20071029_2083.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER SMITH
COMMISSIONER REDFORD
COMMISSIONER KEMPTON
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:OCTOBER 25, 2007
SUBJECT:CASE NO. IPC-07-17 (Idaho Power)
REQUEST FOR PCA TREATMENT OF RAFT RIVER ENERGY I LLC
POWER SUPPLY EXPENSE
On October 5 , 2007, Idaho Power Company (Idaho Power; Company) filed an
Application requesting an accounting order authorizing the inclusion of all power supply expenses
associated with the purchase of energy from Raft River Energy I LLC in the Company s Power
Cost Adjustment (PCA) mechanism.
Pursuant to an identified need for geothermal resources first identified in the Company
2004 Integrated Resource Plan (IRP) Idaho Power on June 2 , 2006 issued a Request for Proposal
(RFP) for 100 MW of geothermal resource. In February 2007, the Company chose to negotiate
power purchase contracts with U.S. Geothermal , Inc., a Boise company.
In its bid, U.S. Geothermal, Inc. proposes to offer a total of 45.5 MW of geothermal
energy to Idaho Power and to have those facilities online between October 2007 and January 2011.
The parties have negotiated and executed a Power Purchase Agreement (PP A) dated September 24
2007 for approximately 13 MW of the 45.5 MW of geothermal power from Raft River Energy I
LLC, an affiliate of u.s. Geothermal , Inc., for its facility known as Raft River Geothermal Power
Plant Unit No., located approximately 15 miles southeast of Malta, Idaho. Agreements for the
remaining 32.5 MW of power will be submitted to the Commission separately from this filing.
Currently, a Commission-approved Firm Energy Sales Agreement (Agreement) is in
place between Raft River Energy I LLC and Idaho Power for a 10 aMW facility at this identical
location (Case No. IPC-05-, Order No. 29692). The approved project is a qualifying facility
DECISION MEMORANDUM
(QF) under the applicable prOVlSlons of the Public Utility Regulatory Policies Act of 1978
(PURP A). If the Commission approves the PP A and authorizes inclusion of the power supply
expenses associated with the energy from the Raft River Geothermal Power Plant Unit No.1 in the
Company s PCA, Idaho Power proposes that the Company s December 29, 2004 Agreement with
Raft River Energy I LLC be rescinded upon satisfaction by Raft River Energy I LLC of all
requirements to attain a first energy date as specified within the PP
Raft River Energy I LLC initially guarantees an annual output of 108 186 000 kWh and
a 90% capacity factor beginning with the third contract year. The term of the PP A is 25 contract
years from the operation date (February 2008). Idaho Power has an option to extend the term of
the Agreement for an additional period mutually agreeable to both parties. Should Raft River
Energy I LLC choose to sell its facility, the PP A provides that Raft River first offer to sell its
facility to Idaho Power.
Under the existing PURP A Agreement for this site, the project is restricted to providing
10 aMW of energy to Idaho Power. Energy over 10 aMW (Inadvertent Energy) may be delivered
Idaho Power under the existing PURP A Agreement but no payment is required for this Inadvertent
Energy. The actual geothermal equipment and generation unit under this PP A are identical to the
equipment being constructed under the current PURP A Agreement. As part of the negotiations for
this PP A, upon approval of this PP A by the Commission, Idaho Power has agreed to retroactively
pay for Inadvertent Energy delivered under the PURP A Agreement. The price for the Inadvertent
Energy will be the lesser of either 85% ofthe weighted average of Mid-, non-firm on and off peak
prices or the monthly PP A price for the applicable months when the Inadvertent Energy was
delivered to Idaho Power. If this PP A is not approved by the Commission, the existing PURP
Agreement terms and conditions will remain in effect which include no payments for Inadvertent
Energy.
The project, located southeast of Malta, Idaho, is physically connected to the Raft River
Rural Electric Cooperative (RREC) electrical system and will wheel its energy across the RREC
and Bonneville Power Administration (BP A) transmission systems to deliver its energy to Idaho
Power at the Minidoka Substation. The PP A allows and Idaho Power contemplates in the future to
work with BP A to reduce the BP A transmission costs for this project.
Prices under the PP A will be seasonally adjusted consistent with the seasonality factors
currently being used in Idaho Power s PURPA agreements, with the highest rates being paid during
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the Company s peak energy usage months. The price for energy will start at an annual base rate of
$52.50/MWh, escalating annually at a rate of 2.1 % through 2020. For the remaining term, the price
for energy will escalate annually at a rate of 0.6% with the resulting energy price in 2032 being
$73.92/MWh. In addition to the energy price, a transmission cost of approximately $1.75/MWh
will be added to determine the total deliver price per MWh.
Idaho Power contends that the energy prices within this PP A compare favorably against
the prices contained within the PURP A Agreement for this same location. Because the PP A has a
25-year term while the PURP A agreement has only a 20-year term, a direct comparison of prices
under this PPA to PURPA published avoided costs, the Company states, is not available. However
the current non-Ievelized PURP A published avoided cost for calendar year 2007 is $52.69 and if the
20th contract year non-levelized PURP A published avoided cost is escalated at the same rate as
previous years, an approximate PURPA price for calendar year 2032 would be $93.14. In addition
to this cost savings, Idaho Power states the PP A includes other provisions that are superior to a
PURP A agreement including, but not limited to the receipt of renewable energy credits, forecasting
and security provisions, and performance assurances.
No payment is required by Idaho Power for energy deliveries over maximum contract
months. The price paid for all energy delivered includes the value of renewable attributes (green
tags or RECs) associated with 3 MW of geothermal generation for the first 10 years of the
Agreement. For the remaining 15 years of the PP A, Idaho Power will receive 51 % of the green tags
associated with 13 MW of geothermal generation.
The PP A requires that Raft River Energy I LLC deliver detailed hourly, daily and
weekly forecasting of net energy deliveries to Idaho Power Company. If the project fails to provide
timely, reliable and useful forecast to Idaho Power as detailed and required by this PP A, the PP A
contains provisions similar to the 90%1110% delivery provisions contained in the Company
current PURP agreements that will become effective and replace the annual performance
requirements within this PP
The PP A further requires the project to post a $750 000 security deposit by the end of
the third contract year which will be available for Idaho Power to draw upon in the event damages
are assessed against the project. The $750 000 security deposit is required to be maintained for the
full term of the Agreement which includes replenishment if any withdrawals occur during the term
of the PP A.
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Idaho Power requests full cost recovery of expenses under the PP A through its PCA
mechanism. Idaho Power notes that under the Company s current PCA mechanism, the Company
recovers only 90% of changes from base level net power supply costs through the PCA for non-
PURP A projects with the remaining 10% acting as an incentive for efficiency. The Commission
found at that time that it was "appropriate to exclude any future non-CSPP (cogeneration, small
power production) firm purchases from the PCA unless the Company has first obtained
Commission approval to include them." Order No. 24806 at 23. Unlike typical wholesale power
supply transactions done in day-ahead or real-time markets, Idaho Power states that it has gone
through an extensive RFP process to identify the geothermal PP A that will provide the best value to
its customers. Full recovery of power supply expenses associated with 10 MW of the 13 MW
encompassed in this PP A are already subject to the Commission-approved PURP A Agreement
currently in place between Raft River Energy I LLC and Idaho Power at the same facility. Under
the new PP A, Idaho Power will continue to purchase the same electrons bid at a lower cost to
customers.
COMMISSION DECISION
Idaho Power requests an accounting order authorizing the inclusion of power supply
expenses associated with the purchase of energy (13 MW) from Raft River Energy I LLC in the
Company s Power Cost Adjustment (PCA) mechanism. The underlying Power Purchase
Agreement (PP A) for 13 MW is pursuant to a Company Request for Proposal (RFP) for geothermal
resources and is the initial agreement with U.S. Geothermal, Inc. of what will total 45.5 MW of
geothermal energy. If the PP A is approved, the Company proposes to rescind an existing Firm
Energy Sales Agreement with u.S. Geothermal for 10 aMW (IPC-05-, Order No. 29642) at the
same site.
Idaho Power requests that its Application be processed pursuant to Modified Procedure
, by written submission rather than by hearing. Reference Commission Rules of Procedure,
IDAP A 31.01.01.201-204. Staff concurs in the Company s recommendation of Modified Procedure
and recommends an extended period for comment to allow for Staff investigation and discovery.
Does the Commission agree with the recommended procedure?
Scott Woodbury
bls/M:IPC-O7-17 sw
DECISION MEMORANDUM