20091016IPC, AVU, PAC Joint Sur-Reply.pdf

REC... e. I\iC:, \I ,..
*;IDA~PO~
An IDACORP company
DONOVAN E. WALKER
Senior Counsel
dwalker(gidahopower.com
October 16, 2009
HAND DELIVERED
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
P. O. Box 83720
Boise, Idaho 83720-0074
Re: Case No. GNR-E-09-03
IN THE MATTER OF A REVIEW OF THE SURROGATE AVOIDABLE
RESOURCE (SAR) METHODOLOGY FOR CALCULATING PUBLISHED
AVOIDED COST RATES.
Dear Ms. Jewell:
Enclosed for filing please find an original and seven (7) copies of Idaho Power's,
Avista's and Rocky Mountain Power's Joint Sur-Reply to Exergy's Reply Comments in
the above-referenced matter.
Please return a stamped copy of this transmittal letter for our files in the enclosed
self-addressed stamped envelope.
yours,¿t(~
DEW:sh
Enclosures
1221 W. Idaho St. (83702)
P.O. Box 70
Boise. ID 83707
BARTON L. KLINE (ISB No. 1526)
DONOVAN E. WALKER (ISB No. 5921)
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: 208-388-6936
bkline (g idahopower.com
dwalker(g idahopower.com
Attorneys for Idaho Power Company
Street Address for Express Mail:
1221 West Idaho Street
Boise, Idaho 83702
Daniel E.Solander
Rocky Mountain Power
201 South Main
Salt Lake City, Utah 84111
Telephone: [phone]
Facsimile: 801-220-3299
daniel.solander(g pacificorp.com
MICHAEL G. ANDREA (ISB No. 8308)
Avista Corporation
1411 East Mission Avenue-MSC-23
Spokane, Washington 99202
Telephone: [phone]
Facsimile: 509-777-5468
michael.andrea (g avistacorp.com
Attorney for Avista Corporation
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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
)
) IDAHO POWER COMPANY's, AVISTA
) CORPORATION'S, AND ROCKY
) MOUNTAIN POWER'S JOINT
) SUR-REPLY TO EXERGY'S REPLY
) COMMENTS
)
I. Background
In Order No. 30922, issued in this case on October 6, 2009, the Commission
authorized the parties that had filed comments on September 18, 2009, Idaho Power
Company, Avista Corporation, and Rocky Mountain Power (collectively "Utilties"),
IDAHO POWER COMPANY's, AVISTA CORPORATION'S, AND
ROCKY MOUNTAIN POWER'S JOINT SUR-REPLY TO EXERGY'S REPLY COMMENTS - 1
Commission Staff ("Staff"), Idaho Wind Farms, and Sagebrush Energy to file sur-reply
comments responding to the reply comments Exergy Development Group of Idaho, LLC
("Exergy") filed on September 29, 2009.
Exergy's reply comments were generally critical of the Staff's and Utilities'
recommendations that the Commission adopt a new Surrogate Avoided Resource
("SAR") based on the cost of a generating facilty using wind as its motive force ("Wind
SAR"). Exergy focused most of its attention on two recommendations for adjustments
to avoided costs included in the comments of the Utilties and Staff. The first
recommendation called for the Commission to consider the value of renewable energy
credits ("RECs") in setting avoided cost rates. Second, the Utilities suggested that the
income tax subsidies wind generation projects receive should also be considered by the
Commission in setting avoided cost rates. In its reply comments, Exergy objected to
both of these recommendations on public policy grounds. In addition, Exergy argued
that both PURPA and the United States Constitution would be violated if the
Commission accepted either of these recommendations and considered the value of
RECs and tax subsidies in setting avoided cost rates based on a Wind SAR.
In these Sur-Reply Comments, the Utilties wil not address the general policy
positions taken by Exergy. But the Utilities do need to correct some inaccuracies in
Exergy's description of their recommendations to consider the value of RECs and tax
subsidies in setting avoided cost rates and respond to the legal arguments raised by
Exergy. It is important that the Commission understand that, contrary to Exergy's
assertions, PURPA and the U.S. Constitution do not prevent the Commission from
IDAHO POWER COMPANY's, AVISTA CORPORATION'S, AND
ROCKY MOUNTAIN POWER'S JOINT SUR-REPLY TO EXERGY'S REPLY COMMENTS - 2
considering the value of RECs and tax subsidies in setting published avoided cost rates
based on the cost of a Wind SAR.
II. The Commission Must Set the Published QF Rates Equal to the Utilties
Avoided Costs.
There is no disagreement in any of the filed comments concerning the
ratemaking standard the Commission must meet when it sets avoided cost rates. On
the top of page 3 of its Reply Comments, Exergy states: "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." 16 U.S.C. §824a-3(b)(d)."
On page two of its comments, Staff states: "Under PURPA Section 210(b) the
rate to be paid for such power is not to exceed "the incremental cost to the utilty of
alternate electric energy." Staff's comments also state: "There are two general caveats
under PURPA: (1) electric utilities are not required to pay more than the utility's avoided
costs for purchases of OF capacity and energy (PURPA Section 210(b); 18 C.F.R. §
292.304(a)(2)); and (2) co-generators and small power -producers in their sales to
utilties are not to be subjected to pervasive utilty type regulations, i.e., regulation
respecting (i) the rates of electric utilities; and (ii) the financial and organizational
regulation of electric utilities. PURPA Section 210(e); 18 C.F.R.§ 292.602(c)(1)(i)(ii)."
In their joint comments, on pages 6 and 7, Idaho Power and Avista cited two
FERC cases 1 in which the Federal Energy Regulatory Commission ("FERC")
unequivocally ruled that if utilities are required by state law or policy to sign contracts
that include rates for OF sales that are in excess of avoided costs, those contracts wil
be considered to be void ab initio.
1 Connecticut Light and Power, 70 FERC 11 61, 012, 61, 030 (1995); Southern California Edison
Company, San Diego Gas & Electric Company, 70 FERC 1161,215 (1995).
IDAHO POWER COMPANY's, AVISTA CORPORATION'S, AND
ROCKY MOUNTAIN POWER'S JOINT SUR-REPLY TO EXERGY'S REPLY COMMENTS - 3
II. The Wind SAR Methodology Would Not Violate PURPA
Exergy argues that the Wind SAR Methodology proposed by the Utiities and
Staff would violate PURPA by depriving wind energy developers of RECs. Exergy is
incorrect.
FERC has clearly stated that the ownership of RECs is not controlled by PURPA
and that states have the power to determine who owns RECs in the first instance.
American Ref-Fuel Co., et al., 105 FERC ~ 61,004, P 23 (2003), order on reh'g, 107
FERC ~ 61,016 (2004). Moreover, FERC made clear that states may decide that a sale
of power at wholesale automatically transfers ownership of RECs. ¡d. Therefore,
regardless of whether the Commission decides to indirectly compensate customers for
the value of REC's by reducing avoided cost rates to reflect the value of RECs or assign
RECs to the purchasing utility the Wind SAR methodology proposed by the Utilties and
Staff would be consistent with FERC precedent and would not in any way violate
PURPA.
iV. RECs and Tax Subsidies Are Available to Non-QFs.
As the Staff and the Utilities all noted in their comments, all three utilties are
currently in the process of acquiring wind generation resources outside of the PURPA
process. As a result, all three utilities wil obtain the RECs associated with their
acquisition of these wind resources. In addition, the three utilties will also benefit from,
either directly or indirectly, the substantial tax subsidies that are currently available to
developers of wind resources. This is why the Utilties have proposed that published
avoided costs based on a wind SAR should be adjusted to reflect both the value of
RECs and the value of tax subsidies. If avoided costs are not reduced to reflect these
IDAHO POWER COMPANY's, AVISTA CORPORATION'S, AND
ROCKY MOUNTAIN POWER'S JOINT SUR-REPLY TO EXERGY'S REPLY COMMENTS - 4
benefits, then utility customers wil be paying more than the "incremental cost of
alternative electric energy." (PURPA 210(b).)
v. Exergy's Preemption Argument Is Not Applicable.
On page 6 of its Reply Comments, Exergy asserts that the Commission is legally
prohibited from considering the value of renewable resource tax subsidies, when setting
published avoided cost rates based on a Wind SAR. Exergy claims that adjusting
avoided cost rates to consider the tax subsidies available to wind resource developers
would violate PURPA and the supremacy clause of the United States Constitution. The
premise of Exergy's constitutional argument is the doctrine of preemption; that federal
law occupying the same field preempts state law. Exergy characterizes Congress'
amendments to the federal tax code providing subsidies for developers of wind
resources, as "federal law" and this Commission's setting of avoided cost rates as "state
law". On page 7 of its Reply Comments Exergy states: "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."
Exergy misunderstands both the preemption doctrine and the genesis of the
PURPA law. PURPA is federal law. When this Commission sets avoided cost rates, it
is enforcing federal law, not state law. Exergy's attempt to apply the preemption
doctrine to this Commission's mandated actions under PURPA, misses this
fundamental point.
A very brief summary of the intersecting federal laws that established the
respective roles of this Commission and the FERC in setting OF rates is necessary at
IDAHO POWER COMPANY's, AVISTA CORPORATION'S, AND
ROCKY MOUNTAIN POWER'S JOINT SUR-REPLY TO EXERGY'S REPLY COMMENTS - 5
this point. For all investor-owned public utilities, jurisdiction over rates for sales at
wholesale, in interstate commerce, is vested exclusively in the FERC. In 1927, in Public
Utiities Commission of Rhode Island v. Atteboro Steam & Electric Company, 273 U.S.
83 (1927), the Supreme Court held that rates for sales of electric energy in interstate
commerce are beyond the reach of a state authority. The Court added that regulation of
such rates "can only be obtained by the exercise of the power vested in Congress." (ld.
at pp. 86-90.)
Congress did not change this basic federal-state jurisdictional scheme when it
p-assed PURPA in 1978. Sales between OFs and utilties are stil sales at wholesale in
interstate commerce. Therefore, ultimate jurisdiction over the rates OFs are paid for
sales at wholesale is still vested in the FERC. However, in creating the PURPA rate-
setting mechanism, Congress directed the FERC to allow the state regulatory
commissions to set wholesale rates for OFs, so long as the state regulatory
commissions complied with the rules established by FERC. As a result, setting avoided
cost rates is not a function of state law. It is a function of federal law performed by state
regulatory commissions.
The United States Supreme Court recognized this unique situation in the case of
Federal Energy Regulatory Com'n v. Mississippi, 102 S. Ct. 2126 (1982). In its opinion
in Mississippi, the Court stated, "Section 210(f), 16 U.S. Code § 824a-3(f) requires each
state regulatory authority and non regulated utility to implement FERC's rules." (ld. at
2133.) The Court in the Mississippi case explained the role of state commissions under
PURPA as follows:
IDAHO POWER COMPANY's, AVISTA CORPORATION'S, AND
ROCKY MOUNTAIN POWER'S JOINT SUR-REPLY TO EXERGY'S REPLY COMMENTS - 6
In essence, then, the statute and the implementing
regulations simply require the Mississippi authorities to
adjudicate disputes arising under the statute. Dispute
resolution of this kind is the very type of activity customarily
engaged in by the Mississippi Public Service Commission.
(FERC v. Mississippi 102 S.Ct. 2126, 2137 (1982).)
The Court went on to say:
So it is here. The Mississippi Commission has jurisdiction to
entertain claims analogous to those granted by PURPA, and
it can satisfy § 210's (of PURPA's) requirements simply by
opening its doors to claimants. (FERC v. Mississippi 102 S.
Ct. 2126, 2138 (1982).)
As can be seen from the Mississippi case, PURPA provided a federal preemption
of OF rate setting long before wind resource tax subsidies were included in the federal
tax code. When this Commission sets avoided cost rates there is no preemption of
state law.
Later in its comments, Exergy states "the federal tax credits for renewable
projects preempt adoption of the proposed Wind SAR because the proposed SAR
would deprive OFs of the value of the tax credit." (Exergy Reply Comments, p. 7.) Not
true. Regardless of how the Commission sets avoided cost rates, OFs wil still get the
full value of the tax credits from the IRS. But changing the tax code did not eliminate
PURPA's requirement that the Commission set avoided cost rates to match the
incremental cost the utilty would incur if it constructed the Wind SAR and obtained the
tax subsidies. There is no conflict between the statutes. PURPA and the tax code stil
work exactly, and separately, as directed by Congress. Congress changed the tax
code, not PURPA. If Congress had wanted to amend PURPA to direct this Commission
to ignore the effect of tax subsidies in setting PURPA avoided costs, it would have been
simple for it to express that intent. But, if the Commission ignores the tax subsidies
IDAHO POWER COMPANY's, AVISTA CORPORATION'S, AND
ROCKY MOUNTAIN POWER'S JOINT SUR-REPLY TO EXERGY'S REPLY COMMENTS - 7
when it assesses avoided costs, then it is almost certainly setting published avoided
cost rates that do not track with the costs the utiliy would incur if it constructed a Wind
SAR itself or purchased energy from a wind project as a result of a competitive bidding
process.
Vi. Considering the Utilty's Cost of Alternative Resources Is Not Discriminatory.
Finally, Exergy argues that considering tax subsidies when setting avoided cost
rates violates PURPA because "by depriving wind QFs under 10 average MW of the
renewable energy tax credit available to larger wind projects in the competitive bidding
process, the Commission would discriminate against qualiying small producers in
violation of PURPA." (Exergy Reply Comments, p. 1.) Again, no one is proposing that
the tax credits should or can be taken from QFs. What Exergy is really proposing is that
the Commission grant QFs a preference. If the utilty would have received the benefits
of the tax subsidies when it constructed a Wind SAR or acquired wind energy in a
competitive bidding process, failing to recognize the effect of the tax credits in setting
published avoided costs would actually provide a preference to QFs and result in higher
customer rates. PURPA does not allow either of those results.
VII. RECs Do Have Value for Utilties.
On page 8 of its Reply Comments, Exergy asserts that RECs have no resale
value to utilities that operate in jurisdictions that have adopted renewable portolio
standards ("RPS"). Exergy states that "the utility wil not resell the RECs if it developed
its own wind resource because those RECs would go toward meeting the utilty's
targeted RPS." (Exergy Reply Comments, p. 8.) Exergy paints with too broad a brush.
Idaho Power, for example, operates in one state with no RPS standard, Idaho, and
IDAHO POWER COMPANY's, AVISTA CORPORATION'S, AND
ROCKY MOUNTAIN POWER'S JOINT SUR-REPLY TO EXERGY'S REPLY COMMENTS - 8
another, Oregon, in which it has a small RPS requirement. Currently, Idaho Power
generates more RECs than it needs to satisfy the requirements of the Oregon RPS. As
a result, Idaho Power has excess RECs that it can selL.
At a minimum, the inabilty to obtain the RECs associated with the purchase of
PURPA resources imposes an opportunity cost on any utility with an RPS requirement.
All utilties must purchase PURPA resources. If no RECs come with a PURPA resource
purchase, then the utilty with an RPS requirement must either build more resources or
buy RECs on the market to satisfy its RPS requirements. This is a cost that would be
mitigated by lower avoided cost rates. RECs have value for utilties, RPS or not.
VII. The Commission Can Require Liquidated Damages and Security as a
Condition of Obtaining a QF Contract.
In its Reply Comments, Exergy makes the sweeping statement, ''The
Commission has no authority to provide remedies for breach of a OF contract." (Exergy
Reply Comments, p. 9.) In that same section of its brief, Exergy goes on to assert that
the inclusion of security for liquidated damages would violate the OFs due process
rights. (Exergy Reply Comments, p. 10.) Exergy claims that the only way that a utilty
can recover damages is through litigation in the courts. (Exergy Reply Comments, p.
10.)
Exergy's arguments are strawmen. The Commission's authority to assess
damages or fashion remedies in a OF contract after a OF contract has been signed and
approved by the Commission is irrelevant. Utilties are proposing that the Commission,
as a condition of approving OF contracts entered into during the pendency of this
proceeding, direct the utilities to include a liquidated damages provision in the contract
and require the contracting OF to post cash or a cash equivalent to secure the
IDAHO POWER COMPANY's, AVISTA CORPORATION'S, AND
ROCKY MOUNTAIN POWER'S JOINT SUR-REPLY TO EXERGY'S REPLY COMMENTS - 9
liquidated damages. Liquidated damages are routinely included in contracts when the
parties know at the outset of the contract that it wil be difficult to precisely determine the
amount of damages if there is subsequent breach of the contract. For this very reason,
liquidated damages provisions have been a part of many OF contracts previously
approved by this Commission. The inclusion of liquidated damages in a OF contract
has nothing to do with whether a court or the Commission is the appropriate forum for
subsequent resolution of utility contract disputes.
The Idaho Supreme Court has already determined in two separate cases that the
Commission has the necessary jurisdiction under PURPA to approve OF contracts and
determine when a OF is entitled to a contract which includes rates, terms, and
conditions approved by the Commission. The first case was Empire Lumber v.
Washington Water Power, 114 Idaho 191, 755 P.2d 1229 (1988). The other case was
AW. Brown Company, Inc., v. Idaho Power Company, 121 Idaho 812, 828 P.2d 841
(1992). In the A W Brown case, the Court held,
Finally, Brown argues that the PUC had no jurisdiction 'to
litigate the common law contract issues between Brown and
Idaho Power that neither part had even pleaded.' We
disagree. Regarding whether Brown either had or was
entitled to a contract with Idaho Power, this court stated in
Empire Lumber, supra, that the Commission 'has jurisdiction
to hear complaints against utilties alleging violation of any
provision of law . . . and is the appropriate forum to . . .
determine whether a regulated utilty has an obligation under
PURPA to purchase power from an applicant.
114 Idaho at 192, 755 P.2d 1229. (A W Brown 121 Idaho 812,819 (1992)
In this proceeding, the Utilities are asking the Commission to do exactly what the
Idaho Supreme Court said the Commission could do in the Brown and Empire cases.
They are asking that the Commission require OF developers, as a condition of obtaining
IDAHO POWER COMPANY's, AVISTA CORPORATION'S, AND
ROCKY MOUNTAIN POWER'S JOINT SUR-REPLY TO EXERGY'S REPLY COMMENTS - 10
a contract during the pendency of this proceeding, to agree to include a liquidated
damages provision and to post security to fund those liquidated damages if there is a
breach of the contract. Such a requirement falls clearly within the scope of the
Commission's jurisdiction as demonstrated in A. W Brown and Empire.
ix. Conclusion.
Exergy's assertions that the proposed Wind SAR violates PURPA and that the
Commission is legally precluded from considering RECs or tax subsidies when setting
avoided cost rates under a wind SAR methodology are not well founded. If the
Commission decides that it is in the public interest to consider using a wind SAR to
determine avoided cost rates, the Commission is free to consider any of the
recommendations for rate adjustments made by Staff or the Utilities.
DATED at Boise, Idaho, this 16th day of October 2009.
~~fi
Attorney for Idaho Power Company~P;J;y
MICHAEL G. ANDREA
Attorney for Avista Corporation
DANIEL SOLANDER
Attorney for Rocky Mountain Power
IDAHO POWER COMPANY's, AVISTA CORPORATION'S, AND
ROCKY MOUNTAIN POWER'S JOINT SUR-REPLY TO EXERGY'S REPLY COMMENTS - 11
a CQDtrcict....during....the.. pendency..of ..this..proceeding,..to agree. to JncllJe..a..liquidated
damages provision and to post security to fund those liquidated damages if there is a
breach of the contract. Such a requirement falls clearly within the scope of the
Commission's jurisdiction as demonstrated in A. W Brown and Empire.
IX. Conclusion.
Exergy's assertions that the proposed Wind SAR violates PURPA and that the
Commission is legally precluded from considering RECs or tax subsidies when setting
avoided cost rates under a wind SAR methodology are not well founded. If the
Commission decides that it is in the public interest to consider using a wind SAR to
determine avoided cost rates, the Commission is free to consider any of the
recommendations for rate adjustments made by Staff or the Utilties.
DATED at Boise, Idaho, this 16th day of October 2009.
BARTON L. KLINE
Attorney for Idaho Power Company
MICHAEL G. ANDREA
Attorney for Avista Corporation-~
~~D1DANIEL SOLANDER '
Attorney for Rocky Mountain Power
IDAHO POWER COMPANY's, AVISTA CORPORATION'S, AND
ROCKY MOUNTAIN POWER'S JOINT SUR-REPLY TO EXERGY'S REPLY COMMENTS - 11
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 16th day of October 2009 I served a true and
correct copy of IDAHO POWER COMPANY'S, AVISTA CORPORATION'S, AND ROCKY
MOUNTAIN POWER'S JOINT SUR-REPLY TO EXERGY'S REPLY COMMENTS upon
the following named parties by the method indicated below, and addressed to the
following:
Commission Staff
Scott Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington
P.O. Box 83720
Boise, Idaho 83720-0074
.l Hand Delivered
U.S. Mail
_ Overnight Mail
FAX
.l Email scott.woodbury(gpuc.idaho.gov
Avista Corporation
Michael Andrea
Avista Corporation
1411 East Mission Avenue
P.O. Box 3727
Spokane, Washington 99220
Hand Delivered
-- U.S. Mail
_ Overnight Mail
FAX
-- Email micahel.andrea(gavistacorp.com
Rocky Mountain Power
Daniel E. Solander
Rocky Mountain Power
201 South Main
Salt Lake City, UT 84111
Hand Delivered
-- U.S. Mail
_ Overnight Mail
FAX
-- Email danel.solander(gpacificorp.com
bruce.griswold (g PacifiCorp.com
Hand Delivered
-- U.S. Mail
_ Overnight Mail
FAX
-- Email ted.weston(gpacificorp.com
J. Ted Weston
Rocky Mountain Power
201 South Main Street, Suite 2300
Salt Lake City, Utah 84111
Exergy Development Group of Idaho, LLC
Peter J. Richardson
Greg Adams
RICHARDSON & O'LEARY
515 N. 2ih Street
P.O. Box 7218
Boise, Idaho 83702
Hand Delivered
-- U.S. Mail
_ Overnight Mail
FAX
-- Email peter(grichardsonandoleary.com
greg (g richardsonandoleary.com
IDAHO POWER COMPANY's, AVISTA CORPORATION'S, AND
ROCKY MOUNTAIN POWER'S JOINT SUR-REPLY TO EXERGY'S REPLY COMMENTS - 12
Sagebrush Energy, LLC
Dean J. Miler
MCDEVITT & MILLER
P.O. Box 2564
Boise, Idaho 83701
Hand Delivered
-l U.S. Mail
_ Overnight Mail
FAX
-l Email joe(gmcdevittmiler.com
Idaho Forest Group, LLC
Dean J. Miller
MCDEVITT & MILLER
P.O. Box 2564
Boise, Idaho 83701
Hand Delivered
-l U.S. Mail
_ Overnight Mail
FAX
-l Email joe(gmcdevittmiller.com
Idaho Windfarms, LLC
Glenn Ikemoto
Idaho Windfarms, LLC
672 Blair Avenue
Piedmont, California 94611
Hand Delivered
-l U.S. Mail
_ Overnight Mail
FAX
-l Email glenni(gpacbell.net
~ t(cU
Barton L. Kline
IDAHO POWER COMPANY's, AVISTA CORPORATION'S, AND
ROCKY MOUNTAIN POWER'S JOINT SUR-REPLY TO EXERGY'S REPLY COMMENTS - 13