20091013IPC to Staff 1-5.pdf

BARTON L. KLINE
Lead Counsel
esIDA~POR~
An IDACORP Company
October 13, 2009
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
P.O. Box 83720
Boise, Idaho 83720-0074
Re: Case No. IPC-E-09-25
IN THE MA TTER OF THE APPLICA TlON OF IDAHO POWER COMPANY
FOR APPROVAL OF A FIRM ENERGY SALES AGREEMENT FOR THE
SALE AND PURCHASE OF ELECTRIC ENERGY BETWEEN IDAHO POWER
COMPANY AND IDAHO WINDS LLC
Dear Ms. Jewell:
Enclosed for filing please find an original and three (3) copies of Idaho Power
Company's Response to Staff's First Production Request in the above matter.V(JLL
Barton L. Kline
BLK:csb
Enclosures
P.O. Box 70 (83707)
1221 W. Idaho St.
Boise, 10 83702
BARTON KLINE (ISB No. 1526)
DONOVAN WALKER (ISB No. 5921)
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: [phone]
bklinecæidahopower.com
dwalkercæidahopower.com
Attorneys for Idaho Power Company
Street Address for Express Mail:
1221 West Idaho Street
Boise, Idaho 83702
RECE!VED
lOû9 OCT 13 PM 3: '3
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
APPROVAL OF A FIRM ENERGY SALES
AGREEMENT FOR THE SALE AND
PURCHASE OF ELECTRIC ENERGY
BETWEEN IDAHO POWER COMPANY
AND IDAHO WINDS LLC.
)
) CASE NO. IPC-E-09-25
)
) IDAHO POWER COMPANY'S
) RESPONSE TO STAFF'S FIRST
) PRODUCTION REQUEST TO
) IDAHO POWER COMPANY
)
COMES NOW, Idaho Power Company ("Idaho Powet' or "the Company"), and in
response to the First Production Request of the Commission Staff to Idaho Power
Company dated September 21 , 2009, herewith submits the following information:
IDAHO POWER COMPANY'S RESPONSE TO STAFF'S
FIRST PRODUCTION REQUEST TO IDAHO POWER COMPANY - 1
REQUEST NO.1: Please confirm whether the proposed Sawtooth Wind Project
is, in fact, substantially the same as the Alkali Wind Project that formerly held a power
sales agreement with Idaho Power. Reference Case No. IPC-E-06-36, Order No.
30253.
RESPONSE TO REQUEST NO.1: It is Idaho Powets understanding that the
site for the Sawtooth Wind Project is substantially the same as the site for the previous
proposed Alkali Wind Project. The Sawtooth Wind Project is a slightly larger project
than the Alkali Wind Project previously proposed. Based on those facts, it is reasonable
to conclude that the Sawtooth Wind Project is substantially the same project as the
former Alkali Wind Project. However, as noted in his e-mail to Rick Sterling dated
September 23, 2009, the developer denies that the Alkali project and the Sawtooth
project are the same project.
The response to this Request was prepared by Randy Allphin, Senior Power
Supply Planning Administrator, Idaho Power Company, in consultation with Barton L.
Kline, Lead Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO STAFF'S
FIRST PRODUCTION REQUEST TO IDAHO POWER COMPANY - 2
REQUEST NO.2: Please describe all circumstances, features, characteristics or
other factors associated with the Sawtooth Wind Project that Idaho Power believes
distinguish it from other projects included in the QF transmission and interconnection
studies for proposed facilties to be located in the Magic Valley. Please explain why
Idaho Power believes the circumstances, features, characteristics or other factors justify
offering Idaho Winds LLC a new power sales agreement for the Sawtooth Wind Project.
RESPONSE TO REQUEST NO.2: In order to respond to this Request, it is
necessary to briefly describe the events that led up to the cancellation of the Firm
Energy Sales Agreement ("FESA") for the proposed Alkali Wind Project. First, the Alkali
Wind Project was not included in the transmission cluster that was the subject of
Commission Order No. 30414, issued in Case No. IPC-E-06-21. However, because the
Alkali Wind Project is located near Glenns Ferr, Idaho, the analysis and design work
that was being performed by Idaho Power's transmission group to integrate the large
cluster of resources proposing to interconnect in the Hagerman-Magic Valley area
impacted the interconnection and transmission upgrade analysis the Company
performed for the Alkali Wind Project. During the analysis of the "cluster," Idaho Power
and the developer of the Alkali Wind Project became aware of previously unknown
transmission and interconnection issues and potential costs, and resolution of these
issues caused time delays in the interconnection process.In addition, the
interconnection analysis for the Alkali Wind Project was delayed by unavoidable internal
problems at Idaho Power involving the need to replace the study engineer in the middle
of the Alkali interconnection study. While it was ultimately determined that the Alkali
project could interconnect to the Company's system, processing the interconnection
IDAHO POWER COMPANY'S RESPONSE TO STAFF'S
FIRST PRODUCTION REQUEST TO IDAHO POWER COMPANY - 3
request was inordinately delayed. At least some of the delay can be attributed to Idaho
Power. Commission Order No. 30253 discussed the uncertainty associated with
transmission issues occurring at the time (Order No. 30253, pp. 4-7.) This period of
transmission uncertainty occurred at a time when the costs of material and equipment
for the Alkali project were rising quickly. For all of these reasons, the developer of the
Alkali project advised Idaho Power that he desired to cancel the FESA rather than
continue to develop the project and risk a financial failure. The developer confirmed this
scenario in his September 23 e-mail to Rick Sterling. Idaho Power made a dilgent
effort to work with the developer with the intention of extending the on-line date rather
than terminating the contract. However, in the end, the developer concluded that it
could not proceed and Idaho Power agreed to a cancellation of the contract.
On May 6, 2008, Idaho Power filed a copy of the cancellation agreement
between Idaho Power and the Alkali Wind Project with the Commission.
Finally, in considering the Company's decision to offer the Sawtooth project a
new contract, it is important to remember that at the time of cancellation, the
Commission had neither considered nor ordered a change in the published avoided cost
rates. The current avoided cost rates were approved in February of 2009,
approximately one year after the decision was made to cancel the Alkali contract.
The response to this Request was prepared by Randy Allphin, Senior Power
Supply Planning Administrator, Idaho Power Company, in consultation with Barton L.
Kline, Lead Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO STAFF'S
FIRST PRODUCTION REQUEST TO IDAHO POWER COMPANY - 4
REQUEST NO.3: Please list and identify all other QF projects included in the
QF transmission and interconnection studies for the Magic Valley that now have power
sales agreements with Idaho Power. Please identify those projects that negotiated
extensions to their proposed online dates due to delays in completing the transmission
and interconnection studies. For these projects, please explain why each could not
terminate their existing contracts and seek new contracts at higher avoided cost rates in
the same manner in which Idaho Winds LLC has done for the Sawtooth project.
RESPONSE TO REQUEST NO.3: Burley Butte, Golden Valley, Lava Beds,
Milner Dam, Notch Butte, Oregon Trails, Pilgrim Stage, Salmon Falls, Thousand
Springs, Tuana Gulch, Magic Wind, Cassia Wind, Cassia Gulch, Bennett Creek, and
Hot Springs were all wind projects with QF contracts that were either directly involved or
indirectly impacted by the Magic Valley QF interconnection and transmission cluster
issue.
Cassia Gulch, Cassia Wind, Bennett Creek, and Hot Springs are all currently on-
line. All of the other above-referenced projects experienced transmission study delays
but decided to remain in the interconnection and transmission queue. They have each
continued to progress through the interconnection study process. They have all
retained their FESAs but revised their estimated operation dates to September 30,
2010.
Idaho Power disagrees with the premise of the Request that the above-
referenced projects stand on the same footing as the Alkali Wind Project did when
Idaho Winds LLC and Idaho Power agreed to terminate the Alkali contract. It was only
after the filng of the multiple interconnection requests for the numerous wind projects in
IDAHO POWER COMPANY'S RESPONSE TO STAFF'S
FIRST PRODUCTION REQUEST TO IDAHO POWER COMPANY - 5
the "clustet' area that the complexity of the interconnection and transmission issues in
the "clustet' area became known. This sudden and large influx of megawatts of
interconnection requests required a "clustet' study be performed. Upon completion of
this cluster study, the results were presented to the impacted projects. They rejected
the results of the study and the matter was submitted to the IPUC in form of a complaint
by the impacted projects. This complaint was ultimately resolved by IPUC order.
This entire process consumed more time than is typically required to perform
interconnection and transmission studies. It was during this same time that the Alkali
project experienced unexpected time delays and uncertainty of costs in the
interconnection process that resulted in the project withdrawing its interconnection
request and requesting termination of the agreement.
However, the issues relating to the interconnection process have now been
resolved. The above-referenced projects did not seek to cancel their contracts but
instead requested to extend the operation date within their contracts. Because the
interconnection studies are now substantially complete and the magnitude of the
interconnection-upgrade costs have been disclosed, the remaining projects have no
basis to claim they do not know the construction schedule or the general magnitude of
costs of interconnection at this time. Contract cancellation at this point would simply be
an attempt to obtain the new, higher rates and would be a clear breach of contract.
Finally, the critical and, in the Company's eyes, dispositive difference between
the status of the above-referenced projects and the Alkali-Sawtooth projects is that the
Alkali project decided to cancel its contract nearly a year before the Commission
decided to increase the published avoided cost rates to the current leveL. At the time
IDAHO POWER COMPANY'S RESPONSE TO STAFF'S
FIRST PRODUCTION REQUEST TO IDAHO POWER COMPANY - 6
the Company and the Alkali Wind Project agreed to voluntarily terminate the Alkali
FESA, neither Idaho Power nor the project developer knew that the Commission would,
many months later, decide to increase the published avoided cost rates.
That is not the same situation for the remaining projects. If they choose to
default now and subsequently request a contract at rates they now know are higher, the
Company believes denial of a new contract would be reasonable and legally
sustainable.
The response to this Request was prepared by Randy Allphin, Senior Power
Supply Planning Administrator, Idaho Power Company, in consultation with Barton L.
Kline, Lead Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO STAFF'S
FIRST PRODUCTION REQUEST TO IDAHO POWER COMPANY - 7
REQUEST NO.4: The power sales agreement for the Alkali Wind Project was
terminated by mutual agreement of the parties by way of a May 6, 2008 letter
agreement. Is it the Company's belief that filng of the termination agreement with the
Commission on May 20, 2008 constitutes "acceptance of the termination" by the
Commission? Please explain. Please discuss why Idaho Power believes the Sawtooth
Wind Project should not be bound by the same rates, terms and conditions as were
included in the Alkali contract.
RESPONSE TO REQUEST NO.4: Idaho Power does not contend that the
Company's May 20, 2008, filng of the termination agreement between Idaho Power and
the Alkali Wind Project binds the Commission. Idaho Power made the filing with the
Commission in good faith with the expectation that if the Commission or its Staff had
questions or concerns relating to the cancellation, the filing of the cancellation
agreement would provide a vehicle for the Commission to inquire further. Idaho Power
acknowledges that the Commission has not issued an order formally accepting the
termination of the Alkali contract. The Commission is certainly free to reject the
Sawtooth Wind Project FESA. The Sawtooth Wind Project FESA explicitly provides that
it is contingent on the Commission issuing its order accepting the agreement and
approving it for ratemaking purposes.
The reasoning underlying the Company's decision to enter into the Sawtooth
Wind Project FESA is outlined in the prior responses.
The response to this Request was prepared by Randy Allphin, Senior Power
Supply Planning Administrator, Idaho Power Company, in consultation with Barton L.
Kline, Lead Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO STAFF'S
FIRST PRODUCTION REQUEST TO IDAHO POWER COMPANY - 8
REQUEST NO.5: Please describe any actions or contract provisions included in
new QF contracts that Idaho Power believes wil deter QF contract holders from
terminating or defaulting on existing contracts in order to negotiate new contracts at
higher avoided cost rates.
RESPONSE TO REQUEST NO.5: In most instances, the owner of a QF
resource is a limited liabilty company ("LLC") with little or no assets other than the
FESA and the project's equipment and facilties. In most instances, the project's
equipment and facilties are subject to substantial first mortgage liens, thereby putting
Idaho Power behind other creditors in the event of a default or bankruptcy. As a result,
under most vintages of FESAs, it is unlikely that Idaho Power wil be able to recover its
damages if a QF developer defaults or terminates a FESA.
The Company, and the Commission, have struggled to address the balance
between including terms and conditions in QF contracts that wil adequately protect
customers while at the same time not unduly inhibit the development of QF projects. In
the end, the only mechanism the Company believes is both fair and effective is the
posting of liquid security to be retained for a period of time to ensure QF developers do
not cancel or terminate projects in an effort to "game" the system.
It is Idaho Powets opinion that the only effective way to deter QF developers
from acting in the manner described in Request NO.5, i.e., terminating or defaulting on
existing contracts in order to negotiate new contracts at higher avoided cost rates, is for
the Commission to allow Idaho Power to include reasonable liquidated damages
provisions in QF contracts and to allow the Company to include contract provisions that
require QF developers to provide meaningful amounts of liquid security to be retained
IDAHO POWER COMPANY'S RESPONSE TO STAFF'S
FIRST PRODUCTION REQUEST TO IDAHO POWER COMPANY - 9
by the utility in the event of a termination or default. Unless the QF developer has a
meaningful financial incentive not to terminate or default, some QF developers wil
continue to look at power sales agreements as options which they can exercise or
ignore without adverse consequences.
Recent FESAs between Idaho Power and QF developers have included such
liquidated damage and security provisions. The Tuana Springs expansion, Camp Reed,
Yahoo Creek, and Payne's Ferry QF contracts recently approved in Commission Order
Nos. 30917, 30924, 30925, and 30926, respectively, all include delay damage contract
language and security in the amount of $20.00 per kW. In reality, the $20.00 amount is
probably too low to be a meaningful deterrent. An amount of security equal to the
greater of three months anticipated revenues or $45.00 per kW is more realistic. In
Comments filed in the pending GNR-E-09-03 case, Idaho Power and Avista have
suggested that $45.00/kW or approximately 3 months of revenue is an appropriate
amount of security for new QF contracts going forward.
The response to this Request was prepared by Randy Allphin, Senior Power
Supply Planning Administrator, Idaho Power Company, in consultation with Barton L.
Kline, Lead Counsel, Idaho Power Company.
DATED at Boise, Idaho, this 13th day of October 2009.
~
BARTON L. Kline
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S RESPONSE TO STAFF'S
FIRST PRODUCTION REQUEST TO IDAHO POWER COMPANY -10
CERTIFICATE OF MAILING
I HEREBY CERTIFY that on the 13th day of October 2009 I served a true and
correct copy of the within and foregoing IDAHO POWER COMPANY'S RESPONSE TO
STAFF'S FIRST PRODUCTION REQUEST TO IDAHO POWER COMPANY upon the
following named parties by the method indicated below, and addressed to the following:
Commission Staff
Scott Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington
P.O. Box 83720
Boise, Idaho 83720-0074
Idaho Wind Farms LLC
Tom Fetzer
Idaho Winds LLC
4255 South Nickel Creek Place
Meridian, Idaho 83642
Hand Delivered
-- U.S. Mail
_ Overnight Mail
FAX
-- Email Scott.Woodbury((puc.idaho.gov
Hand Delivered
-- U.S. Mail
_ Overnight Mail
FAX
Email
~r~
Barton L. Kline
IDAHO POWER COMPANY'S RESPONSE TO STAFF'S
FIRST PRODUCTION REQUEST TO IDAHO POWER COMPANY - 11