20090918Sagebrush Energy Response.pdf

McDevitt & Miller LLP
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Boise, Idaho 83702 . HO PlH3UC it'\',' Dean J. (Joe) Miler
Uí\~~.rtS COMf,,,~\SSI\Jì'l
September 18, 2009
Via Hand Delivery
Jean Jewell, Secreta
Idao Public Utities Commssion
472 W. Washigton St.
Boise, Idaho 83720
Re: Sagebrush Energy LLC
Case No. GNR-E-09-03
Dear Ms. Jewell:
Enclosed for fig in the above matter, please fid an orial and seven copies of Comments of Sagebrush
Energy in Response to Notice of Review.
Kidly retu a fie stamped copy to me.
Very Truy Yours,
McDevitt & Mier IL~Ul
DJM/hh
Enclosures
,
..ORIGINAL
Dean J. Miler (ISB No. 1968)
McDEVITT & MILLER LLP
420 West Banock Street
P.O. BOX 2564-83701
Boise, Idaho 83702
Tel: [phone]
Fax: [phone]
joe(Ímcdevitt- miler .com
RECE E
2069 SEP t 8 PH 3: 51
IDAHO PU~¡.l¡¡S~c(n\.;
UTILITIES cm'M,I"I;:..ii ~'"
Attorney for Sagebrush Energy LLC
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF A REVIEW OF
THE SURROGATE AVOIDABLE
RESOURCE (SAR) METHODOLOGY
FOR CALCULATING PUBLISHED
AVOIDED COST RATES
CASE NO. GNR-E-09-03
COMMENTS OF SAGEBRUSH
ENERGY IN RESPONSE TO NOTICE
OF REVIEW
COMES NOW Sagebrush Energy LLC (Sagebrush) and submits the following
Comments in response to the Commission's Notice of Review of Avoided Cost
Methodology, dated August 6,2009 (Notice).
Sagebrush is an independent renewable energy company that is working across
the Intermountain West to develop wind projects that are sensitive to the concers of
local communities. Sagebrush is in the process of developing a wind fueled electrc
energy generating facility, known as the Norrs Hil Project, located in Madison County,
Montana. The Norrs Hil Project is a Qualifying Facility within the meaning of the
Public Utility Regulatory Policies Act (PURP A). Sagebrush has been actively working
with Avista on the Norrs Hil Project since March 2007 and formally engaged in PURP A
contract negotiations with A vista for the execution of a long ter purchase power
agreement in Februar 5,2009.
COMMENTS OF SAGEBRUSH ENERGY IN RESPONSE TO NOTICE OF REVIEW-l
In its Notice the Commission poses the following questions:
"1. Does the present SAR methodology for published avoided cost rates need
to be modified or augmented? Yes or No.
2. If answer to Question 1 is no, please provide the basis for your answer.
3. If answer to Question 1 is yes, please provide the basis for your answer."
As qualified and explained in its answer to Question No.2, Sagebrush believes
the correct answer to Question No. 1 is "No". Having answered Question No. 1 in the
negative, Sagebrush does not address Question NO.3.
Explanation of Answer to Question No. 1.
Sagebrush is interpreting Question No. 1 as asking whether the curent surogate
avoided resource-a natural gas fired combine cycle combustion tubine (CCCT)-
should be changed to some other generating resource such as wind generation and, as
noted, believes the correct answer is "No" for among others, the following reasons:
1. There Is No Such Thing As A Perfect SAR.
Because an SAR is a forward looking estimation of costs a utility wil avoid by
acquiring a PURP A resource, it is uneasonable to expect that any SAR wil be perfectly
correct in its prediction of futue costs. The Commission recognized the imperfect nature
of a surrogate avoided resource in Order No. 25884 when it said, "We recognize that, by
its very natue, a SAR is a generation facility that may never be built". (Application of
Idaho Power Company for Approval of Prices, Order No. 25884).
And, over the long term the curent SAR has been reasonably accurate in
predicting actual utility costs. The undersigned is informed by Commission Staff that
Staffhas compared current avoided cost rates with prices produced by utility AURORA
cost model runs and finds them to be within a range of reasonableness.
COMMENTS OF SAGEBRUSH ENERGY IN RESPONSE TO NOTICE OF REVIEW-2
Viewed in this way, Sagebrush suggests that the Commission should be cautious
about abandoning the existing SAR in favor of a new SAR that may be equally or more
imperfect. Put differently, unless the Commission can conclude there is a strong
likelihood that some new, but imperfect, SAR wil be a measurable improvement over the
current method, it should not embark on the effort.
2. The Current SAR Has Been Appropriately Adjusted For The Characteristics
Of Wind Generation.
The Commission has approved adjustments to the CCCT SAR to take into
account unique characteristics of wind generation. In Order No. 30500, a wind
integration deduction to published rates of between 7%-9% was approved to
compensate for the cost of integrating the varable wind resource. (Petition of Avista
Corporation to Revise PURP A Obligations, February 20, 2008).
The Commission has also allowed the avoided cost payment determined by the
SAR method to be weighted seasonally, such that the weighted average of all seasons
equals the published avoided costs, (assuming steady output from the QF throughout the
year). Because of the seasonal varation in the wind profile, however, wind QFs can
expect to receive a weighted average price that is $1.25 below the published avoided cost
on average. (See Bolinger, Lawrence Berkeley National Laboratory, An Examination of
Avoided cost in Utah, 2005).
In short, to the extent thought necessar, the curent SAR methodology can be
adjusted to recognize wind generation attributes. There is not a compelling need for an
entirely new, and unproven, SAR methodology.
COMMENTS OF SAGEBRUSH ENERGY IN RESPONSE TO NOTICE OF REVIEW-3
3. There Is Not Any Empirical Evidence To Suggest A Wind SAR Would Be
More Accurate.
To Sagebrush's knowledge, among states that used a surrogate avoided resource
as the method for computing avoided costs, no state has adopted a wind SAR, and in
consequence, there is not an existing body of knowledge from which to borrow. To
develop a wind SAR from scratch, the Commission would be required to make an inquiry
into, among others, questions such as:
· Where would the wind SAR be located?
· If located remote from load centers, should transmission cost be taken into
account?
· What would be the nameplate capacity of the SAR?
· What would be the assumed net capacity factor of the wind SAR?
· What would be the capital cost of a wind SAR?
· What are the fixed operation and maintenance costs of a wind SAR?
· What are the varable operation and maintenance costs of a wind SAR?
The administrative cost of these inquiries would be high. Over the ten plus years
of experience with the CCCT SAR, the Commssion Staff and interested parties have
,
gained experence and accumulated knowledge regarding reasonable values for inputs to
the existing methodology. A similar body of knowledge does not exist with respect to a
wind SAR.
This high administrative cost wil be a barrer to paricipation in the Commission
inquiries by small QF generators, such as Sagebrush. Independent project developers, in
COMMENTS OF SAGEBRUSH ENERGY IN RESPONSE TO NOTICE OF REVIEW-4
the right circumstances, may have access to capital for constrction of projects. Unlike
utility companies, they do not have unimited resources for paricipation in regulatory
proceedings.
4. A CCCT Remains The Resource Of Choice For Utilities Regulated By The
Commission.
The focus of the avoided cost analysis is, of course, upon the costs that are
avoided by the utility by accepting a PURP A resource, not upon the cost characteristics
ofthe PURP A resource. (18 C.F .R. 292.10 1 (b)( 6)). The Commission has, for many
years, measured these avoided costs based on the estimated cost a utility would incur in
constrcting a CCCT facility. In its Notice, the Commission observes that in Order No.
25884, the Commission found that a CCCT is the "resource of choice" and thus an
appropriate basis for estimating costs avoided by the utility.
The most compellng, and irrefutable, evidence that a CCCT remains the
"resource of choice" stems from the simple fact that a CCCT is the resource most
recently approved by the Commission for construction. (See, In the Matter of Idaho
Power Company's Application for a CPCN for the Langley Gulch Power Plant, Order
No. 30892, September 1, 2009).
In testimony fied in the Langley Gulch case, Staff Witness Sterling analyzed in
depth the available resource options and concluded that a CCCT was the preferred
choice. (Direct Testimony of Rick Sterling, June 19,2008, Pgs 23-30). And, Witness
Sterling concluded that wind generation is not likely to fully meet base load needs:
"Q. Do you believe that PURPA projects (QFs) are a viable means of meeting
future base load needs of Idaho Power?
COMMENTS OF SAGEBRUSH ENERGY IN RESPONSE TO NOTICE OF REVIEW-5
A. No, I do not believe they can be planed on as a reliable option for meeting
base load needs. N earl y all of the recent PURP A development has been small
wind projects. It is unown how much additional capacity might be developed
and when such development might occur. The majority of projects for which
contracts have been signed in recent years have yet to come online and have had
their contractual online dates extended. The recent substantial increase in avoided
cost rates for PURP A projects wil likely stimulate some new development, but
the amount and timing of new projects is unkown. The timing and pace of
PURP A development is not within Idaho Power's control and is not dictated by
the Company's need for new generation.
Furthermore, because nearly all new QFs are wind projects, it is unlikely that they
could prove to be an acceptable substitute for a new base load resource even if
they could be timely developed. Because wind generation is interittent, there is
no guarantee that the generation would be available durng all of the hours when it
would be needed."
Accordingly, a CCCT remains the best estimate of costs a utility would avoid
through purchase of energy from a Qualifyng Facility.
5. Abandoning An Established SAR Methodology In Favor Of An Unproven
One Violates The First Law Of Wing Walkg.
The first law of wing walking is: "Do not let go of one hand support until you
have the other hand firmly attached to another support". Failure to observe this law can
have disastrous consequences, in the wing walking business.
Similarly, in the policy makng business, one should be reluctant to let go of an
established policy unless a new and better policy is firmly in hand. A wind SAR does not
meet that test.
CONCLUSION
For the reasons cited herein, Sagebrush respectfully requests that the Commission
conclude there is not curently a need for change to the Surogate A voided Resource and
that the Commission enter its Order closing this generic docket.
COMMENTS OF SAGEBRUSH ENERGY IN RESPONSE TO NOTICE OF REVIEW-6
DATED this ~day of September, 2009.
SAGEBRUSH ENERGY LLC
BY:~\~
Dean J. Miler
Attorney for Sagebrush Energy LLC
COMMENTS OF SAGEBRUSH ENERGY IN RESPONSE TO NOTICE OF REVIEW-7
CERTIFICATE OF SERVICE
I hereby certify that on the _ day of September, 2009, I caused to be served,
via the method(s) indicated below, tre and correct copies of the foregoing document,
upon:
Jean Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
P.O. Box 83720
Boise,ID 83720-0074
j j ewellØdpuc.state.id. us
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Scott Woodbur
Idaho Public Utilities Commission
472 West Washington Street
P.O. Box 83720
Boise,ID 83720-0074
scott. woodburyØdpuc.idaho.gov
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Bar Kline, Esq.
Lisa Nordstrom, Esq.
Idaho Power
P.O. Box 70
Boise, ID 83702
bklineØdidahopower .com
InordstromCiidahopower.com
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Dean Brockban
Daniel Solander
Mark Moench
Rocky Mountain Power
One Utah Center
201 S. Main Street, Suite 2300
Salt Lake City, UT 84111
datareguestØdpacificorp.com
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Michael G. Andrea
Senior Counsel
A vista Corporation
1411 E. Mission Avenue, MSC-23
Spokane, WA 99202
michael.andreaØdavistacorp.com
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COMMENTS OF SAGEBRUSH ENERGY IN RESPONSE TO NOTICE OF REVIEW-8