20040312_774.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
CO MMISSI 0 NER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:MARCH 10, 2004
RE:CASE NO. IPC-04-S (Idaho Power)
FIRM ENERGY SALES AGREEMENT
RENEWABLE ENERGY OF IDAHO, INC. (EMMETT FACILITY)
On February 19, 2004, Idaho Power Company (Idaho Power; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) requesting approval of a
Firm Energy Sales Agreement (Agreement) between Idaho Power and Renewable Energy of
Idaho, Inc. (Renewable Energy) dated February 12 2004.
Renewable Energy proposes to design, construct, install, own, operate and maintain a
17.5 megawatt (MW) biomass (primarily wood waste) generating facility to be located at the old
Boise Cascade Plant site near Emmett, Idaho (the Project). The Project will be a qualified small
power production facility (QF) under the Public Utilities Regulatory Policies Act of 1978
(PURPA).
Under the terms of the Agreement, Renewable Energy has elected to contract with
Idaho Power for a 20-year term. The Agreement contains non-Ievelized published avoided cost
rates as currently established by the Commission for energy less than 10 MW and a negotiated
price for energy over 10 MW.
As in recent prior submitted agreements, Idaho Power utilizes a cogeneration small
power producer (CSPP; QF) agreement that is consistent for all CSPP projects regardless of their
resource (wind, hydro, geothermal, wood waste, etc.) that incorporates (1) current IPUC Orders
(2) current technologies, and (3) current utility industry standards. The submitted Agreement
the Company states, contains many of these concepts as well as unique negotiated provisions due
DECISION MEMORANDUM
to the fact that the Project wishes to routinely deliver more than 10 MW to Idaho Power. The
following is a brief description of some of these concepts and unique provisions:
A: Ten MW or Smaller Project Size and Eligibility for the Published Avoided
Cost Rate: Noting that the Commission has established a 10 MW size limit for PURP A projects
eligible for QF published avoided cost rates, Idaho Power points out that the Commission did not
specify how the 10 MW limit was to be measured. Historically, the Company recognizes, the
nameplate rating of the facility has been considered to be the measurement for this limit. Idaho
Power suggests in this filing that it is reasonable that this limitation be based on that energy
delivery to the utility and not nameplate rating.
Many QF facilities, due to less than 100% capacity factors and unknown incremental
fuel supplies, the Company contends, are not able to commit to a long-term firm commitment of
the incremental energy production above 10 MW. To address this issue, Idaho Power has
developed a concept of "Optional Energy.
Optional Energy is all energy that the Project delivers to Idaho Power that exceeds
000-kilowatt hours in a single hour, typically non-firm energy, as defined in 'il1.18 of the
Agreement. Optional Energy is identified through hourly metering. The price of this energy is a
price negotiated between Idaho Power and the specific project. As non-firm energy, Idaho
Power considers the value of this energy to be a variable current month market based price.
Renewable Energy requested that fixed prices for its Optional Energy be established
rather than receiving the monthly variable market prices. Idaho Power and Renewable Energy,
therefore, negotiated fixed prices for the Optional Energy (Section 7.5 of the Agreement) in
consideration of the Project providing year-ahead firm commitments of the monthly Optional
Energy amounts (Section 6.4 of the Agreement). The concept of Optional Energy, the Company
contends, maintains the integrity of the 10 MW limitation and the QF published avoided cost
rates but also allows the project developer the ability to assess its specific facility s performance
capital cost and other risk/benefit factors in designing the size of the QF's individual facilities.
Also applying to this Optional Energy, are Company-developed Shortfall and Surplus
Energy concepts (Sections 7.7 and 7.8 of the Agreement), as previously included in the
Company s Tiber Montana LLC contract approved by the Commission in Order No. 29232 and
the recently submitted Agreement with United Materials of Great Falls, Inc. (Case
No. IPC-04-1).
DECISION MEMORANDUM
B. Seasonality: As an incentive for Renewable Energy to deliver energy to the
Company during times when it is of greater value to Idaho Power, the Company has refined the
seasonalization of rates to coincide to the months in which Idaho Power has identified actual
energy needs and periods of higher demand. Reference Agreement Sections 6.2 , 7.1 and 7.
C. Environmental Attributes: As reflected in Agreement Section 8 , Idaho Power
notes that it has filed a Petition with the Commission in Case No. IPC-04-2 seeking a
Commission ruling concerning whether the environmental attributes associated with a QF project
are owned by the project or the utility at the time a utility purchases electricity from a QF
project. The Commission s final Order will be included and become an integral part of the
Agreement. Renewable Energy reserves the right to cancel the Agreement within 30 days of the
Commission s final Order regarding Idaho Power s Petition.
Agreement Section 24 provides that the Agreement will not become effective until
the Commission has approved all the Agreement terms and conditions and declared that all
payments that Idaho Power makes for purchases of energy to Renewable Energy will be allowed
as prudently incurred expenses for ratemaking purposes. Should the Commission approve the
Agreement, Idaho Power intends to consider the effective date of the Agreement to be
February 12, 2004. As reflected in the Company s Application, the Agreement contains non-
levelized published avoided cost rates in conformity with applicable Commission Orders.
Commission Decision
Idaho Power requests that the Commission issue an Order approving the Firm Energy
Sales Agreement between Idaho Power Company and Renewable Energy of Idaho, Inc. without
change or condition. The Company further requests a Commission finding that all payments for
purchases of energy under the Agreement will be allowed as prudently incurred expenses for
ratemaking purposes.
Staff recommends that the Company s Application in Case No. IPC-04-5 be
processed pursuant to Modified Procedure, i., by written submission rather than by hearing.
Reference Commission Rules of Procedure, IDAPA 31.01.01.201-204. Does the Commission
agree with Staffs recommended procedure?
Scott Woodbury
Vld/M:IPCEO405
DECISION MEMORANDUM