20100205IPC to Staff 3, 5, 10-20.pdf

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An IDACORP Company
BARTON l. KLINE
Lead Counsel
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February 4, 2010
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-09-34
IN THE MA ITER OF THE APPLICA TION OF IDAHO POWER COMPANY
FOR AN ACCOUNTING ORDER AUTHORIZING THE INCLUSION OF
POWER SUPPL Y EXPENSES ASSOCIATED WITH THE PURCHASE OF
CAPACITY AND ENERGY FROM USG OREGON LLC IN THE COMPANY'S
POWER COST ADJUSTMENT
Dear Ms. Jewell:
Enclosed for filing please find an original and three (3) copies of the first portion of
Idaho Power Company's Response to the First Production Request of the Commission
Staff to Idaho Power Company. Idaho Power expects to file its responses to the remaining
requests next week.
Also enclosed for filing are an original and three (3) copies of Idaho Power
Company's Confidential Response to the First Production Request of the Commission
Staff to Idaho Power Company. Please note this information should be handled in
accordance with the Protective Agreement in place between the parties.veITi~
Barton L. Kline
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Enclosures
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BARTON L. KLINE (ISB No. 1526)
DONOVAN E. WALKER (ISB No. 5921)
Idaho Power Company
P.O. Box 70
1221 West Idaho Street
Boise, Idaho 83707
Telephone: [phone]
Facsimile: [phone]
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1010 FEB -4 P~\ 4: 58
Attorneys for Idaho Power Company
Street Address for Express Mail:
1221 West Idaho Street
Boise, Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR AN ) CASE NO. IPC-E-09-34
ACCOUNTING ORDER AUTHORIZING )
THE INCLUSION OF POWER SUPPLY ) IDAHO POWER COMPANY'S
EXPENSES ASSOCIATED WITH THE ) RESPONSE TO THE FIRST
PURCHASE OF CAPACITY AND ENERGY ) PRODUCTION REQUEST OF THE
FROM USG OREGON LLC IN THE ) COMMISSION STAFF TO IDAHO
COMPANY'S POWER COST ) POWER COMPANYADJUSTMENT. )
)
COMES NOW, Idaho Power Company ("Idaho Powet' or "the Company"), and in
response to the First Production of Request of the Commission Staff to Idaho Power
Company dated January 14, 2010, herewith submits the following information:
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY - 1
REQUEST NO.3: Please provide a copy of all geothermal proposals submitted
to Idaho Power outside of the 2006 and 2008 RFP processes.
RESPONSE TO REQUEST NO.3: The response to this Request contains
confidential information and wil be provided to those parties that have executed the
Protective Agreement in place in this matter.
The response to this Request was prepared by Randy Allphin, Senior Energy
Contract Coordinator, Idaho Power Company, in consultation with Barton L. Kline, Lead
Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY - 2
REQUEST NO.5: On page 3 of its Application, Idaho Power states "U.S.
Geothermal included additional geothermal projects in its successful 2006 bid, including
additional generation at Raft River and a new project at Neal Hot Springs." Please
explain the status of the "additional generation at Raft River." Has U.S. Geothermal
also withdrawn its offer from its 2006 RFP bid to sell additional generation at Raft River?
If so, please provide documentation of the withdrawal of the offer. If U.S. Geothermal's
offer has not been withdrawn, please discuss the status of any contract negotiations for
Idaho Power to purchase additional generation from Raft River.
RESPONSE TO REQUEST NO.5: The response to this Request contains
confidential information and wil be provided to those parties that have executed the
Protective Agreement in place in this matter.
The response to this Request was prepared by Randy Allphin, Senior Energy
Contract Coordinator, Idaho Power Company, in consultation with Barton L. Kline, Lead
Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY - 3
REQUEST NO. 10: Does Idaho Power believe that bids submitted in an RFP
represent binding commitments on behalf of the bidders? If not, please discuss the
circumstances under which bids may be withdrawn or modified.
RESPONSE TO REQUEST NO. 10: In preparing an RFP, Idaho Power attempts
to structure the RFP in a way that it would secure a binding commitment from the
bidder. That being said, there is often a gap between the commitment that is made by
the bidder in its response to the RFP and the creation of a legally enforceable obligation
that would justify the Company expending monetary and other resources to enforce that
obligation in court. For example, in responding to an RFP, prospective bidders wil
include in their response a price and identify material changes to the sample contract.
The bid price is always subject to numerous disclaimers and contingencies. During the
course of negotiating the definitive legally enforceable obligation, those disclaimers and
contingencies are subject to negotiation. Such negotiations can result in price
modifications and transfers of liabilty that make final contract price, terms, and
conditions different than the "bid" price.
It is also important to remember that in some instances, as in the case of the
2006 and 2008 geothermal RFPs, most of the bidders are small, thinly capitalized
companies. Suing them to enforce a bid will likely be expensive and time consuming
and eventually useless as they have no assets to pay damages in any material
amounts. One way to remedy that problem is to only contract with companies with good
credit and extensive track records in constructing, owning, operating, and maintaining
generation facilities. Unfortunately, in the area of geothermal generation development,
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY - 4
the technology is not mature and the pool of experienced, well capitalized participants is
very smalL.
Another way to address this issue is with the requirement that potential bidders
post bid bonds. Bid bonds are often used in public sector bidding. That technique
works reasonably well when dealing with somewhat generic construction projects such
as roads or bridges, but it wil not work well with less generic ventures like geothermal
generation projects. The participants in an RFP for a geothermal development project,
at least in Idaho, often do not have the credit record or liquid funds to purchase bid
bonds in any material amount, nor wil they tie up their capital by posting liquid security
in order to participate in an RFP.
In addressing when to allow withdrawal or modification of a bid, each individual
situation must be assessed separately. If the Company believes that it has progressed
far enough in the contracting process to be confident that it has a legally binding
contract with a bidder and that bidder has sufficient resources to justify pursuing a
breach of contract action in court, Idaho Power wil be aggressive in its litigation efforts.
But if a bidder withdraws its bid very early in the process, prior to the time that a court
would agree that a legally binding obligation has been incurred, or if the defaulting
bidder has no money, it would be imprudent for the Company to aggressively pursue
litigation when its chances of success and/or recovery are limited.
The response to this Request was prepared by Barton L. Kline, Lead Counsel,
Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY - 5
REQUEST NO. 11: Please provide a copy of any analysis completed by Idaho
Power or others intended to quantify the value of Environmental Attributes and
Renewable Energy Credits that wil be received from the project. Please provide a copy
of any broker quotes or forecasts of Renewable Energy Credits (RECs) value used in
the analysis, or where no outside information was used, provide information showing
REC values assumed by Idaho Power.
RESPONSE TO REQUEST NO. 11: The energy prices proposed by the Neal
Hot Springs project are an all-inclusive price, which both include the energy price and
the environmental attributes. No detailed analysis was preformed to estimate the REC
value embedded in the energy price. However, to create a comparison to other projects
and PURPA projects, Idaho Power added a REC value to other projects that did not
include Idaho Power ownership of RECs. The value used was $6.50 per MWh in 2011,
escalating to $15 per MWh in 2036. This value was considered to be a reasonable,
relatively conservative and consistent value in comparison to the estimated REC value
used in Idaho Powets recently filed 2009 IRP (IRP, page 106).
The response to this Request was prepared by Randy Allphin, Senior Energy
Contract Coordinator, Idaho Power Company, in consultation with Barton L. Kline, Lead
Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY - 6
REQUEST NO. 12: Has Idaho Power attempted to sell any RECs that may be
produced by the Neal Hot Springs project? If so, provide a copy of any sales
agreements consummated or offers received. If not, when does Idaho Power expect to
begin trying to sell the RECs?
RESPONSE TO REQUEST NO. 12: No. Idaho Power has recently filed with the
Idaho Public Utilties Commission a proposed REC business plan outlining Idaho
Powets proposal to sell RECs on a short-term basis. Consistent with the Commission's
orders addressing the REC sales plan and when there is more certainty as to the timing
of the of the Neal Hot Springs project's actual on-line date, Idaho Power wil begin
pursuit of sales transactions for the RECs received from this project.
The response to this Request was prepared by Randy Allphin, Senior Energy
Contract Coordinator, Idaho Power Company, in consultation with Barton L. Kline, Lead
Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY - 7
REQUEST NO. 13: The proposed Agreement allows Idaho Power to curtail
energy deliveries in an amount up to 1,620 MWh per contract year. If the expected
capacity of the project is 22 MW, the curtailment could occur approximately 73.6 hours
per year. Given that the amount of possible curtailment is so small, are there reasons
other than economic dispatch for including curtailment terms in the Agreement? Please
explain.
RESPONSE TO REQUEST NO. 13: Historically, the non-dispatchable energy
from PURPA PPAs has created complications in operating the Idaho Power electrical
system in a reliable manner. The 1 ,620 MWh of allowed curtailment in this agreement
was a negotiated value that balanced the potential financial impact to the project of
mandatory curtailments against the Company's desire to obtain at least a limited
amount of dispatchabilty for use in daily operations of its electrical system.
The response to this Request was prepared by Randy Allphin, Senior Energy
Contract Coordinator, Idaho Power Company, in consultation with Barton L. Kline, Lead
Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY - 8
REQUEST NO. 14: The energy prices in the Agreement are seasonally adjusted
similar to the seasonal adjustments applied to PURPA contracts. However, the
seasonal adjustment factors are slightly different (0.733, 1.0, and 1.2 in the Agreement
vs. 0.735, 1.0 and 1.2 for PURPA contracts). Is this difference intentional? Please
explain.
RESPONSE TO REQUEST NO. 14: The initial pricing proposals received from
the Neal Hot Springs project included the factor of .733, which was accepted by both
parties in the process of negotiating the entire PPA.
The response to this Request was prepared by Randy Allphin, Senior Energy
Contract Coordinator, Idaho Power Company, in consultation with Barton L. Kline, Lead
Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY - 9
REQUEST NO. 15: Assume hypothetically that the Neal Hot Springs project was
proposed as a greater than 10 aMW PURPA project. Please perform analysis using
Aurora to compute the annual value of power that is expected to be received from the
Neal Hot Springs project. In other words, compute the difference in the 25-year power
supply costs of two Idaho Power portolios -- one without the Neal Hot Springs project
and one with the Neal Hot Springs project included as a no-cost resource.
RESPONSE TO REQUEST NO. 15: The requested analysis spans a likely Neal
Hot Springs contract time period of 2012-2036. The AURORA model, which uses the
most recently filed IRP as a basis for modeling, is setup for the 20-year period 2010-
2029. This leaves a gap of years 2030-2036 where AURORA modeling is not
immediately available. However, the years where the contract term and the AURORA
setup overlap are ilustrative and can provide guidance of what might be expected
during the outlying period.
The results of the AURORA analysis identify only the energy value to the
portolio. The annual difference in total portolio costs between the IRP 2009 base case
with Neal Hot Springs at zero cost and without Neal Hot Spring is shown in the table
below:
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -10
Idaho Power Company
Aurora Analysis - IRP 2009 Base Case Assumptions
Add Neal Hot Springs Geothermal 22MW
Total Portfolio Cost Difference to Base Case
Nominal Dollars 2012-2029
Energy Value Only
2012 $8,884,500
2013 $8,673,100
2014 $8,181,300
2015 $9,459,000
2016 $9,397,800
2017 $9,111,900
2018 $9,477,600
2019 $9,542,100
2020 $10,912,400
2021 $10,518,100
2022 $10,475,200
2023 $11,358,500
2024 $11,949,900
2025 $11,547,700
2026 $11,593,800
2027 $11,948,400
2028 $11,477,300
2029 $13,720,100
Total $188,228,700
The $188 milion shown above represents the reduction to the portolio cost with
Neal Hot Springs added at zero cost compared to the base case AURORA run without
Neal Hot Springs for the period 2012-2029.
The response to this Request was prepared by Richard Haener, Planning
Analyst, Idaho Power Company, in consultation with Bart Kline, Lead Counsel, Idaho
Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -11
REQUEST NO. 16: Please provide a copy of the signed Large Generator
Interconnection Agreement for the Neal Hot Springs project as discussed on page 7 of
the Company's Application.
RESPONSE TO REQUEST NO. 16: The LGIA contains confidential information
and is being provided to those parties that have executed the Protective Agreement in
place in this matter.
The response to this Request was prepared by Randy Allphin, Senior Energy
Contract Coordinator, Idaho Power Company, in consultation with Barton L. Kline, Lead
Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -12
REQUEST NO. 17: Please compare on an annual basis the net cash flow
streams between power expected to be purchased from the Neal Hot Springs project
and the estimated cost of power to be produced by the Langley Gulch project using
current estimates for the price of fueL. Please compare the levelized net present value
of both projects using reasonable assumptions to account for differing project lives.
RESPONSE TO REQUEST NO. 17: The comparison of the costs to Idaho
Power Company's ratepayers of the Neal Hot Springs geothermal project and the
Langley Gulch combined-cycle natural gas plant is explained below. This analysis
focuses exclusively on the costs of the projects and excludes any assumptions for the
value of renewable attributes or carbon costs. The analysis also excludes the impact of
imputed debt related to long-term power purchase agreements.
The Neal Hot Springs agreement is a 25-year contract between Idaho Power and
U.S. Geothermal, Inc. The analysis assumes an operational start date of January 1,
2012, output of 22 MW, and a 90 percent capacity factor. The 22 MW and 90 percent
capacity factor assumed for this analysis results in a 19.8 MW flat block of energy to be
delivered to Idaho Power, which is equivalent to 173,448 MWh per year. The net
present value of the energy costs using the contract's monthly seasonal rate schedule
starting in 2012 and ending in 2036 is $237,991,565. The levelized annual cost is
$20,389,075, or $117.55 per MWh. The total nominal payment for all years is
$538,132,162. The levelized contract price of $117.55 per MWh includes Idaho
Powets ownership of all renewable attributes and the right to participate as an owner in
future development at the Neal Hot Springs site.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -13
The book life of the Langley Gulch project is 30 years with an assumed start date
for this analysis of January 1, 2012. An assumed capacity factor of 65 percent (300
MW nameplate capacity) and a heat rate of 6,800 Btu per kWh was used in determining
the per MWh cost of the project. Under these assumptions, the annual output from the
Langley Gulch project used in the analysis is 1,708,200 MWh. The natural gas price
forecast beyond 2030 escalates the year 2030 prices at 3 percent per year through the
end of the contract period.
An adjustment was made to the sum of the total annual net present value costs
to account for the differing project lives. The net present value of the 26-30 years un-
depreciated book value of the Langley Gulch project reduces the cumulative net present
value of the costs for the 25-year term of the contract. The end of year 25 nominal book
value is $46,258,333, which, when discounted, gives a net present value of $8,000,395.
The total net present value of the annual costs is $2,223,880,077 less the $8,000,395 of
the residual value, which gives a total net present value of $2,215,879,682. The
levelized annual cost is $189,837,556 = ($2,215,879,682/11.6725) or $111.13 per MWh.
The levelized cost of the Langley Gulch project is significantly impacted by the capacity
factor (i.e., total MWhs of output) assumption used in the calculation. For example, a 45
percent capacity factor assumption results in a levelized cost of $123.81 per MWh over
the 25-year period.
In summary, the calculated levelized cost of the Neal Hot Springs agreement is
$117.55 per MWh and includes Idaho Power receiving the renewable attributes from the
project. At a 65 percent capacity factor, the levelized cost of the Langley Gulch project
is $111.13 per MWh, excluding any cost associated with carbon emissions. This
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -14
analysis does not place a market or system value to the differing energy streams. The
nature of the resources, one being flat running without significant dispatch abilty and
the other having significant dispatch abilty, wil make a difference to the value to Idaho
Power's portolio. This value wil be realized not only in the abilty to time the energy
delivery but also in the abilty to provide ancilary services to the system.
The response to this Request was prepared by Richard Haener, Planning
Analyst, Idaho Power Company, in consultation with Bart Kline, Lead Counsel, Idaho
Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -15
REQUEST NO. 18: On page 5 of the Application, Idaho Power states that the
estimated online date for the project is late 2012 and that the Agreement requires an
online date no later than 2016. However, 1T1.55 of the Agreement states that the
Scheduled First Energy Date shall be 30 months from receipt of notice to proceed,
which in turn must be no later than 12/31/2014. In addition, 1T1.57 states that the
Scheduled Operation Date shall be 6 months after the First Energy Date. By Staffs
calculation, according to the Agreement, the actual First Energy Date could be as late
as 12/31/2017. Which is correct, the required online date stated in the Application or
the required online date computed by Staff
RESPONSE TO REQUEST NO. 18: The Staffs calculation is a correct
interpretation of the contract terms and conditions. The statement on page 5 of the
Application is an error. Current discussions with the project developer confirm that 2012
is stil the targeted on-line dates.
The response to this Request was prepared by Randy Allphin, Senior Energy
Contract Coordinator, Idaho Power Company, in consultation with Barton L. Kline, Lead
Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -16
REQUEST NO. 19: The rates shown in Appendix A to the Agreement extend for
25 years from Jan. 2012 - Dec 2036. If the project comes online later than 2012, does
the contract stil expire in 2036 even though energy deliveries would be for a term of
less than 25 years?
RESPONSE TO REQUEST NO. 19: The contract term is 25 years and the price
schedule wil be extended at the same escalation rate as the escalation from 2035 to
2036. The failure to show this extension on the table was an oversight by both parties.
The response to this Request was prepared by Randy Allphin, Senior Energy
Contract Coordinator, Idaho Power Company, in consultation with Barton L. Kline, Lead
Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY - 17
REQUEST NO. 20: ,y26.5.2 allows the Seller to terminate the agreement without
penalty if the Seller can demonstrate its inability to negotiate an EPC contract due to
"unforeseen Facility financing or construction costs." How much higher than expected
can financing or construction costs be before U.S. Geothermal would be allowed to
terminate the Agreement?
RESPONSE TO REQUEST NO. 20: The contract does not provide a definitive
amount of this cost increase that would trigger this contract language. However, if the
Seller were to attempt to exercise this right to terminate, Idaho Power would expect the
Seller to provide the complete financial models of the project and only after reviewing
these models and validating that the unforeseen costs pushed the project to be
noneconomic would Idaho Power accept the project developets request to terminate.
This right to terminate in Section 26.5.2 is only available until the project issues a notice
to proceed with the construction of the power plant (fourth Project Milestone) to its EPC
contractor.
The response to this Request was prepared by Randy Allphin, Senior Energy
Contract Coordinator, Idaho Power Company, in consultation with Barton L. Kline, Lead
Counsel, Idaho Power Company.
DATED at Boise, Idaho, this 4th day of February 2010.
~iL
BARTON L. KLINE
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -18
CERTIFICATE OF MAILING
I HEREBY CERTIFY that on the 4th day of February 2010 I served a true and
correct copy of IDAHO POWER COMPANY'S RESPONSE TO THE FIRST
PRODUCTION REQUEST OF THE COMMISSION STAFF TO IDAHO POWER
COMPANY upon the following named parties by the method indicated below, and
addressed to the following:
Commission Staff
Weldon B. Stutzman
Deputy Attomey General
Idaho Public Utilties Commission
472 West Washington
P.O. Box 83720
Boise, Idaho 83720-0074
-. Hand Delivered
U.S. Mail
_ Overnight Mail
FAX
-. Email Weldon.stutzmancæpuc.idaho.gov
(1ú
Barton L. Kline
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -19