowledge?
Yes, they are.
MR. MILLER:Mr. Chairman , we would ask
that the testimony be spread on the record as if read and
tha t Exhibi t No.6 02 be marked.
COMMISSIONER KJELLANDER:Thank you, and
without objection, we will spread the testimony across
the record as if read and mark Exhibit 602.
(The following prefiled testimony of
Mr. Jared Grover is spread upon the record.
CSB REPORTINGWilder, ID 83676
317 GROVER (D i )
Magic Wind LLC
Please state your name and business
address.
My name is Jared Grover and my
business address is 3635 Kingswood Drive, Boise, Idaho
83704.
What is your association with or
relation to Cassia Wind Farm LLC and Cassia Gulch Wind
Park LLC (collectively Cassia Wind) interveners in thi
case?
I am the owner and manager.
Please describe your professional and
business background.
I received my Masters of Accountancy
Taxation from Boise State Uni versi ty.I am a farmer in
the Hagerman Idaho area.Because of high power rates in
2004 , I could not afford to irrigate, and moved to Boise.
With power rates high and not expected to substantially
be reduced , I decided I would not be able to afford to
irrigate another season and I sold my water rights on my
farm.Now , the best use of my farm, and those around me
is to develop wind. I am currently working full-time
developing these wind proj ects.
Please describe the wind generation
proj ects Cassia Wind is proposing to develop.
Cassia Wind is developing two wind
318 Grover , Di
Magic Wind LLC
proj ects in Twin Falls County.One is located on my
farm, and the other is on another local farmer's land who
has also sold his water rights.The wind proj ects total
capaci ty will be 18. 9MW and 10. 5MW.
What is the intended date for the
proj ect to achieve commercial operation?
319 Grover, Di
Magic Wind LLC
We intend to have the first proj ect
(18.9 MW) operational by year-end 2005.
I s there a benef i t to achieving
commercial operation by year end 2005?
Under the current tax legislation , a
Production Tax Credit (PTC) is given to new wind projects
over the first 10 years of operation.The PTC credit
provides an incentive for investors to invest in wind
proj ects and makes the proj ects economically feasible.
The PTC is set to expire at the end of the 2005.Because
of the upcoming expiration, investors are putting their
money into proj ects that can be completed before year
end.If a project is not likely to be completed before
the PTC credi ts expire, the investors will go elsewhere.
Another benefit of completing a proj ect
before 2005 is that turbines are scarce and increasing in
prlce. Most manufacturers have filled orders through the
middle to 3rd quarter of 2006.If a proj ect is
postponed, it is difficult to convince the manufacturers
to hold the turbines instead of simply selling them to
other willing and able buyers.Based on what has
happened in the last year , more delay before taking
del i very of turbines will mean increased costs.
Please describe the activities Cassia
Wind has undertaken wi th a view toward achieving
320 Grover , Di
Magic Wind LLC
commercial operation by year end 2005.
Many activities have been , and are
being done to have the proj ect completed in time to be
eligible for the PTC' s.I have purchased a 50 Meter
anemometer tower, and also have a percentage ownership of
4 other
321 Grover, Di 2 a
Magic Wind LLC
anemometers wi thin 10 mi les of the proj ect We have been
collecting data from some of the towers for several
years.From these anemometers, I have spent significant
amounts of time and money compiling and analyzing the
data.I have negotiated land lease contracts, and
initiated the local permitting process. I have personally
invested tens of thousands of dollars into the proj ect.
To facilitate achieving commercial operation by year end
I traveled in and out of the state to meet wi th equipment
manufacturers and potential investors.Long term
financial proj ections have been created for the proj ects
using the wind data, current turbine prices, financing
rates , construction costs, and PURPA rates.Using these
proj ections, private investors and bank loans have been
found for financing.The investors are requiring a
signed PPA before money is spent on further development
such as ground preparation , or paying the large down
payment required for delivery of the wind turbines.
have met wi th Idaho Power Co. 's engineers as part of the
interconnection study.I am currently waiting for a
completed interconnection agreement and a power purchase
agreement.
Has Cassia Wind submitted an
Interconnection Applications to Idaho Power Company?
Yes.Attached to my testimony as
322 Grover, Di
Magic Wind LLC
Exhibit No. 602 is a correct copy of our submitted
Interconnection Applications.
Does submission of an Interconnection
Application carry with it a financial commitment?
323 Grover , Di
Magic Wind LLC
Yes, according to Idaho Power Company
procedures, a feasibility analysis fee of $10,000 or
$2000, depending on si ze, for each proj ect must be paid
at the time the Application is submitted.
Did Cassia Wind pay the required
fees?
Yes it did.
Would Cassia Wind have submitted the
Interconnection Applications and paid the analysis fee
it did not seriously intend to complete the proj ect?
Absolutely Not.Submission of an
Interconnection Application is a substantial milestone in
the development process.I f the proj ect was not viable
we would have abandoned the proj ect at an earlier stage,
perhaps even before spending money on addi tional
anemometer towers, meetings and seminars to meet with and
work wi th manufacturers and investors.I am working
full-time on these proj ects and I assure you that Cassia
Wind is very serious about making these proj ects
reality.
Has Cassia Wind requested to receive
Firm Energy Sales Agreement from Idaho Power Company?
I have requested to receive Firm Energy SalesYes.
Agreement from Idaho Power but have not yet received one.
Upon submittal of my first interconnection study
324 Grover , Di
Magic Wind LLC
application I followed the instructions outlined on the
Generation Interconnection Application. It says "Upon
receipt of these items , Idaho Power Company will notify
you in writing of the applicable contract application
date and begin the process of drafting the appropriate
energy sales agreement for your review.(see page 2 of
the application
325 Grover , Di
Magic Wind LLC
instructions) I submitted the items and expected to
receive a draft of an energy sales agreement. One
application was submitted on 5/26/2005 and the other on
6/15/2005 (accepted by Idaho Power on 6/16/2005)
6/17/2005 I emailed my Idaho Power Contact Randy Alphin
and again requested my PPA be started.later called
and left another message to which Randy called me back
shortly.He explained that Idaho Powe r would not be
s 19n1ng any new contracts until the PUC had decided
this issue.Upon my request by email I was sent an email
summarizing that part of our conversation.
Have you had any other conversations
relating to your Power Purchase Agreement?
Yes.I talked to Randy Alphin again
and asked him if it were possible to negotiate a
contract, even considering a lower price because my
investors are wanting to continue wi th the proj ect, or
move on to other proj ects.I wanted to know if there was
any way that I could get a signed contract.We discussed
the possibility of negotiating a contract with a lower
Rate in exchange for excluding or substantially reducing
the 90/110 rule from the contract.The next day Randy
called me and told me Idaho Power has decided to wait
until after the PUC has decided on this case.
In undertaking the development
326 Grover, Di
Magic Wind LLC
activities you have described , did Cassia Wind rely on
the Commission's policies and procedures being stable and
predictable?
327 Grover , Di
Magic Wind LLC
Yes.Much preparation on my part has
been put into getting these proj ects through the
preliminary stages of data collection and economic
feasibility.Investors, manufacturers, and contractors
have placed good fai th in the completion of these
proj ects.All of us rely on the Commission maintaining
stable and predictable policies.
If the Commission were to grant Idaho
Power's requested temporary suspension" could not Cassia
Wind simply temporarily halt its development efforts and
then resume after the suspension terminated?
No.It is important for the
Commission to understand that al though the Company'
request is phrased in terms of "temporary suspension"
is, in effect, a death sentence for our proj ects.
would be very difficul t to restart these proj ects.The
loss of the investors and turbines on this proj ect would
not only leave a bad name on the Cassia Wind proj ects,
but the very economic fundamentals will change
substantially.As explained earlier , turbine prices
continue to rise due to high demand and high steel
prlces.Investors will be turned off by proj ects that
look risky because it has stopped before, and they will
also not be interested it the PTC tax credits are not
available.In addi tion, part of the proj ect financing
328 Grover , Di
Magic Wind LLc
planned to be based on bank loans.If interest rates
cont inue to ri se , as they are expected to, the higher
rates will substantially increase the expenses of the
proj ect which will also discourage investors.
Does this conclude your testimony?
Yes it does.
329 Grover, Di
Magic Wind LLC
open hearing.
(The following proceedings were had
MR. MILLER:And Mr. Grover is available
for cross-examination.
Mr. Miller.
COMMISSIONER KJELLANDER:Thank you,
Power.
Let's move first to Mr. Kline with Idaho
MR. KLINE:Actually, Mr. Chairman
Ms. Moen is going to conduct the cross-examination of
this wi tness
MS. MOEN:Thank you.
BY MS. MOEN:
CROSS - EXAMINATION
Mr. Grover , based on your testimony,
appears that you are in the process of put ting together
two wind proj ects; is that correct?
Tha t is correct.
And those are in Twin Falls County;
Yes.
Now , one of the proj ects I think
identified as Cassia Gulch Wind Park which has a
right?
CSB REPORTING
Wilder , ID 83676
330 GROVER (X)
Magic Wind LLC
nameplate capacity of 18.9 megawatts.Tha t one you
proposed to have on line by the end of this year;
correct?
Tha t is correct.
And the other proj ect, Cassia Wind Farm , a
little bit smaller , you hope to have on line by mid 2006;
correct?
Yes.
And I believe in your testimony you said
that there's a distinct advantage to developing a wind
farm before the conclusion of this year based on federal
tax credi t s; is that correct?
Tha t is correct.
And I presume those benefits go to you as
the developer as well as to the investor?
Yes.
In fact, I think you said that a proj ect
is not likely to be completed without the production tax
credi ts because the investors will go away; is that
correct?
If the production tax credits are not
renewed, then the investors are very likely to not do the
proj ect wi th these proj ects where we're planning on
doing two proj ects, we're hoping that the production tax
credits are renewed, but also we are planning on doing
CSB REPORTING
Wilder , ID 83676
331 GROVER (X)
Magic Wind LLC
both proj ect s if they re not renewed.
And why is it that you've testified that
the production tax credits are critical or make a project
economically feasible, yet you're proposing to construct
a proj ect wi th an in- service date beyond the time when
you are assured of receiving these production tax
credits?
Because there I s a shortage of turbines and
the only turbines that I could get are available next
year for the other proj ect.
Do you have turbines commi t ted for your
proj ect that you hope to have on ine wi thin five
months?
yes.
contracts?
Yes, my investors do.
Have you purchased those turbines?
They have contracts for those turbines,
Are you able to get out of those
The investors would more ikely just do a
proj ect someplace else instead of choosing my proj ects.
So the Cassia Gulch Wind Park is protected
far as the the turbines concernedexpense
doesn't go on line by the end of this year?
far the turbines go,the investors
CSB REPORTINGWilder, ID 83676
332 GROVER (X)
Magic Wind LLC
are the ones that have the contracts for the turbines;
however , Cassia Gulch Wind Park would have substantial
damage because once I have proj ects that have failed, in
essence , then it would be hard to find other investors
that would take these proj ects on.
MS. MOEN:I don't have any further
questions.
COMMI S S IONER KJELLANDER:Thank you.
Let's move to Mr. Woodbury.
MR . WOODBURY:Thank you, Mr. Cha i rman .
Staff has no questions.
COMMISSIONER KJELLANDER:Thank you
Mr. Woodbury.
Let I S move to Mr. Meyer at Avista.
MR . MEYER:No questions.Thank you.
COMMISSIONER KJELLANDER:Thank you.
Let's move to Mr. Richardson.
MR. RICHARDSON:No questions, Your
Honor.
COMMISSIONER KJELLANDER:Let's look to
Windland Incorporated.
MR . HAMMOND:No questions,
Mr. Cha i rman .
COMMISSIONER KJELLANDER:Thank you, and
Mr. Ikemoto.
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Wilder , ID 83676
333 GROVER (X)
Magic Wind LLC
MR . I KEMOTO :No questions,
Mr. Cha i rman .
COMMI S S IONER KJELLANDER:Thank you.
PacifiCorp, Ms. Nordstrom.
MS. NORDS TROM :I have no questions.
Thank you.
COMMISSIONER KJELLANDER:And Mr. Eddie.
MR. EDDIE:No questions.Thank you.
COMMISSIONER KJELLANDER:Any questions
from members of the Commission?We do have one.
Commissioner Smith.
EXAMINATION
BY COMMISSIONER SMITH:
Mr. Grover , I'm looking at your Exhibit
602 and is it correct to understand that this is the
actual interconnection application that a proj ect must
file with Idaho Power Company?
Yeah, that's page 1 of the actual
application.
Oh; so there's more to it than thi
Okay, yeah, actually there Let's see.
more to it.There's two pages that are - - let's see.
Yeah , 602 , there's actually two other pages of
CSB REPORTING
Wilder , ID 83676
334 GROVER (Corn)
Magic Wind LLC
information preceding the interconnection application
available on the website and as part of that, that's why
in my testimony I quoted part of the application proj ect
where it says, " Upon receipt of these items, Idaho Power
Company will notify you in writing of the applicable
contract application date and begin the process of
drafting the appropriate energy sales arrangement for
your review " which they never did.
So you go on their website and this page
of Exhibi t 602 says Interconnection Application for Small
Generators less than 20 Megawatts and you filled in this
information?
Uh-huh.
Now , is page 2 of Exhibit 602 part of that
application?
It's actually a separate part.According
to the instructions, if it's a PURPA contract , they ask
that you fill out sections 1 and 2.
, that's why the rest of it is blank.
Yes.
And then what's page 4?
Page 4 is a map of the area showing the
rough area , so when they do the interconnection study,
they can see which lines they're wanting to connect to.
Did you make any marks on page 4 when you
CSB REPORTING
Wilder , ID 83676
335 GROVER ( Corn)
Magic Wind LLC
submitted it to Idaho Power?Are any of these ines
information you put there?
These lines, actually no, there was
highlighting on this.
, okay.
But no , the lines are just what was
So where is your highlighting?
It is actually -- it doesn't show up on
Right, and you don't know for sure?
Yeah , I could tell you the sections if you
would like to know.It's part of the interconnection
study.They came out and talked to me about which areas
So page 5 is for the other proj ect?
That's right.
So if I look at pages 1 through 4 , this is
the sum total of the information that you provided to
Idaho Power and under your proposal , this would entitle
you to a contract at the avoided cost rates?
I followed their instructions on the
websi te which said to fill out the application in the
manner in which I did and as it says, they would be in
contact wi th me and prepare a contract, a PURPA contract,
printed off.
the copies.
it would be.
CSB REPORTING
Wilder , ID 83676
336 GROVER (Corn)
Magic Wind LLC
for me.In addition to this, I also had to pay the
interconnection fees at the time of filing these.
Which were?
A total -- $10 000 for one project and
000 for the other.
And how are the fees determined?
They're preset.Anything over 10 megawatt
capacity is $10 000.Anything under 10 would be the
000.
So you didn't start any separate process
to get a contract, you just thought the Company would
contact you?
That's what it said on the websi te.
actually did call and leave messages for Randy Alphin and
also e-mailed him requesting contracts.
COMMISSIONER SMITH:Thank you.Those are
all my questions.
COMMISSIONER KJELLANDER:I just have one
follow-up on that.
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Wilder , ID 83676
337 GROVER (Corn)
Magic Wind LLC
EXAMINATION
BY COMMISSIONER KJELLANDER:
The $10 , 000 and the $2 , 000, ln your mind
has that been spent or if you found out tomorrow that the
Company said they weren't going to pursue anything
further, would that be money that you think you could
recover?
In my mind, that is just a small amount of
what I've spent on developing these proj ects.Whether or
not it was a deposit that they would refund , you know , it
wouldn't really make a matter of whether I would do the
proj ect or not, but I would hope if they're not going to
do the interconnection study that they'd refund it, but
they've already started the interconnection study on my
proj ect s
COMM IS S IONER KJELLANDER:Okay, thank you.
EXAMINATION
BY COMMISSIONER SMITH:
So how do you know they ve already started
that?
Because I've met wi th
- -
coincidentally,
after the first Commission meeting, I'd been contacting
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Wilder , ID 83676
338 GROVER (Com)
Magic Wind LLC
them prlor to this trying to get my interconnection
study, about 10 minutes after the Public Utilities
Commission meeting June 15th , I believe, they called me
and said okay, let's go ahead and so that Thursday we
went out and met and they basically told me they started
the interconnection study, started doing the work on
that.I haven't got the finished resul ts yet.
Do those things take varying amounts of
time depending on the proj ect or do they have a pretty
standard time frame in which they get back to you?
I would like to know.As for
- -
I mean
with this I'm simply, you know , I fill out the thing, pay
my fees.I f I would have signed a contract and sent it
, it wouldn't have cost me anything, so ei ther one,
it's not that hard to get started, but with this, I did
have to pay my dues and I've to go through the same
process that anybody else would to get my contracts and
based on this,basically I'waiting f or PURP A power
purchase agreement before my investors will start
preparing to do ground work.
Do you think if you had your contract but
you hadn't put down your money on the interconnection
study you could get financing?
The investors that I am working with
actually there's several investors that I've talked to,
CSB REPORTING
Wilder , ID 83676
GROVER ( Com)
Magic Wind LLC
339
the investors that I'm working wi th require both a
contract as well as the interconnection study.
COMMISSIONER SMITH:All right.Thank
you, Mr. Cha i rman .
COMMISSIONER KJELLANDER:Thank you.
Redirect?
MR. MILLER:Just a couple of questions.
REDIRECT EXAMINATION
BY MR. MILLER:
With respect to the quantity of
information required on Exhibi t 602, this, of course, is
an Idaho Power Company form , not a form that you
developed?
That's correct.
So this is the amount of information that
Idaho Power Company deems adequate to constitute an
application for interconnection?
Yes.In fact, at the time I submitted it,
I actually met wi th the person in charge, Rowena Bishop,
who reviewed it with me at the time that she accepted my
application and the fee.
And would you have submitted your
application and paid your fee had you not been serious
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340 GROVER (Di)
Magic Wind LLC
about this proj ect?
, absolutely not.This is a cri tical
milestone in the development of my proj ect The
developers that I have been working wi th
- -
you know , I'
a small guy, I have imi ted resources.The developers
that I'm working with , they want to see consistent
progression and this was just one of the steps that was
needed to be done and I would have stopped
- -
I mean
ve invested a lot of time and effort.You know, I have
interest in four different anemometer towers that we'
been collecting data for years , as well as one that
just purchased this last year for collecting data.
mean , I would have stopped a long time ago if this was a
proj ect that I wasn't planning on doing.
The investors, they ve preliminarily
commi t ted to my proj ect based on my data and based on the
si te and how the turbines , you know , that they feel will
work and be able to be a feasible proj ect, but at the
same time , I mean , they will only go so far without
power purchase agreement and so I've been basically put
on hold since Idaho Power has refused to sign my power
purchase agreement.
Without going through it in detail, on
pages 4 and 5, if the Commissioners would like to review
it, you explain the efforts that you made to obtain a
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341 GROVER (Di)
Magic Wind LLC
contract but were forestalled by events surrounding the
petition that was filed by Idaho Power Company.
What was the question again?
You explain on pages 4 and 5 the efforts
that you made to obtain a power purchase agreement, but
were unsuccessful as a result of events surrounding the
filing of the Power Company's petition.
, yes.
You don't have to go through it.I just
wanted to say if that's what you describe on pages 4 and
5 .
That is exactly what I described.
So the Commissioners can read that
they're interested.Just one final question that
Mr. Woodbury asked me to clarify wi th you.On page 5 of
Exhibit 602 , the indicated application fee is $2,000
which is for a proj ect 1 000 to 10,000 kilowatts and on
line 4 , the nameplate capacity, is it greater than 10 000
kilowatts?
Yes , it is.At the time - - in fact, I
asked at the time where it's 10.5 megawatts if I would
have to pay the 2 000 or the 10,000 fee and they accepted
the 2 000 fee.
Very good.MR. MILLER:That's all we
have.
CSB REPORTING
Wilder , ID 83676
342 GROVER (Di)
Magic Wind LLC
COMM IS S IONER KJELLANDER:Thank you, and
thank you for your testimony and being subj ect to cross.
(The wi tness left the stand.
COMMISSIONER KJELLANDER:That takes us
now to Mr. Eddie.
MR. MILLER:I think we had one other
witness.
COMMI S S IONER KJELLANDER:, then I think
we'll let you have them.
MR. MILLER:Armand Eckert, please.
ARMAND ECKERT
produced as a witness at the instance of the Magic Wind,
LLC, having been first duly sworn , was examined and
testified as follows:
DIRECT EXAMINATION
BY MR.MILLER:
State your name,please.
Armand Eckert.
Spell your last name.
e-r-t.
Your business address?
716 East 4900 North Buhl,Idaho.
CSB REPORTINGWilder, ID 83676
343 ECKERT (Di)
Magic Wind LLC
Did you previously have occasion to
prefile written testimony consisting of 10 pages?
Yes , I did.
Are there any additions or correct ions
that need to be made to that testimony?
I have none.
If I asked you the questions that are set
out there today, would your answers be the same as
written?
They would be the same.
Are those answers true and correct to the
best of your knowledge?
Yes , they are.
Accompanying your testimony is there an
exhibit labeled No. 600?
Yes.
MR. MILLER:Mr. Chairman , we would ask
that the testimony be spread on the record as if read
that the exhibit be marked and that Mr. Eckert be made
available for cross-examination.
COMMI S S IONER KJELLANDER:Thank you , and
without obj ection , we will spread the testimony across
the record as if read and mark the exhibi t .
(The following prefiled testimony of
Mr. Armand Eckert is spread upon the record.
CSB REPORTING
Wilder , ID 83676
344 ECKERT (Di)
Magic Wind LLC
Please state your name and business
address.
My name is Armand Eckert and my
business address is 716-B East 4900 North , Buhl Idaho,
83316.
What is your association with or
relation to Magic Wind LLC, an intervener in this case?
I am a participating member in Magic
Wind LLC.
Please describe your professional and
business background.
I worked at Arthur Andersen & Co. for
ten years as an auditor and CPA from 1974 to 1983 in
their Boise office.In 1984 , I moved back to my family
farm where I was raised and I currently farm about 5,000
acres wi th my three brothers.In 2004 , I placed my CPA
certificate in the inactive status.Also, I am an active
partner in Explorer Technologies Corporation which is in
the securi ty business.It installs and maintains fire
alarms, closed circui t surveillance camera systems,
public address systems and other related security systems
such as access control , etc.
Please describe the wind generation
proj ect Magic Wind is proposing to develop.
We are proposing to install nlne wind
345 Eckert, Di
Magic Wind LLC
mills on the Magic Water proj ect about ten miles
northwest of Buhl , Idaho.The approximate location of
these wind generators using the Twin Falls County
coordinates is about 4610 North 750 East.Geographical
survey coordinates would generally be Township 9S Range
13 E , W ~ SE ~ and E ~ SW ~ of Section 2 and W ~ NE ~ and
E ~ NW ~ of Section 11.Each turbine is to produce
346 Eckert , Di
Magic Wind LLC
approximately 2.1 MW of power.The towers and blades
will be similar in size to those installed on the Bell
Rapids proj ect
What is the intended date for the
proj ect to achieve commercial operation?
We intend to have the proj ect
operational by year-end 2005.
I s there a benef i t to achieving
commercial operation by year end 2005?
There is a Federal product ion tax
credit currently available that is scheduled to expire on
December 31 , 2005.To make this proj ect feasible, the
tax credit has to be utilized during the current year.
Please describe the activities Magic
Wind has undertaken wi th a view toward achieving
commercial operation by year end 2005.
Magic Wind has done a substantial
amount of work in getting ready for commercial production
of electric power by the end of 2005.Through its
developer , it has done a twenty year financial projection
for this proj ect, it has ordered all of the turbines
required for this project and it has identified private
investors to help finance the proj ect.Al so, through the
same developer , it has lined up a construction crew
along with a crane to put the windmills in place.The
347 Eckert, Di
Magic Wind LLC
construction crew is currently waiting for the green
ight to proceed.Magic Wind is in the process of
getting site approval with the Twin Falls Planning &
Zoning Commission.In connection therewith , Magic Wind
has sent numerous let ters to various agencies of its
intention to install such windmills.As responses are
received from those agencies, steps have been taken to
respond to any concerns, if any, of those agencies.
Magic Wind previously installed one
348 Eckert , Di 2 a
Magic Wind LLC
twenty meter Anemometer and one fifty meter Anemometer
a cost of approximately $15 000 and is currently
moni toring wind veloci ty to ensure the proj ects
viabili ty, and comparison data to regional wind resource
databases at Bell Rapids and at the Idaho National
Labora tory.It has also hired a consul tant to perform
soil tests, to perform a limited environmental impact
study and write a report on its findings and to do a bird
study to see what effect windmills will have on various
bird populations. The studies and the final report are
scheduled to be completed by July 24 , 2005.Magic Wind
will report its finding to the Planning & Zoning
Commission during early August, 2005 , will seek approval
for its proj ect, and we expect approval.Magic Wind has
also completed all other requirements, as far as
knows , of the Planning & Zoning Commission, including
working with the Idaho Fish & Game Department personnel.
Magic Wind has also gathered many personal letters of
support from the surrounding communi ties of Buhl , Twin
Falls , Castleford and Hagerman for its project.Every
communi ty member Magic Wind personnel has approached has
enthusiastically supported wind mills in the area,
without exception.Magic Wind is also in the process of
applying for a QF application from FERC as well.
Has Magic Wind submi t ted
349 Eckert, Di
Magic Wind LLC
Interconnection Application to Idaho Power Company?
Yes.Attached to my testimony as
Exhibit No. 600 is a correct copy of our submitted
Interconnection Application.
350 Eckert, Di
Magic Wind LLC
Does submission of an Interconnection
Application carry with it a financial commitment?
Yes , according to Idaho Power Company
procedures , a feasibility analysis fee of $10 000 must be
paid at the time the Application is submitted.
Did Magic Wind pay the required
$10,000 fee?
Yes it did.
Would Magic Wind have submi t ted the
Interconnection Application and paid the analysis fee if
it did not seriously intend to complete the proj ect?
No.Submission of an Interconnection
Application is a substantial milestone in the development
process.Aside from turbine delivery and signing of a
energy sales agreement, it is the single most important
aspect of a windmill proj ect.Without Idaho Power
performing the feasibility study, the proj ect could not
be done.
Has Magic Wind submitted an executed
Firm Energy Sales Agreement to Idaho Power Company?
Yes.Attached to my testimony as
Exhibit No. 601 is Magic Wind's transmittal letter to
Idaho Power Company.An executed Firm Energy Sales
Agreement accompanied the transmi t tal let ter.The
executed Agreement, I am told by our consul tant, is
351 Eckert, Di
Magic Wind LLC
identical to the form of agreement approved by the
Commission in its most recent contract approval cases.
352 Eckert, Di
Magic Wind LLC
In undertaking the development
activities you have described, did Magic Wind rely on the
Commission's policies and procedures being stable and
predi ct abl e?
Yes.It is imperative to follow all
of the Commission's policies and procedures when
developing such a proj ect To perform a twenty year
financial proj ection, one has to absolutely rely on such
policies and procedures, including, but not limited to,
PURPA power rate tables , size of turbines and how many,
turbine order and receive dates, final costs, and
contract length , etc.
If the Commission were to grant Idaho
Power's requested temporary suspension" could not Magic
Wind simply temporarily halt its development efforts and
then resume after the suspension terminated?
No.It is important for the
Commission to understand that al though the Company'
request is phrased in terms of "temporary suspension"
, in effect, a death sentence for our proj ect.Magic
Wind's developer has the turbines available for
installation and Magic Wind is awaiting approval of the
Idaho Power - Power Purchase Agreement.Magic Wind'
developer also has investors who are ready, willing and
able to expend the resources to put the windmills up in
353 Eckert, Di
Magic Wind LLC
If Magic Wind cannot proceed with this proj ect 2005.
2005, several things wi 11 happen.The investors in this
proj ect are interested in this proj ect because of the
twenty year financial proj ection done by Magic Wind'
developer.As wi th any investment, there has to be a
great degree of viabili ty and success to the proj ect and
354 Eckert, Di
Magic Wind LLC
reasonable rate of return to the investor. Otherwise they
would not invest.For this proj ect to have a favorable
rate of return to the investor , two things have to be in
place.First, the current PURPA power rate published by
the Commission has to remain in place to generate a
reasonable rate of return for the investor to invest and
for the financial proj ections to show economic viabili ty.
Secondly, the investor also has to be able to utilize
certain Federal production tax credits currently due to
expire on December 31 , 2005.There is absolutely no
guarantee that those Federal production tax credits will
be renewed.Wi thout the Federal production tax credi ts,
it is an absolute certainty, that the investors the
developer has lined up will not invest in this proj ect.
In addition , it is Magic Wind's understanding that the
developer has already paid a five million dollar deposit
for the delivery of the 2.1 megawatt windmills and will
deposit another five million dollars in August.It is
Magic Wind's understanding that its developer will
possibly lose a substantial amount of money if it cannot
put the turbines in place during 2005, especially if its
investors are not willing to invest in the proj ect during
Wi thout the Federal production tax credi t, it is2005.
doubtful that the investors will invest at all in the
future.
355 Eckert , Di
Magic Wind LLc
Does wind impact the grid?
The wind power generated by our site
looks more like load reduction.We are a very small
percentage of the total energy mix , and our power is less
expensive than peak power that Idaho Power already pays.
The community and tax benefits largely outweigh any
potential impact.
356 Eckert, Di
Magic Wind LLC
Turning your attention to the Idaho
Power Company filing, have you reviewed the Company
Petition and Testimony of John R. Gale?
Yes, I have.
Based on your review , what is your
general assessment of the Company's filing?
The Company's case for a suspension
of its PURPA obligation is based almost entirely upon
speculation and conj ecture.It does not establish
anything in the nature of an emergency or need for
immediate relief.
In its Notice of Petition, the
Commission determined that the allegations in the
Petition were insufficient to prove the need for a
suspension and directed the parties to file further
additional testimony, so let me direct your attention to
the written pre-filed testimony of testimony John
Gale , filed in response to the Notice of Petition. What
lS your general assessment of that testimony?
It does not add anything new in terms
of factual detail., for the most part, converts the
text of the Petition into a question and answer format.
At Page 5 of his testimony, Mr. Gale
discusses the Company's implementation efforts wi
respect to the 2004 IRP.What is your reaction to this
357 Eckert, Di
Magic Wind LLC
testimony?
Mr. Gale does not explain in any
detail how many bids were actually received and what the
bid rates were.Mr. Gale says IPCo received offers in
response on March 10, 2005 and that significant amounts
of wind generation began to materialize under PURPA
prices above levels
358 Eckert, Di 7 a
Magic Wind LLC
contemplated in the IRP.It sounds simply like the IRP
was wrong, given the steep rise in turbine steel and
petroleum costs since the IRP was prepared. It also
sounds ike bids received for large wind proj ects were
much closer to the PURPA rate, and therefore, the rates
have to be higher to show some economic viability.
Mr. Gale also asserts that
unsuccessful RFP bidders could repackage the proj ects
under PURPA guidel ines What is your reaction to that
assert ion?
IPCo offers no proof this actually
occurred, or is likely to occur.notMr. Gale does
identify any unsuccessful bidders that have, or in the
process of Mr. Gale also statesrepackaging proposals.
that they had to "address the potential of much more wind
coming on-line sooner and more expensively then
contemplated in the IRP.Again , this is just
speculative in relation to the word "potential"They
simply don't have any proof.
At page 7 of his testimony, Mr. Gale
complains about the increase in avoided cost rates from
$48.61 per MWh to $60.99 per MWh , in connection with his
believe that the current rates are producing wind
proj ects "too soon , too fast and too much." Your
react ion?
359 Eckert, Di
Magic Wind LLC
Mr. Gale also admi ts that at the
$48.61 rate, Idaho Power had 1 MW of QF wind-powered
generation in 2003.This is pretty much proof the rate
that was being offered previously was not economically
viable. Wi th the 25% increase in PURPA rates, along wi
the Federal power product ion credi t , it becomes
economically feasible.It is doubtful, however , that it
would still be feasible at the new higher rate , without
the Federal power
360 Eckert, Di
Magic Wind LLC
product ion credi t Mr. Gale seems to be saying that a
rate that makes wind generation impossible is good, but a
rate that makes it feasible is bad.
At page 8, of his testimony Mr. Gale
indicates the Company has received inquires representing
193 MW of wind-powered generation, implying that the
Company is about to be overcome by an un manageable
amount of wind generation.Does thi s make sense?
No.Even if 193 MW is an accurate
number of likely generation (which it is not), it is a
very small percentage of IPCo' s total name plate
generation, identified in its 2004 IRP of almost 3,000
Additionally, Mr. Gale does not identify who theyMW.
are, how large are the proj ects and are they large wind
proj ects or PURPA proj ects and how serious they are about
development and how soon the proj ects would come on.
There really is no basis for an estimate of an additional
193 MW of wind powered proj ects.
At pages 8-9 of his testimony, Mr.
Gale discusses the effects of tax incentives, implying
these create, somehow , an artificial and unexpected
incentive for wind or renewable proj ects.Do you agree?
No. The tax benefits existed before
the issuance of Order 29646.I canThey are not new.
only assume that the Commission has considered the tax
361 Eckert, Di
Magic Wind LLC
credi ts already in their analysis. Also , wi th the recent
enactment of the Idaho sales tax exemption , this would
indicate that there is a large amount of public support
for wind generation.Again , IPCo seems, illogically, to
be saying that because tax policy is apparently finally
working to produce
362 Eckert , Di
Magic Wind LLC
its intended result-actual development of renewable
resources-the Commission should react against the public
will by stopping development of wind and renewable
resources.
Does this conclude your testimony?
Yes it does.
363 Eckert, Di
Magic Wind LLC
(The following proceedings were had in
open hearing.
COMMISSIONER KJELLANDER:And he's ready
for cross.We'll begin with Ms. Moen.
MS. MOEN:Thank you , Mr. Cha i r .
CROSS - EXAMINATION
BY MS. MOEN:
Mr. Eckert, you testified that you re a
member of Magic Wind LLC; is that correct?
That's correct.
And in your testimony, you indicate that
Magic Wind has plans to construct nine windmills along
the Magic River; is that right?
Along the Magic River?
m sorry, the Magic Water si te.
Yes, that's correct.
And does Magic Wind intend to own and
operate those wind turbines?
Yes, but we have investors that will loan
us money and ultimately will participate in the revenue
on the last ten years.
Within your testimony you make reference
to a developer and then separately to investors, what
CSB REPORTING
Wilder , ID 83676
364 ECKERT (X)
Magic Wind LLC
the business relationship between the developer and Magic
Wind?
The developer will actually procure the
investors' securi ty equipment, procure the turbines, they
will put them up and they will also provide an avenue to
pay the investors back through the generation revenue,
then we will participate in revenue sharing subsequent to
the 10-year period.
And who is paying the expenses associated
wi th developing this proj ect, the developer and the
investors or Magic Wind?
Magic Wind is paying all the up-front
costs in environmental studies, the interconnect fee , the
cost of put ting up the anemometers, hiring consul tants to
deal with Idaho Power.
And can you tell me generally about the
megawatt , per megawatt, price of developing a wind
proj ect ?
Megawatt prlce, I'm not sure I understand
the question.
In the average, if you re golng to be
putting up --
The average of putting up nlne windmills
is going to cost somewhere around $27 million.
And you've indicated that the developer
CSB REPORTINGWilder, ID 83676
365 ECKERT (X)
Magic Wind LLC
has made a si zeable investment already in the turbines,
that they ve already made a commitment of, I think, over
5 mi 11 ion and they'll be making an addi t ional payment of
5 million; is that correct?
Tha t 's correct.
And what obligation does Magic Wind have
to purchase those turbines from the developer?
CSB REPORTING
Wilder , ID 83676
Well, Magic Wind will be a participant
once the turbines are installed.
Okay, and do you have a legal obligation
right now to participate in the cost of those turbines?
No.
All right.Mr. Eckert, on what date did
interconnection request to Idaho Power?
On June 14th , I believe.
If I could just refresh your memory,
you could go to Exhibit 600 of your testimony, there's a
received date stamped at the top of that page 1 of 7 of
Exhibit 600 , would you agree with me that that date reads
June 17th , and I think I signed it on June
And would you al so agree wi th me that
that's the same date that Idaho Power happened to file
you make your
June 17th?
15th.
its petition?
366 ECKERT (X)
Magic Wind LLC
Yeah, I wonder why they did that.
Mr. Eckert, you've indicated that the
megawatts that you re proposing with Magic Wind are "
very small percentage of the total energy mix.
presume you mean the energy mix associated wi th Idaho
Power's system?
Yes.
All right, and would you agree with me
we received numerous requests for 21 megawatts of power
from various QF developers that at some point we would
get to a percentage larger than a very small percentage,
wouldn't you agree wi th that?
Would you restate that?
If we received, for example, applications
from 10 or 20 QF developers at 21 megawatts, that would
no longer be a small percentage of the total energy mix
that Idaho Power has , would it?
I f you received those, yes.
And you indicate in your testimony that
there's really no basis for an estimate that Idaho Power
will add an additional 193 megawatts of wind power to its
system.On what evidence are you basing that
statement?
I was referring to the testimony of
Mr. Gale and he indicated that there had been inquiries
CSB REPORTINGWilder, ID 83676
367 ECKERT (X)
Magic Wind LLC
of 193 megawatts.There was no proof on the record who
they were and to what extent are those proj ects, whether
they're QFs or whether they're bids.
And do you know who those potential QF
developers are?
No, I do not.
So not knowing their identi ty and their
intentions, you're making the assertion that it'
unreasonable for Idaho Power to assume that those
developers are as qualified as your development?
I was just going on the testimony of
Mr. Gale when he talks about inquiries.I don't know the
nature of the inquiries or on what basis they were
made.
Wouldn't you agree that Idaho Power has a
duty to its customers to determine the cost of
integrating large amounts of wind power into its
system?
Yes.
And if the Company ignored the cost of
providing those ancillary services, it would be doing a
disservice to its customers, wouldn't it?
Only to some degree, but you have to also
consider the back-side benefits of installing windmills
to the local economies, plus the amount of revenue that
CSB REPORTING
Wilder , ID 83676
368 ECKERT (X)
Magic Wind LLC
may come into the state coffers once the investors are
paid off.
But you would agree with me that that
requlres some kind of analysis ahead of time to ensure
that a disservice wasn't being done to its customers;
correct?
Yes , only to the extent that the amount of
QF proj ects that are going to be on line are probably
relatively insignificant to the total rate base.
MS. MOEN:I have no further questions.
COMMISSIONER KJELLANDER:Thank you.
Let's move to Mr. Woodbury.
MR. WOODBURY:Staff has no questions.
Thank you.
COMMI S S IONER KJELLANDER:Thank you
Mr. Woodbury.
Let's move to Mr. Meyer.
MR . MEYER:I have no none.
COMMISSIONER KJELLANDER:Thank you, Mr.
Meye r .
Let's go to Mr. Richardson.
MR. RICHARDSON:I have no quest ions.
COMMISSIONER KJELLANDER:Thank you.
Let's go to Mr. Hammond wi th Windland.
MR . HAMMOND:Mr. Cha i rman , we have no
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Wilder , ID 83676
369 ECKERT (X)
Magic Wind LLC
questions of this witness.
COMMISSIONER KJELLANDER:Let's go to
Mr. Ikemoto.
MR . I KEMOTO :No questions.
COMMISSIONER KJELLANDER:Thank you.
Let's go to Ms. Nordstrom of PacifiCorp.
MS. NORDSTROM:Thank you.
CROSS - EXAMINATION
BY MS. NORDSTROM:
In your conversation with Ms. Moen, you
said that you have to consider the benefits to the local
economy and the money that is contributed to state
coffers when considering wind proj ects.To your
knowledge, is that a cri teria that PURPA requires to
establish avoided cost rates?
It's not my understanding that it is,
no.
That those are not factors in the PURPA?
To my knowledge, it's not, but I'm not
certain of that fact.
Thank you.MS. NORDSTROM:No further
questions.
COMMISSIONER KJELLANDER:Thank you.
CSB REPORTING
Wilder , ID 83676
370 ECKERT (X)
Magic Wind LLC
Let's go to Mr. Eddie.
MR. EDDIE:No questions.
COMMISSIONER KJELLANDER:Thank you, Mr.
Eddie.
Are there any questions from members
the Commission?Commissioner Smith.
EXAMINATION
BY COMMISSIONER SMITH:
So if I understand correctly your Exhibit
601 , you have executed a power purchase agreement on
behalf of Magic Wind.
Yes, that's correct.
And you submi t ted it to the Company by
hand delivery on June 14th?
Yes.
And in addition , then, on the 17th you
followed up wi th this interconnection application?
Yes.
How did you get a power purchase
agreement?Could you just tell me your process?
Well, I hired a consultant to do that.
went through an attorney and developed apparently a
similar power sales agreement and then submitted it.
CSB REPORTINGWilder, ID 83676
371 ECKERT (Corn)
Magic Wind LLC
Does that answer the question?
So you followed a different path than
Mr. Grover?
Yes.
Okay, when did you begin your anemometer
studies?
We started them sometime near the end
the first quarter of this year.
March?April?
March April.
And there any relationship between your
proj ects and Mr. Grover's besides the fact that you have
the same lawyer?
You know , I have not studied Mr. Grover'
proj ects, so I can't answer that question.I assume that
they're fairly similar.
But they're not in the same location?
They re not in the same location
different farming proj ect.
They have different investors?
Different investors, yes.
Different developers?
Different developers as far as I know.
COMMISSIONER SMITH:Thank you.
THE WITNESS:Thanks.
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Wilder , ID 83676
372 ECKERT (Corn)
Magic Wind LLC
COMMISSIONER KJELLANDER:We're ready now
for any redirect.
MR. MILLER:Jus t one.
REDIRECT EXAMINATION
BY MR. MILLER:
Not that it makes any difference from a
legal point of view or any other point of view , but did
you have any advance notice that Idaho Power Company was
about to drop the suspension bomb on June 17th?
No, I did not.
Did you in any sense speed up your filing
of an interconnection application in order to beat the
dropping of the
, I did not.
- -
interconnection bomb?
Pardon me?
Did you in any way speed up the filing
your interconnection application to beat the July, pardon
me, June 17th date?
No, that was purely coincidental.We have
worked on this, studied windmill production for a long
time and once the PURPA rate got to a point along with
the production tax credit that actually showed that
CSB REPORTING
Wilder , ID 83676
373 ECKERT (Di)
Magic Wind LLC
became economically feasible , my developer did a
financial proj ection that was done by a local CPA firm in
eastern Idaho and based on that criteria, we felt like
the proj ect needed to be done in 2005 and we proceeded as
fast as we could.
MR. MILLER:Very good.That's all
have.
COMMISSIONER KJELLANDER:Thank you, and
thank you for your testimony.
(The wi tness left the stand.
COMMISSIONER KJELLANDER:And we're ready
for Mr. Eddie's wi tness
MR. EDDIE:We call Troy Gagliano.
TROY GAGLIANO,
produced as a wi tness at the instance of the Renewable
Northwest proj ect & Northwest Energy Coalition , having
been first duly sworn , was examined and testified as
follows:
DIRECT EXAMINATION
BY MR. EDDIE:
Mr. Gagliano, will you state your name and
spell your last name?
CSB REPORTING
Wilder , ID 83676
374 GAGLIANO (Di)
RNP and NWEC
Troy Gagliano and the last name
i-a-n-o.
And how are you employed?
Wi th the Renewable Northwest proj ect
And what is your position with Renewable
Northwest proj ect?
m a senior policy associate at RNP.
Did you cause to be filed eight pages of
prefiled written testimony in this case accompanied by
two exhibits?
Yes.
MR. EDDIE:Mr. Chairman , if I may add
just a few quick questions in aid of some corrections and
minor additions to Mr. Gagliano's testimony.
COMMISSIONER KJELLANDER:Without
obj ect ion.
BY MR. EDDIE:I understand, Mr. Gagliano,
that you have a correction to be made at page 6, lines
through 23?
Yes , correct.The numbers that we have
featured in there are
- -
this is essentially a misprint
and I have a sl ide we would ike to submi t as Exhibi
1003.
And that Exhibit 1003 is attached as the
last page of the material I just handed out to the
CSB REPORTING
Wilder , ID 83676
375 GAGLIANO (Di)
RNP and NWEC
parties and the Commission; is that correct?
Yes.
Is it your intent to simply strike the
last two sentences at page 6 , lines 19 through 23?
That's correct.
And replace that with simply a discussion
of Exhibit 1003?
Yes.
Could you please explain what this exhibit
is?
Certainly, and I apologize for not listing
the source on there , I should have, but I'll explain
now.This graph titled Wind is Least Cost is from puget
Sound Energy.It's from a hearing on January 25th of
this year , 2005, that Puget Sound gave to the Board of
County Commissioners in Kittitas, Washington in pursuit
of a permi t for one of their wind proj ects in Central
Washington.
Okay, and the bar graphs on this page
indicate responses to their all source requests for
proposal?
Right.This illustrates the range of
prices for different technologies that Puget got from an
all source RFP.
MR. EDDIE:ve also, Mr. Chairman
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submitted , simply resubmitted, Exhibits 1 and 2 with that
packet and correctly marked them wi th our assigned
numbers in thi s case, whi ch would be Exhibi t s 1001 and
1002 , so that just's a minor correction.
BY MR. EDDIE:Mr. Gagliano, did you also
have a - - actually, I would like to ask you a question
about at page 5 of your testimony, lines roughly
through 19, you make reference to the what is now Exhibit
1001 and the range of studies that have been done across
the country as surveyed in this Exhibit 1001 , could you
explain for the Commission and the parties what it means
to have a 4 percent or a 20 percent penetration level of
weighing into the system?
Certainly.I spoke with one of the
authors of this UWIG study that I do mention in this
testimony and the percentages that they used or
percentages they have there for different penetration
levels on different utility systems are a ratio of the
nameplate capacity of the wind to the system peak load
for each of the 10, I think it's 10 , utilities that the
summary, the UWIG summary, looked at.
So in Idaho Power's case, if Idaho Power
has a peak load of in the range of 3 000 megawatts, 300
megawatts of wind comes to 10 percent of that?
Right.
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MR. EDDIE:Okay, wi th those correct ions
and minor explanations , Mr. Chairman, I move that the
direct testimony of Mr. Gagliano be spread upon the
record as if read and that Exhibits 1001 through 1003 be
marked for identification.
COMMISSIONER KJELLANDER:Thank you.
Without obj ection , we will spread the testimony as
read and mark Exhibits 1001 through 1003.
(The following prefiled testimony of
Mr. Troy Gagliano is spread upon the record.
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PLEASE STATE YOUR NAME , BUSINESS
ADDRESS AND POSITION WITH THE RENEWABLE NORTHWEST
PROJECT.
My name is Troy Gag 1 i ano and I am a
Senior Policy Associate wi th Renewable Northwest proj ect
in Portland , Oregon.My business address is Renewable
Northwest Project ("RNP", 917 SW Oak St, Suite 303;
Portland , Oregon , 97205.Established in 1994 , RNP
promotes the responsible expansion of solar , wind and
geothermal energy in the Northwest.We work to establish
policies that support renewable energy development and
nurture the development of a market for renewables.Our
unique coalition of members includes renewable energy
proj ect developers, public and consumer interest groups,
turbine manufacturers, environmental organizations and
others.
PLEASE DESCRIBE YOUR EDUCATION
BUSINESS EXPERIENCE AND RESPONSIBILITIES.
I hold a Master's Degree in
International Public Policy from the University of
Denver's Graduate School of International Studies.
RNP I focus mainly on proj ect sit ing and permi t t ing
issues and the regulatory aspects of renewable energy.
represent RNP on the Energy Trust of Oregon's Renewable
Advisory Committee and the Western Governor'
379 Gagl iano, Di.
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Association's Clean and Diversified Energy initiative.
From 2000-2004 I was a renewable energy policy consultant
at the National Conference of State Legislatures (NCSL)
in Denver , Colorado.I represented NCSL on the steering
committees of the National Wind Coordinating Committee
and the National Geothermal Collaborative.
ON WHOSE BEHALF ARE YOU TESTI FYING?
380 Gagliano , Di.
RNP and NWEC
I am testifying on behalf of
Renewable Northwest proj ect and the NW Energy Coali tion.
PLEASE SUMMARIZE THE POSITION OF RNP
AND NW ENERGY COALITION ON THE ISSUE NOW BEFORE THE
COMMISSION.
We support a very imi ted suspenslon
of PURPA to allow the Commission to address the specific
issue of preventing developers from dividing large
commercial proj ects into 10 MW increments in order to
qualify for the avoided cost rate.We believe this can
be accomplished with the establishment of new PURPA
implementation policies addressing this issue within this
docket over the next three (3) months.
In the mean time, wind developers should
be allowed to seek an expedited case-by-case approval (if
they cannot reach agreement with Idaho Power) within this
docket that their proj ect should qualify for the
published avoided cost rates.This case-by-case approval
should evaluate criteria including:(a) whether the
proj ect can demonstrate it is not one component of a
potentially larger commercial proj ect, and (b) whether
the proj ect has made substantial investments in reliance
upon the availabili ty of the avoided cost rates and the
federal production tax credit , which is set to expire at
the end of 2005,(c) the status of the proj ect ' s
381 Gagliano, Di.
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negotiations with Idaho Power , and (d) other criteria
the Commission determines to be appropriate.We believe
this would strike a balance between ensuring Idaho Power
ratepayers enj oy the benefits of both smaller distributed
generation , as well as the cost benefits of larger
commerc ial wind proj ect s acquired through compet it i
processes and further ensure that developers' reasonable
investment -backed expectations are not thwarted.
382 Gagliano, Di.
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We do not support the suspenslon for the
reasons that Idaho Power states and we are concerned that
a longer suspension may hinder the company from following
through with its 2005 RFP.
We support the acquisition of larger wind
projects through competitive bidding processes.
believe Idaho Power's decision in the 2004 IRP to acquire
additional renewable resources was prudent and represents
real benefits for customers.We strongly urge the
Company to remain commi t ted to acquiring the 350 MW of
wind and 100 MW of geothermal energy that the IRP called
for.
We also support the development of locally
owned renewable energy proj ects under PURPA and the
community scale model of wind development that this
policy supports.We believe that large commercial
proj ects should compete through a utili ty RFP based on
price and that PURPA rules should prevent commercial
proj ects from being broken into smaller ones to qualify
for PURPA.
WHAT IS YOUR POSITION ON IDAHO
POWER'S REQUESTED SUSPENSION OF PURPA AS IT APPLIES TO
WIND PROJECTS?
We strongly disagree that PURPA' s
availability should be suspended on the basis that Idaho
383 Gagliano, Di.
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Power must first conduct a wind integration study.
discussed below , integration costs have been evaluated by
numerous other utilities and entities , and have uniformly
been found to be qui te small at the level of wind
penetration Idaho Power is considering.The proper time
to conduct such a study would be after the Company
integrates a more substantial amount of wind power on
their system , allowing the Company to evaluate real
impacts rather than computer models.Should the Company
then think a study is necessary, we believe an
independent third party should conduct
384 Gagliano , Di.
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through the Integrated Resource Planning process.Until
that time , we believe the Company can use an estimate
within the range of the study results from the Utility
Wind Interest Group study cited below.
For these reasons we believe that the
Commission should encourage Idaho Power to quickly move
forward on its 200 MW wind RFP.Based on discussions
wi th developers , we believe there are some good proposals
in front of the Company and that the average cost of
those proposals as stated by Idaho Power is still least
cost and least risk for customers.
IDAHO POWER STATES IN ITS PETITION
THAT THE CURRENT PURPA RULES ENCOURAGE DEVELOPERS TO TAKE
ADVANTAGE OF PURPA BY BREAKING UP LARGER PROJECTS INTO
SMALLER ONES TO QUALIFY FOR THE AVOIDED COST RATE.HOW
SHOULD THIS ISSUE BE ADDRESSED?
This certainly is a legitimate
concern , but at this point we have no information to
conf i rm that a arge proj ect has act uall y been divided
into smaller proj ects to take advantage of the PURPA
implementation in Idaho.
We encourage the Commission to
expeditiously investigate this issue to ensure the proper
safeguards are in place to prevent any possible "gaming"
of the system.There are a number of policy design
385 Gagliano, Di.
RNP and NWEC
cri teria regarding proj ect ownership, layout, and
interconnection that the Commission could consider as an
issue in this case.Minnesota has recently addressed
this and provides one example of cri teria that may help
Idaho Power address the issue.A Minnesota law states
that no one investor can own more than a certain
percentage of the proj ect The purpose here is to
prevent gaming and encourage
386 Gagliano, Di.
RNP and NWEC
local ownership of communi ty wind proj ects This issue
should be addressed later wi thin this docket.
DO YOU BELIEVE THAT INTEGRATION OF
WIND POWER AT THE LEVEL OF 350 MW INSTALLED CAPACITY (PER
IDAHO POWER'S 2004 INTEGRATED RESOURCE PLAN) WILL BE
UNDULY EXPENSIVE OR DIFFICULT?
The information on integration costs
of wind power is well known and there are several studies
that show it to be affordable.I am sponsoring Exhibi
and Exhibi t Exhibit 1 is a brief document titled
"Wind Power Impacts on Electric Power System Operating
Costs: Summary and Perspective on Work to Date.This
document is a summary of different wind integration
studies for several utility systems that engineers at the
National Renewable Energy Laboratory and the Utility Wind
Interest Group published in March 2004.This summary
includes total wind integration costs at penetration
levels ranging from 4% to 20% for various utilities
across the country including the Bonneville Power
Administration , PacifiCorp and XCEL.It shows that total
wind integration costs per MWh for these utilities ranges
from $1.47/MWh for BPA at 7% penetration to $4.64/MWh for
PacifiCorp at 20% penetration.Exhibit 2 is an updated
version (from March 2005) of the summary table that
appears as Table 2 on page 8 of Exhibi
387 Gagliano, Di.
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There are nearly a dozen additional
integration studies available on the Utility Wind
Interest Group (UWIG) website
(ht tp: / /www. uwig. org/ operatingimpacts. html) UWIG
provides a forum for the critical analysis of wind
technology for utility applications and has nearly
utility members, including Idaho Power.We encourage
388 Gagl iano , Di.
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Idaho Power to work closely with its colleagues at UWIG
on wind integration issues. Hydropower is a great match
with wind and considering the large amount of hydropower
on its system , the Company seems well suited to integrate
wind power.
If all 350 MW of wind were installed on
Idaho Power's system , as planned in the 2004 IRP , actual
production from these facilities would probably average
115 to 125 MW.Idaho Power's average load ranges from
about 1300 MW up to about 2200 MW.This level of
penetration of wind power (averaging less than 10%) would
fall comfortably within the levels that other utilities
and entities have studied , as cited above.The ve ry
modest integration costs expected under these studies do
not warrant suspension of PURPA at this time.
IDAHO POWER STATES THAT $55. OO/MWH
WAS THE AVERAGE PRICE FROM ALL RESPONSES TO ITS REQUEST
FOR PROPOSALS FOR WIND POWER.IS THAT PRICE OUTSIDE THE
RANGE OF THE CURRENT PRI CES?
No. While $55.00 is higher than what
Idaho Power expected in its 2004 IRP , it is still within
the range of wind prices in the Northwest. Based on our
experience , the prices for existing large wind proj ects
in the Northwest and in Wyoming over the last 7 years
range from just over $30.00 per MWh to nearly $60.00 per
389 Gagliano, Di.
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MWh.
It is worth noting a recent example of the
cost effectiveness of wind energy from puget Sound
Energy'(PSE) 2004 all source RFP.
(Lines 19-23 on page 6 were removed from
the direct testimony by Mr. Gagliano.
390 Gagliano, Di.
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WHY DO YOU THINK THE RFP BID PRICES
IDAHO POWER RECEIVED ARE HIGHER THAN WHAT THE UTILITY
EXPECTED?
The maj or driver for the recent
increase in wind energy costs across the industry is that
in early 2005 the price of wind turbines increased.
There are a number of factors contributing to this
including higher worldwide steel prices, a weak U. S.
Dollar compared to the Euro , and increases in freight
prices resul ting from higher gasoline prices.Another
factor is the rise in the cost of construction labor.
inall y , the short - term extens ion of the federal
production tax credit for wind power leads to greater
demand and limited supply of wind turbines.
Idaho Power claims in its petition that
the current avoided cost rates influenced the bids the
Company received in its 2005 RFP. We see no evidence to
conf i rm that thi s is happening.We feel that RFP
processes gives developers the incentive to compete on
prlce.It is difficul t to believe that they would
collude to raise their bid price closer to the avoided
cost rate; or that all the developers desire (and are
able) to break up their proj ects into 10 MW increments so
as to qualify for the avoided cost rate.
IN THE TESTIMONY OF JOHN GALE , IDAHO
391 Gagliano, Di.
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POWER REFERENCES THE JUDITH GAP WIND PROJECT IN MONTANA.
DOES RNP HAVE ANY SPECIFIC INFORMATION ABOUT THAT
PROJECT?
RNP has been very involved wi
advancing wind energy in Montana over the past 8 years.
Since 2000, we have worked with Northwestern Energy (NWE)
(and its predecessor Montana Power) and supported its
efforts to secure a commercial scale wind proj ect.NWE
selected the Judi th Gap proj ect through an RFP issued in
July 2004.
392 Gagliano , Di.
RNP and NWEC
Although RNP sits on NWE' s Technical Advisory Committee
we were not involved in the actual selection of the
Judi th Gap proj ect
RNP intervened (represented by a staff
member other than mysel f) in the advanced approval
proceeding for Judi th Gap before the Montana Public
Service Commission in February 2005.However , we did not
sign the confidentiality agreement and therefore were not
privy to any confidential information about the proj ect.
NWE signed a 20 -year contract in December
2004 for 135-150 MW of wind from Judith Gap for around
$32/MWh.This is the busbar price of the proj ect , and
does not include transmission and integration costs.The
price reflects the benefit of the federal Production Tax
Credit as well as a state property tax reduction bill
that passed the Montana legislature this year.It was
estimated that without this property tax legislation the
cost of the proj ect would be about $2/MWh higher.
Montana has very robust wind resources and the estimated
capacity factor for Judith Gap is 37% or potentially
greater.This capacity factor contributes to its
competi ti ve prlce.
Q. HOW DOES THE COST OF JUDITH GAP COMPARE
TO OTHER PROJECTS IN THE REGION?
The busbar cost of Judi th Gap makes
393 Gagliano, Di.
RNP and NWEC
this one of the most competi ti ve wind proj ects in the
region.It represents the lowest point in the range of
wind energy prices in the Northwest for many of the
reasons I have already stated.
DOES THAT CONCLUDE YOUR TESTIMONY?
Yes.
394 Gagl iano, Di.
RNP and NWEC
(The following proceedings were had in
open hearing.
MR. EDDIE:And Mr. Gagliano is available
for cross.
COMM IS S IONER KJELLANDER:Thank you.
Let's begin wi th Idaho Power.
CROSS - EXAMINATION
BY MS. MOEN:
Mr. Gagliano, let's look at Exhibit 1003
while you have it.Could you tell me whether this graph
incorporates for each one of those resources that you
ident i fy, wind, coal , biomass, natural gas, hydro , any of
the costs of transmitting those resources to their
destination?
This is for delivered power and I guess
should clarify, I didn't create this.This is from Puget
Sound Energy itself.
What about the cost of integrating any of
those resources into the system?
I don't know.I know that the numbers are
for delivered , but I don't know.
And whose system is this?
This is for puget Sound Energy.
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So the del i vered cost to Idaho Power may
be significantly different , wouldn't you agree?
Each system certainly is unique.
So the cost would also be unique; correct?
Could be.
You're familiar with Idaho Power'
integrated resource plan for 2004 , aren't you?
A little bit.I haven't read through the
entire thing.
Would you agree with me that the Company
proposes to stage in a 10-year period the integration
350 megawatts of wind power into its system; correct?
Right.
And would you agree with me that for
purposes of providing reliable services to its customers
that Idaho Power should plan for those resources in a
responsible manner to respond to the demand by its
customers?
Yes.
Now , you assert in your testimony that if
Idaho Power would integrate all of the 350 megawatts
proposed in its 10-year study or plan that only very
modest integration costs would be expected; is that
right?
Well , not at the 350.I think what I'
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saying there is that the 200 megawatts that your 2004
plan calls for would be still a significant percentage,
but still a reasonable amount of wind and the UWIG study
shows that there are other utilities similar to yours
that are integrating wind at these percentages and are
doing it affordably and it is possible.
So it's not clear from
- -
you indicated in
your testimony that the proper time to conduct a wind
integration study would be after the Company integrates a
more substantial amount of wind power to its system.
Would that be after 200 megawatts or after 350
megawatts?
I would think that for the first 200
that's a reasonable amount to accept onto the system wi th
the hope that actually conducting a study would be more
useful for the Company and for ratepayers if there were
actually a wind system to study as opposed to running
hypothetical models, and I think at the 200 megawatt
level an integration study is not needed.As you got to
larger percentages of penetration , 20 percent for
example , I would agree that you might want to do an
integration study at that point.
Before the Company added additional wind
resources beyond the first 200 megawatts?
Give or take a little bit, but in the
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neighborhood of 200 to 250 , right.
Is it your position that the Company would
, I guess, indifferent whether it received those first
200 megawatts through an RFP process or through QFs?
I don't know what you mean by the Company
would be indifferent.
MR. EDDIE:m not sure if Mr. Gagliano
can speak to how the Company would feel about that.
MS. MOEN:Well , Mr. Gagliano has
indicated that the Company can integrate , Idaho Power can
integrate, wind resources into its system and it referred
both to the RFP and to QF development and I'm wondering
if Mr. Gagliano can speak to the fact of whether the
Company is indifferent whether we receive the 200 from a
QF resource or from wind developers from an economic
point of view.
THE WITNESS:Again , I don't understand
indifferent.I don't know t ha t
BY MS. MOEN:In other words , is there any
difference economically to the Company if we receive the
resources from an RFP process versus from a QF
development process?
Well , certainly, and I think looking at
Mr. Gale's testimony, you say that you've got the $55.
average from your RFP bids and then if you're looking at
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PURPA , you're obliged to get that at 61 , so there
certainly is a difference there between those two
approaches.
And your Exhibit 1001 to your testimony
the impact on an electric power system's operating costs
of integrating resources into a system; correct?
You're referring to the UWIG study?
Exhibit 1001.
Correct.
And would you agree with me that the study
concludes on page 7 of 10 in the summary that as the wind
penetration level increases, so does the cost of
ancillary services; correct?
That's what this study indicates , yes.
MS. MOEN:I have no further quest ions.
COMMISSIONER KJELLANDER:Thank you.
Let's move to Mr. Woodbury.
MR . WOODBURY:Thank you, Mr. Cha i rman .
CROSS - EXAMINATION
BY MR. WOODBURY:
Mr. Gagliano, I'm interested in the
membership of the Utility Wind Interest Group that you
cite , does that consist just of utilities?
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No, there are about 60 utilities from
across the country that are members, but there are
some - - I don't know that it's restricted to just
utilities.I know of at least a couple of professional
engineers who are consultants who work with UWIG as
well.
Is the Renewable Northwest proj ect
member?
No.
Do you participate with that group?
Not directly, no.
Okay.You state on page 3 that the proper
time to conduct a wind integration study would be after
the Company integrates a more substantial amount of wind
power , and what do you base that statement on?Could you
please explain , I guess, your experience wi th wind
integration studies and how they're developed?
I think if you look at the UWIG study, it
shows you that at different penetration levels for lots
of different utilities across the country that it is
possible to affordably integrate wind on utility systems
so in terms of
- -
you know , my point in showing the UWIG
study was to show that utilities are out there doing
and the sky is not falling.
And do you have - - are you aware of what
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the time frame is for developing a wind integration
study?
I spoke with an englneer, in fact one of
the authors of this UWIG study, this is what he said and
he said given the little he knows about Idaho's system
it's a smaller system than a lot of the ones that are
featured in this summary, he said that he would estimate
in the neighborhood of six months would be needed to
conduct a thorough integration study.
Okay, on page 6, you indicate that the
prices for existing large wind proj ects in the Northwest
and in Wyoming over the last seven years range from
30-$60.00 per megawatt-hour.A large wind proj ect
what si ze that you're talking about , greater than what?
I mean, for existing proj ects that we have
in the Northwest , I would say 50 megawatts and up.
And the $ 6 0 . 00 price was which proj ect?
That's not one specifically.That's just
the range.The Renewable Northwest proj ect has been
around since ' 94 and in the last seven years all the
involvement that the organization has had with wind
development in the region , that's the range, from 30 to
60, but 60 is not one specific proj ect.
Do you know what year the $60.00 figure
was last paid?
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m sorry?
Do you know what year the contract would
have been entered into wi th a $ 6 0 . 00 figure?
No, I don't.
MR. WOODBURY:Mr. Chairman , Staff has no
further questions.Thank you.
COMMISSIONER KJELLANDER:Thank you,
Mr. Woodbury.
Let's move down to Mr. Meyer.
MR . MEYER:No questions.Thanks.
COMMI S S IONER KJELLANDER:Let's move to
Mr. Richardson.
MR. RICHARDSON:Thank you , Mr. Cha i rman .
CROS S - EXAMINA T I ON
BY MR. RI CHARDSON :
Mr. Gagliano, would you agree that
integration costs might be different with a single 150
megawatt wind park versus, say, 15 10-megawatt
diversified geographically smaller wind parks?
Would integration costs be different?
Uh-huh.
I would imagine there would be some
economies of scale there with different sizes of proj ects
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like that, but I'm not certain.
But in terms of the utility integrating
the 150 megawatts into its system and the ancillary
services necessary to integrate the two proj ects or the
one proj ect versus the 15 smaller proj ects, would there
be a difference in cost of integration?
I think the UWIG study shows that at
smaller penetration levels , of course, it's cheaper.
you get larger penetration , that number grows, but it'
not a large difference.
When you speak of penetration numbers , do
you aggregate them all together?If there's 15
10-megawatt projects diversified from western Idaho to
eastern Idaho versus a single 150 megawatt project at one
location , does that pose different ancillary service
costs on the utility?
That I don't know.
At page 4 of your testimony, you state
your concerns about gaming the system.Do you recall
that?
Yes.
And I take it you mean the word gaming in
a prej orati ve sense?
No.
Do you think it's a good thing or bad
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thing, this gaming?
I wish I hadn't used the word gaming.
What I meant to say with that term is if there are any
loopholes that a large commercial developer could exploit
to chop proj ects into smaller proj ects to qualify for
PURPA rates , that's something we would not support, so by
gamlng, I mean manipulating PURPA , taking advantage of
PURP A .Tha t 's what gaming means.
Taking advantage of PURPA is gaming?
Yeah , I use those synonymously.
So you think following the Commission'
rules is a bad thing?
, no, and like I say here, I don't have
any evidence that this is actually happening, but that
was a question that Idaho Power raised and I responded
here to that about the possibility of breaking larger
proj ects into smaller QFs.
Do you know , have you looked at how many
QF contracts Idaho Power has signed since it first
started signing them in the early 1980s?
No.
Do you know how many of the contracts
Idaho Power has signed that are over the 10 megawatt
threshold?
Do I know how many they have signed
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How many QF contracts Idaho Power has
signed that are larger than the 10 megawatt threshold.
I don'know that number.
Would surprlse you to learn that only
one or two such contracts have been signed that are in
excess of 10 megawatts?
I don't know that that would surprlse
me.
And do you know that Idaho Power is still
obligated to purchase power from QFs even if they are
larger than 10 megawatts?
Right.
And with that in mind, does it surprise
you that almost no QF contract is larger than
megawatts?
I don't know.
MR. RICHARDSON:Thank you, Mr. Gag 1 i ano .
That's all I have, Mr. Chairman.
COMMI S S IONER KJELLANDER:Thank you,
Mr. Ri chardson
Let's move to Windland.
MR . HAMMOND:Thank you , Mr. Cha i rman ,
just a couple of questions.
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CROS S - EXAMINA T I ON
BY MR. HAMMOND:
You were here in the room earlier when
Mr. Griswold testified, were you not?
Yes.
Do you recall that PacifiCorp testified,
the PacifiCorp witness testified , to a study that shows
wind penetration of about 20 percent would cost about
$4.64 a megawatt-hour?
Right.
I believe you also said in your testimony
or discussed and Mr. Gale , the Idaho Power wi tness,
discussed that Idaho Power's peak load is about 3 000
megawatts?
Right.
Tha t 's correct?m sorry.
That's what I've heard , right.
In your opinion, doesn't that imply that
Idaho Power wouldn't reach a 20 percent wind penetration
level until they've acquired roughly 600 megawatts
nameplate capacity of wind generation?
That sounds about right.
And obviously, that is lower than the 200
or 350 megawatt level that Idaho Power is currently
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considering?
You just said 600 megawatts for PacifiCorp
is lower than
, I'm sorry, I wi 11 back up.Wha t I had
asked previously, doesn't it imply if their capacity
000 megawatts, if Idaho Power's capacity, peak
capacity, is 3 000 megawatts, doesn't it imply, also,
that Idaho Power wouldn't reach a 20 percent penetration
level until the Company had acquired 600 megawatts
nameplate capacity of wind?
That sounds right.
Which , of course , is much higher , isn I t it
correct, than the 200 to 350 megawatt level that Idaho
Power is currently considering?
Correct.
MR.HAMMOND:Thank you.believe we
have nothing further.
COMMISSIONER KJELLANDER:Let's move
Mr.Miller.Thank you Mr.Miller.
Let's move Mr.Ikemoto.
MR . I KEMOTO :Thank you , Mr. Cha i rman .
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CROSS - EXAMINATION
BY MR. IKEMOTO:
Mr. Gagl iano, one of your prlmary concerns
is the ability of RFP projects to break themselves into
PURPA proj ects; correct?
Right.
And how do you feel about the one mile
separation rule that's already buil t into PURPA?
That's the federal requirement, as
understand it.Proximi ty of proj ects is one way to
possibly prevent larger proj ects being broken down into
smaller ones.
But do you believe that that rule
sufficient to keep RFP proj ects from breaking up?
I think there would be other things you
would have to look at in addition to just proximity of
one mile or one mile and one inch.
But if that rule were extended to common
development, wouldn't that be more effective?
I think one of the cri tical things to look
at would be ownership structures and like I say in my
testimony here , I know Minnesota has looked at this
recently, it's a tough thing to try to discern if large
commercial proj ects are being broken down and I think
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RNP and NWEC
just based on proximity is probably not sufficient.
There are ownership structures and other sorts of things
that the Commission could look at to prevent that.
MR . I KEMOTO :Thank you.That's all
Mr. Cha i rman .
COMMI S S IONER KJELLANDER:Thank you,
Mr. Ikemoto.
Let's move to Ms. Nordstrom from
PacifiCorp.
MS. NORDSTROM:I have no questions.
COMMISSIONER KJELLANDER:Any questions
from members of the Commission?None?
Okay, let's see if there is any
redirect.
MR. EDDIE:, no redirect.
(The wi tness left the stand.
COMMISSIONER KJELLANDER:Okay, thank you.
I believe that that concludes the number of known
witnesses who have prefiled testimony and we thank you
for your testimony and we appreciate your indulgence for
staying wi th us throughout the day to get this spread
across the record and move forward wi th the cross.
It brings us to a point where we're ready
to close things down for the day.Is there anything else
that else needs to come before us presently?
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MS. NORDSTROM:I have a question
Commissioner Kj ellander.Could you confirm that Exhibits
702 and 703 are not part of the record since there were
no questions asked in regard to them?
COMM IS S IONER KJELLANDER:That is
something I actually took a note of on my own and even
though they were distributed, they were not referenced to
in the form of a question , so they are not a part of the
record.
MS. NORDS TROM :Thank you.
COMMISSIONER KJELLANDER:I s there
anything else that needs to come before the Commission?
MR. KLINE:Mr. Chairman , one more
thing.
COMMISSIONER KJELLANDER:Yes.
MR. KLINE:I recogni ze that the
Commission indicated that they didn't need oral arguments
on the briefs with respect to the Commission's authority.
I think we need some reply briefs or at least an
opportuni ty for a short reply brief.There have been a
number of references to legal issues associated wi
PURPA that , frankly, are not in our minds correct.They
were statements in the briefs that I think are not
legally correct and we would at least need an opportunity
to present our side of the story, so to speak , so I would
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really request that we have some opportunity to do one
more round of reply briefs.
COMMISSIONER KJELLANDER:Just a moment
before we move with that.
(Pause in proceedings.
COMMISSIONER KJELLANDER:Mr. Kline
having sensed that there was a need for urgency in this,
it to me becomes somewhat surprising that we're looking
at trying to extend the time line as it relates to
additional need for that, so let me go back to what I at
least had said at the outset, if there is something other
than the issue related specifically to our authority,
then perhaps if you're ready to offer that up now , I'
inclined to go ahead and do that today and do it now , and
the other issue, too , is that there was some discussion
earlier about the need for rebuttal and I'm just curlOUS
as to whether or not you feel that's necessary.
MR. KLINE:No.
COMMI S S IONER KJELLANDER:Well, then let'
go to that issue and if you're prepared, let's get this
on the record and move forward.
MR. KLINE:I am.There were two legal
issues associated with the Commission's authority to
proceed wi th the suspension as requested by Idaho Power
or any other remedy that was suggested by other parties.
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One of them is this question of discrimination and Mr.
Richardson referred in his cross-examination a couple of
times to the fact that PURPA prohibits discrimination
between QF technologies and the fact of the matter is I
think that is incorrect.
They both argue that PURPA prohibits
m sorry, both Exergy and also Cassia and Magic argued
that PURPA prohibits discrimination between differing
generating technologies, QF generating technologies , and
as a result, the Commission cannot grant the relief
requested by Idaho Power because that would be
discrimination between technologies , picking out wind and
saying we're just going to apply it to wind would be
discrimination between technologies.
First of all , that's not what PURPA says.
16 U. S. C. 824a-3 simply states utilities shall not
discriminate against QFs, not between QFs, against QFs,
and the statute is very clear that the concern that
Congress and ultimately the FERC in its rules was trying
to remedy wi th this language about discrimination was
that the utilities would favor utility resources and
discriminate against QFs , not between different kinds of
QF generating technology.There's nothing in PURPA that
addresses that directly.
Secondly, a suspension as we have
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requested is not discrimination between wind and others.
If there's a rational basis for different treatment of
two different technologies, then that would not be
discrimination.The intermi t tent nature of wind provides
that rational basis for treating wind different than
other technologies wi th respect to the suspension that
we've asked for.An analogy for that that I think would
be appropriate is retail rate setting.Idaho law
prohibits utilities from discriminating and showing
preference between customer classes, but it's also well
settled that different rates for different classes are
not discriminatory if they're based on a difference in
the cost of serVlce.
Irrigation rates can be different than
residential rates because there's a difference in
supplying the service.That's not discrimination and
here the si tuation is analogous.The reason that we'
identified wind is because it has a different avoided
cost characteristic than do other technologies as far
wind is concerned.The costs the Company can avoid by
buying wind are different than other QF resources , so we
don't think there's any discrimination whatsoever even
between the different kinds of technologies.
The second issue that was raised by Magic,
Cassia and Exergy is their assertion that the Company
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asking the Commission to suspend PURPA.Again, Mr.
Richardson mentioned that in his cross-examination
questions and in his brief as well and let's be clear
here.TheThat's not what Idaho Power is asking for.
Company has specifically requested suspension of its
obligation to enter into contracts.The obligation to
contract wi th QFs is created by this Commission.The
concept of requiring utilities to sign contracts is not
in PURPA.This was createdIt's not in the FERC rules.
by this Commission issuing its Order saying that
utilities will sign 20-year contracts with QFs.
We litigated this very specific issue in
the Afton cases and in that instance, the court found
that the Commission did have the authority to order
utilities to enter into special contracts with QFs, so
the idea of contracts is a creature of this Commission
and certainly, if this Commission can order utilities to
sign contracts, it certainly can temporarily suspend the
obligation to enter into contracts if it finds that
avoided costs have changed, so we're not talking about
the utility asking to have its PURPA obligation
suspended.
Thi s i sn 't a case where we're asking a
state agency to suspend a federal obligation.We'
talking about contracts that are wi thin your purview and
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you certainly can gl ve the opportuni ty to suspend the
requirement to enter into contracts.Tha t 's it.
COMMI S S IONER KJELLANDER:Yes,
Commissioner Smi th.
COMMISSIONER SMITH:Mr. Kline, wi
regard to your second contract argument , so if PURPA
doesn't require contracts and that's a creation of the
Idaho Commission , how does PURPA contemplate that the
utility and the project developer do business?
MR. KLINE:They left that to the state
commissions.They said, for example, you could do it in
a tariff.You wouldn't have to have a contract.You
could do it in the form of a "legally enforceable
obI iga t ion. That might be a contract , but it might be
other things as well.It was this Commission that said
we think that it has to be a contract.The utility has
to be ordered to slgn a document and that's what we
talked about in Afton 1, 2 , 3 , you recall.
COMMISSIONER KJELLANDER:Further
questions?I think on those limited issues , I probably
should be careful , but let's go ahead and open that to
other parties for a response in terms of oral argument in
relationship to the discrimination issue and the
suspension of PURPA as referenced in Mr. Kline's oral
argument.
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Mr. Richardson , if you would like to go
first.
MR. RI CHARDSON :Thank you , Mr. Cha i rman .
Counsel for Idaho Power on the contract issue
definitely counting angels on the head of a pin.PURPA
and the FERC' s rules require this Commission to
requires Idaho Power to enter into a legally enforceable
obI iga t ion wi th QFs.You have defined legally
enforceable obligation to mean contract, but Mr. Kline is
right, it could be a tariff , but the obligation to
purchase goes away in this Commission when the obligation
to contract goes away.
You've implemented PURPA , the legally
enforceable obligation to purchase, by saying Idaho Power
will enter into a contract.You could have implemented
PURPA by saying it will be a tariff and if it were a
tariff, Idaho Power would be in here asking you to
suspend the tariff.By definition, that's suspending the
legally enforceable obligation , so it's not true that the
requirement to enter into a contract goes away.You'
still in compliance with PURPA because there is no other
vehicle you have out there for a QF to use to require
Idaho Power to comply wi th PURPA by entering into a
legally enforceable obligation to purchase.
On the discrimination argument , first of
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all, Idaho Power's avoided cost rates are the costs Idaho
Power avoids by purchasing power from a QF.It's not
what the QF costs of production are, but you ve always
set from day one the avoided cost rates based upon a
table , a fixed rate that every QF is entitled to sign up
for regardless of technology; in other words, you've been
blind to the impact of the different technologies on
Idaho Power's system.
Idaho Power is now asking you to look
the impact of wind on its system while ignoring the
impact of any other type of resource on its system;
hence , you are discriminating between wind and all other
types of resources.16 u. s. C. 824a-3 which Mr. Kline
referred you to has several subsections to it.It has a
section dealing with rates for purchases by utilities
which provides, as Mr. Kline quoted, those rates shall
not discriminate against qualifying cogenerators or
qualifying small power producers in the section on rates
for purchases by electric utilities.
You may not discriminate against
qualifying facilities.If you set an avoided cost rate
by one methodology for one motive force and a different
methodolgy for a second motive force, you have by
definition discriminated against qualifying facilities.
That subset does not have to have their integration costs
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calculated when setting avoided cost rates.
It has other sections here, like rates for
sales by utili ties, similar language in there in terms of
not discriminating, but the point is you have two
different kinds of avoided cost rates, one for wind and
one for everyone else , but we're trying to find out the
avoided cost rate for Idaho Power , not for the QFs , and
if Idaho Power's avoided cost rate has to take in the
integration costs of wind, it's discriminatory to not
also require them to take in the integration costs of
cogeneration or biomass or solar.
Thank you.
COMMI S S IONER KJELLANDER:Thank you,
Mr. Ri chardson
COMMISSIONER SMITH:I have a question.
COMMISSIONER KJELLANDER:Commissioner
Smi th.
COMMISSIONER SMITH:Mr. Richardson , on
the integration cost issue, do you think the Commission
has an obligation to look at the PURPA rate for wind or
anybody else if we know that the Company has the
opportuni ty to integrate a certain amount wi thout
additional costs, but beyond that there will be
additional costs?
MR . RI CHARDSON :m not entirely sure I
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followed your question.I think any resource, no matter
what the motive force , will have integration costs and
you're going to calculate avoided cost rates by taking
into account integration costs, you need to do it across
the board.
COMMISSIONER SMITH:And if we have
reached a point in time where the contracts signed or the
potential contracts in the queue that we say must be
signed have reached a limit where we believe those costs
need to be considered and the rates are no longer
reflecting the true avoided cost of the Company, what is
the Commission's obligation?
MR. RICHARDSON:Well , the Commission'
obligation is obviously to set the avoided cost rates or
methodology for determining those rates such that the
Power Company only pays no more than true avoided costs
so you would have an obligation to investigate that.
COMMISSIONER SMITH:And while we'
investigating, do we have an obligation to somehow stop
the requirement for contracts at a particular rate while
we figure out what the correct rate is?
MR. RI CHARDSON :I don't believe you do.
I think until you have a record to change the rates to
right now you have an indication that the rates may be in
error for Idaho Power at this point.You have an
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obligation to investigate , but you don't have a record
upon which to change them yet.
COMMISSIONER KJELLANDER:Anyone else?
not, then
- -
I thought I would see your hand go up.
Mr. Miller.
MR. MILLER:Pardon me , I'd only refer the
Commission to the brief that we have filed on the point
which suggests a slightly different approach , which is
have frankly not found any court of competent
jurisdiction that has clearly answered the questions that
are posed by the suspension , but I do think there is a
risk of illegality and as the Commission balances the
risk of inaction , it should balance the risk of
illegality when it weighs which way it wants to go.
other words , if a case for irreparable harm has been
shown , then you could be less concerned about illegality.
I f as I think the record now shows there
lS questionable need for immediate action, you should be
more concerned about the risk of illegality, so we would
just ask you to consider the risk of illegality as you
balance the question of how immediate is the need for
action.
COMMI S S IONER KJELLANDER:Thank you,
Mr. Miller , and I believe that brings us close to tying
things up today wi th regards to developing the record
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tha t we have here.I think the one thing I would ike to
leave you with is that there is always the possibility
that the Commission will not be able to issue a quick
decision and Order , so to the extent that some parties
believe during this time frame that no contracts will be
signed because there may be what they consider to be a
de facto suspension in place today, it may well behoove
the parties to try again to discuss some issues related
to settlement , so I would like to encourage further
discussions in that arena , recognizing that trying to
pull all that together thi s morning may have been an
impossible task for anyone to resolve in that time frame
so certainly would encourage the parties to look for very
rapid opportunities to continue those discussions and see
if we might be able to come up with something fruitful in
this interim period between now and when the Commission
can come up wi th an order there.
MR . MI LLER :Mr. Cha i rman .
COMMISSIONER KJELLANDER:Yes.
MR. MILLER:I have something along those
lines, if I might, and that is an oral motion requesting
that the Commission promptly issue an order granting the
exemption that has been suggested by Cassia and Magic
from any suspension that it might eventually order; in
other words, to say now if we do dec ide to do a
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suspenslon , it will have within it an exemption and the
xempt ion v;i l-l-be-the-appi-c-at-i-on-exempt-wmrn we ave
defined and articulated in our brief and also included
potential ordering language the Commission could consider
adopt ing
In addition to the rationale for our
request contained in the brief , the matters that
believe occurred today that further support the request
are as follows:First, Staff believes the proposal
reasonable, a reasonable way to deal wi th what we
generically call the grandfathering problem.We al so
learned today that the amount of generation that would be
encompassed by that exemption is, in general terms
reasonabl e or not unreasonabl e .There may be some
implication for the Company's IRP , but we concur with
Staff's view that that impact has to give way to the
consideration of fairness to developers who are
substantially far along in the development process.
We think that - - well , let me skip that
and finally, during the course of the day no substantial
principled opposition has arisen with respect to the
proposed exemption as we have defined it, and
additionally, the need for immediate action on that point
is established by the testimony of Mr. Eckert and
Mr. Grover, so in the event the part ies are unable to
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address that problem by the discussions that you have
~~;;2~t~, we would ask that the Commission promptly
issue an order establishing that as the suspension
exempt ion parameter.The additional and unspoken but
obvious benefit of this ruling would be that I would
recede from the picture.
COMM IS S IONER KJELLANDER:Don't expect a
Bench rul ing
MR. MILLER:The parties would be free to
discuss these matters without the irritation associated
with my displeasing and irritable personality.For those
reasons , we would request that the Commission give prompt
consideration to our motion.
COMMI S S IONER KJELLANDER:Any comment on
the motion?
MR . I KEMOTO :Mr. Chairman, during the
earlier discussions , the focus seemed to be how can we
get this door closed and end it all and my hope is that
we go into a settlement with the goal of how can we
rationalize this process , make it work for people.
Certainly, it will have schedules and it will have
limitations and it will have superior rights by some
proj ects over others, but I don't think that we need to
pull one proj ect out , even though I support both proj ects
and would ike to see them both go and would ike to see
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them both have priori ty .I would ike to see them in the
process of trying to recraft this thing so that it's more
workable and that there isn't a death to the availability
of PURPA proj ects for wind which actually I do think
would be discriminatory.
If there is enough generation at the
avoided costs that are out there, because let's face it
ancillary costs are pretty small , then the availability
of PURPA contracts for all QF technologies should cease
at the same time and if there needs to be an ordering of
those proj ects or putting them in traunches so that they
fit the load growth better or fit the cost structure of
the utility better or whatever , that is what I would like
to see the group look toward , coming up with something
that continues to make available a marketplace for
agricul turally-oriented or rurally-oriented proj ects that
can't go through the transaction cost process of a
big-time negotiation with a big-time utility, so I think
carting off a couple of proj ects today isn't the way to
go.I think we ought to all work together to prioritize
the proj ects , but leave wi th some kind of process coming
out of this thing.
COMMISSIONER KJELLANDER:Any further
comments?If not, well, I think we are at the best point
to bring these proceedings to a close.We wi sh everybody
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the best as we move forward and the Commission will take
into consideration the record we have here and hopefully,
deal wi th it appropriately.
We thank you for your time and your effort
and we wish you the best going forward.We are
adj ourned
(All exhibits previously marked for
identification were admitted into evidence.
(The Hearing adj ourned at 5: 45 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 the petition of Idaho
Power Company for an order temporarily suspending Idaho
Power's PURPA obligation to enter into contracts to
purchase energy generated by wind-powered small power
production facilities, commencing at 9:30 a.m., on
Friday, July 22, 2005, 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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426 COLLOQUY