20090929Exergy Reply Comments.pdf

Peter J. Richardson
ISB No. 3195
Richardson & O'Lear
515 N. 27th Street
P.O. Box 7218
Boise, Idaho 83702
Telephone: [phone]
Fax: [phone]
peter($richardsonandolear.com
RECEiVED
2099 SEP 29 PM 3: 35
.""'~ lt1;l" ~('l.
\0 AH 0 r' li Dal. lll.~ ru 01"\
UTIL\I\ES COM,.~IS;:I,
Greg Adams
ISB No. 7454
Richardson & O'Lear
515 N. 27th Street
P.O. Box 7218
Boise, Idaho 83702
Telephone: [phone]
Fax: [phone]
greg($richardsonandolear. com
Attorneys for Exergy Development Group of Idaho, LLC
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF A REVIEW OF THE )
SUROGATE AVOIDABLE RESOURCE )
("SAR~') METHODOLOGY FOR )
CALCULATING PUBLISHED AVOIDED ~
COST RATES )
)
)
)
)
CASE NO. GNR-E-09-03
EXERGY DEVELOPMENT GROUP
OF IDAHO'S REPLY COMMENTS
INTRODUCTION
Exergy Development Group of Idaho, LLC ("Exergy"), by and through undersigned
counsel, hereby fies reply comments regarding the Idaho Public Utilties Commission's generic
EXERGY DEVELOPMENT GROUP OF
IDAHO'S REPLY COMMENTS
GNR-E-09-03 Paget
electric docket on the Surogate Avoidable Resource ("SAR") methodology for calculating
published avoided cost rates under the Public Utility Regulatory Policies Act of 1978
("PURPA"). Exergy is an independent developer ofPURPA wind energy projects, and would
be affected by an alteration of the SAR methodology.
Exergy believes that the curent SAR methodology for calculating avoided cost rates for
Qualifying Facilties ("QFs") smaller than 1 0 aMW, which employs a natural gas-fired combined
cycle combustion turbine ("CCCT") as the surogate resource, is adequate as a matter of law and
policy. Exergy disagrees with the comments of Idaho Power Company, Avista Corporation, and
Rocky Mountain Power (collectively "the utilities"), as well as the Commission Staf, to the
extent those paries advocate the Commission should adopt a methodology employing a wind
project as the surogate resource used to compute avoided cost rates for wind QFs. Furher, even
if the Commission were to employ a wind SAR, Exergy believes the wind SAR methodology
advocated by the utilities and Staff would violate not only PURP A, but also the Supremacy
Clause of United States Constitution.
BACKGROUND
A. Federal Laws Promoting Renewable Energy Development
1. PURPA
"Congress passed PURPA in 1978 in response to the prevailng energy crisis." Rosebud
Enterprises, Inc. v. Idaho Public Utilties Commission, 128 Idaho 609, 613 (1996); see also
Pub.L. No. 95-617 (Nov. 9, 1978). Congress's intent "was to encourage the promotion and
development of renewable energy technologies as alternatives to fossil fuels and the constrction
of new generating facilities by electric utilities." Rosebud Enterprises, Inc., 128 Idaho at 613.
EXERGY DEVELOPMENT GROUP OF
IDAHO'S REPLY COMMENTS
GNR-E-09-03
Page 2
Section 210 of PURP A requires electric utilities to purchase power produced by cogenerators or
small power producers that obtain QF status under section 201. 16 U.S.C. § 824a-3(a)(2).
Under PURPA section 210(b), however, the rate to be paid for such power is not to exceed the
"incremental cost to the utilty of alternative electric energy." Id. at § 824a-3(b),(d).
Federal Energy Regulatory Commission ("FERC") rules provide QFs with the option of
sellng power to a utilty based on the utility's "avoided costs" at the time of delivery or at the
time the qualifying facilty's legally enforceable obligation to deliver power is incured. See 18
C.F.R. § 292.304( d). PURP A and related FERC regulations require that the avoided cost rates
(1) be just and reasonable to the electric utility's consumers and in the public interest, and (2) not
discriminate against qualifying cogenerators or small power producers. 16 U.S.C. § 824a-3(b);
18 C.F.R. § 292.304(a)(I), (2).
2. The Renewable Energy Tax Credits
Congress first enacted the renewable energy production ta credit ("PTC") in § 1914 of
the Energy Policy Act of 1992. See P.L. 102-486, § 1914 (Oct. 24, 1992); see also 26 U.S.C. §
45 (codification of PTC in Internal Revenue Code). The purose of any tax credit is to
encourage the activity for which Congress allows a credit - here, development of renewable
energy projects, be it for their environmental, economic development, or energy security
benefits. Indeed, the Energy Policy Act of 1992 stated that the purose of renewable energy
incentives was "to promote. . . increases in the production and utilization of energy from
renewable energy resources." P.L. 102-486, at § 1201(1).
The initial PTC was a production-based credit for the first 10 years of project operations
beginning at 1.5 cents/kWh (adjusted upwards, in future years, for inflation). P.L. 102-486, at §
EXERGY DEVELOPMENT GROUP OF
IDAHO'S REPLY COMMENTS
GNR-E-09-03
Page 3
1914. Congress reduced the PTC in § 1914 for amounts renewable energy developers received
in certain grants, tax-exempt bonds, subsidized energy financing, and other credits. See id
(enacting 26 U.S.C. § 45(b)(3)). But Congress did not reduce the PTC for any economic
advantage that PURPA's avoided cost rates bestowed on renewable energy projects. Although
the PTC has lapsed twice since its initial enactment, Congress has re-enacted, extended, or
expanded it several times, and thus had many occasions to revisit the effect of the PTC and its
interplay with other legislative enactments promoting renewable energy development. See P.L.
106-170, § 507 (Dec. 19, 1999); P.L. 107-147, § 603 (March 9, 2002); P.L. 108-311, § 313 (Oct.
4,2004); P.L. 109-58, § 1301 (August 8, 2005); P.L. 109-432, § 201 (Dec. 20, 2006); P.L. 111-5,
§ 1101 (Feb. 17,2009).
Through all these years and all these revisions, Congress has never expressed any intent
that the PTC not apply to projects that utilze PURPA's avoided cost rates. See 26 U.S.C. §
45(b)(3) (2009). Indeed, in the Energy Policy Act of2005, Congress renewed the PTC in §
1301, and in § 1253 of the same law, terminated PURPA's mandatory purchase and sale
requirements for QFs in jurisdictions where FERC finds that new facilities have access to
wholesale power markets and transmission services. P.L. 109-58, at §§ 1253, 1301. That
Congress left PURP A intact in non-competitive jursdictions -- such as Idaho -- exhibits intent to
allow QF's to use both PURPA's avoided cost rates and the PTC.
Moreover, in the most recent extension of the PTC, Congress not only extended a version
of the initial PTC (now at 2.1 cents/kWh) for projects "placed in service" by 2012, but it
provided also an alternative that is even more economically advantageous for certain projects.
See American Recovery and Reinvestment Act ("AR") of 2009, P.L. 111-5, §§ 1101, 1102
EXERGY DEVELOPMENT GROUP OF
IDAHO'S REPLY COMMENTS
GNR-E-09-03
Page 4
(Feb. 17,2009). Specifically, § 1102 of the AR provided a right for certain renewable energy
developers to exercise a 30% tax credit for investments in projects in lieu of the PTC. Id at §
1102. By providing a tax credit for up-front investments in the project (rather than against
production which wil occur over several years), this alternative demonstrates Congress's intent
to fuer hasten development of renewable energy projects.
B. The Prior and Current SAR Methodology for QFs smaller than 10 aMW
The curent administrative SAR methodology for calculation of published avoided cost
rates for QFs smaller than 10 aMW is based on the estimated costs that a utility would incur in
constrcting a natual gas-fired CCCT plant. Prior to that, the surogate was a hypothetical base
load coal-fired generation plant located in Wyoming. Under the prior and curent SAR
methodologies, renewable energy developers could properly realize the value of the PTC (or now
the investment credit) because the avoided cost rate was not decreased downward for the credit.
C. The Proposed Wind SAR Methodology
The utilities and Staff now propose abandoning the published, natual gas-fired, CCCT
SAR methodology, and replacing it with a wind SAR. According to them, the published SAR
provides QFs with an avoided cost rate that is higher than rates awarded to wind energy projects
acquired through the competitive bidding process. This difference is primarly due to the lack of
a discount in the published avoided cost rate for the economic benefits to wind developers from
the tax credits and from the value of renewable energy credits ("RECs"), which has increased
substantially due to neighboring states' renewable portfolio standards ("RPSs"). The utilties
assert that this sitution is unfair. Staf, too, asserts that a wind SAR would be a superior
alternative, at least for intermittent resource QFs.
EXERGY DEVELOPMENT GROUP OF
IDAHO'S REPLY COMMENTS
GNR -E-09-03 PageS
DISCUSSION
The Commission in its Notice posed 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,
a. Please provide the basis for your answer.
b. In broad and general terms, how should the
methodology be modified or augmented?
Exergy answers question one in the negative, and, even if Exergy could agree to some
type of modified SAR methodology, the wind SAR methodologies proposed by the utilities and
Staff are unacceptable as a matter of law and policy. In support, Exergy provides the reasoning
set forth below, and Exergy hereby also joins in the Comments of Sagebrush Energy.
A. The proposed wind SAR methodology would violate the Supremacy Clause by
depriving wind QFs of the federal tax credit.
The Supremacy Clause gives Congress the power to preempt state law. Crosby v.
National Foreign Trade Council, 530 U.S. 363, 372 (2000). Even absent express preemption,
Congress preempts state law (1) when "Congress intends federal law to occupy the field," or (2)
when there is "any conflict with a federal statute." Id (internal quotation omitted). Preemption
occurs "where under the circumstaces of ( a) paricular case, the challenged state law stads as
an obstacle to the accomplishment and execution ofthe full puroses and objectives of
Congress." Id at 372-73 (internal quotation and alteration omitted). The cours make this
determination by examining "the federal statute as a whole and identifying its purose and
EXERGY DEVELOPMENT GROUP OF
IDAHO'S REPLY COMMENTS
GNR-E-09-03
Page 6
intended effects." Id at 373.
The federal courts have held that federal tax provisions preempt state laws or actions that
effectively nullify the tax provision at issue. See, e.g., Russell v. United States, 551 F.3d 1174,
1180 (10th Cir. 2008) (holding federal ta lien law preempted Colorado law allowing for
extinguishment of third pary's rights); Bosarge v. United States Dept. ofEduc., 5 F.3d 1414,
1419 (11th Cir. 1993) (holding federal tax refud intercept statute preempted Alabama law
exempting certain personal property from "process for the collection of debts").
Here, the federal tax credit for renewable energy projects preempts adoption of the
proposed wind SAR because the proposed SAR would deprive QFs of the value of the tax credit.
By reducing the avoided cost paid to QFs by the amount of the federal ta credit, the proposed
SAR methodology offsets the tax credit's value to QFs. This is in direct contradiction of the
stated purose of both PURP A and the federal tax credit - to promote development of renewable
resources. PURPA's avoided cost rate and the federal production (or investment) ta credit work
in conjunction in Idaho, and Congress has never expressed intent to reduce the federal ta credit
by any economic benefit PURPA provides. In 2005, Congress reexamined both provisions, and
passed a single piece of legislation that left both the avoided cost rate methodology and the PTC
available to QFs in Idaho. See P.L. 109-58, at §§ 1253, 1301. The Commission, therefore, has
no authority to adopt a wind SAR methodology that decreases the avoided cost rate by the
amount of the federal tax credits because federal law preempts such state action.
Furher, PURPA prohibits discriminating against qualifying small power producers. 16
U.S.C. § 824a-3(b). By depriving wind QFs under 10 aMW of the renewable energy tax credit
available to larger wind projects in the competitive bidding process, the Commission would
EXERGY DEVELOPMENT GROUP OF
IDAHO'S REPLY COMMENTS
GNR-E-09-03
Page 7
discriminate against qualifying small producers in violation of PURP A.
B. The proposed wind SAR methodology would violate PURP A by depriving wind
energy developers of RECs.
As Exergy asserted in IPUC Case No. A VU-E-09-04, the Commission lacks jurisdiction
to determine ownership of RECs. In addition to the arguments set fort in that docket by Exergy
and Sagebrush, Exergy fuher asserts that RECs have no re-sale value to utilities that operate in
jurisdictions with RPSs. The utility would not resell the RECs if it developed its own wid
resource because those RECs would go towards meeting the utilities' tageted RPS. The
published natual gas-fired, CCCT SAR methodology does not increase the avoided cost rate by
the cost of obtaning RECs on the open market for those utilities who must do so to meet an RPS.
So the utilities may not now decrease the avoided cost rate by the amount for which they could
theoretically sell RECs if they developed and owned them. In sum, RECs came into existence
long after PURP A was enacted, and are simply separate from, and outside of, the avoided cost
inquiry. See American Ref-Fuel Co., et al., 105 FERC ~ 61,004, p. 23 (2003), order on reh 'g,
107 FERC61,016, ~ 12 (2004) (holding that avoided cost rules under PURPA canot be the
basis for transferring ownership ofRECs to the utilty purchasing the power).
C. Rocky Mountain Power's proposed wind SAR methodology would violate PURP A
by including an unrealistically high capacity factor without accounting for costs of
transmission from Wyoming to population centers in Idaho.
Rocky Mountain Power proposes to utilize a capacity factor of38 %, which is typical for
a wind far in Wyoming. Comments of Rocky Mountain Power, at p. 6. But this is significantly
higher than capacity factors at wind projects near Idaho population centers, and would therefore
render the avoided cost of the surogate wind project significantly lower than that of a similar
EXERGY DEVELOPMENT GROUP OF
IDAHO'S REPLY COMMENTS
GNR-E-09-03
Page 8
project in Idaho. When the surogate resource was a Wyoming coal-fired power plant, the
avoided cost methodology included an upward adjustment to account for the cost of transmission
of the electricity produced in Wyoming to the population centers of Idaho. A Wyoming wind
SAR must also tae into account higher transmission costs.
E. Exergy opposes any moratorium or grandfathering requirements with the effect of
a moratorium.
1. Proposed moratorium
Exergy opposes a moratorium on new wind QFs pending resolution of this issue. The
Commission lacks jurisdiction to suspend operation of PURP A because PURP A compels states
to administer the federally determined avoided cost rate methodology. See FERC v. Mississippi,
456 U.S. 742, 751 (1982). The Commission simply does not have the legal authority to suspend
PURP A for any resource. Doing so would subject the Commission to enforcement action by
FERC. See id; 16 U.S.C. § 824a-3(h).
2. Grandfather requirements
Exergy fuher opposes any grandfathering requirements that would have the effect of a
moratorium. To achieve grandfathered status, the utilties advocate for requiring QFs to post a
"liquidated damages amount that would be retained by the utility," just in case the QF fails to
dilgently proceed through the interconnection process, perform on the power purchase
agreement, and achieve the scheduled commercial operation date. See Idaho Power and Avista's
Initial Joint Comments, at p. 8; see also Rocky Mountain Power's Comments, at pp. 9-10.
The Commission has no authority to provide remedies for a breach of a QF contract. See
Idaho Power Co. v. Cogeneration Inc., 129 Idaho 46, 49 (1996) (collecting cases and holding
that the "distrct cour is the appropriate foru for utilty contract disputes," not the
EXERGY DEVELOPMENT GROUP OF
IDAHO'S REPLY COMMENTS
GNR-E-09-03
Page 9
Commission). And requiring QFs to involuntaily post a bond for liquidated damages prior to
occurence of any breach would violate the QFs' due process rights. The utilities must proceed
with a cour action to obtain contract damages, just like any other commercial entity.
Furhermore, the high bonding requirements proposed in the utilities' comments are
financially prohibitive to QFs wishing to enter the market. Thus, even if the Commission can
modify PURP A contracts in the public interest, imposing these prohibitive requirements on QFs
would have the effect of a moratorium and would not be in the public interest. As discussed
above, a moratorium would exceed the Commission's authority, and it would stymie
development of small, renewable proj ects in Idaho, in direct contradiction of the puroses of
PURP A and the federal tax credit.
CONCLUSION
Exergy respectfully requests that the Commission leave unchanged the published SAR
methodology. Alternatively, a wind BAR methodology may not decrease the avoided cost rate
by the value of the federal renewable energy production or investment ta credits, or by the value
ofRECs. Additionally, if the methodology employs the capacity factor ofa Wyoming wind
far, it must employ also the transmission costs of a Wyoming wind far. Finally, the
Commission should not impose a moratorium on new wind QFs and should not impose
grandfathering requirements with the practical effect of moratorium.
Respectfully submitted:
EXERGY DEVELOPMENT GROUP OF
IDAHO'S REPLY COMMENTSGNR-E-09-03 Page
to
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 29th day of September, 2009, a true and correct copy of the within
and foregoing EXERGY DEVELOPMENT GROUP OF IDAHO'S REPLY COMMENTS was served in
the maner shown to:
Ms. Jean Jewell
Commission Secreta
Idaho Public Utilties Commission
472 W. Washington (83702)
PO Box 83720
Boise, ID 83720-0074
Scott Woodbur
Deputy Attorney General
Idaho Public Utilties Commission
472 W. Washington
Boise ID 83702
Scott. woodbur($puc.idaho.gov
David J. Meyer
A vista Corporation
1411 East Mission Ave - MSC-13
Spokane W A 99202
david.meyer($avista.com
Steve Silkworth
A vista Corporation
1411 East Mission Ave - MSC-7
Spokane W A 99202
steve.silkworth($avista.com
Donovan E. Walker
Baron L. Kline
Idaho Power Company
PO Box 70
Boise, Idaho 83707-0070
dwalker($idahopower.com
bkline($idahopower.com
Greg W. Said
Randy C. Allphin
Idaho Power Company
PO Box 70
Boise, Idaho 83707-0070
rsaid($idahopower.com
rallphin($idahopower .com
x. Hand Delivery
_U.S. Mail, postage pre-paid
Facsimile
Electronic Mail
lL Hand Delivery
_U.S. Mail, postage pre-paid
Facsimile
Electronic Mail
_ Hand Delivery
_U.S. Mail, postage pre-paid
Facsimile
lL Electronic Mail
_ Hand Delivery
_U.S. Mail, postage pre-paid
Facsimile
lL Electronic Mail
_ Hand Delivery
_U.S. Mail, postage pre-paid
Facsimile
lL Electronic Mail
_ Hand Delivery
_U.S. Mail, postage pre-paid
Facsimile
lL Electronic Mail
Dean J. Miler
Sagebrush Energy LLC
(C)
McDevitt & Miler LLP
PO Box 2564
Boise ID 83701
joe(ßmcdevittmiler .com
Benjamin Ells
PO Box 4284
Jackson WY 83001
ben.ells(ßsagebrushenergy.net
Ted West
ID Regulatory Affairs Mgr
Rocky Mountan Power
201 So Main St Ste 2300
Salt Lake City UT 84111
datarequest($pacificoro.com
Danel E Solander
Senior Counsel
Rocky Mountain Power
201 So Main St, Ste 2300
Salt Lake City, UT 84111
datarequest($pacificorp.com
Ted Sorenson
Sorenson Engineering, Inc
5203 South 11 th East
Idaho Falls, ID 83404
ted($sorenson.net
Dean J. Miler
Idaho Forest Group, LLC
PO Box 2564
Boise ID 83701
joe($mcdevitt -miler .com
Scott Atkson, President
Idaho Forest Group, LLC
171 Highway 95 Nort
Grangevile ID 83530
scotta(ßidahoforestgroup.com
_ Hand Delivery
_U.S. Mail, postage pre-paid
Facsimile
L Electronic Mail
_ Hand Delivery
_U.S. Mail, postage pre-paid
Facsimile
lL Electronic Mail
_ Hand Delivery
_U.S. Mail, postage pre-paid
Facsimile
lL Electronic Mail
_ Hand Delivery
_U.S. Mail, postage pre-paid
Facsimile
K. Electronic Mail
_ Hand Delivery
_U.S. Mail, postage pre-paid
Facsimile
lL Electronic Mail
_ Hand Delivery
_U.S. Mail, postage pre-paid
Facsimile
lL Electronic Mail
_ Hand Delivery
_U.S. Mail, postage pre-paid
Facsimile
LElectronic Mail
David Schiess
Schiess & Associates
7103 South 45th West
Idaho Falls, ID 83402
dschiess($schiesseng.com
_ Hand Delivery
_U.S. Mail, postage pre-paid
Facsimile
lL Electronic Mail
Clair D. Bosen, President
Twin Lakes Canal Company
PO Box 247
Preston ID 83263
contact(ßtwinlakescanalcompany.com
Qu 11 ff CU~
Nina Curis 'C
Administrative Assistat
_ Hand Delivery
_U.S. Mail, postage pre-paid
Facsimile
lL Electronic Mail