20120720Legal Brief.pdf

RE!VED
UIII 212JUL2O PM 3:03
Vr '.i
ATTORNEYS AT LAW
Tel: [phone] Fax: [phone]
P.O. Box 7218 Boise, ID 83707 - 515 N. 27th St. Boise, ID 83702
July 20, 2012
Ms. Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
472 W. Washington
Boise, ID 83702
RE: GNR-E-11-03 - PRE-HEARING LEGAL BRIEF OF CLEARWATER
PAPER CORPORATION, J.R. SIMPLOT COMPANY, AND EXERGY
DEVELOPMENT GROUP OF IDAHO, LLC
Dear Ms. Jewell:
Enclosed please find the prepared Pre-hearing Legal Brief of Clearwater Paper
Corporation, J.R. Simplot Company, and Exergy Development Group of Idaho, LLC.
Per the Commission's Rules of Procedure, we have enclosed and original and seven (7)
copies.
Sincerely,
Chynna C. Tipton
Richardson & O'Leary PLLC
end.
Peter J. Richardson (ISB # 3195)
Gregory M. Adams (ISB # 7454)
Richardson & O'Leary, PLLC
515 N. 27th Street
P.O. Box 7218
Boise, Idaho 83702
Telephone: [phone]
Fax: [phone]
peter(richardsonandolearv.corn
greg(richardsonandoleaiy.com
Attorneys for Clearwater Paper Corporation,
J.R. Simplot Company, and
Exergy Development Group of Idaho, LLC
RECEIVED
20I2JJL20 PM 3:05
0AHC JTftJTIES COMMSSON
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. GNR-E-1 1-03
IN THE MATTER OF THE COMMISSION'S ) PRE-HEARING LEGAL BRIEF OF
REVIEW OF PURPA QF CONTRACT )
PROVISIONS INCLUDING THE ) CLEARWATER PAPER CORPORATION,
SURROGATE AVOIDED RESOURCE (SAR) THE J.R. SIMPLOT COMPANY, AND
AND INTEGRATED RESOURCE PLANNING
METHODOLOGIES FOR CALCULATING j EX R Y DEVELOPMENT
PUBLISHED AVOIDED COST RATES. ) IDAHO, LLC
July 20, 2012
TABLE OF CONTENTS
I.INTRODUCTION .1
II.BACKGROUND .................................................................................................................. .1
III.ARGUMENT ....................................................................................................................... 2
A. The Commission Should Adopt Dr. Reading's Recommendations
Tailored to Compensate QFs for the Full Avoided Costs of Energy and
CapacitySupplied . ................................................................................................... 2
R The Commission Should Reject Proposals to Limit QF Contract Terms
to Five Years Because PURPA Requires the Commission to Provide for
Long-Term QF Contracts 6
C The Commission Should Reject the Illegal Delay Liquidated Damages
Provisions Advocated by Idaho Power and Avista .................................................. 8
D. The Commission Should Reject Idaho Power's Economic Curtailment............... 12
1. FERC's Rules Do Not Allow for Idaho Power's Proposal for
General Economic Curtailment .................................................................. . 12
2 Section 292.304(f) Does Not Apply to Fixed Rate QF Contracts 14
3 Even if Section 292.304(f) Applied to Fixed Rate Contracts,
Section 210(e) of PURPA Prohibits Modifying Contract Rates
Through the Retroactive Curtailment Provision 16
4 Idaho Power Has Not Demonstrated That It Would Ever
Experience the "Operational Circumstances" Described By
FERC As Justifying Curtailment . .............................................................. 17
5. Idaho Power's Tariff Completely Fails to Incorporate the
Protections Required by Section 292.304(f) 19
E. The Commission Should Require Idaho Utilities to Disclaim
Ownership of Environmental Attributes in QF PPAs Because Idaho's
Avoided Cost Rates Do Not Compensate QF5 for More Than the Value
of the Energy and Capacity Alone . ........................................................................ 21
1.Recent Events Demonstrate the Need for Clarity ...................................... 21
2.Avoided Cost Rates Do Not Compensate QFs For
Environmental Attributes ........................................................................... 24
3.Idaho QF contracts only compensate QFs for energy and
capacity. ..................................................................................................... .26
4 Because QFs Are Not Compensated for Environmental
Attributes and No Law Conveys Them to Idaho Utilities Free of
PRE-HEARING LEGAL BRIEF - GNR-E-1 1-03
PAGE i
Additional Charge, QFs Retain Legal Title to Their Project's
Environmental Attributes ........................................................................... . 29
5. The Utilities' REC Clause Is a Reopener Clause that Would
Subject QFs to Changed Circumstances, and Section 210(e) of
PURPA Therefore Preempts its Approval . ................................................ 31
6. Commission Approval of Extortionate Tactics and or Title-
Clouding Language Related to Environmental Attributes
Constitutes a Taking of Property Without Just Compensation in
Violation of the Takings Clauses of the Idaho and U.S.
Constitutions . ............................................................................................. . 32
a. RECs are compensable property rights .......................................... 32
b Requiring QFs to Gift Environmental Attributes to the
Utilities Would Constitute a Taking By the Commission 34
7. Any Action by the IPUC in this Case to Take a QF's Title to
RECs Created by Neighboring States' RPS Laws Would
Unduly Burden Interstate Commerce for Protectionist Purposes
and Therefore Violate the Dormant Commerce Clause of the
United States Constitution 37
8 The Commission Should Reject Any Reliance by the Utilities
on Distinguishable Cases Regarding REC Ownership in Other
States.......................................................................................................... 39
F The Commission Should Require Each Utility to File a Streamlined
PPA for "As Available" QF Sales . ........................................................................ 42
G. The Commission Should Require Idaho Utilities to Use FERC's
Standard Interconnection Procedures and Agreements for QF5 Because
Less Favorable Procedures illegally Discriminate Against QFs 43
W . CONCLUSION..................................................................................................................
PRE-HEARING LEGAL BRIEF - GNR-E- 11-03
PAGE ii
I. INTRODUCTION
COMES NOW, Clearwater Paper Corporation, Exergy Development Group of Idaho,
LLC, and the J R Simplot Company (individually "Clearwater," "Exergy," or "Simplot" and
collectively "Intervenors") and pursuant to the Idaho Public Utilities Commission's ("PUC" or
"Commission") Order No. 32388 and hereby lodges the Intervenor's Pre-Hearing Brief. The
Intervenors intend to address many of the most significant legal issues, however, because this
docket is so wide-ranging, it is likely some relevant legal issues may not be addressed - either
because they may be raised for the first time in another party's pre-hearing brief or they have
been assumed to be settled law not deserving of briefing Nevertheless, the Intervenors reserve
their rights to request to file a post-hearing or reply brief should the need arise.
This brief is organized to address the legal issues surrounding (1) avoided cost rates, (2)
length of QF contract term; (3) delay default liquidated damages provisions in PURPA 1
contracts, (4) economic curtailment, (5) ownership of environmental attributes; (6) the need for
an "as available" QF PPA, and (7) adoption of non-discriminatory interconnection procedures
and agreements for Idaho QFs
II. BACKGROUND
In the Commission's Notice of Review Order No 323512 issued on September 1, 2011,
the Commission stated it intended "to review the terms of PURPA power purchase agreements
including, but not limited to, the surrogate avoided resource (SAR) and Integrated Resource
Planning (IRP) methodologies for calculating published avoided cost rates." Idaho Power
Company ("Idaho Power"), Rocky Mountain Power, and Avista (collectively the "Utilities")
filed opening testimony on January 31, 2012. Commission Staff and several intervenors filed
Public Utilities Regulatory Policies Act of 1978, 16 U.S.C. § 824a-3, §§ 2601 et seq. (2011).
PRE-HEARING LEGAL BRIEF - GNR-E- 11-03
PAGE 1
direct testimony on May 4, 2012. Parties then filed rebuttal testimony on June 29, 2011. The
testimony has addressed a broad range of issues related to QF transactions and contracts. After
one round of pre-hearing legal briefing, the dates for the technical hearing are August 6, 2012
through August 7, 2012.
III. ARGUMENT
A. The Commission Should Adopt Dr. Reading's Recommendations Tailored to
Compensate QFs for the Full Avoided Costs of Energy and Capacity Supplied.
Idaho Power, through various witnesses, is urging the Commission to adopt short-run
avoided cost rates It is also asking the Commission to restrict contract length for the sole
purpose of keeping avoided cost rates artificially low:
The only way to limit the difference between the actual value of QF power and
prices paid for it is to keep contracts short and/or severely limit the period for
which prices are fixed. This can be done in a number of ways, including
reopeners and indexation.
Hieronymus, DI, Idaho Power, p. 6.
Adopting a short-run avoided cost model for the purpose of artificially deflating avoided cost
rates is contrary to federal law and regulations Federal law requires utilities to contract with
each QF at the full avoided cost rates The U S Supreme Court has upheld the Federal Energy
Regulatory Commission's ("FERC") regulations requiring utilities to purchase capacity and
output of QFs at full avoided cost rates. American Paper Institute, Inc. v. American Electric
Power Service Corp., 461 U.S. 402,413,417-18 (1983) (unanimously affirming FERC's
requirement that utilities compensate QFs for the full avoided costs, not some lesser amount); 16
U.S.C. § 824a-3(b), (d); see also Small Power Production and Cogeneration Facilities;
Regulations Implementing Section 210 of the Public Utility Regulatory Policy Act of 1978
("Order No 69") 45 Fed Reg 12,214, 12,222-12,223 (Feb 25, 1980) (promulgating avoided
PRE-HEARING LEGAL BRIEF - GNR-E- 11-03
PAGE 2
cost regulations and directly rejecting proposals to provide QFs with rates at less than the full
avoided cost).
Using short-term measures for avoided cost rates ignores the fact that all three utilities in
Idaho plan for a 20-year horizon in their respective integrated resource plans ("IRP") Ignoring
this fact and limiting avoided cost calculations to short-term avoided costs fails to set the avoided
cost rates at "full avoided costs." This problem is highlighted by the view taken by the Utilities,
which is best exemplified by Dr. Hieronymus's direct testimony on behalf of Idaho Power.
Throughout his testimony, Dr. Hieronymus demonstrates a fundamental misapplication of
FERC's avoided cost principles. His testimony completely ignores FERC's orders. In one
telling passage addressing capacity payments, Idaho Power's witness stated:
What is not clear (and I pretend no legal analysis of the points) is whether a
contract for non-dispatchable, intermittent energy such as wind is "as available"
and hence is only entitled to a rate determined at the time of delivery. Assuming
that such a QF is not deemed "as available" and hence is entitled to a rate
determined at the time of contracting, it is similarly unclear whether this can be a
formula rate (e.g., one that is indexed to vary with, for example, gas prices or
inflation) or if the utility must offer a fixed schedule of rates for the term of the
contract.
Heironymus, DI, Idaho Power, p. 5
No legal analysis on Dr. Hieronymus's part is necessary. FERC has directly addressed the issue.
JD Wind 1, LLC, 129 FERC ¶ 61,148 (2009), reh'g denied 130 FERC ¶ 61,127 (2010). There,
FERC declared that all QFs, even those using an intermittent resource, have the option "to
choose a rate based on avoided costs calculated at the time the obligation is incurred" Id, 129
FERC ¶ 61,148 at ¶27. A formula or constantly changing avoided cost rate does not meet that
requirement.
Dr. Hieronymus also purports to identify the "purpose" of PURPA:
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PAGE
It is essential to not lose sight of the purpose of PURPA which was limited to
ending discrimination against cogeneration and small renewable power facilities
This limited purpose is underscored by the statutory provision that prices paid
shall not exceed the utility's avoided cost. Not only was PURPA not meant to
subsidize QFs at the expense of customers, such subsidies are in fact illegal if
provided through PURPA prices.
Hieronymus, DI, Idaho Power, p 5 (emphasis added)
It is, of course, misleading to suggest that the purpose of PURPA was "limited" to ending
discrimination against independent power producers.
PURPA was passed in 1978 in response to the Arab oil embargo as well as in response to
the end of a long period of declining real prices of electricity. Between 1973 and 1982 electricity
prices increased, on a national basis, by sixty percent in real terms.2 Congress passed PURPA in
1978 to encourage industrial and commercial cogeneration by providing rate benefits and
prohibiting electric utility rate discrimination against qualifying cogeneration and small power
production facilities. PURPA also provides QFs with the right to connect to the electric utility
grid and exempts them from rate regulation by FERC or financial regulation by state
commissions. See 16 U.S.C. § § 824a-3(a), (e); 18 C.F.R. § § 292.303(c), -306, -601-602.
The role of the state commissions in implementing PURPA is quite broad. States are free
to establish the terms and conditions of PURPA mandated purchases by electric utilities under
their jurisdiction as long as those terms and conditions are within the general guidelines found in
PURPA as implemented by FERC. See Cedar Creek Wind LLC, 137 FERC ¶ 61,006, ¶ 27
(2011). States may not, however (as repeatedly pointed out in the Utilities' pre-filed testimony),
set the rates at which utilities purchase QF power at a level higher than the purchasing utility's
actual avoided costs. See Connecticut Light & Power Co. 70 F.E.R.C. § 61,012, 61,031 (1995).
2 See A Report to the President of the United States, U. S. Department of Energy, DOE/S-0057, Energy
Security, at 154. (1987).
PRE-HEARING LEGAL BRIEF - GNR-E- 11-03
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As noted above, however, states must also implement rates which compensate QFs for the full
avoided cost rates, not some lesser amount. American Paper Institute, Inc., 461 U.S. at 413, 417-
18 With these restrictions in mind, this Commission is charged by Congress with encouraging
the development of the QE industry in furtherance of a national policy to diversify our national
energy portfolio away from reliance on energy sources that are subject to interruption, price
fluctuations, and outside of the control of the United States.
Contrary to Dr. Hieronymus' assertion, the courts have consistently and explicitly found
that the purpose of PURPA was to encourage the development of cogeneration and small power
production facilities
Responding to heightened fuel costs and potential fuel shortages, Congress sought
to promote conservation of oil and natural gas by electric utilities. See FERC v.
Mississippi, 456 U.S. 742, 745-46 (1982). Thus, to encourage the development (
facilities that generate electricity using renewable resources gjj.facilities
engaged in cogeneration Qf electricity useful h steam L1 might
otherwise be wasted, Id. at 750, and to overcome the reluctance of traditional
utilities to buy from, and sell to, these alternative producers, Congress granted
qualifying small power production certain benefits Under PURPA, such facilities
were exempt from certain regulatory controls, and they were assured a market by
providing a right to interconnect with the local public utility and to receive rates,
as prescribed by FERC, up to the full avoided cost of the utility. American Paper
Inst. V. American Elec. Power Serv. Corp., 461 U.S. 402, 404-06 (1983); PURPA
§§ 824a-3, 824i, 824k.
Southern California Edison v. FERC, 195 F.3d 17,19 (D.C. Cir. 1999) (emphasis
added).
This Commission is charged by the United States Congress with implementing PURPA in such a
manner as to actually encourage the development of the QF industry. Implementing rules and
regulations that discourage the development of the QF industry are contrary to law, contrary to
good public policy and contrary to good utility planning. This Commission should not be misled
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by assertions that somehow the purpose of PURPA was "limited" to simply ending utility
discrimination.
The Utilities recommend turning back the clock to shorter contract terms and reducing
the avoided cost rates by using short-term costing forecasts for the explicit purpose of
discouraging the development of QFs in Idaho. That is simply contrary to law. Similarly,
reducing the eligibility cap will discourage QF development, as the evidence overwhelmingly
shows In the years after the Commission last reduced the eligibility cap, 1995 - 2002, on1v one
new OF contract was executed The act of reducing the eligibility cap from 10 MW to 1 MW
had the opposite effect from what is required of this Commission under federal law. Instead of
"encourage[ing] the development of [QF] facilities"3 it actually discouraged the development of
the QF industry in Idaho The Commission should adopt Dr. Reading's recommendations for
calculation of avoided cost rates.
B. The Commission Should Reject Proposals to Limit QF Contract Terms to Five
Years Because PURPA Requires the Commission to Provide for Long-Term QF
Contracts.
FERC's regulations require states to provide for long-term contract options. See JD Wind
1, LLC, 130 FERC ¶ 61,127 at ¶ 23 (stating FERC "has consistently affirmed the right of QFs to
long-term avoided cost contracts.. . ."). Short-term contracts alone would deprive QFs of the
right to receive payment for avoided capacity, and therefore violate FERC's regulations. There
are no restrictions under PURPA as to an upper boundary of the length of time a QF may require
a utility to purchase its power. In fact, PURPA contemplates that the QF has the choice of the
term to which it will obligate itself and the utility. As noted above, the FERC's regulations
under PURPA also include a requirement that QFs have the option to sell not only as available
Southern California Edison, 195 F.3d at 19.
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PAGE
but pursuant to legally enforceable obligations over specified terms. Section 292.304(d)
provides:
(d) Purchases "as available" or pursuant to a legally enforceable obligation.
Each qualifying facility shall have the option either:
(1)To provide energy as the qualifying facility determines such energy to
be available for such purchases, in which case the rates for such purchases shall
be based on the purchasing utility's avoided costs calculated at the time of
delivery; or
(2)To provide energy or capacity pursuant to a legally enforceable
obligation for the delivery of energy or capacity overg specified LçIjI, in which
case the rates for such purchases shall, at the option o thegualifvingfacilitv
exercised prior to the beginning of the specified term, be based on either:
(i)The avoided costs calculated at the time of delivery; or
(ii)The avoided costs calculated at the time the obligation is
incurred.
18 C.F.R. § 292.304(d) (emphasis added).
Thus, the QF has the explicit "option" to choose the time at which a legally enforceable
obligation is incurred for a "specified term" Since "specified term" is not defined, it remains the
QFs' option to choose a term. The use of a five-year contract and short-term avoided cost
calculations will likely eliminate capacity payments under the IRP methodology. This frustrates
the ability of the QFs to obtain fixed capacity payments and hence frustrates the purpose of
PURPA in allowing QFs to choose to sell capacity under a long term fixed legally enforceable
obligation. See JD Wind 1, LLC, 130 FERC ¶ 61,127 at ¶ 23. Because all three utilities use a
20-year IRP planning horizon and because QFs seeking a legally enforceable obligation have the
ability to require utilities to purchase capacity from them, the legally enforceable obligation
should mirror the utilities' planning horizon.
Restricting the ability of a QF to unilaterally select its desired "specified term" is akin to
this Commission's failed attempt to restrict the ability of a QF to unilaterally create a legally
PRE-HEARING LEGAL BRIEF - GNR-E-1 1-03
PAGE 7
binding obligation on the utility's part to purchase its capacity and energy. FERC has repeatedly
said:
[O]ur regulations [implementing PURPA] specifically allow rates for the
purchase of QF energy or capacity pursuant to a contract over a specified term to
be based on avoided costs calculated, at the option of the QF, at the time of
delivery or at the time the [legally enforceable obligation] is incurred. . .even if
they differ from avoided costs at the time of delivery.
N. Y. State Electric and Gas Corp., 71 FERCJ 61,027 at 61,115 (1995).
One can only read the words "legally enforceable obligation for the delivery of energy or
capacity "over a specified term" to simply mean a contract "for the delivery of energy or
capacity over a specified term" How can the words "over a specified term" mean anything else?
Dr. Reading explains further in his direct testimony why limiting contracts to five years is
contrary to FERC 's interpretation of PURPA and its own rules Reading, DI, Clearwater, Simplot
and Exergy, p. 46. The Commission should adopt Dr. Reading's recommendation and allow QFs
to enter into long-term contracts.
C. The Commission Should Reject the Illegal Delay Liquidated Damages Provisions
Advocated by Idaho Power and Avista.
Idaho utilities have been coercing QFs into "agreeing" to a take-it-or-leave-it QF contract
that requires the QF to post $45 per kilowatt of capacity as a delay default security and forfeit
that entire amount as a penalty for non-performance if the QF delays its online date by 90 days
See Kalich, DI, Avista, pp. 31-33; Reading, DI, Clearwater, Simplot and Exergy, pp. 36-42 and
Exhibit 503; Kalich, REB, Avista, p. 13; see also Application for Approval of FESA with
Riverside Investment Group, IPUC Case No. JPC-E-1 1-27 (2011) (containing Idaho Power's
current delay liquated damages provision, in Section 5 of the contract, which allows Idaho Power
to terminate the agreement and retain the $45/kw amount after a 90-day delay, even if the cause
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is delays in Idaho Power completing the interconnection). This is a substantial amount for many
QFs. For example, a 10 MW wind project would forfeit $450,000 in liquidated damages once
the utility decided to terminate the PPA, regardless of the cost of replacement power. Avista and
Idaho Power have expressed their intent to continue the practice of including this amount as a
"meaningful" liquidated damages provision designed to deter the QF's breach However, Idaho
law does not permit such punitive provisions.
The leading case is Graves v. Cupic, 75 Idaho 451, 456, 272 P.2d 1020, 1023 (1954),
overruled on another point by Benz v D L Evans Bank, 152 Idaho 215, 229, 268 P 3d 1167,
1181(2012). The Supreme Court stated the rule as follows:
Generally speaking, parties to a contract may agree upon liquidated damages in
anticipation of a breach, in any case where the circumstances are such that
accurate determination of the damages would be difficult or impossible, and
provided that the liquidated damages fixed by the contract bear a reasonable
relation to actual damages. But, where the forfeiture or damage fixed by the
contract is arbitrary and bears no reasonable relation to the anticipated damage,
and is exorbitant and unconscionable, it is regarded as a "penalty," and the
contractual provision therefore is void and unenforceable
Graves, 75 Idaho at 456, 272 P.2d at 1023.
In Graves, the Court concluded the liquidated damages clause was "arbitrary and bears no
reasonable relation to the damages which the parties could have anticipated from the breach
which occurred Hence, the provision is for a penalty and is unenforceable" 75 Idaho at 459,
272 P.2d at 1025.
The Idaho Supreme Court has most recently stated, "as long as a liquidated damages
clause is intended at the outset to reasonably compensate a party for potential damages resulting
from a breach, rather than to deter or punish the breach, the clause will be enforceable."
These same principles are also incorporated into Idaho's version of the Uniform Commercial Code for the
sale of goods, which would apply here to the extent that a contract for the sale of electricity is the sale of a good.
See I.C. §§ 28-2-102, -718(1).
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Schroeder v. Partin, 151 Idaho 471, 477-78, 259 P.3d 617, 623-24 (2011) (emphasis added); see
also Magic Valley Truck Brokers, Inc. v. Meyer, 133 Idaho 110, 117, 982 P.2d 945, 952 (Ct.
App. 1999) (affirming district court's finding that "the imposition of $5,000 a month penalty on
an employee who was hired at $10,200 per year is clearly a punishment for working in the same
business in the same area" and thus constituted an unenforceable liquidated damages clause).
The Commission has also stated that delay default liquidated damages should not be punitive in
nature. In Re Application for Approval of FESA with DP-AP#1 LLC, IPUC Order No. 30608, p.
4, Case No. IPC-E-08-09 (2008). Instead, the amount must be a "fair and reasonable offset of a
regulated utility's estimated increase in power supply costs attributable to the PURPA supplier's
failure to meet its contractually scheduled operation date." Id. The Commission's statements are
consistent with Idaho law.
The Utilities' purpose, however, in calculating the $45/kilowatt amount is in direct
contradiction to Idaho law. Avista derived the $4 5/kw amount by conducting a survey of
amounts required by other utilities. Reading, DI, Clearwater, Simplot and Exergy, at Exhibit
503, pp. 1-2. This approach is incorrect. Idaho law requires that liquidated damages be an
approximation of actual damages - not a compilation of what other utilities with superior
bargaining power are able to extract from independent developers in other monopsony electricity
markets outside of Idaho. Likewise, Idaho Power has missed the mark by relying on an
unsupported assertion that there are some unidentified "financial instruments that would
allow a utility to lock in a 20-year, or long-term, stream of prices." Stokes, REB, Idaho Power,
p. 47. Idaho Power does not assert that it sells such "financial instruments," let alone that
signing QF contracts precludes Idaho Power from selling such products. This post hoc
justification for Idaho Power's QF penalty provision makes no sense.
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The Utilities cannot produce any evidence that $45/kilowatt is a reasonable
approximation of a 90-day delay default. No evidence supporting that punitive amount exists.
Avista freely admits that it has not even attempted to approximate its likely actual damages in the
event of a QF delay. Reading, DI, Clearwater, Simplot and Exergy, at Exhibit 503, p. 3. In fact,
Avista even stated, "Such approximation would depend on the market condition at the time of
the contract." Id. QF parties agree, and therefore propose a mark-to-market approach where the
liquidated damage amount is the positive difference between the market rate for replacement
power and the contract price during the delay period. Reading, DI, Clearwater, Simplot and
Exergy, p. 39; Schoenbeck, DI, Northside Canal Company, Twin Falls Canal Company and
Renewable Energy Coalition, p. 44. Further, the provision should allow QFs to cure a delay
default if the QF is making commercially reasonable efforts to cure the default, which could be
caused by factors beyond the QF's control such as a utility's delay in completing the
interconnection. See Reading, DI, Clearwater, Simplot and Exergy, at pp. 41-42; infra Section
III. G., pp. 44-47 (discussing the interconnection process).
The Utilities are attempting to secure Commission-endorsement of a liquidated damage
provision designed to deter non-performance. Kalich, REB, Avista, p. 13 (asserting that a mark-
to-market approach "has the potential to weaken developer performance incentives"). They
propose to do so despite that a mark-to-market approach is a reasonable approximation of the
actual damages. The Utilities' position is contrary to Idaho law. See Schroeder, 151 Idaho at
477-78, 259 P.3d at 623-24; Graves, 75 Idaho at 459, 272 P.2d at 1025.
Finally, it is highly relevant that QFs have played no part in "negotiating" the punitive
$45/kw liquidated damage provision. Rather, QFs have reluctantly signed PPAs containing the
clause because they have had no other choice. Compare to Schroeder, 151 Idaho at 477-78, 259
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P.3d at 623-24 (affirming jury finding of enforceability of liquidated damage clause drafted by
the breaching party because record contained evidence, including testimony of breaching party,
that amount set was fair approximation of likely damages). The Utilities have presented no
evidence that any QFs helped them draft these provisions. Some QFs have even filed formal
complaints challenging this illegal provision prior to deciding not to further compromise their
project with the time and expense of litigating the issue. Reading, DI, Clearwater, Simplot and
Exergy, at p. 40. The Commission should end the use of punitive delay default liquidated
damages provisions and instead require the utilities to use delay liquidated damages provisions
that use a mark-to-market calculation of the Utility's actual damages in the event of a delay.
D. The Commission Should Reject Idaho Power's Economic Curtailment Proposal.
The Commission should reject Idaho Power's economic curtailment tariff in its entirety
because: (1) FERC's rules do not allow for general economic curtailment; (2) Section 292.304(f)
does not apply to fixed rate QF contracts; (3) Section 210(e) of PURPA prohibits modification of
existing contracts through the retroactive curtailment provision; (4) Idaho Power has not
demonstrated that it would ever experience the "operational circumstances" described by FERC
to permit curtailment; and (5) Idaho Power's tariff completely fails to incorporate the protections
required by Section 292.304(1).
1. FERC's Rules Do Not Allow for Idaho Power's Proposal for General
Economic Curtailment.
PURPA and FERC's implementing regulations require utilities to purchase the full net
output of a QF subject to two, limited exceptions: (1) where there is a "system emergency," see
18 C.F.R. § 292.307(b); or (2) under "light loading" conditions in which continued QF purchases
could result in negative avoided costs, 18 C.F.R. § 292.304(f). FERC has consistently rejected
PRE-HEARING LEGAL BRIEF - GNR-E-1 1-03
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proposals that would permit the curtailment of QF output in any other circumstance. Entergy
Servs., Inc., 137 FERC ¶ 61,199 at ¶J 52-58 (2011) ("Entergy"); Southwest Power Pool, Inc.,
136 FERC ¶ 61,097 at ¶J 14-15 (2011).
The latter exception - relied upon here by Idaho Power - provides that a utility is not
required to purchase QF energy:
during any period during which, due to operational circumstances, purchases
from qualifying facilities will result in costs greater than those which the utility
would incur if it did not make such purchases, but instead generated an equivalent
amount of energy itself.
18 C.F.R. § 292.304(0(1) (emphasis added).
FERC explained that this exception applies only in very limited circumstances, which it
described as follows:
If a utility operating only base load units during these periods were forced to cut
back output from the units in order to accommodate purchases from qualifying
facilities, these base load units might not be able to increase their output level
rapidly when the system demand later increased. As a result, the utility would be
required to utilize less efficient, higher cost units with faster start-up to meet the
demand that would have been supplied by the less expensive base load unit had it
been permitted to operate at constant output.
Order No. 69, 45 Fed. Reg. 12,214, 12,227 (emphasis added).
For example, where running a base load coal or nuclear unit below its minimum
generation limit would cause the unit to shut down and be off line for several days (or weeks),
the host utility might be required to operate faster ramping peaking facilities in the intervening
days until the base load coal or nuclear unit can be returned to service. The limitation to
"operational circumstances" means this provision "cannot be relied upon to curtail purchases of
unscheduled QF energy for general economic reasons." Entergy, 137 FERC ¶ 61,199 at ¶ 55
(citing Order No. 69, 45 Fed. Reg. 12,214, 12,227).
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PAGE 13
Yet Idaho Power has asked the Commission to approve its tariff to give it general
economic curtailment rights, in order to cure what it perceives as "the uneconomic dispatch of
Idaho Power base load resources." Park, DI, Idaho Power, pp. 1-2. Idaho Power misunderstands
Section 304(f) as providing it with right of curtailment any time it is "operating only base load
resources and would be forced to cut back output from those resources in order to accommodate
unscheduled QF energy." Id. at 18. Idaho Power over broadly defines "base load" as not only
its coal units "that are in the money," but also its entire run-of-river hydro fleet, the Hells
Canyon complex, and even the Langley Gulch gas plant that was build for the purpose of
integrating wind. See Id. at 23-24; Reading, DI, Clearwater, Simplot and Exergy, p. 53.
However, FERC's regulation does not grant general economic curtailment rights
whenever purchasing QF output would require a utility to cut back output at any coal or hydro
unit that is "must run" because it is "in the money." Idaho Power's provision attempts to
broaden its right to include generalized economic curtailment. The Commission should reject
the tariff on that basis alone.
2. Section 292304(1) Does Not Apply to Fixed Rate QF Contracts.
FERC's regulations do not permit Idaho Power to apply Schedule 74 so as to curtail an
existing or future QF that has a contract with forecasted avoided cost rates. FERC explained that
QF curtailment under Section 292.304(f) of its regulations is permitted only in very limited
circumstances, namely, during "light loading" periods where "operational circumstances" would
drive base load generation units below minimum generation limits. Order No. 69,45 Fed. Reg.
12,214,12,227-28.
This justification does not apply to a QF with forecasted avoided cost rates because such
rates are calculated as an average avoided cost over a long term (e g, 20 years), and therefore
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already reflect the lower value of QF energy during low loading periods where the time-of-
delivery avoided costs could be lower than the average, long-run forecast avoided costs in the
contract. In Order No. 69, FERC held that forecast avoided cost rates will, by necessity, be
higher than time of delivery avoided costs at some points and lower at others, but that, "in the
long run, 'overestimations' and 'underestimations' will balance out." Id. at 12,224. Similarly, in
Entergy, FERC held that forecasted avoided cost rates "already reflect the variations in the value
of the purchase in the lower overall rate," and that "the utility is already compensated," through
this lower overall rate, "for any periods in which it purchases unscheduled QF energy even
though that energy's value is lower than the true avoided cost." Entergy, 137 FERC ¶ 61,199 at ¶
56.
FERC designed the rule to avoid a situation where a QF must pay the utility to accept its
output at times when such operational circumstances would result in negative avoided cost
prices, i.e. to prevent the anomalous result of the QF being required to pay the utility to accept its
output when the actual avoided costs are negative. See Order No. 69,45 Fed. Reg. 12,214,
12,227-28. This situation could only occur if the QF's rates were calculated at the time of
delivery pursuant to Section 292.304(a)( 1). A fixed rate contract with rates calculated at the time
the obligation is incurred under Section 292.304(a)(2) would obviously contain no mechanism
for the utility to assess charges to the QF for brief periods of time where the actual avoided costs
might be negative.
Simply put, Section 292.304(f) applies only to QFs who choose to receive avoided cost
rates calculated at the time of delivery pursuant to Section 292.304(a)(1). The Commission
should reject Schedule 74 on that basis.
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3. Even if Section 292.304(f) Applied to Fixed Rate Contracts, Section 210(e) of
PURPA Prohibits Modifying Contract Rates Through the Retroactive
Curtailment Provision.
Idaho Power's proposed Schedule 74 would authorize Idaho Power to modify,
unilaterally and retroactively, the curtailment provisions of existing PURPA PPAs - PPAs that
have already been executed by Idaho Power and reviewed and approved by the Commission. As
such, it would violate Section 2 10(e) of PURPA and FERC's long-standing policy against
invalidating, or permitting retroactive modifications, of pre-existing PURPA PPAs. FERC has
consistently held that an existing PURPA PPA cannot be retroactively modified to change the
avoided cost rate, or other terms and conditions set forth therein In Connecticut Valley Elec. Co
v. Wheelabrator Claremont Co., FERC explained that:
It would not be consistent with Congress' directive to encourage cogeneration and
small power production to upset the settled expectations of parties to, and to
invalidate any of their obligations and responsibilities thereunder, such executed
PURPA sales contracts.
82 FERC ¶ 61,116,, T 61,419-20 (1998), on reh'g, clarification and
reconsideration, 83 FERC ¶ 61,136
Section 210(e) prohibits unilateral modification of QF contracts to account for changed
circumstances. Freehold Cogeneration Associates, L.P. v. Board of Regulatory Corn 'rs of State
of N.J., 44 F.3d 1178, 1190 (3rd Cir. 1995); Independent Energy Producers Assn, Inc. v. Cal.
Pub. Util. Comm 'n., 36 F.3d 848, 858 (9th Cir. 1994).
Indeed, FERC recognized this when it explained that Section 292.304(1) is not intended
to:
[O]verride contractual or other legally enforceable obligations incurred by the
electric utility to purchase from a qualifying facility. In such arrangements, the
established rate is based on the recognition that the value of the purchases will
vary with the changes in the utility's operating costs. These variations ordinarily
are taken into account, and the resulting rate represents the average value of the
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PAGE 16
purchase over the duration of the obligation. The occurrence of such periods may
similarly be taken into account in determining rates for purchases.
Order No. 69, 45 Fed. Reg. 12,214, 12,228 (emphasis added).
Thus, where a QF has entered into a PURPA PPA with forecast avoided cost rates, the "utility is
already compensated ... for any periods during which it purchases unscheduled QF energy even
though that energy's value is lower than the true avoided cost." Entergy, 137 FERC ¶ 61,199 at
¶ 56. Consequently, a utility is not authorized to rely on the Section 292.304(0(1) provision to
unilaterally curtail QF output because its avoided costs at the time of delivery are lower than the
forecast avoided cost rates in the PURPA contract. Id.
Moreover, Idaho Power's Schedule 74 is explicitly intended to address the costs of
integrating wind generation. It would illegally permit Idaho Power to collect additional
payments for such costs over and above those set forth in the contracts (and thereby further
reduce the forecast avoided cost rates in existing PURPA contracts). If Idaho Power believes it
has underestimated wind integration costs, it may propose that the Commission authorize it to
increase this charge in future PURPA contracts and include evidence supporting the change, but
it may not retroactively modify the forecast avoided cost rates in existing PURPA PPAs.
4. Idaho Power Has Not Demonstrated That It Would Ever Experience the
"Operational Circumstances" Described By FERC As Justifying
Curtailment.
Curtailment under Section 292.304(f) is limited to specific "operational circumstances"
in which Idaho Power would actually have to back down its base load coal units below their
minimum generation limits and the units could not be returned to service in a timely manner
when needed to serve load, not when economic conditions are not to Idaho Power's liking. The
"operational circumstance" identified by FERC would not occur on Idaho Power's system, and
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Idaho Power has instead impermissibly broadened the "operational circumstances" allowing for
curtailment to justify its request Idaho Power states it should be permitted to curtail in three
distinct sets of circumstances: (1) when base load coal generation would be turned down below
its minimum generating limits, such that the coal units would be forced off line, and would not
be able to return to service in time for the next peak; (2) to avoid backing down its run-of-the-
river hydro facilities because of economic concerns and environmental limitations on spill; and
(3) to avoid backing down its Hells Canyon hydro complex because of environmental license
conditions. Park, DI, Idaho Power, pp. 20-21.
The entire faulty premise of Idaho Power's tariff is that its run-of-river hydro plants and
its Hells Canyon Complex are the types of base load resources contemplated by Section
292.304(f). See Reading, DI, Clearwater, Simplot and Exergy, p. 55. Without the hydro
resources counting as "base load" facilities, Idaho Power could easily accommodate all of its QF
generation and the 300 MW of minimum load from its Bridger and Boardman plants. However,
Idaho Power's hydro resources are not the type of slow ramping base load units addressed by this
provision. As Idaho Power acknowledges, its hydro resources, have "effectively no incremental
cost" and can be dispatched "on demand;" they are used "to -meet system balancing needs ... of
the wind generators." Park, DI, Idaho Power, pp. 11-12. Idaho Power acknowledges that it can
ramp its hydro resources down and back up again and that it can otherwise sell excess hydro
energy through off-system sales or on the spot market at the Mid Columbia hub Park, REB,
Idaho Power, pp. 4-5, 9-11. Idaho Power's contrary claims that these hydro resources cannot be
rapidly ramped up or down to accommodate QF purchases are therefore not credible. Idaho
Power has even misread its own FERC licenses as a basis for curtailing QFs. See generally
Hayes, DI, Idaho Conservation League
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PAGE 18
Additionally, Schedule 74 impermissibly permits QF curtailment based on Idaho Power's
alleged environmental limitations. Absent the environmental limitations at its hydro facilities,
Idaho Power would itself have to admit that it could easily use its hydro facilities and Langley
Gulch to meet any peak load occurring in the days after a light loading event caused it to take all
coal plants off line See Reading, DI, Clearwater, Simplot and Exergy, pp 53-55 Such
environmental requirements do not constitute "operational circumstances" within the meaning of
Section 292.304(f), and therefore cannot be used as grounds to justify QF curtailment. FERC
has strictly interpreted the exceptions to the PURPA purchase obligation, and has not permitted
utilities to curtail QF output for any other reason than those set forth in FERC's regulations.
Idaho Power cannot use environmental curtailment as a basis to give its hydro units priority
rights over all QFs selling under PPAs to Idaho Power and avoid its PURPA purchase obligation.
5. Idaho Power's Tariff Completely Fails to Incorporate the Protections
Required by Section 292.304(f).
Even if Idaho Power had otherwise justified its economic curtailment proposal (which it
has not), Idaho Power has failed to incorporate any of the necessary protections developed to
prevent utilities from abusing their right to very limited curtailments. Order No. 69,45 Fed. Reg.
12,214, 12,227- 12,228.
Section 292.304(f)(2)-(3) states:
(2)Any electric utility seeking to invoke paragraph (f)(1) of this section must
notify, in accordance with applicable State law or regulation, each affected
qualifying facility in time for the qualifying facility to cease the delivery of
energy or capacity to the electric utility.
(3)Any electric utility which fails to comply with the provisions of paragraph
(f)(2) of this section will be required to pay the same rate for such purchase of
energy or capacity as would be required had the period described in paragraph
(f)(1) of this section not occurred.
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Idaho Power's proposed one-hour notice falls far short of that necessary to provide QFs with an
opportunity to properly cease delivery without causing undue harm. See Guy, DI, Idaho Wind
Partners LLC, p. 6. Furthermore, Idaho Power provided no mechanism for compensating QFs
when it fails to meet its unreasonable one-hour notice requirement.
Section 292.304(f)(4) states:
(4) A claim by an electric utility that such a period has occurred or will occur
is subject to such verification by its State regulatory authority as the State
regulatory authority determines necessary or appropriate, either before or after the
occurrence.
Idaho Power's economic curtailment tariff does not contain this procedure Idaho Power has not
proposed a method by which the Commission might be able to review evidence supporting Idaho
Power's use of each instance of curtailment, or a necessary and appropriate process by which the
public and QFs might be able to review all such evidence.
FERC further explained:
Moreover, any electric utility which fails to provide adequate notice or which
incorrectly identifies such a period will be required to reimburse the qualifying
facility, for energy or capacity supplied as if such a light loading period had not
occurred.
Order No. 69, 45 Fed. Reg. 12,214, 12,228 (emphasis added).
Idaho Power ignored this requirement as well. Its proposed tariff provides no mechanism by
which QFs would be compensated for incorrectly identified curtailments.
With Schedule 74, Idaho Power proposes to vastly expand its own rights to curtail
beyond any reasonable reading of Section 292.304(f), and at the same time completely ignore the
protections provided for QFs. The Commission should reject Idaho Power's Schedule 74.
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PAGE 20
E. The Commission Should Require Idaho Utilities to Disclaim Ownership of
Environmental Attributes in QF PPAs Because Idaho's Avoided Cost Rates Do Not
Compensate QFs for More Than the Value of the Energy and Capacity Alone.
The Commission should order the Utilities to explicitly disclaim REC ownership in all
future power purchase agreements The law is clear that the developer of a QF project in Idaho
owns any ancillary environmental attributes associated with its electrical generation. Lately, the
Utilities have used strong-arm tactics to extort ownership of RECs in exchange for either not
stalling the contract process or not clouding title to any such environmental attributes.
Unfortunately, the Commission has failed to clear the air on this question when presented with
several opportunities to do so
1. Recent Events Demonstrate the Need for Clarity.
This Commission's failure to resolve this issue has spawned additional needless litigation
before it and has caused the Utilities to actually seek legislation regarding REC ownership as
evidenced by the testimony of Idaho Power witness Grow:
Issues relating to PURPA QFs and RECs are currently being litigated by the
Company [Idaho Power] before the Commission in Case No. IPC-E-1 1-15. The
Commission has had proceedings in the past regarding issues related to the
ownership of RECs between PURPA QFs and the purchasing utility, but the issue
of ownership of RECs in the state of Idaho remains an unsettled issue. Idaho
Power understands that the Idaho Legislature, which is currently in session, may
be considering proposed legislation that would address the ownership of RECs
from PURPA projects, and thus the Company has no specific request of the
Commission in this regard at this time.
Grow, DI, Idaho Power, p 14
The Idaho Legislature did not pass legislation on REC ownership; indeed, it did not even
authorize a bill addressing that subject to be printed for consideration. The hot potato has been
passed back to this Commission.
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PAGE 21
The Commission has struggled with the question of REC ownership for many years
without speaking clearly on the subject. For example, in the most recent REC litigation,
(referenced in Ms Grow's testimony above) the Commission was presented with a clear
opportunity to resolve this utility-created 'dispute,' but failed to do so In August 2011, Grand
View PV Solar Two ("Grand View") filed a complaint against Idaho Power by requesting that
the Commission issue an order requiring Idaho Power to return to the practice of disclaiming
REC ownership in PURPA power purchase agreements with QFs.5 Grand View subsequently
filed a Motion for Summary Judgment alleging that it was improper for Idaho Power to insist on
language in its power purchase agreement providing that REC ownership would be determined
by future changes in the law. The Commission issued Order No. 32580 denying Grand View's
Motion for Summary Judgment on June 21, 2012.6 In that Order the Commission correctly
noted that Idaho Power and Grand View were unable to agree on the appropriateness of
including Section 8.1 in the power purchase agreement Section 8.1 provides
Under this Agreement, ownership of Green Tags and Renewable Energy Certificate
(RECs), or the equivalent Environmental Attributes, directly associated with the
production of energy from the Seller's Facility sold to Idaho Power will be governed
by any and all applicable Federal or State laws and/or regulatory body or agency
deemed to have authority to regulate these Environmental Attributes or to implement
Federal and/or State laws regarding the same.
Grand View argued in its pleadings that this clause is an illegal "reopener" under PURPA. The
Commission expressly agreed with Grand View that reopeners are illegal under PURPA, stating at
page 14 of the Order that, "we generally agree in principle with Grand View that a contract
provision that would require future changes in the rates or terms of PPAs would be impermissible
Grand View PVSolar Two, LLC v. Idaho Power Company, IPUC Case No. IPC-E-1 1-15.
6 The order denying Grand View's Motion for Summary Judgment was interlocutory and hence was not ripe
for a motion for reconsideration.
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PAGE 22
under PURPA, we find that § 8.1 is not a reopener." The Commission concluded that Section 8.1
is not a reopener because:
As indicated above, § 8.1 of the March 2011 draft PPA merely reflects that REC
ownership will be determined by applicable law when the PPA is executed and
approved It does not subject Grand View to future changes in the ownership of
RECs. Moreover, we note that the parties have not entered into a contractual
agreement and the Commission has not approved the PPA. Grand View attempts to
create ambiguity where none exists and has misconstrued this clause. The plain
language of § 8.1 would not subject the PPA to changing conditions. Consequently,
we find that § 8.1 is not preempted by PURPA.
Order No. 32580 at pp 14— 15 (emphasis added).
Although the phrase "determined by applicable law when the PPA is executed and approved" does
not appear in Section 8 1, or anywhere in the PPA, the Commission found that the "plain language
of § 8.1 would not subject the PPA to changing conditions."
Grand View currently has a Petition for Clarification pending before the Commission to
be sure the Commission intended to rewrite the PPA at issue in that case by inserting the phrase
"determined by applicable law when the PPA is executed and approved." If that is the
Commission's position, or if the Commission intends to view that clause as imputed in all
PURPA PPAs it approves, then the issue of REC ownership would have some clarity. But even
with that modicum of clarity, QFs would be still subject to the mischief and extortionate tactics
the Utilities are currently using. Indeed, Idaho Power freely admits in this case that it has used
the clause at issue in Grand View PVSolar Two LLC to obtain ownership of several QFs' RECs
without paying for them. See Reading, DI, Clearwater, Simplot and Exergy, Exhibit 506. This
dispute is unnecessary and subject to an easy cure if the Commission would simply require the
Utilities to disclaim REC ownership in future power purchase agreements - as Idaho Power had
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PAGE 23
been doing for many years. The Commission may do so because the current state of REC
ownership under Idaho law is not disputable and is, in fact, clear -- as discussed in detail below.
2 Avoided Cost Rates Do Not Compensate QFs For Environmental Attributes
The mandatory purchase provisions of PURPA require electric utilities to purchase power
produced by cogenerators or small power producers that obtain status as a QF. 16 U.S.C. § 824a-
3(a)(2). PLIRPA instructs FERC to promulgate implementing regulations, and directs the state
public utilities commissions to implement FERC's regulations. 16 U.S.C. § 824a-3(a)(2), (f).
The price that PURPA section 210(b) requires the utilities to pay QFs in exchange for electrical
output is termed the "avoided cost rate," which is "the cost to the electric utility of the electric
energy which, but for the purchase from such cogenerator or small power producer, such utility
would generate or purchase from another source." 16 U.S.C. § 824a-3(d).
Subsequent to the enactment of PURPA and FERC 's regulations, several states have
enacted renewable energy portfolio standards ("RPSs"), and mandatory and voluntary markets
for tradable RECs have emerged to create a commodity separate from electricity and capacity
produced by QFs See American Ref-Fuel Co, 105 FERC ¶ 61,004 (2003) In American Ref-
Fuel, Co., FERC found that "the avoided cost that a utility pays a QF does not depend on the
type of QF, i.e., whether it is a fossil-fuel-cogeneration facility or a renewable-energy small
power production facility." Id. at ¶ 22. FERC stated, "[t]he avoided cost rates, in short, are not
intended to compensate the QF for more than capacity and energy." Id. FERC declared
"contracts for the sale of. . . energy entered into pursuant to PURPA do not convey RECs to the
purchasing utility. . . absent [an] express provision in [the relevant] contract" or a rule or state
law to the contrary. Id. at ¶ 24. FERC clarified, however, that "a state may decide that a sale of
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PAGE 24
power at wholesale automatically transfers ownership of the state-created [credits], [but] that
requirement must find its authority in state law, not PIJRPA." Id. (emphasis added).
FERC subsequently denied rehearing, and stated, "As those seeking rehearing recognize,
only renewable energy small power production facilities have renewable attributes, yet the
energy from a cogeneration facility is priced the same as the energy from a small power
production facility." American Ref-Fuel Co., 107 FERC ¶ 61,016, ¶15 (2004). "If avoided costs
are not intended to compensate a QF for more than capacity and energy, it follows that other
attributes associated with the facilities are separate from, and may be sold separately from, the
capacity and energy." Id. at ¶ 16 (emphasis added). FERC additionally reasoned that
cogeneration QFs are entitled to sell the thermal output from their projects as part of a separate
transaction from sale of the electricity and capacity to the utility, and thus "the renewable
attributes of a small power production QF are similarly separate" Id at ¶ 16 n 9, appeal
dismissed sub. nom., Xcel Energy Services Inc. v. FERC, 407 F.3d 1242 (D.C. Cir. 2005).
FERC has also ruled that a state utility commission has the authority to require a utility to
pay a separate, higher avoided cost rate stream for QFs providing the utility with environmental
attributes that will help the utility avoid actual costs of environmental compliance. Cal. Pub.
Ut,! Comm n, 133 FERC ¶ 61,059 (2010) (order granting clarification and dismissing
rehearing), rehearing denied, 134 FERC ¶ 61,044 (2011). California had enacted a state law,
titled AB 1613, that required utilities to procure a specified amount of energy and capacity from
combined heat and power facilities that met stringent efficiency standards. FERC declared that
the state commission could implement a two-tiered rate structure, where AB 1613-compliant
QFs receive rates based on higher, long-run avoided cost rates reflecting more stringent
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PAGE 25
efficiency standards, and non-AB 1613 compliant QFs continue to receive rates based on lower
short-run avoided costs. 133 FERC ¶ 61,059, at ¶ 26. This further demonstrates that when the
utility is paying a rate calculated to account for the value of energy and capacity alone, there is
no compensation to QFs for their environmental attributes. See Morgantown Energy Associates,
139 FERC ¶ 61,066 (2012) (re-affirming American Ref-Fuel Co.), petition for reh 'gpending.
3. Idaho QF contracts only compensate QFs for energy and capacity.
The Commission calculates the published avoided cost rates using a methodology "based
on the estimated costs that a utility would incur in constructing a natural gas-fired combine cycle
combustion turbine ('CCCT') power plant." Idaho PUC, Order No. 30873, at p. 3. The
Commission publishes a "non-fueled" rate stream calculated with a forward gas price forecast
for QFs not using fossil fuels. Idaho PUC Order No. 28945, at p. 7; see also Idaho PUC Order
No. 29632, at p. 14. This avoided cost rate stream is available to QFs regardless of whether they
qualify for any particular state's RPS, and is available even to old co-generation or hydropower
facilities unable to qualify to create RECs. See Idaho PUC Order No. 28945, at p. 7•7
The Commission has also approved the 1RP Methodology for QFs which are over the size
limitation for published rates. See Idaho PUC Order No. 26576 (approving Stipulation to adopt
methodology contained in Direct Testimony of Rick Sterling, Case No. IPC-E-95-09, Exhibit
101). The IRP Methodology compares the present value of the revenue requirements of the base
case with one that includes the utility's system including the QF's output in order to estimate the
value of both capacity and energy delivered by the QF. Direct Testimony of Rick Sterling, IPC-
E-95-09, Exhibit 101, p. 8. The IIRP Methodology itself values all of the utility's resources and
Older QFs often cannot create RECs of any marketable value because most REC-creating statutes include
limitations on the initial in-service date of the renewable energy facility. See, e.g,. Ferrey et al., 20 Duke Envtl. L.
and Pol'y F. 125, at pp. 153-155; Ore. Rev. Stat. § 469A.020 (generally excluding facilities in service prior to 1995
as facilities that may generate Oregon RECs).
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PAGE 26
therefore does not provide a value for the avoided cost of acquiring a renewable-specific
resource, or otherwise include any adder for the value of the RECs a QF may convey. Id.
Thus, the IRP Methodology - like the SAR methodology for published rates -
compensates QFs for the estimated value of the energy and capacity alone, not for the avoided
costs a utility may otherwise incur in acquiring any non-energy environmental attributes such as
RECs. Indeed, the Idaho Commission vigilantly ensures that the avoided cost rates do not
exceed the cost of energy and capacity alone. Idaho PUC Order No. 31057, at pp. 6-7 (stating,
"It is well established that a utility cannot be required to pay more for QF power than its avoided
cost," and therefore a "delay in changing avoided cost rates ultimately means that ratepayers
are saddled with rates that are too high and therefore unreasonable"); see also Idaho PUC Order
No. 31092, at p. 11.
The same is true for the IRP Methodology rates. In the recent Interconnect Solar QF
docket, Commission Staff identified a mathematical error in Idaho Power's calculation of the
JRP Methodology rates for the Interconnect Solar QF, and argued the Commission should
require a reduction of approximately $1 0/MWh in the contract rates corresponding to the amount
of the error. See Idaho PUC Order No. 32361, at p. 1. Interconnect Solar argued that it had
provided Idaho Power with other non-energy concessions - such as 50% of the QF's RECs for
no additional charge - which would more than compensate for the mathematical error. Id at pp
1-2 But the Commission stated, "this Commission would not be fulfilling its role of ensuring
just and reasonable rates if it approved an Agreement that contained a known computation error.
Idaho Code §5 61-301, 61-502. In other words, we are unable to approve the Agreement that is
presently filed with the Commission due to a mathematical error." Id. The Commission
therefore refused to compensate Interconnect Solar for the value of anything other than the
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PAGE 27
estimated value of the energy and capacity. See Idaho PUC Order No. 32384 (approving the
Interconnect Solar PPA only with lower rates after correcting the calculation error).
The Idaho PUC Staff has concurred with QFs on ownership of environmental attributes
on at least two occasions.8 In Case No. IPC-E-04-02, Idaho Power sought a declaratory order
from the Commission approving a PPA clause that granted Idaho Power a right of first refusal to
purchase green tags from PURPA developers. In that case, the Commission Staff took a position
strongly supportive of developer ownership of RECs when it stated:
Arguably what Idaho Power proposes is impermissible "taking" Qfproperty.
The Fifth Amendment of the U.S. Constitution states, "nor shall private property
be taken for public use without just compensation."9 This provision is called the
"takings clause." Idaho Power requests a Commission Order granting the utility
by regulatory fiat a "right of first refusal." It proposes no compensation to the QF
for that right. Electric utility purchases of energy and capacity from PURPA QFs
are mandatory. 18 C.F.R. § 292.303(a). The environmental attributes associated
with renewable QF projects are currently separate from the capacity and energy
sold to Idaho utilities. They are not bundled together as a matter of law. Nor
the cost to pychase environmental attributes included in Idaho utility's
avoided cost. To the extent those attributes have value and provide additional
developer incentive. $jgff believes Lhe X should remain with developer.
Staff Comments, IPC-E-04-02, March 19, 2004 at p. 7 (emphasis added).
There is no question therefore that neither Idaho avoided cost model considers the costs
of building or procuring a renewable-specific resource, nor does either model explicitly or
implicitly include compensation to the QF for RECs or any other valuable environmental
attributes.
8 See IPUC Case No. IPC-E-04-02 in which Idaho Power sought a right of first refusal for RECs it
acknowledged belonged to the developer. Case No. IPC-E-04-16 referenced above.
Staff's Fifth Amendment argument is clearly on point as more fully explained below.
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PAGE 28
4. Because QFs Are Not Compensated for Environmental Attributes and No
Law Conveys Them to Idaho Utilities Free of Additional Charge, QFs Retain
Legal Title to Their Project's Environmental Attributes.
Shortly after FERC's American Ref-Fuel, Co. orders but well prior to the Grand View
case discussed above, the Commission itself twice addressed ownership of environmental
attributes. First, Idaho Power petitioned the Commission for an order declaring that QFs
generating green tags must grant Idaho Power "a 'right of first refusal' to purchase those tags."
Idaho PUC Order No. 29480, at pp. 4-5. PacifiCorp and Avista both intervened and requested
that the Commission determine the utilities own the environmental attributes associated with QF
generation Id at pp 5-8 The Idaho PUC found that Idaho Power's petition did "not present a
justiciable controversy in Idaho and [wa]s not ripe for a declaratory judgment[.]" Id. at p. 16.
The Commission observed the American Ref-Fuel, Co. orders and noted that the State of Idaho
does not have a green tag program or an RPS. It stated:
While this Commission will not permit [Idaho Power] in its contracting
practice to condition QF contracts on inclusion of such a right-of-first refusal
term, neither do we preclude the parties from voluntarily negotiatingthe sale Lo
and purchase of such a green tag should it be perceived to have value. The price
of same we find, however, is not a PURPA cost and is not recoverable as such by
the Company.
Id. at pp. 16-17 (emphasis added).
Shortly thereafter, Idaho Power filed for approval of a PURPA contract containing the
published rates for a non-fueled co-generation project, wherein Idaho Power expressly waived
any claim to ownership of environmental attributes. Idaho Power requested that the Commission
provide it with assurance that it would not be penalized in a future ratemaking proceeding for
10 In Grand View Solar PVII, the Commission misconstrued its prior order to state that "we have held that the
parties to a QF contract or PPA are free to contract for the ownership of RECs." Order No. 32580 at 10 (emphasis
added). The Commission re-wrote its prior order in this passage. Parties do need to not contract ownership to a
commodity clearly produced by one party and for which the other party pays nothing.
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waiving ownership of the environmental attributes. Idaho PUC Order No. 29577, at pp. 2-3.
The Commission stated, "The State of Idaho still has not created a green tag program, has not
established a trading market for green tags, nor does it require a renewable portfolio standard."
Id. at pp. 5-6. It again stated that the QF and the utility were free to separately negotiate for the
sale of environmental attributes, but that the costs associated with the sale could not be recovered
by the utility as a PURPA cost. The Commission ruled, "[a]s qualified above, the Commission
finds it reasonable to approve the submitted Agreement and further finds it reasonable to allow
payments made under the Agreement as prudently incurred expenses for ratemaking purposes."
Id at p 6 Thus, the Commission found it reasonable for the Utilities to waive ownership of
environmental attributes because Idaho law did not convey them to the Utilities.
No Idaho law currently vests ownership of environmental attributes to a utility in an
Idaho QF contract Thus, under any reasonable interpretation of the current QF rate mechanisms
and existing Idaho Commission orders implementing PURPA, Idaho QFs are the default owners
of the environmental attributes. There is no question that RECs exist and have value. Yet the
rate provided to QFs under both of the Idaho Commission's approved methodologies includes no
express or implicit compensation for the value of RECs The rate in renewable QF contracts is
the same rate that would be included in a contract for a fossil-fueled cogeneration QF too old to
produce RECs. Just as an Idaho cogeneration QF retains and may separately sell the thermal
output from its QF, a renewable QF retains and may separately sell the environmental attributes.
American Ref-Fuel Co., 107 FERC ¶ 61,016, ¶ 16 n. 9.
The Commission has ruled it "will not permit [Idaho Power] in its contracting practice to
condition QF contracts on inclusion of a right-of-first refusal term [regarding RECs]." Idaho
PUC Order No. 29480, p. 16. This ruling can be read as nothing other than an implicit rejection
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PAGE 30
of the request by PacifiCorp and Avista in that case for a determination that they own the
environmental attributes. The circumstances are no different today, and the rule remains that
Idaho QFs receiving the SAR or IRP Methodology rates own and may separately convey their
environmental attributes and RECs for compensation in addition to the estimated value of the
electric energy and capacity in the Idaho avoided cost rates
5. The Utilities' REC Clause Is a Reopener Clause that Would Subject QFs to
Changed Circumstances, and Section 210(e) of PURPA Therefore Preempts
its Approval.
Section 210(e) of PURPA preempts any state commission action that subjects the rates
and terms of QF contracts to changed circumstances See Independent Energy Producers Ass 'n,
Inc. v. Cal. Pub. Util. Comm 'n., 36 F.3d 848, 858 (9th Cir. 1994); New York State Electric &
Gas Corp., 71 FERC ¶ 61,027, at pp. 24-26 (1995); Afton Energy, Inc. v. Idaho Power Co.
("Afton 1"), 107 Idaho 781, 786-88,693 P.2d 427,432-34 (1984). In Grand View PV Solar II,
the Commission agreed that a change in law provision acting to "subject Grand View to future
changes in the ownership of RECs" would violate Section 210(e) of PURPA. See Order No.
32580 at 14-15. QFs choosing not to provide their environmental attributes to the utility - such
as Grand View - are entitled to lock in avoided energy and capacity costs alone, and to
separately convey their environmental attributes without being subject to a re-opener clause
regarding ownership of the environmental attributes. The Utilities' re-opener clause does not
allow that, and it therefore violates Section 210(e) of PURPA and FERC's implementing
regulations and orders
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6. Commission Approval of Extortionate Tactics and or Title-Clouding
Language Related to Environmental Attributes Constitutes a Taking of
Property Without Just Compensation in Violation of the Takings Clauses of
the Idaho and U.S. Constitutions.
The Fifth Amendment of the U.S. Constitution and Article 1 Section 14 of the Idaho
Constitution each provide that private property shall not be taken for public use without just
compensation. U.S. Const. amend. V, ci. 4; Idaho Const. art. 1 § 14. The purpose of the takings
clause is to prohibit the "Government from forcing some people alone to bear public burdens
which, in all fairness and justice, should be borne by the public as a whole." Armstrong v United
States, 364 U.S. 40, 49 (1960). Courts first examine whether the claimant possesses a property
interest that is protected by the Fifth Amendment. Ruckelshaus v. Monsanto Co., 467 U.S. 986,
1003-04 (1984). If such an interest is established, courts then examine whether the government's
action amounts to a compensable taking of that interest. Id. at 1005-06. When such a taking
occurs, an aggrieved individual may file a claim for "inverse condemnation," which is a
shorthand description of the manner in which a property owner recovers just compensation for a
taking of his property when condemnation proceedings have not been instituted United States v
Clarke, 445 U.S. 253, 257 (1980).
a. RECs are compensable property rights.
In analyzing whether a claimant possess a property interest, courts describe the term
"property" as referring to "the group of rights inhering in the citizen's relation to the physical
thing, as the right to possess, use and dispose of it." United States v. General Motors Corp., 323
U.S. 373, 377-378 (1945); see also Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 539 (2005);
Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 435 (1982). Property interests
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PAGE 32
"are about as diverse as the human mind can conceive," Florida Rock Industries v. United States,
18 F.3d 1560, 1572 n. 32 (Fed.Cir.1994), and the Takings Clause "is addressed to every sort of
interest the citizen may possess." General Motors, 323 U.S. at 378; see also Lucas v. South
Carolina Coastal Council, 505 U.S. 1003, 1019 (1992) (real property); Monsanto Co., 467 U.S.
at 1003-04 (intangible trade secret property), United States Trust Co v New Jersey, 431 U.5. 1,
19 n.16 (1977) (contract rights); Roth v. Pritikin, 710 F.2d 934, 939 (2d Cir.1983) (copyright);
Leesona Corp. v. United States, 220 Ct.Cl. 234, 599 F.2d 958, 964 (1979) (patents).
Transferrable property created by government programs is compensable property under
the Takings Clause. See e.g. Redevelopment Authority of Philadelphia v. Lieberman, 336 A.2d
249, 257-59 (1975) (collecting cases and awarding compensation for lost value of liquor license
associated with condemnation of liquor store premises); see also Members of the Peanut Quota
Holders Assn v. United States, 421 F. 3d 1323, 1332 (Fed. Cir. 2005) (finding property right
existed in government issued peanut quotas and stating the "right to transfer is a traditional
hallmark of property.").
A QF's interest in the transferrable environmental attributes of its project is a
compensable property interest. As the Commission and Idaho Power have acknowledged in
prior orders and filings, RECs are indeed valuable and transferrable, and today they are most
valuable sold as a forward strip of RECs that will be produced in future years. QFs clearly own
the RECs for which the Utilities refuse to pay and which no law transfers to the Utilities. There
can be no doubt that a QF's right to transfer RECs through the interstate market that exists today
is a compensable property interest. See Andrus v. Allard, 444 U.S. 51, 65-66 (1979) (labeling
the right to dispose of property - e.g., through commercial transactions - as "one traditional
property right" and one "strand" of the "bundle" of property rights an owner possesses).
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PAGE 33
Likewise, another strand in the bundle of property rights possessed by a QF is the going
concern value of its electrical generating business. See Kimball Laundry Co. v. United States,
338 U.S. 1, 8-13 (1949) (holding going concern value of laundry was compensable property
right); Coeur d'Alene Garbage Service v. Coeur d'Alene, 114 Idaho 588, 591, 759 P.2d 879, 881
(1988) (collecting cases and applying Idaho Constitution to find property interest in trash
collection company); State v. Saugen, 169 N.W.2d 37, 42-46 (1969) (liquor store). The going
concern value of a QF's development efforts to date include items such as a real property lease,
its efforts and expenditures in evaluating the feasibility of the project, and its goodwill obtained
in negotiations with the landowner, possible REC purchasers, and others. All of these items
make up the going concern value of a QF developer, which developer could transfer today in
exchange for monetary compensation. This going concern value is a compensable property
interest separate and distinct from the RECs. Kimball Laundry Co., 338 U.S. at 8-13.
b. Requiring QFs to Gift Environmental Attributes to the Utilities
I.
Would Constitute a Taking By the Commission.
Where the government requires an owner to suffer a permanent physical invasion of their
property - however minor - it must provide just compensation. See Loretto, 458 U.S. at 435
(state law requiring landlords to permit cable companies to install cable facilities in apartment
buildings effected a taking). A second categorical rule applies to regulations that completely
deprive an owner of all economically beneficial use of her property. Lucas, 505 U.S., at 1019;
Boise Tower Associates LLC v Hogland, 147 Idaho 774, 783, 215 P 3d 494, 503 (2009), Coeur
d'Alene Garbage Service, 114 Idaho at 591, 759 P.2d at 881 (collecting Idaho cases and
applying Idaho Constitution to find taking of garbage collection business by City action
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PAGE 34
curtailing its business). Since what the owner had was transferable value, "the question is,
What has the owner lost? Not, What has the taker gained?" Kimball Laundry Co., 338 U.S.at 12-
13 (finding compensable taking when government took temporary possession of a laundry);
Yancey v. United States, 915 F.2d 1534, 1541-42 (Fed. Cir. 1990) (finding a compensable taking
where "the Yanceys had no choice but to sell their birds for substantially less than their value")
In Armstrong, the Court found a compensable taking of the claimants' liens on
uncompleted boat hulls seized by the Government pursuant to a contract. Armstrong, 364 U.S. at
48-49 "Since this acquisition was for public use, however accomplished, whether with an intent
and purpose of extinguishing the liens or not, the Government's action did destroy them and in
the circumstances of this case did thereby take the property value of these liens within the
meaning of the Fifth Amendment." Id "And it matters not whether [the property was] taken
over by the government or destroyed, since, as has been said, destruction is tantamount to
taking." General Motors, 323 U.S. at 384. Granting the Utilities' title to valuable environmental
attributes without providing any compensation to the QFs would constitute a categorical taking.
The inclusion of such clauses in QF PPAs that cloud the title or leave ownership "in
dispute" would leave the QFs with no choice but to cut a deal selling their RECs for
"substantially less than their value," Yancey, 915 F.2d at 1542, or to retain RECs with a title so
clouded they could not be sold at all. This is exactly the case here, as highlighted, for example,
by the recently approved Clark Canyon power purchase agreement with Idaho Power. See Case
Even when the claimant still retains economic value of its property, just compensation may be required by
weighing relevant factors set forth in Penn Central Transp. Co. v. New York City, 438 U.S. 104, 124 (1978). The
Utilities' environmental attributes clause would effect a direct appropriation of private property required for a
categorical taking, thus precluding the need to engage in balancing the Penn Central factors. However, Utilities'
PPA clause would also constitute a taking under application of the factors set forth in Penn Central. See
Ruckeishaus, 467 U.S. at 1005-1016; Cienega Gardens v. United States, 331 F.3d 1319, 1337-53 (Fed. Cir. 2003);
NRG Co. v. United States., 24 Cl.Ct. 51, 56-63 (1991).
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PAGE 35
No. IPC-E-1 1-09. In the Clark Canyon PPA, Idaho Power and Clark Canyon recite that they had
agreed to address REC ownership in a separate agreement not filed for approval with the
Commission: "Ownership of Environmental Attributes associated with the Facility is determined
in a separate agreement between Idaho Power and the Seller." See Case No. IPC-E-1 1-09, Idaho
Power Application at p. 3. In response to Commission Staff discovery requests, Idaho Power
explained that it reached an agreement with Clark Canyon to split ownership of the RECs in half
—with the Seller retaining ownership in the first ten years of the 20-year PPA and Idaho Power
retaining ownership in the last ten years of the agreement. Idaho Power admitted that it did not
compensate Clark Canyon for that transfer. In other words, Clark Canyon gave away half of its
RECs, simply to obtain clear title to any of them See Cark Canyon Comments in Case No IPC-
E-1 1-09; see also Reading, DI, Clearwater, Simplot and Exergy, Exhibit 506 (containing Idaho
Power's admission to having obtained REC ownership from several other QFs in the same
manner).
The Utilities' ostensible purpose for claiming title to RECs is to protect itself and its
ratepayers from a future change in the law that may require them to obtain their own RECs, not
that they intend to pay for the RECs. To authorize such a seizure under this reasoning would be
a classic case of requiring an individual (QF) to forfeit its property (valuable environmental
attributes and going concern value of its QF business) for public benefit (reduced regulatory risk
for the Utilities and their customers) without any compensation. The Commission would
therefore be subject to an inverse condemnation proceeding whereby a court would order it to
compensate the QF for (1) the value of its environmental attributes impaired by the Utilities
taking, and (2) the going concern value of the QF's business impaired by taking of the
environmental attributes.
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PAGE 36
7. Any Action by the IPUC in this Case to Take a QF's Title to RECs Created
by Neighboring States' RPS Laws Would Unduly Burden Interstate
Commerce for Protectionist Purposes and Therefore Violate the Dormant
Commerce Clause of the United States Constitution.
The Commerce Clause of the United States Constitution provides that "Congress shall
have Power. . . To regulate Commerce. . . among the States. . . ." U.S. Const., Art. I, § 8, ci. 3.
The Dormant Commerce Clause, however, also imposes limitations on states in the absence of
congressional action. "It is well settled that actions are within the domain of the Commerce
Clause if they burden interstate commerce, or impede its free flow." C&A Carbone, Inc. v. Town
of Clarkstown, New York, 511 U.S. 383, 389 (1994) (emphasis added). "The central rationale for
the rule against discrimination is to prohibit state or municipal laws whose object is local
economic protectionism." Id. at 390. State laws requiring that goods be processed in-state prior
to entering interstate commerce are per se invalid because such laws block the flow of interstate
commerce at the state's borders. See, e.g., Id. at 390 (striking down town ordinance requiring
non-recyclable solid waste to be processed at designated facility within municipality before
shipping); South Central Timber Development, Inc. v. Wunnicke, 467 U.S. 82, 100 (1984)
(striking down Alaska regulation that required all Alaska timber to be processed within the state
before export); New Hampshire v. New England Power, 455 U.S. 331, 339 (1982) (holding that
law restricting exports of hydropower violated commerce clause by hoarding resources for
State's economic benefit).
In C.A. Carbone, Inc., the Court specifically noted the ordinance requiring local
processing of solid waste favored only a "single local proprietor," rather a class of in-state
processors, and held "this difference just ma[de] the protectionist effect of the ordinance more
acute." C&A Carbone, Inc., 511 U.S. at 392. "Discrimination against interstate commerce in
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PAGE 37
favor of local business or investment is per se invalid, save in a narrow class of cases in which
the municipality can demonstrate under rigorous scrutiny, that it has no other means to advance a
legitimate local interest." Id. at 392. (distinguishing Maine v. Taylor, 477 U.S. 131 (1986),
where the Court upheld a restriction on importation of baitfish because Maine had no other way
to prevent spread of parasites and local economic interests were not that the state's justification
for the ban).
Here, the Utilities propose that the Commission authorize them to take title to an
interstate commodity created by other states' RPS laws - RECs. Such a proposal will burden
the flow of an interstate commodity - RECs. The burden on interstate commerce is undeniable.
Such an action would be local protectionism of Idaho's investor-owned electric utilities that
would burden the interstate flow of goods created by neighboring states' RPS laws, and it would
therefore violate the Dormant Commerce Clause. C&A Carbone, Inc., 511 U.S. at 390.
Furthermore, the practical effect of the Utilities' proposed taking ownership of RECs is
analogous to the illegal in-state processing requirements. Idaho does not have an RPS law that
creates "Idaho RECs," and the Idaho legislature has stated no purpose whatsoever - let alone a
legitimate purpose - to require QFs to give RECs to the utility. 12 Thus, requiring QFs to give
RECs to an Idaho utility prior to allowing the RECs to enter interstate commerce would
unlawfully require the RECs to be processed in-state prior to entering interstate commerce. See
C&A Carbone, Inc., 511 U.S. at 390; South Central Timber Development, Inc., 467 U.S. at 100;
New Hampshire, 455 U.S. at 339. Such a proposal has the same effect on the interstate flow of
RECs as the other per se invalid in-state processing laws.
12 Indeed, just the opposite is true. The Idaho Legislature has affirmatively declared that it is the policy of the
State of Idaho to not adopt a renewable portfolio standard. 2007 Idaho Energy Plan January 26, 2007 at p. 44. The
proposed 2012 Idaho Energy Plan also contains a policy statement against the adoption of any sort of a renewable
portfolio standard. 2010 Draft Energy Plan at. p. 94.
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The practical effect of the PPA clause is to stop the flow of the RECs at the border, so
that Idaho utilities can extort some value from a commodity for which they refuse to pay. That
the goods may then enter interstate commerce after passing through the Idaho Utilities' hands is
of no moment because local protectionist motive would stop the original owner - the QF - from
selling its RECs to the buyer of its choice in interstate commerce. See C&A Carbone, Inc., 511
U.S. at 390-93. Likewise, the proposed taking is not saved by the fact that it would treat in-state
QFs and out-of-state QFs the same. The Supreme Court directly rejected the same argument in
C&A Carbone Inc and noted that the obvious protectionist motive for a "single local proprietor"
only makes the protectionist effect "more acute" Id at 392
8. The Commission Should Reject Any Reliance by the Utilities on
Distinguishable Cases Regarding REC Ownership in Other States.
The Utilities will no doubt rely on decisions from some other states determining that a
utility owned RECs under PURPA contracts pre-dating any creation of any mandatory or
voluntary REC markets. See In Re Ownership of Renewable Energy Certificates, 913 A.2d 825,
828 (N.J. Super. App. Div., 2007) (citing Edward A. Holt et al., Who Owns Renewable Energy
Certificates? An Exploration of Policy Options and Practice, at xiv (Ernest Orlando Lawrence
Berkeley National Laboratory 2006), available at hLV://eetd.lbl.gov/ea/eMp/rgports/59965.i)df)).
These cases are distinguishable from the situation in the present case for several reasons, and
therefore the Commission should not rely upon them.
First, those cases relied upon a factual scenario where the PLTRPA contracts pre-dated the
existence of RECs. The leading case followed by others arose in Connecticut. See
Wheelabrator Lisbon, Inc. v. Connecticut Dept. of Pub. Util. Control, 531 F.3d 183 (2nd Cir.
2008). There, the waste-to-energy QF at issue entered into a power purchase agreement pursuant
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PAGE 39
to PURPA in 1991. Id at 186. "In 2002, the specific credits at issue.. . became marketable by
the creation of a market for such credits pursuant to the laws of several states, including
Connecticut." Id
The Connecticut Supreme Court held that the Connecticut state commission had
reasonably concluded the term "electricity" in the applicable state statute implementing PURPA
and in the contract "necessarily included the renewable attribute that later was 'unbundled' from
the energy and represented by the certificates." Wheelabrator Lisbon, Inc. v. Dept. of Pub. Util.
Control, 931 A.2d 159, 176 (Conn. 2007). The Connecticut Supreme Court concluded that
because the 1991 contract assigned ownership to the utility, the state commission's decision did
not constitute a taking in violation of the state constitution Id at 177 The federal district court
likewise rejected a challenge under the takings clause on the ground that the RECs "were created
after the parties entered into the [contract]." Wheelabrator Lisbon, Inc. v. Connecticut Dept. of
Pub. Util. Control, 526 F. Supp.2d 295, 306 (D. Conn. 2006). 13 The Second Circuit held that the
Connecticut state commission did not violate Section 2 10(e) of PURPA by modifying the
original agreement because it "did not order the renegotiation of the terms of the Agreement but
simply exercised its authority to interpret the Agreement's provisions." Wheelabrator Lisbon,
Inc, 531 F.3d at 189.
Second, unlike the Idaho Commission which vigilantly ensures that PURPA contracts do
not contain rates above the avoided cost of energy and capacity, some of the states that
determined RECs passed to the utility relied upon a finding that the PURPA contracts
compensated the QFs for more than the energy and capacity alone. In Re Ownership of
Renewable Energy Certificates, 913 A.2d at 830 ("when it approved the contracts at issue, [the
13 The QF did not appeal to the Second Circuit with the taking argument.
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PAGE 40
state commission] required the utilities to pay and allowed appellants to receive substantially
more than the mere value of the electricity, and that it did so specifically because the electricity
was produced with renewable resources").
These cases are distinguishable and inapplicable to the circumstances here because at the
time of contracting in this case the parties clearly recognize the QF projects will generate RECs
marketable in mandatory and voluntary markets outside of Idaho. Indeed, Idaho QF contracts
directly contemplate the creation of RECs by defining them. To pretend they do not exist and
are not valuable is indefensible. Furthermore, because the RECs obviously exist and the Utilities
will not pay for more than the mere value of the electricity, destruction of the value of the RECs
to QFs without any compensation would clearly constitute a taking. Compare to In Re
Ownership of Renewable Energy Certificates, 913 A.2d at 830 (addressing contracts containing
compensation for "substantially more than the mere value of the electricity"); Wheelabrator
Lisbon, Inc., 526 F.Supp.2d at 306 (finding no taking because RECs "were created after the
parties entered into the [contract]") Unlike in Wheelabrator Lisbon, Inc., Intervenors' argument
under Section 210(e) of PURPA is that the Utilities' REC clause is itself an impermissible
contract modifier or reopener, not a subsequent modification of the terms of the contract. See
531 F.3d at 189.14 Finally, those cases did not even address the question of whether the Dormant
Commerce Clause allows the Idaho Commission to impose a protectionist policy requiring the
RECs to pass through Idaho Power's hands before entering interstate commerce.
The Commission's authorization of the Utilities 'ownership proposal regarding
environmental attributes would violate Section 210(e) of PURPA, the Takings Clauses of the
The Commission has already determined that PURPA prohibits a REC clause that subject the QF to
changed circumstances. See Order No. 32580 at 14-15.
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PAGE 41
U.S. and Idaho Constitutions, and the Dormant Commerce Clause of the U.S. Constitution. The
Commission should require utilities to explicitly disclaim ownership of all environmental
attributes in all future QF PPAs.
F. The Commission Should Require Each Utility to File a Streamlined PPA for "As
Available" QF Sales.
Although most QFs opt to exercise their right to sell pursuant to a fixed rate contract,
some QFs exercise the right to sell on an "as available" basis. See 18 C.F.R. § 292.304(d)(1),
(2). This option may be attractive to QFs that wish to use their generation to serve their own
load, as well as to QFs who are unable to complete a fully negotiated long-term agreement with a
utility prior to commencing operations. Reading, DI, Clearwater, Simplot and Exergy, pp. 64-
65. "Paragraph (d)(1) provides that a qualifying facility may provide energy or capacity on an
'as available' basis, i.e., without legal obligation." Order No. 69, 45 Fed. Reg. 12,214, 12,224.
In contrast, "Paragraph (d)(2) permits a qualifying facility to enter into a contract or other legally
enforceable obligation to provide energy or capacity over a specified term." Id.
Thus, FERC envisioned that QFs that decide to sell at rates calculated at the time of
delivery can do so "without legal obligation." Id. The QF incurs no ongoing legal obligation,
and there should be no need to negotiate any specialized contract provisions. However, among
the Utilities, only Idaho Power has a tariff contract that would allow a QF to commence and
cease such "as available" sales on short notice.' 5 There is recent precedent for Idaho QFs
requesting or entering into such agreements. See IPUC Case No. AVU-E-12-01 (containing a
recent "as available" contract). Such QFs should not be subjected to protracted negotiations
because they will often seek such contracts on short notice. The Commission should require
See htp://www.idahorower.conVAboutUs/RatesRegulatory/Tariffs/tarifWDF.cfm?id55 (containing Idaho
Power's Schedule 86 and short tariff contract, which is terminable by the QF on short notice).
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Avista and Rocky Mountain Power to also file with the Commission and make publicly available
a tariff contract for "as available" deliveries.

G. The Commission Should Require Idaho Utilities to Use FERC's Standard
Interconnection Procedures and Agreements for QFs Because Less Favorable
Procedures Illegally Discriminate Against QFs.
FERC has jurisdiction over interconnections of non-QFs and even QFs using the
interconnecting utility's system to wheel the QF output to another utility. See Standardization of
Small Generator Interconnection Agreements and Procedures ("Order No. 2006"), 111 FERC ¶
61,220 (2005); Standardization of Generator Interconnection Agreements and Procedures
("Order No. 2003"),104 FERC ¶ 61,103 (2003), on reh 'g Order No. 2003-A, 106 FERC ¶ 61,220
(2004), on reh 'g Order No. 2003-B, 109 FERC ¶ 61,287 (2004), on reh 'g Order No. 2003-C,
111 FERC ¶ 61,401 (2005). State utility commissions retain jurisdiction under PURPA over
interconnection terms for QFs selling their entire output to the regulated utility to which the QF
interconnects. See Order No. 2006, 111 FERC ¶ 61,220 at ¶J 516-517; Order No. 2003,104
FERC ¶ 61,103 at TT 813-814 16 It is well settled, however, that "a state may take action under
PURPA only to the extent that that action is consistent with [FERC's] rules." Cedar Creek Wind
LLC, 137 FERC ¶ 61,006 at ¶ 27. The terms of QF interconnections are no exception.
FERC's regulations generally require that QFs be treated in a non-discriminatory manner.
See 18 C.F.R. § 292.304(a)(1)(ii), § 292.306(a). In promulgating Section 292.306 of its initial
implementing regulations, FERC stated:
Certain interconnection costs may be incurred as a result of sales from a utility to
a qualifying facility. The Commission notes that the Joint Explanatory Statement
of the Committee of Conference (Conference Report) prohibits the use of

16 However, states do not obtain jurisdiction over an interconnection initially requested pursuant to FERC's
jurisdiction, solely because the generator chooses to later sell as a QF.
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"unreasonable rate structure impediments, such as unreasonable hook up charges
or other discriminatory practices. . ." This prohibition is reflected in §
292.306(a) of these rules, which provides that interconnection costs must be
assessed on a nondiscriminatory basis with respect to other customers with similar
load characteristics.
Order No. 69,45 Fed. Reg. at 12,217 (emphasis provided) (footnote omitted).
FERC has also defined "interconnection costs" as the reasonable costs of interconnection,
transmission and distribution "to the extent such costs are in excess of the corresponding costs
which the electric utility would have incurred if it had not engaged in interconnected operations,
but instead generated an equivalent amount of electric energy itself or purchased an equivalent
amount of electric energy or capacity from other sources" Id at § 292 101 (b)(7) (emphasis
added). FERC further explained:
This definition also incorporates the concept from the proposed rule, as clarified
in an erratum notice, that these costs are limited to the net increased
interconnection costs imposed on an electric utility compared to those
interconnection costs it would have incurred had it generated the energy itself or
purchased an equivalent amount of energy or capacity from another source.
Order No. 69, 45 Fed. Reg. at 12,217 (footnote omitted) (emphasis added).
Thus, FERC and Congress plainly intended to prevent discrimination against QFs in
interconnection practices and costs. A state's rules governing QFs' interconnection costs and
practices must be consistent with those costs and practices that would be applicable had the
utility generated the energy itself or purchased the energy from another source.
Years after promulgation of these basic QF interconnection rules, FERC promulgated
detailed interconnection procedures and agreements applicable to non-QF generators, including
the utilities' own generation resources. Order No. 2006, 111 FERC ¶ 61,220 (establishing rules
for small generators in 2005); Order No. 2003,104 FERC ¶ 61,103 (establishing rules for large
generators in 2003). These fully vetted FERC proceedings resulted in a transparent and standard
PRE-HEARING LEGAL BRIEF - GN-E- 11-03
PAGE 44
interconnection process and standard agreements available in each utility's Open Access
Transmission Tariff ("OATT").
By contrast, the processes available to QFs under the Idaho Commission's orders
addressing QF interconnections are out-dated and discriminatory compared to the FERC process
used by the utilities and non-QF generators. Idaho Power still uses its Schedule 72 for QF
interconnections, which was developed prior to the FERC-approved process and fails to
incorporate the protections for generators adopted by FERC.17 For example, Schedule 72
provides no deadlines for Idaho Power to respond to interconnection requests with applicable
interconnection studies, while FERC's procedures provide strict deadlines the utility must
follow. See e.g., Order No 2003,104 FERC ¶ 61,103 at ¶ 224 (imposing three-day deadline for
utility to provide cost and time estimates for completing a system impact study); Idaho Power's
Schedule 72 at 3-4 (noting that Schedule 72 incorporates the FERC-approved procedures
consistent with the terms of Schedule 72, but then providing non-specific and non-binding
deadlines for Idaho Power to follow throughout the entire interconnection process). The FERC
process allows generators to select the dates by which construction will be complete and the
option to self-construct the interconnection if the utility will not agree to those dates. Order No.
2003,104 FERC ¶ 61,103 at ¶J 351-354. But Schedule 72 provides QFs no such rights.
Additionally, FERC's interconnection rules provide that "[t]he Interconnection Customer
initially funds the cost of any required Network Upgrades (i.e., Upgrades to the Transmission
System at or beyond the Point of Interconnection) and it is then subsequently reimbursed for this
17 See http://www.idahopower.com/AboutUs/RatesRegulatory/Tariffs/tariffPDF.cfm?id=52 (containing the
tariff, which was most recently modified in IPUC Case Nos. IPC-E-06-1 8 and IPC-E-08-05) (hereinafter "Idaho
Power c Schedule 72"); see also In Re Application for Approval of Schedule 72, IPUC Case No. IPC-E-90-20, Order
No. 23631 (1991) (first implementing Schedule 72).
PRE-HEARING LEGAL BRIEF - GNR-E- 11-03
PAGE 45
upfront payment by the Transmission Provider." Order No. 2006, 111 FERC ¶ 61,220, at ¶ 40;
see also Order No. 2003,104 FERC ¶ 61,103 at ¶f 693-703; id at ¶ 696 (implementing this
policy because FERC was "concerned that, when the Transmission Provider is not independent
and has an interest in frustrating rival generators, the implementation of participant funding,
including the 'but for' pricing approach creates opportunities for undue discrimination").
Yet the Idaho Commission's implementation of PURPA provides no such assurance to
QFs, leaving them instead to "negotiate" cost-sharing of network upgrades with the utility. See
Clearwater, Simplot and Exergy, pp. 66-67. In the few cases where the Commission has
approved cost-sharing for QFs paying for network transmission upgrades, the cost-sharing does
not entitle QFs to a complete refund. See,e.g., In Re Application for Idaho Winds, LLC, IPUC
Order No 32136, Case No IPC-E-09-25 (2010) (approving cost-sharing agreement where QF
would ultimately receive no refund for 25% of the upgrades). The Utilities incorrectly assert that
the FERC-approved process would fail to incentivize QFs to properly locate their
interconnection and even allow QFs to recover transmission costs "prior to the purchase
obligation being met." See Clements, RE, Rocky Mountain Power, p. 9 Ins. 3-4. This is
incorrect. The FERC-approved process permits refunds only after commercial operation, and the
refund period extends for up to 20 years after initial operation. Order No. 2006-C, 111 FERC ¶
61,401, at ¶J 6, 9. FERC designed the process to provide the interconnecting generator "with an
incentive to make good faith requests for Network Upgrades." Order No. 2006, 111 FERC ¶
61,220 at ¶ 722.
These are but a few examples of the unfair treatment of QFs without the protections of
the FERC-approved process. To ensure that QFs are not provided with discriminatory
PRE-HEARING LEGAL BRIEF - GNR-E- 11-03
PAGE 46
treatment, the Commission should simply require the Utilities to use the FERC interconnection
procedures and agreements for all QF interconnections in this case.
IV. CONCLUSION
For the reasons set forth above, the Intervenors respectfully request that the Commission
implement PURPA in the manner recommended in the testimony of Dr. Reading, and as
described herein.
DATED THIS 20th day of July 2012.
RICHARDSON AND O'LEARY, PLLC
By
Peter J. Richardson (ISB No: 3195)
Gregory M. Adams (ISB No: 7454)
Attorneys for
Clearwater Paper Corporation,
J.R. Simplot Company, and
Exergy Development Group of
Idaho, LLC
PRE-HEARING LEGAL BRIEF - GNR-E-1 1-03
PAGE 47
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 20 th day of July, 2012, a true and correct copy of the
within and foregoing PRE-HEARING LEGAL BRIEF OF CLEARWATER PAPER
CORPORATION, J.R. SIMPLOT COMPANY, AND EXERGY DEVELOPMENT
GROUP OF IDAHO, LLC was served as shown to:
Jean D. Jewell, Secretary X Hand Delivery
Idaho Public Utilities Commission U.S. Mail, postage pre-paid
472 West Washington - Facsimile
Boise, Idaho 83702 - Electronic Mail
jean jewell@vuc idaho gov
Donald Howell X Hand Delivery
Kris Sasser U.S. Mail, postage pre-paid
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472 West Washington - Electronic Mail
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Donovan E. Walker - Hand Delivery
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Idaho Power Company - Facsimile
P0 Box 70 X Electronic Mail
Boise, ID 83707-0070
[e-mail]
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Michael G. Andrea - Hand Delivery
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Spokane, WA 99220 X Electronic Mail
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Daniel Solander - Hand Delivery
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i [e-mail]
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Energy Integrity Project
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John R. Lowe
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Renewable Energy Coalition
12050 SW Tremont St
Portland, OR 97225
iravenesanmarcos(vahoo.com
R. Greg Femey
Mimura Law Offices PLLC
Interconnect Solar Development, LLC
2176 E Franklin Rd Ste 120
Meridian, ID 83642
greg(mimura1aw.com
Bill Piske, Manager
Interconnect Solar Development, LLC
1303 E. Carter
Boise, ID 83706
bil1Diskecableone.net
Ronald L. Williams
Williams Bradbury, PC
1015 W. Hays Street
Boise, ID 83702
ronwilliamsbradburv.com
Wade Thomas
General Counsel
Dynamis Energy, LLC
776 W. Riverside Dr., Ste 15
Eagle, ID 83616
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Brian Olmstead - Hand Delivery
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Twin Falls Canal Company - Facsimile
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Twin Falls, ID 83303
[e-mail]
Robert A. Paul Hand Delivery
Grand View Solar II _U.S. Mail, postage pre-paid
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North Side Canal Company - Facsimile
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Don Sturtevant
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J.R. Simplot Company
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Mary Lewallen
Clearwater Paper Corporation
601 W Riverside Ave Ste 1100
Spokane WA 99201
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RCS
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Capital Law Group, PLLC
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