20100618Exergy Development Comments.pdf

Peter J. Richardson ISB 3195
Gregory M. Adams ISB 7454
RICHARDSON & O'LEARY PLLC
515 N. 27th Street
PO Box 7218
Boise, Idaho 83702
Telephone: [phone]
Fax: [phone]
peter(frichrdsonandolear .com
Attorneys for Exergy Development Group of Idaho LLC
C'..r.rt\CGC
lOIDJUN I a PM 3: 59
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF A REVIEW OF THE
SURROGATE AVOIDABLE RESOURCE
(SAR) METHODOLOGY FORCALCULATING PUBLISHED AVOIDED
COST RATES
)
) CASE NO. GNR-E-09-03
)
)
) EXERGY DEVELOPMENT GROUP
) OF IDAHO'S COMMENTS ON
) STAFF'S STRAWMNPROPOSAL
)
)
COMES NOW, Exergy Development Group ofIdaho LLC ("Exergy") by and though
its attorneys of record, Peter J. Richardson and Gregory M. Adams, pursuant to that request for
comments to Stafr s "Strawman Proposal" of May 27, 2010, and hereby lodges its Comments.
1
I
The IPUC may not implement different PURPA rates for different resource types. unless
narrowly tailored only to address different supply characteristics.
FERC's regulations do not allow for different avoided costs to different QF resource
tyes, unless those different rates are based on the different supply characteristics of the QF
Exergy fied extensive Reply Comments in this docket several months ago, wherein it
addressed several elements of the proposed wind SAR, including treatment of the renewable
energy tax credits, REC ownership, capacity factors and transmission costs, and the proposed
moratorium on wind QF projects pending resolution ofthis docket. Exergy stads by all
comments raised at that time, and renews those comments in response to Stafr s Strawman
proposal.
Exergy Development Group of Idaho LLC's Comments
GNR-E-09-03, Page 1
resources. See American Ref-Fuel Co., et a/., 105 FERC ~ 61,004, ~~ 21-22 (2003), order aff'd
on reh 'g, 107 FERC ~ 61,0 16, ~~ 14-15 (2004 ) (citing the factors listed in 18 C.F.R. §
292.304(e) as the sole basis to calculate avoided costs). With regard to calculating standard or
published avoided cost rates, FERC regulations allow for different published rates available to
QFs of differing generation technology only "on the basis of the supply characteristics of the
different technologies." 18 C.F.R. 292.304(c)(3)(ii) (emphasis added). See also FERC Order no.
68,45 Fed. Reg. 12214, 12224 (Feb. 25, 1980) (promulgating ths regulation and noting as an
example, "(i)f it can be shown that system peak occurs when there is bright sun and no wind,
rates for purchase could provide a higher capacity payment for photovoltaic cells than for wind
energy conversion systems"). A modern-day example may include a narowly tailored reduction
in avoided cost rates available to intermittent resources after a showing that the utility incurs
different costs stemming from the supply characteristics of a paricular intermittent resource.
This Commission has already adjusted wind QF rates to account for their unque supply
characteristics. In case No.IPC-E-07-03, the Commission considered the appropriate amount of
adjustment to the avoided cost rates paid to wind QFs in order to integrate such resources into
the utilties' systems. In that docket, the Commission imposed a wind integration charge upon
wind QFs and also implemented a mechancal availability guarantee on wind QFs. The
Commission revisited the integration charge issue just this year in Order No. 31021, wherein it
increased PacifiCorp's wind integration charge to wind QFs tang the published avoided cost
rates from $5. 1 O/MWh to $6.50/MWh.
Here, the IPUC Staff Strawman proposes to implement different rates for wind
developers based on the all-in costs of developing that paricular resource being different than
the costs to develop a natural gas CCCT power plant -- a matter wholly separate from any supply
Exergy Development Group of Idaho LLC's Comments
GNR-E-09-03, Page 2
characteristics. The reason IPUC Stafs Wind SAR produces a different rate is because the
hypothetical utility built wind resource has different costs to constrct and associated ta benefits
than the hypothetical gas CCCT resource. FERC regulations do not allow for differential
treatment on that basis when calculating published rates.
Staffs Strawman Proposal ironically turs 18 C.F.R. § 292.304(c)(3)(ii) on its head by
penalizing wind QFs with a wind integration charge, but ignoring the fact that when a utility
builds its own wind resource it incurs the very same charges to integrate the wind.2 If wid were
indeed the avoided resource of choice and a wind SAR were implemented, the utility built model
must pay the same wind integration charge the utilties are otherwse charging wind QFs.
Consequently, the avoided cost would increase by the cost to integrate wind. Thus, for non-
intermittent QFs taking this wind SAR rate, the avoided cost rate would be increased because the
utilty is avoiding the cost of integrating wind from its hypothetically avoided wind resource.
For wind QFs, even if the utility could charge an integration charge to the QF, that aiount
would be cancelled out by the increased avoided cost rate in the wind SAR to account for
integration costs the utility would incur developing its own wind resource. If wind integration is
a real cost utilties incur, it must increase the avoided costs in the wind SAR model; if it is not a
real cost, the utilties may not charge wind developers for it outside of the modeL. Staff s
Strawman Proposal's failure to properly account for this supply characteristic demonstrates that
the motives of this wind SAR exercise drft far afield from FERC regulations.
2 The Comments of Rocky Mountain Power circulated in this docket today eveIl assert that
charge should be $11.69/MWh -- almost double the charge approved by the Commission only
a few months ago in Order No. 31021.
Exergy Development Group of Idaho LLC's Comments
GNR-E-09-03, Page 3
II
Baseload Natural Gas Plants are the Resource of Choice for all Three Investor
Owned Utilties Operating in Idaho and Hence are the True Measure
of Their Avoided Costs
The utility's avoided costs do not change based solely on the QF technology being used?
For the Staffs Strawman proposal to be legitimate as a measure of the avoided cost rate, wind
would have to be the next resource relied on by the utilty in its resource stack. That is decidedly
not the case. Natual gas fired combined cycle combustion tubines are curently the next
resource of choice for all three IOUs operating in Idaho. Even a cursory review of the IOUs'
integrated resource plans shows that wind is a minor and distat player. Natural gas plants are
central to the abilty of Idaho's utilities to meet future growth.
To suggest that wind is the legitimate avoided resource ignores reality. For example, as
recently as September of last year, this Commission approved a natual gas fired resource with
an estimated levelized cost of $126 per MWh for Idaho Power. See In the Matter of Idaho
Power Company's Application for a CPCN for the Langley Gulch Power Plant, Order No.
30892, p. 6 (September 1,2009); see also Comments of the Commission StafJ Case No. IPC-E-
09-34, p. 9 (May 3, 2010) (stating Langley Gulch's levelized cost is $11 1. 13/MWh, which is
substatially higher than the levelized price generated by the SAR methodology for a CCCT
plant like Langley Gulch). Indeed, in that case the Commission rejected all alternatives to the
constrction of a new baseload natual gas fired power plant to meet Idaho Power's near term
load:
Staff contends that a new baseload generation plant is justified based on the information
and analyses in the Company's 2006 IRP and 2008 IRP update, the Company's load
resource balance under various water and load conditions, and transmission constraints
3 As noted in the preceding section, QF technology is only relevant to the avoided cost rate
for its impact on the supply characteristics ofthe technology. See 18 C.F.R. § 292.304(c)(3)(ii).
Exergy Development Group of Idaho LLC's Comments
GNR-E-09-03, Page 4
that limit the Company's ability to import power durng critical times of the year.
Sterling, Tr. p. 1031; Exh. 101-105.
Staff in its analysis considered the availability to the Company of other resource
alternatives, e.g., non-Company owned generation, conservation, demand response
programs and transmission upgrades. Staff concluded that while such alternatives may
be truly viable, they canot be relied on exclusively and should be pursued in conjunction
with and not instead of Langley Gulch. Sterling, Tr.p. 1021.
In its 2006 IRP planng process the Company, Staff states, considered upgrades to
hydro, gas-fired thermal generation options (SCCT and CCCT), clean coal options
(IGCC), super-critical pulverized coal, nuclear, geothermal and a wide variety ofDSM
options. Sterling Tr.p. 1041.
Id at p. 13.
In light of this Commission's thorough examination of all resource options in the Langley
Gulch docket, which took place after this case was initiated, and its conclusion that a baseload
natual gas fired plant is the resource of choice for meeting near term load -- any discussion of
changing the SAR from a baseload natural gas fired plant should be dismissed as irelevant.
III
This Case is no Longer Relevant
One of the primar reasons the Commission opened this docket is the perception that the
natural gas SAR produces an avoided cost rate that is too high when compared to the cost of
constrcting a wind generating facilty. As the Commission stated in its Notice of Review of
Avoided Cost Methodology:
Based on recent filings at the Commission by Idaho's electric utilities, we are concerned
that a disparity exists between Idaho' published avoided cost rate established using a
natual gas-fired surogate resource and the cost to a utilty of developing and operating
its own wind generation project.
Order No. 30873, p. 3. The Commission's belief was not true at the time and has become even
less compellng subsequently for two reasons.
Exergy Development Group of Idaho LLC's Comments
GNR-E-09-03, Page 5
First, the Commission made its finding in August of2009. Subsequent to makng that
finding, the Commission issued an order lowering the published avoided cost rates calculated
using the curent gas CCCT SAR by approximately thirteen percent, to approximately
$80/MWh. This new published rate eliminates the perceived "disparity" between the avoided
cost rate derived from a gas SAR and a utilty developed wind project and should alleviate the
Commission's concern.
Second, ironically, Stafts Strawman proposal develops wind SAR rates that are higher
than the gas CCCT SAR rates in the Commission's recent Order No. 31025. IfStats Strawman
is to be believed, (and but for certain tweaking that can be done, it appears to be a reasonably
accurate cost estimate) the Commission's concern about a cost disparity between the gas SAR
and a wind project is completely unfounded. Certnly the curent "disparity" is not such that the
system for setting avoided cost rates that has been in place for well over a decade must now be
thown out. Exergy does not believe the curent disparty between the SAR based on gas and the
cost of developing a wind project is such that the curent system needs to be thrown out.
v
The Strawman Proposal Overreaches the Commission's
Authority as to Allocation of RECs
Given that the wind SAR in Staft s Strawman Proposal produces a rate higher than that in
the rate schedule in the Commission's Order No. 31025 for the gas CCCT SAR, the primar
financial benefit to the utilties of Staft s Strawman wind SAR would be utility ownership of the
Renewable Energy Credits ("RECS"). The Commission, however, has no jurisdictional
authority to determine ownership of RECs.
Multiple Idaho Supreme Cour opinions have established that the IPUC's authority is
limited to those powers expressly granted to it by statute. See Application of Boise Water Corp.
Exergy Development Group of Idaho LLC's Comments
GNR-E-09-03, Page 6
to Revise and Increase Rates Chargedfor Water Service, 128 Idaho 534, 538, 916 P.2d 1259,
1263 (1996); Alpert v. Boise Water Corp., 118 Idaho 136, 140, 795 P.2d 298,302 (1990); Matter
of Strand, 111 Idaho 341, 342, 723 P.2d 885, 886 (1986); Idaho Power Co. v. Idaho Pub. Uti!.
Commn., 102 Idaho 744, 750, 639 P.2d 442,448 (1981); Water Power Co. v. Kootenai Allance,
99 Idaho 875, 882, 591 P.2d 122, 129 (1979); United States v. Utah Power and Light Co., 98
Idaho 665, 667,570 P.2d 1353, 1355 (1977); Lemhi Telephone Co. v. Mountain States Tel. &
TeL. Co., 98 Idaho 692, 696, 571 P.2d 753, 753 (1977).
Nothing in the Idaho Code grants the IPUC the power to determine ownership ofRECs.
The Idaho Supreme Cour has held that the IPUC has authority to implement PURPA's avoided
cost provisions. See Afton Energy, Inc. v. Idaho Power Co., 107 Idaho 781, 784, 693 P.2d 427,
430 (1984). In Afton, the Cour examined the provisions of the Idaho Code granting the IPUC
authority to reguate public utilties and utilty rates. Id None of those Idaho Code sections
mention PURPA, and indeed even today, no Idaho Code sections grant the IPUC authority to
implement PURP A. The IPUC's authority to implement PURP A derives therefore from federal
law as explained in the Afton majority opinion.
The Afton majority opinion did not rely upon the Idaho Code sections as the basis for the
IPUC's authority to order Idaho Power to enter into a long-term, fixed rate PURPA contract.
Rather, the Cour held ''the federal governent is permitting the Commission to fuher certn
federal policies though the performance of those fuctions the Commission is authorized to
perform under Idaho statutes." Id The Cour further held "PURPA was intended to confer
upon state regulatory commissions responsibilities not conferred under state law." Id at 784,
693 P .2d at 431; see also Afton Energy, Inc. v. Idaho Power Co., 107 Idaho 781, 790, 693 P .2d
427,436 (1984) (Bakes, J., specially concurng and dissenting in par) (setting forth separate a
Exergy Development Group of Idaho LLC's Comments
GNR-E-09-03, Page 7
opinion in dissent, disagreeing with the majority position that federal law can confer such
jurisdiction on the IPUC). Thus, absent federal law (PURPA), the IPUC would have no
authority to order electric utilities in Idaho to enter into long-term, fixed-rate power purchase
agreements with developers because Idaho Code alone does not confer that authority on the
Commission. The Idaho Supreme Cour determned that PURP A gives the IPUC that power.
But unlike the authority to order utilities to enter into contracts containing the avoided
cost rates, the avoided cost provisions of PURP A provide no independent basis of authority to
determne ownership ofRECs. See American Ref-Fuel Co., et al., 105 FERC ~ 61,004 (2003),
order aff'd on reh 'g, 107 FERC ~ 61,016 (2004). "Whle a state may decide that a sale of power
at wholesale automatically transfers ownership of the state-created RECs, that requirement must
find its authority in state law, not PURPA." American Ref-Fuel Co., et al., 105 FERC ~ 61,004,
at ~ 3. "The avoided cost rates, in short, are not intended to compensate the QF for more than
capacity and energy." Id at ~ 22. FERC even clarified on reconsideration by stating, "All we
intended. . . was to indicate that a PURP A contract did not inherently convey any RECs, and
correspondingly that, assuming State law did not provide to the contrary, the QF by contract
could separately convey the RECs." American Ref-Fuel Co., et al., 107 FERC 61,016, ~ 6 n.l
(2004) (denying rehearing).
Nowhere does any provision of Idaho State Law provide that a PURPA QF or any other
independent power developer conveys RECs with the electrons when it sells electric capacity or
energy to an electric utility. Thus, neither Idaho law nor PURPA provide the IPUC with the
authority to create an avoided cost rate mechansm for wind developers (or any QFs for that
matter) that conveys the QF's RECs. The IPUC simply lacks the jursdiction and authority to
determine the ownership of RECs; that is a matter that can be addressed only by the Idaho
Exergy Development Group of Idaho LLC's Comments
GNR-E-09-03, Page 8
Legislatue.
Whether or not the Commission has jurisdiction over the ownership of RECs has been
briefed in Exergy's Reply Comments in this docket. The Utilties fied joint a joint Sur-Reply,
and hence this issue is ripe for Commission resolution. Exergy stands ready to present oral
arguent or additional briefing on this issue should the Commission so desire. Neverteless, as
with the ta question, the answer to this issue is critical to resolution of a wind SAR rate.
Indeed, the answer to this issue may well cause some paries to reevaluate their support of a wind
SAR.
iv
It is premature to Discuss
Staff's Strawman Unti the Commission
Resolves the Question of the Proper Role Tax
Credits Play in Calculation of the SAR Rate
The paries to this docket disagree on the question of whether the Commission has the
legal authority to reduce the avoided cost calculation by the amount of federal ta credit that
developers of wind projects are entitled to. The discount to the avoided cost rate caused by
taing the ta credit into consideration in the SAR is signficant. Whether or not the
Commission is preempted from taing the value of a QF's federal ta credit away by reducing
the avoided cost rate it would otherwse be entitled to has been briefed in Exergy's Reply
Comments in ths docket. In response, the Utilties filed ajoint Sur-Reply, and hence"this issue
is ripe for Commission resolution. Exergy stands ready to present oral argument or additional
briefing on ths issue should the Commssion so desire. Nevertheless, the answer to ths issue is
critical to resolution of a wind SAR rate. Indeed, the answer to ths issue may well cause some
paries to reevaluate their support of a wind SAR.
Vi
Exergy Development Group of Idaho LLC's Comments
GNR-E-09-03, Page 9
Summary
While Exergy appreciates Staft s efforts to develop a Strawman proposal for wind
projects, ths effort is prematue until the fudamental questions regarding the treatment of
federal tax credits and the abilty of the Commission to determine REC ownership are resolved.
In addition, the very concept of a wind SAR violates fudamental principles of PURP A by: (1)
ignoring the pivotal role natual gas plants play in the resource planing of all three investor-
owned utilties subject to the Commission's jurisdiction, and (2) setting the different published
avoided cost rates for different QF technologies based on the costs of developing the QF
resource rather than on the supply characteristics ofthe QF technology.
Respectfully submitted this 18th day of June 2010.
RICHARDSON & O'LEARY PLLC
BytrdO.~Peter J. Richardson .
Attorneys for Exergy Development Group
of Idaho
.-
Exergy Development Group of Idaho LLC's Comments
GNR-E-09-03, Page 10
CERTIFICATE OF SERVICE
I hereby certify that I have on this 18th day of June, 2010, served a copy of the foregoing Comments of Exergy
Development Group of Idaho on all paries of record in GNR-E-09-03 as set forth below. The original and
seven (7) copies were filed with the Commission.
Jean Jewell, Secretay
Idaho Public Utilties Commission
472 West Washington Street
P.O. Box 83720
Boise, Idaho 83720-0074
jjewell(ipuc.state.id. us
lHand Delivery
_U.S. Mail
Facsimile
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Scott Woodbur
Idaho Public Utilties Commission
472 West Washington Street
P.O. Box 83720
Boise, Idaho 83720-0074
scott. woodbury(ipuc.idaho.gov
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Lisa Nordstrom, Esq.
Idaho Power
PO Box 70
Boise, Idaho 83702
lnordstrom(iidahopower.com
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Dean Brockban
Daniel Solander
Mark Moench
Rocky Mountain Power
One Uta Center
201 S. Main Street, Suite 2300
Salt Lake City, UT 84111
datareguestCiacificorp.com
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Michael G. Andrea
Senior Counsel
A vista Corporation
1411 E. Mission Avenue, MSC-23
Spokane, W A 99202
michael.andrea(iavistacorp.com
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This Certificate of Service is e ecuted on June 18, 2010, at Boise, Idaho~
egory M. Adams