20120626IPC to Staff 6-10.pdf

IDAHO
CE%tr ._PIVER® RE An IDACORP Company
201ZJUN26 ?M12 32
DONOVAN E WALKER IPAt 4C Pt Lead Counsel UTl TE GOMMIS3tO
dwalkeridahbower.com
June 26, 2012
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
Boise, Idaho 83702
Re: Case No. IPC-E-10-22
Yellowstone Power, Inc., Firm Energy Sales Agreement - Response to
Staffs Second Production Request to Idaho Power Company
Dear Ms. Jewell:
Enclosed for filing in the above matter are an original and three (3) copies of Idaho
Power Company's Response to the Second Production Request of the Commission Staff
to Idaho Power Company.
T yours,
E. Walker
DEW:csb
Enclosures
1221 W. Idaho St. (83702)
P.O. Box 70
Boise, ID 83707
DONOVAN E. WALKER (ISB No. 5921)
JASON B. WILLIAMS (ISB No. 8718)
Idaho Power Company
1221 West Idaho Street (83702)
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: [phone]
dwaIkeridahopower.com
iwiIIiamsidahopower.com
RE CE IN ED
20I2 JUN 26 PM 12: 32
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Attorneys for Idaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
APPROVAL OF A FIRM ENERGY
SALES AGREEMENT WITH
YELLOWSTONE POWER, INC. FOR
THE SALE AND PURCHASE OF
ELECTRIC ENERGY.
CASE NO. IPC-E-10-22
IDAHO POWER COMPANY'S
RESPONSE TO THE SECOND
PRODUCTION REQUEST OF THE
COMMISSION STAFF TO IDAHO
POWER COMPANY
COMES NOW, Idaho Power Company ("Idaho Power" or "Company"), and in
response to the Second Production Request of the Commission Staff to Idaho Power
Company dated June 5, 2012, herewith submits the following information:
IDAHO POWER COMPANY'S RESPONSE TO THE SECOND PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -1
REQUEST NO. 6: Please provide a copy of the May 3, 2012 Notice of Material
Breach sent by Idaho Power to Yellowstone Power.
RESPONSE TO REQUEST NO. 6: Please see the attached letter from Mr.
Aliphin representing Idaho Power Company to Mr. Vinson of Yellowstone Power, Inc.
The letter dated May 3, 2012, notified Yellowstone Power, Inc., of its Material Breach.
The response to this Request was prepared by Randy C. Aliphin, Energy
Contracts Coordinator Leader, Idaho Power Company, in consultation with Donovan E.
Walker, Lead Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE SECOND PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -2
REQUEST NO. 7: Please provide a copy of the letter of response sent by
Yellowstone to Idaho Power alleging a force majeure event had occurred that precluded
Idaho Power from collecting delay security.
RESPONSE TO REQUEST NO. 7: Please see the attached letter.
The response to this Request was prepared by Randy C. Allphin, Energy
Contracts Coordinator Leader, Idaho Power Company, in consultation with Donovan E.
Walker, Lead Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE SECOND PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -3
REQUEST NO. 8: Please explain whether Idaho Power agrees that a force
majeure event has, in fact, occurred that precludes it from collecting delay security. If
Idaho Power believes that a force majeure event has occurred, please explain why it
believes it is entitled to more than $106,804 already owed as non-performance
damages from the Renewable Energy Agreement. If Idaho Power does not believe that
a force majeure event has occurred, please explain why it does not believe it is entitled
to the full $450,000 amount of Delay Liquidated Damages in addition to the $106,804
already owed.
RESPONSE TO REQUEST NO. 8: Idaho Power does not believe that the
project has provided evidence that a force majeure event has occurred that would
provide the project relief from performance as required by the contract.
The project has not achieved its Operation Date within 90 days of the Scheduled
Operation Date. Consequently, the project is in Material Breach of the Firm Energy
Sales Agreement ("FESA") and Idaho Power may now terminate the FESA. In addition,
Article 5.3 of the FESA specifies that Delay Damages of $45 per kilowatt maximum
capacity ($45 x 10,000 kW = $450,000) are due and payable to Idaho Power as Delay
Liquidated Damages. Idaho Power provided notice to the project of the Material
Breach, and termination of the FESA, as well as its request for payment of the $450,000
Delay Liquidated Damages. The project responded to the notification of Material
Breach with a claim of force majeure regarding its non-performance in the contract, as
well as a draft complaint for Idaho District Court challenging the legality of the liquidated
damages in the contract.
IDAHO POWER COMPANY'S RESPONSE TO THE SECOND PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -4
Idaho Power maintains that it is entitled to collection of the full amount of the
Delay Liquidated Damages ($450,000). However, the actual collection of those
damages could require additional legal proceedings prior to Idaho Power being able to
secure these damages.
The proposed settlement collects previously uncollectable damages from a
defaulted agreement, provides approximately $94,000 in damages for default of the
current agreement, and eliminates the uncertainty and additional cost and resources
necessary to litigate the termination of the agreement and validity of the Delay
Liquidated Damages.
The response to this Request was prepared by Randy C. Allphin, Energy
Contracts Coordinator Leader, Idaho Power Company, in consultation with Donovan E.
Walker, Lead Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE SECOND PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -5
REQUEST NO. 9: Please explain any rationale for the specific amount of
$200,000 to be paid by Yellowstone to Idaho Power under the terms of the Settlement
Stipulation. If the amount is based on any calculations of actual damages or other
analysis, please provide a copy of that analysis.
RESPONSE TO REQUEST NO. 9: Please see the Company's response to
Staffs Production Request No. 8.
The response to this Request was prepared by Randy C. Aliphin, Energy
Contracts Coordinator Leader, Idaho Power Company, in consultation with Donovan E.
Walker, Lead Counsel, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE SECOND PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -6
REQUEST NO. 10: Please explain why Idaho Power believes that the
Settlement Agreement is in the public interest.
RESPONSE TO REQUEST NO. 10: The Settlement Agreement collects
previously uncollectable damages from a defaulted agreement, provides approximately
$94,000 in damages for default of the current FESA, and eliminates the uncertainty and
additional labor and resource costs associated with litigation of the FESA termination
and validity of the Delay Liquidated Damages.
Additionally, the FESA with Yellowstone Power, Inc., was priced based upon
methodologies which the Idaho Public Utilities Commission later determined did not
produce just and reasonable avoided costs that were in the public interest.
The response to this Request was prepared by Randy C. Allphin, Energy
Contracts Coordinator Leader, Idaho Power Company, in consultation with Donovan E.
Walker, Lead Counsel, Idaho Power Company.
DATED at Boise, Idaho, this 26 th day of June 2012.
DONOVAN E. WALKER
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S RESPONSE TO THE SECOND PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -7
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 26th day of June 2012 I served a true and
correct copy of IDAHO POWER COMPANY'S RESPONSE TO THE SECOND
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
Kristine Sasser, Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington (83702)
P.O. Box 83720
Boise, Idaho 83720-0074
Yellowstone Power, Inc.
Dick Vinson
Yellowstone Power, Inc.
P.O. Box 1539
Thompson Falls, Montana 59873
Dean J. Miller
McDEVITT & MILLER LLP
420 West Bannock Street
P.O. Box 2564
Boise, Idaho 83701
X Hand Delivered
U.S. Mail
Overnight Mail
FAX
X Email Kris.Sasser(uc.idaho.qov
Hand Delivered
X U.S. Mail
Overnight Mail
FAX
X Email dickcblackfoot.net
Hand Delivered
X U.S. Mail
Overnight Mail
FAX
X Email ioe(~mcdevitt-milIer.com
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Chnsta Bearry, Lega ssistant (J
IDAHO POWER COMPANY'S RESPONSE TO THE SECOND PRODUCTION
REQUEST OF THE COMMISSION STAFF TO IDAHO POWER COMPANY -8
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-E-10-22
IDAHO POWER COMPANY
RESPONSE TO STAFF'S
PRODUCTION REQUEST NO. 6
1i! ; :. I IAA!A
An !DACOQP Company
May 3, 2012
Richard Vinson
Yellowstone Power, Inc.
115 Broad Street
P.O. Box 1539
Thompson Falls, MT 59873
Original: Via Certified Mail, Return Receipt Requested
E-mail copy: Richard Vinson - [e-mail]
Re: Yellowstone Power, Firm Energy Sales Agreement
February 29, 2012 Request for Extension
Notice of Material Breach
Dear Mr. Vinson:
Idaho Power has received your letter dated February 29, 2012, in which you request an extension of time to
bring your facility online in conformance with the Firm Energy Sales Agreement ("FESA") between
Yellowstone Power, Inc. and Idaho Power of July 28, 2010. Idaho Power regrets to inform you that it does
not agree to the requested extension.
Under the terms of the FESA, Yellowstone selected December 31, 2011, as the Scheduled Operation Date.
If the Operation Date doesn't occur within ninety (90) days following the Scheduled Operation Date, "such
a failure will be a Material Breach and Idaho Power may terminate this Agreement at any time until Seller
cures the Material Breach." FESA, Art. 5.4. A Material Breach must be cured "as expeditiously as
possible" following the breach. FESA, Art. 19.2.2. Yellowstone defaulted on the FESA when it was not
online and operational by December 31, 2011, and has been in Material Breach of the FESA when it did
achieve its Operation Date by April 2, 2012. Please let this letter serve as notice that this Material Breach
must be cured immediately.
Because Yellowstone failed to meet its Scheduled Operation Date and more than 90 days have passed
without achieving the Operation date, Yellowstone owes Idaho Power Delay Liquidated Damages in the
amount of $450,000 pursuant to Article 5.3 of the FESA. As specified within the FESA, Yellowstone must
remit payment of the Delay Liquidated Damages within seven (7) days of this notice. Pursuant to Article
5.5 of the FESA, failure to pay these Delay Liquidated Damages within seven (7) days shall result in a
withdrawal of funds from the Seller's Delay Security which pursuant to Article 5.8 of the FESA,
Yellowstone has posted in the amount of $450,000.
Feel free to contact me with any questions you may have
Eety,
Idaho Power Company
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-E-10-22
IDAHO POWER COMPANY
RESPONSE TO STAFF'S
PRODUCTION REQUEST NO. 7
YELLOWSTONE POWER, INC.
May 15, 2012
Via electronic and postal mail
Idaho Power Company
P0 Box 70
Boise, Idaho 83707
Attention: Mr. Randy Allohin
Cogeneration and Small Power Production
Re: Yellowstone Power, LLC
Notice of Force Majeure
Dear Mr. Aliphin:
Yellowstone Power has received your letter dated May 3, 2012, in which our request for
an extension of time per our letter of February 29, 2012 was denied and providing Idaho
Power Notice of Material Breach of the Firm Energy Sales Agreement ("FESA")
between Yellowstone Power, Inc and Idaho Power dated July 28, 2010.
Yellowstone's attorney has twice attempted to communicate with counsel for Idaho
Power and received no response. I am therefore writing directly to you.
Yellowstone Power, Inc. has worked diligently for the past three years to construct a 10
mw biomass power plant in Emmett, Idaho. It has become apparent that conditions
beyond our control have made it impossible to complete this project during this time
period. The following are a few of the conditions that created a "perfect storm" and
prevented construction of this facility:
Availability of Financing - Yellowstone created an extensive Financing
Package, employed lending specialists, and marketed to a wide variety of
local/national banks, venture capitalist, private equity, and hedge funds related to
this project. Despite these efforts, the unpredictable change in lending protocols
following the banking crisis and resulting extended national economic recession
restricted the availability of financing funds for projects such as Yellowstone
Power and funds became severely limited.
• 1603 Grant In-Lieu Credit - The Section 1603 grant in lieu credit adversely
impacted conventional lending for projects such as Yellowstone Power by
attracting predatory investors to the market. Combined with the unpredictable
change in conventional lending protocols, available financing was further
reduced.
• Renewable Energy Credits - Due to the unexpected prolific installation of Wind
Power experienced by many utilities, the value of Renewable Energy Credits
(REC's) decreased dramatically. The Revenue contemplated by Yellowstone
115 Broad Street - P 0 Box 1539
Thompson Falls, MT 59873
406-827-3574 - Fax: [phone]
email: [e-mail]
Power from the sale of REC's was adversely affected by the installation of Wind
generation.
• Emerald Forest Sawmill - Significant Revenue and Fuel sourcing was
contemplated from the Emerald Forest Sawmill. This facility experienced
significant operating problems during its start-up and eventually had to seek
protection under Chapter 11 Bankruptcy. The loss of this revenue and fuel source
had a significant impact on the ability of the project to attract financing due to its
close proximity to the proposed Yellowstone Power project.
As a result of the combination of changed conditions, which were clearly beyond the
control of Yellowstone Power, and the Notice of Denial for requested extension by Idaho
Power on May 3rd, Yellowstone Power is under this letter providing Notice to Idaho
Power of Force Majeure under article 14.1 of the FESA. As defined in the FESA,
"Force Majeure" or "an event of Force Majeure" means any cause beyond the control
of the Seller.., which despite the exercise of due diligence. such Party is unable to prevent
or overcome ". Yellowstone Power is able and willing to demonstrate to Idaho Power the
due diligence and mitigation efforts taken and how the unforeseen nature and impact of
these events prevented their ability to construct the facility and meet its obligations under
the FESA. In addition, given the significant reduction in Avoided Cost published by
Idaho Power and strong public position to mitigate Idaho Power's obligation under
PURPA contracts, the validity of damages incurred by Idaho Power under this contract
need to be reconciled and understood. The amount of claimed liquidated damages
appears to Yellowstone to be in excess of any harm suffered by Idaho Power Company.
Therefore, Idaho Power is requested to rescind its Notice of Default and cease collection
of Liquidated Damages as contemplated in your letter of May 3' so the Parties might
mutually and amicably resolve and dissolve the obligations under the FESA.
The matters set forth in this letter are without prejudice to Yellowstone's ability to assert
other facts or theories as the may become apparent after further analysis or investigation.
Your immediate attention to this issue would be greatly appreciated.
Sincerely,
Mr. Richard Vinson
President
115 Broad Street - P 0 Box 1539
Thompson Falls, MT 59873
406-827-3574 - Fax: [phone]
email: [e-mail]
CC: Idaho Power Company
P0 Box 70
Boise, Idaho 83707
Attn: Mr. LG Grow
Vice President, Power Supply
McDevitt & Miller. LLP
420 West Bannock Street
Boise, ID 83702
Attn: Mr. Joe Miller
Attorney for Yellowstone Power
Yellowstone Power
7602 Emerald Meadows Court
Katy, Texas 77494
Attn: Mr. Mark Costello
115 Broad Street - P 0 Box 1539
Thompson Falls, MT 59873
406-827-3574 - Fax: [phone]
email: [e-mail]