20120720Legal Brief.pdf

Capitol

Law RECE I VED C. Tom Arkoosh

Group, PLLC www.capitollawgroup.com • tarkooshcapitollawgroup.com
iDAHO PUbLi uTLmES COMMSSIOi
July 19, 2012
Idaho Public Utilities Commission
P.O. Box 83720
Boise, Idaho 83720-0074
Re: Our Client: Twin Falls Canal Company and North Side Canal Company
CLG File No. 64 17.000
Dear Commissioners:
Enclosed please find an original and nine copies of the Legal Brief.
If you have any questions or comments, please do not hesitate to contact me.
Sincerely,
Capitol Law Group, PLLC
c4L als~11~
Lori Thomas
Paralegal to C. Tom Arkoosh
CTA/lbt
Enclosures
205 North 10" Street, 4th Floor, P0 Box 2598, Boise, ID 83701-2598 • Tel: [phone] Fax: [phone]
C. Thomas Arkoosh, ISB No. 2253
CAPITOL LAW GROUP, PLLC
205 N. 10" St., 4th Floor
P.O. Box 2598
Boise, Idaho 83701-2598
Telephone: [phone]
Facsimile: [phone]
e-mail: tarkooshcapitollawgroup.com
RECEIVED
2012JUL20 Mi 8:1 +8
tLJ
UTLrnES
Attorneys for Twin Falls Canal Company, Inc.;
North Side Canal Company, Inc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE COMMIS-
SION'S REVIEW OF PURPA QF
CONTRACT PROVISION INCLUDING
THE SUBROGATE AVOIDED
RESOURCE (SAR) AND INTE-
GRATED RESOURCE PLANNING
(IRP) METHODOLOGIES FOR
CALCULATING PUBLISHED
AVOIDED COST RATES.
Case No. GNR-E-1 1-03
LEGAL BRIEF
COME NOW Twin Falls Canal Company and North Side Canal Company' and respect-
fully submit this Legal Brief in accord with the Staffs October 21, 2011, Decision Memo. These
parties adopt by reference the briefing of the Renewable Energy Coalition and those legal
positions taken in the testimony of their expert, Donald W. Schoenbeck.
1 At the filing of this Legal Brief American Falls Reservoir District #2 and Big Wood Canal
Company have pending a Motion to Intervene in the proceeding seeking involvement without
disturbance of the process. This brief will be the Legal Brief of American Falls Reservoir District
#2 and Big Wood Canal Company if the Commission grants the Motion to Intervene.
LEGAL BRIEF - 1
I.
Liquidated Damages
Issue: Whether power purchase agreements ("PPAs") should require liquidated
damage provisions or deposits in an industry with immediately identifiable prices.
Utilities have proposed that all PPAs contain liquidated damage deposit provisions re-
quiring qualified facilities ("QF"), as defined by the Public Utilities Regulatory Policies Act
("PURPA")to deposit with utilities an amount to cover damages incurred in the event of a QF's
failure to deliver power. However, these proposed liquidated damage deposit provisions
calculate liquidated damage deposits at dollar value per kilowatt of installed capacity when the
PPA is executed. Such a damage assessment is an arbitrary reflection of the damages a utility
might incur should a QF fail to deliver power according to the PPA and is not an enforceable
liquidated damages provision pursuant to Idaho law.
A. The proposed liquidated damages provision is inappropriate because anticipated
damages are easily ascertained and the proposed means for computing liquidated
damges is not reasonably related to the expected harm.
i. Liquidated damages are appropriate only where actual damages are difficult
or impossible to measure and the means for computing liquidated damages is
reasonably related to the expected harm.
In general, liquidated damages clauses are upheld where the anticipated harm is very dif-
ficult or impossible to measure accurately and the means for computing damages is reasonably
related to the expected harm. They should be enforced:
"in any case where the circumstances are such that accurate determination of the
damages would be difficult or impossible, and provided that the liquidated dam-
LEGAL BRIEF -2
ages 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 re-
garded as a 'penalty', and the contractual provision therefor is void and unenfor -
ceable."
Graves v. Cupic, 75 Idaho 451, 456, 272 P.2d 1020, 1023 (1954), see also Margaret H Wayne
Trust v. Lipsky, 123 Idaho 253, 258-59, 846 P.2d 904, 909-10 (1993); Alumet v. Bear Lake
Grazing Co., 119 Idaho 946, 812 P.2d 253 (1991); Clamp itt v. A.MR. Corp., 109 Idaho 145, 706
P.2d 34 (1985); McEnroe v. Morgan, 106 Idaho 326, 678 P.2d 595 (Ct.App.1984); Nichols v.
Knowles, 87 Idaho 550, 394 P.2d 630 (1964). Further, "If a liquidated damages clause is
unenforceable, the non-breaching party is entitled to compensation for its actual damages."
Schroeder v. Partin, 151 Idaho 471, 476, 259 P.3d 617, 622 (2011), citing City of Idaho Falls v.
Beco Const. Co., Inc., 123 Idaho 516, 522, 850 P.2d 165, 171 (1993).
ii. Damages in the case of failure to deliver power can be easily calculated be-
cause the price a utility would actually pay to cover the power a QF fails to
deliver is readily available in forward power prices.
Utilities propose to continue to require QFs to maintain liquidated damage deposits at a
dollar value per kilowatt of installed capacity when a PPA is executed. In doing so, however, they
have overlooked the fact that the amount of such damages may easily be determined based on the
difference between the contract price and forward power prices. Such a calculation, holding
market price in the case of breach against contract price, could not be further from the "difficult or
impossible" calculation to which Graves refers actual damages can be accurately calculated and
ascertained by periodically renewing the liquidated damages deposit to equal the difference
between the contract price and forward power prices, which are readily available to the utilities for
the purpose of such calculations. This process is set forth in the direct testimony of Donald W.
LEGAL BRIEF -3
Schoenbeck. As set forth by Shroeder, should this liquidated damages amount, calculated based
upon the damages a utility is actually anticipated to incur, be held unenforceable, it will still
represent the actual amount of damages a utility will incur, the same amount a QF will actually
owe that utility in damages, as closely as those may be calculated prior to being incurred. Since
the amount of actual damages is the faliback to which a court would refer if the liquidated damages
provision is unenforceable, a provision based on the difference between contract and forward
prices is the best and most enforceable protection for both parties to a PPA.
iii. Utilties have failed to show how their proposed liquidated damages rate is
reasonably related to the actual anticipated damge.
Furthermore, the utilities have failed, as is required by the Graves holding, to establish that
this rate accurately reflects the actual damage it would suffer in terms of the price to cover should
a QF fail to deliver the energy it contracted to deliver. In essence, the liquidated damages it
proposes are arbitrary and bear no relation to the anticipated damage.
II.
Curtailment
Issue: Whether PURPA allows curtailment not provided for in current PPAs or a
PPA clause requiring curtailment for economic reasons.
Idaho Power has requested that the Commission impose curtailments on QFs that have a
nameplate capacity greater than or equal to 10 MW or more and also have generator output
limiting controls when it is experiencing "must run periods," which it proposes be defined as:
"Those periods when the Company's system load demand in the upcoming hours
and days requires that sufficient Base Load Resources will be on-line and available
to serve system load."
LEGAL BRIEF -4
Idaho Power proposes that "Base Load Resources" be defined as:
"Company-owned hydroelectric resources, including all run-of-river generators
and the Hells Canyon Complex, coal-fired generating resources."
PURPA requires Idaho Power to purchase power from QFs at its avoided cost according to
the terms of its PPAs with those QFs. PURPA also dictates when Idaho Power must purchase this
power. Specifically, 18 C.F.R. 292.304(f) states:
"Any electric utility. . . will not be required to purchase electric energy or capacity
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."
Idaho Power seeks to modify its existing PPAs with QFs by curtailing its purchases from
those QFs where its demand for power is such that it must, in its words, "dispatch higher
cost, less efficient resources to serve system load or to make Base Load Resources
unavailable for serving the next anticipated load." Idaho Power's proposal would have it
unilaterally modify its existing contracts with QFs in violation of longstanding Idaho
contract law, would disregard the Federal Energy Regulatory Commission's ("FERC")
guidance on its own regulation and would blatantly contradict Idaho Power's own prior
definitions of "base load" and "must run."
A. Idaho Power's proposal is contrary to the longstanding principle of contract law
prohibiting unilateral modification.
Basic contract law principles clearly deny the ability of one party to alter a contract's terms
without the approval of the other.
"As with all modifications, the terms of a contract cannot be altered by one party
without the other party's approval."
Watkins Co., LLCv. Storms, 152 Idaho 531, 272 P.3d 503, 508 (2012), reh'g denied (Apr. 5, 2012),
LEGAL BRIEF -5
citing Ore—Ida Potato Prod., Inc. v. Larsen, 83 Idaho 290, 293, 362 P.2d 384, 387 (1961).
Furthermore, the "minds of the parties must meet as to any proposed modification." Ore-Ida, 382
P.2d at 387. In essence here, Idaho Power is seeking to curtail its purchases from QFs because it
feels it can get a better deal. However, the avoided costs bargained for in existing PPAs,
calculated using sophisticated simulation models such as AURORA, take into account times of
light load for which Idaho Power now seeks curtailment and factor those times into the prices set
for QF power. Therefore, Idaho Power is already compensated for the times of light load it
describes, and QFs have been developed in reliance upon these rates. Changing the contract so
that Idaho Power can curtail for purely economic reasons not only hurts the QFs who have
bargained for the avoided cost rates set in their contracts, directly contradicts clear Idaho law on
the matter.
B. Idaho Power's suggestion that 304(1) allows curtailment directly contradicts FERC's
guidance and rulings on that regulation.
Idaho Power suggests that Section 304(f) of PURPA purports to allow it to curtail its
contracts with QFs, the established rates in which take into account the variance in the value of the
power purchase as the utility's operating costs change over time. In essence, the purchase price
over the term of the PPA represents the average value of the power purchase taking into account
these fluctuations. Indeed, FERC's regulatory guidance holds the same to be true:
"The Commission does not intend that this paragraph [Section 304(f)] override
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 purchase 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 purchase over the duration of
the obligation."
F.E.R.C. Order No. 69, 45 Fed. Reg. 12214, 12228 (Feb. 19, 1980). That order affirms the
LEGAL BRIEF -6
intention of the rule, and thereby interprets FERC' s intended prohibition against exactly what
Idaho Power proposes. While, in its testimony, Idaho Power contorts the meaning of FERC's
recent Docket Nos. ER05-1065-011 and 0A07-32-008, this decision actually reinforces the
purpose of Order No. 69. In fact, that ruling cites to Order No. 69 and reinforces its principles for
exactly the reasons set forth above.
"55. In Order No. 69, which implemented section 304(f), the Commission stated
that that section was intended to deal with a certain condition which can occur
during light loading periods, in which a utility operating only base load units would
be forced to cut back output from the units in order to accommodate the unsche-
duled QF energy purchases. The Commission stated that such base load units might
not be able to later increase their output levels rapidly when the system demand
later increased, resulting in the utility needing to rely upon less efficient, higher
cost units. Section 304(f), when read in conjunction with the relevant explanation
in Order No. 69, applies only to such low loading scenarios, and cannot be relied
upon to curtail purchases of unscheduled QF energy for general economic reasons.
56. Many avoided cost rates are calculated on an average or composite basis, and
already reflect the variations in the value of the purchase in the lower overall rate.
In such circumstances, the utility is already compensated, through the lower rate it
generally pays for unscheduled QF energy, for any periods during which it pur-
chases unscheduled QF energy even though that energy's value is lower than the
true avoided cost. On the other hand, for avoided cost rates that are determined in
real-time, such avoided costs adjust to reflect the low (or zero or negative) value of
the unscheduled QF energy, allowing the QF to make its own curtailment decisions.
In neither case is the utility authorized to curtail the QF purchase unilaterally."
Entergy Servs., Inc., 137 FERC ¶61, 199 at PP 55-56 (2011). Idaho Power not only misconstrues
this ruling, but applies it to reinforce just the opposite principles.
C. Idaho Power's definitions of "base load" and "must run" contradict the purpose that
drove development of some of its resources.
Idaho Power's proposal sets forth incorrect definitions of "base load" and "must run" as
those terms relate to its generating resources. Specifically, Idaho Power has included in the
resources it takes into account in calculating base load those which it has online to support variable
production from QFs, many of which it has agreed to purchase power from under an existing PPA.
LEGAL BRIEF -7
While these resources are designed and maintained in order to increase output quickly in order to
meet peak demand, Idaho Power now claims that these resources should be in production, or, in
other words, are "must run" resources, before it must purchase power from QFs under its existing
PPAs. Its basis for curtailment, which is that these resources are incapable of meeting peak
demand, is simply not true, as these resources are designed for just such a function on just such an
occasion. Not only is Idaho Power's proposed unilateral modification contrary to Idaho law and
FERC's regulation, guidance and further ruling thereon, but also does not serve its own underlying
purpose into the future.2
III.
REC Ownership
Issue: Whether the PUC can, or should, award Renewable Energy Credits ("RECs") from
a QF to a utility gratis. The mandatory purchase provisions of the 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). PURPA instructs the 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 PURPA section 210(b) requires the utilities to pay to QFs in exchange
for a QF's electrical output is called 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
2 The reader must notice some irony in the utilities' movement from requesting contract language contemplating
continuing the PUC ' s jurisdiction to change future rates in a fixed rate PPA as being "in the public interest," which the
Idaho Supreme Court rejected as utility like regulation in Afton Energy v. Idaho Power Co., 107 Idaho 781(1984), to
now requesting the PUC exercise jurisdiction to order payment of no rate. 11128 years, matters have moved from bad
to worse.
LEGAL BRIEF - 8
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 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. Further, it declared "that
contracts for the sale of QF capacity and 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 power at wholesale automatically transfers ownership of the state-created RECs, [but]
that requirement must find its authority in state law, not PURPA." (emphasis added). Id
FERC subsequently denied rehearing stating:
"As those seeking rehearing recognize, only renewable energy small power pro-
duction 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 cost rates
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."
(emphasis added). Id. at ¶ 16. Additionally, FERC 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 "If the thermal output of a cogeneration QF is
separately saleable, 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).
More recently, FERC ruled that a state utility commission has the authority to require a
LEGAL BRIEF -9
utility to pay a separate, higher avoided cost rate stream for QFs providing the utility with
environmental attributes that will help the utility avoid real costs of environmental compliance.
Cal. Pub. Util. Commn., 133 FERC ¶ 61,059 (2010) (order granting clarification and dismissing
rehearing), rehearing denied, 134 FERC ¶ 61,044 (2011). Even more recently, FERC again
re-emphasized its prior rulings by rejecting an attempt by an Idaho utility, Avista, to obtain
ownership of environmental attributes without additional compensation. See Idaho Wind
Partners 1, LLC, 136 FERC ¶ 61,174 (Sept. 15, 2011) (order dismissing rehearing). There,
Avista requested FERC rule that the QF retains the RECs in a PURPA contract only if it is
expressly allowed under state law or under the terms of a PURPA contract. Id. at ¶ 7 FERC
dismissed Avista's request on the ground that Avista filed it after the applicable deadline. Id. at ¶
9. But FERC stated:
"We also reiterate our holding in American Ref-Fuel, specifically, that under
PURPA the sale and trading of RECs are for the state to determine, and that this is
not an issue that PURPA controls." Id. at ¶ 10.
FERC, therefore, rejected Avista' s attempt to secure a ruling that, absent a state law or contract
provision to the contrary, the utility is the default owner of environmental attributes in a PURPA
contract.
This case involves, in part, a dispute over the ownership of RECs and why forcing QF's to
sell the RECs bundled with MWh of energy and capacity would violate Section 2 10(e) of PURPA
and constitute a taking under the Takings Clause of the U.S. and Idaho Constitutions.
There are two critical reasons why the RECs should stay with the developer. First, the
purposed IRP pricing method is based upon the incremental cost of a host of resources, the vast
majority of which are carbon emitters being either gas- or coal-fired resources. None of the
utilities in this case are proposing to determine avoided costs based on the full cost of surrogate
LEGAL BRIEF - 10
renewable resources with RECs. As such, consistency and equity requires any renewable energy
credits that are not being paid for should stay with the QF. Second, FERC has been very clear that
avoided cost rates are not intended to compensate the QF for more than capacity and energy. In
FERC Docket NO. EL03-122 FERC stated the following with regard to renewable energy credits
or similar tradeable certificates:
"23. What is relevant here is that the RECs are created by the States. They exist
outside the confines of PURPA. PURPA thus does not address the ownership of
RECs. And the contracts for sales of QF capacity and energy, entered into pur-
suant to PURPA, likewise do not control the ownerships of RECs (absent an ex-
press provision in the contract). States, in creating RECs, have the power to de-
termine who owns the REC in the initial instance, and how they may be sold or
traded; it is not an issue controlled by PURPA.
24. We thus grant Petitioner' petition for a declaratory order, to the extent that
they ask the Commission to declare that contracts for the sale of QF capacity and
energy entered pursuant to PURPA do not convey RECs to the purchasing utility
(absent an express provision in a contact to the contrary). While a state may de-
cide that a sale of power at wholesale automatically transfers ownership of the
state-created RECs, that requirement must find its authority in state law, not
PURPA. (see EL03-122, Order issued October 1, 2003, paragraphs 23 and 24)."
As Idaho does not have a state renewable portfolio standard and FERC has stated that
PURPA pricing does not include a value for RECs, this Commission should clearly state that the
published standard prices do not compensate the seller for any RECs and that the rights to the
RECs remain with the QFs.
A. Idaho Power will not compensate QF's for more than energy and capacity in the
IRP Methodology contract, and no Idaho law transfers the RECs to Idaho Power
without payment. Thus, QF's own the RECs under existing law.
1. Idaho QF contracts only compensate QFs for energy and capacity.
The Commission calculates the published avoided cost rates using a methodology "based
LEGAL BRIEF - 11
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. 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.
The proposed 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 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 IRP Methodology itself values all of the utility's resources and therefore
does not provide a value for the avoided cost of acquiring a renewable-specific resource, or
otherwise include any adderfor 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 Public Utilities Commission ("Commission") vigilantly ensuresthat 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.
There is no question, therefore, that neither Idaho avoided cost model considers the costs of
LEGAL BRIEF - 12
building or procuring a renewable-specific resource, and neither model explicitly or implicitly
includes compensation to the QF for RECs or any other valuable environmental attributes.
2. 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 projects' environmental attributes.
The Commission itself twice addressed ownership of environmental attributes shortly after
FERC's American Ref-Fuel, Co. orders. 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 p. 5. The other two investor-owned
utilities in Idaho, 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 an actual or justiciable
controversy in Idaho and [was] not ripe for a declaratory judgment...." Id. at p. 16. The
Commission noted the American Ref-Fuel, Co. orders and noted that the State of Idaho does not
have a green tag program or an RPS, stating:
: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 negotiating the sale 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 the
Commission provide it with assurance that it would not be penalized in a future ratemaking
proceeding for waiving ownership of the environmental attributes. Idaho PUC Order No. 29577,
LEGAL BRIEF - 13
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,
"as 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 utility.
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 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. . IRCO OR REC Application, at 6
(noting Idaho Power had sold $3.1 million worth of RECs from projects conveying it RECs).
The rate in renewable QF contracts is the same rate that would be included in a contract for a
fossil-fueled congeneration 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.
The Commission has ruled it "will not permit [Idaho Power] in its contracting practice to
condition QF contracts on inclusion of such a right-of-first refusal term [regarding RECs]."
LEGAL BRIEF - 14
Idaho PUC Order No. 29480, P. 16. This ruling can be read as nothing other than an implicit
rejection 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 being paid 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.
3. QF's RECs and their going concern business value are compensable property
rights.
The meaning of "property", as used in the Takings Clause, is a "federal question", but it
will normally obtain its content by reference to local law. US. v. Causby, 328 U.S. 256 (1946).
The Takings Clause protects private property, rather than creating it; thus, to determine whether a
particular property interest is protected, the court looks to existing rules or understandings that
stem from an independent source such as state law. Givens v. Alabama Dept of Corrections, 381
F.3d 1064, cert denied 545 U.S. 1104 (2004). In determining what property rights exist, and
therefore are subject to taking under the Fifth Amendment, federal courts look to local state law.
Richmond Elks Hall Ass 'n v. Richmond Redevelopment Agency, 561 F.2d 1327 (1977).
In analyzing whether a claimant possesses a property interest, courts describe the term
"property" as referring to "the group of rights inherent in the citizen's relation to the physical
things, 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 USA. Inc., 544 U.S. 528, 539 (2005);
Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 435 (1982). Property interests
"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
LEGAL BRIEF - 15
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. 1,
19 n.16 (1977) (contract rights); Roth v. Pritikin, 710 F.2d 934, 939 (2d Cir.1983) (copyright);
Leesona Corp. v. United States, 599 F.2d 958, 964 (Fed. Cir. 1979).
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 (Pa. 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 Ass'n 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."). QFs' interest in the transferrable environmental attributes of QFs is a
compensable property interest. As the Commission and Idaho Power have acknowledged in prior
orders and filings, RECs are indeed valuable and transferrable.
A. The Commission's requirement of inclusion of Idaho Power's proposed environ-
mental attributes clause would constitute a taking of QF's 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 the 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, cl. 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).
LEGAL BRIEF - 16
1. Commission approval of Idaho Power's environmental attributes clause would
constitute a taking.
Where the government requires an owner to suffer a permanent physical invasion of the
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 apparent 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, 773, 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 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 tang 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 those 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.
Idaho Power's purpose for the clause is to protect its ratepayers from a future change in the
law that may require it to obtain its own RECs, not that Idaho Power intends to pay for the RECs.
LEGAL BRIEF - 17
To authorize such the clause under this reasoning would be a classic case of requiring an individual
or entity (QF's) to forfeit their property (valuable environmental attributes and going concern
value of its QF business) for public benefit (reduced regulatory risk for Idaho Power's customers)
without any compensation. The Commission would therefore be subject to an inverse condemna-
tion proceeding whereby a court would order it to compensate QFs for (1) the value of environ-
mental attributes impaired by Idaho Power's contract clause, and (2) the going concern value of
QF's business impaired by taking of the environmental attributes.
CONCLUSION
Because utilities' proposed liquidated damages provision fails to meet the test of
reasonable relation to actual damages and because its potential damages are not difficult to
calculate, their proposed liquidated damages provision should be denied. Further, the utilities'
desire for curtailment is contradictory to contract principles, FERC guidance and rulings, and
contrary to its own prior intention, so should be denied. The Commission's authorization of Idaho
Power's proposed contract language regardingenvironmental attributes would violate Section
210(e) of PURPA, and the Takings Clauses of the U.S. and Idaho Constitutions. Twin Falls
Canal Company and North Side Canal Company therefore requests that the Commission issue a
declaratory judgment that the QFs are the rightful owners of RECs and are entitled to determine
whether to sell them or not.
DATED this (T of July, 2012.
CAPITOL LAW GROUP, PLLC
By
C. Thomas Arkoosh, Of the Firm
Attorneys for Twin Falls Canal Company, Inc. and
North Side Canal Company, Inc.
LEGAL BRIEF - 18
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this (ay of July, 2012, I served a true and correct copy
of the foregoing upon each of the following individuals by causing the same to be delivered by the
method and to the addresses indicated below:
Jean Jewell, Commission Secretary
Idaho Public Utilities Commission
427 W. Washington St.
Boise, Idaho 83702
Daniel Solander
Rocky Mountain Power
201 S. Main St., Ste. 300
Salt Lake City, UT 84111
Ronald L. Williams
Williams Bradbury PC
1015 W. Hays St.
Boise, Idaho 83702
U.S. Mail, postage prepaid
Hand-Delivered
Overnight Mail
Facsimile
_X_ Via E-Mail jpiewel1(puc.idaho.gov
U.S. Mail, postage prepaid
Hand-Delivered
Overnight Mail
Facsimile
X_ Via E-Mail daniel.solander@pacificorj,.com
U.S. Mail, postage prepaid
Hand-Delivered
Overnight Mail
Facsimile
X Via E-Mail [e-mail]
WWTfl
Grand View Solar II
15690 Vista circle
Desert Hot Springs, CA 92241
R. Greg Ferney
Mimura Law Offices, PLLC
2176 E. Franklin Rd., Ste. 120
Meridian, Idaho 83642
Bill Piske, Manager
Interconnect Solar Development, LLC
1303 E. Carter
Boise, Idaho 83706
Robert D. Kahn, Executive Director
Northwest and Intermountain Power
Producers Coalition
1117 Minor Ave., Ste. 300
Seattle, WA 98101
U.S. Mail, postage prepaid
Hand-Delivered
Overnight Mail
Facsimile
X Via E-Mail [e-mail]
U.S. Mail, postage prepaid
Hand-Delivered
Overnight Mail
Facsimile
_X Via E-Mail gregmimuralaw.com
U.S. Mail, postage prepaid
Hand-Delivered
Overnight Mail
Facsimile
_X_ Via E-Mail [e-mail]
U.S. Mail, postage prepaid
Hand-Delivered
Overnight Mail
Facsimile
X Via E-Mail rkahn(inippc.org
LEGAL BRIEF - 19
Michael G. Andrea U.S. Mail, postage prepaid
Avista Corporation Hand-Delivered
1411 East Mission Ave. Overnight Mail
Spokane, WA 99202 Facsimile
_X_ Via E-Mail [e-mail]
Dean J. Miller U.S. Mail, postage prepaid
McDevitt & Miller, LLP Hand-Delivered
P.O. Box 2564 Overnight Mail
Boise, Idaho 83701 Facsimile
_X_ Via E-Mail ioemcdevitt-miller.com
Don Sturtevant, Energy Director U.S. Mail, postage prepaid
J.R. Simplot Company Hand-Delivered
P.O. Box 27 Overnight Mail
Boise, Idaho 83707 Facsimile
X Via E-Mail [e-mail]
James Carkulis, Managing Member
Exergy Development Group of ID, LLC
802 W. Bannock St., Ste. 1200
Boise, Idaho 83702
M.J. Humphries
Blue Ribbon Energy LLC
4515 S. Ammon Rd.
Ammon, Idaho 83406
Brian Olmstead, General Manager
Twin Falls Canal Company
P.O. Box 326
Twin Falls, Idaho 83303
John R. Lowe
Consultant to Renewable Energy
Coalition
12050 SW Tremont St.
Portland, OR 97225
U.S. Mail, postage prepaid
Hand-Delivered
Overnight Mail
Facsimile
X Via E-Mail jcarku-
lisexergydevelopment.com
U.S. Mail, postage prepaid
Hand-Delivered
Overnight Mail
Facsimile
_X_ Via E-Mail blueribbonenergy(gmai1.com
U.S. Mail, postage prepaid
Hand-Delivered
Overnight Mail
Facsimile
X Via E-Mail [e-mail]
U.S. Mail, postage prepaid
Hand-Delivered
Overnight Mail
Facsimile
X Via E-Mail [e-mail]
LEGAL BRIEF -20
Donovan E. Walker U.S. Mail, postage prepaid
Jason B. Williams Hand-Delivered
Idaho Power Company Overnight Mail
P.O. Box 70 Facsimile
Boise, Idaho 83707-0700 _X_ Via E-Mail [e-mail]
iwli-
[e-mail]
Ted Sorensen PE U.S. Mail, postage prepaid
Birch Power Company Hand-Delivered
5203 South 11th East Overnight Mail
Idaho Falls, Idaho 83404 Facsimile
X Via E-Mail [e-mail]
Bill Brown, Chair U.S. Mail, postage prepaid
Board of Commissioners of Adams Hand-Delivered
County, ID Overnight Mail
P.O. Box 48 Facsimile
Council, Idaho 83612 _X_ Via E-Mail [e-mail]
Donald L. Howell, II U.S. Mail, postage prepaid
Kristine A. Sasser Hand-Delivered
Deputy Attorneys General Overnight Mail
Idaho Public Utilities Commission Facsimile
472 W. Washington St. X Via E-Mail don.howell(puc.idaho.gov
Boise, Idaho 83702
kris.sasser(puc.idaho.gov
Arron F. Jepsen U.S. Mail, postage prepaid
Blue Ribbon Energy, LLC Hand-Delivered
10660 South 540 East Overnight Mail
Sandy, UT 84070 Facsimile
X Via E-Mail [e-mail]
Wade Thomas, General Counsel U.S. Mail, postage prepaid
Dynamis Energy, LLC Hand-Delivered
776 W. Riverside Dr., Ste. 15 Overnight Mail
Eagle, Idaho 83616 Facsimile
_X_ Via E-Mail wthomas(dynamisenergy.com
Glenn Ikemoto U.S. Mail, postage prepaid
Margaret Rueger Hand-Delivered
Idaho Windfarms, LLC Overnight Mail
672 Blair Ave. Facsimile
Piedmont, CA 94611 Via E-Mail g1ennicenvisionwind.com _X_
margaret(envisionwind.com
LEGAL BRIEF -21
Ted Diehl, General Manager U.S. Mail, postage prepaid
North Side Canal Company Hand-Delivered
921 N. Lincoln St. Overnight Mail
Jerome, Idaho 83338 Facsimile
X Via E-Mail [e-mail]
Megan Walseth Decker U.S. Mail, postage prepaid
Senior Staff Counsel Hand-Delivered
Renewable Northwest Project Overnight Mail
917 SW Oak St., Ste. 303 Facsimile
Portland, OR 97205 _X_ Via E-Mail megan(rnp.org
Peter J. Richardson U.S. Mail, postage prepaid
Gregory M. Adams Hand-Delivered
Richardson & O'Leary, PLLC Overnight Mail
P.O. Box 7218 Facsimile
Boise, Idaho 83702 X Via E-Mail [e-mail]
gregrichardsonandoleary.com
Mary Lewallen U.S. Mail, postage prepaid
Clearwater Paper Corporation Hand-Delivered
601 W. Riverside Ave., Ste. 1100 Overnight Mail
Spokane, WA 99201 Facsimile
Via E-Mail
[e-mail]
Benjamin J. Otto U.S. Mail, postage prepaid
Idaho Conservation League Hand-Delivered
P.O. Box 844 Overnight Mail
Boise, Idaho 83701 Facsimile
_X_ Via E-Mail botto(idahoconservation.org
Don Schoenbeck U.S. Mail, postage prepaid
RCS Hand-Delivered
900 Washington St., Ste. 78 Overnight Mail
Vancouver, WA 98660 Facsimile
_X_ Via E-Mail [e-mail]
Liz Woodruff U.S. Mail, postage prepaid
Ken Miller Hand-Delivered
Snake River Alliance Overnight Mail
P.O. Box 1731 Facsimile
Boise, Idaho 83701 _X_ Via E-Mail 1woornff(snakeriveral1iance.org
kmil1er(snakeriveralliance.org
LEGAL BRIEF -22
Deborah E. Nelson
Kelsey J. Nunez
Givens Pursley LLP
P.O. Box 2720
Boise, Idaho 83701-2720
U.S. Mail, postage prepaid
Hand-Delivered
Overnight Mail
Facsimile
_X Via E-Mail dengivenspursley.com
kin(givenspursIey.com
Dr. Don Reading U.S. Mail, postage prepaid
6070 Hill Rd. Hand-Delivered
Boise, Idaho 83703 Overnight Mail
Facsimile
_X_ Via E-Mail dreadingmindspring.com
Tauna Christensen U.S. Mail, postage prepaid
Energy Integrity Project Hand-Delivered
769N. 1100E. Overnight Mail
Shelley, Idaho 83274 Facsimile
X_ Via E-Mail taunaenergyintegrityproject.org
Lynn Harmon U.S. Mail, postage prepaid
AFRD #2 Hand-Delivered
409 N. Apple St. Overnight Mail
Shoshone, Idaho 83352 Facsimile
_X_ Via E-Mail [e-mail]
C. Thomas Arkoosh
LEGAL BRIEF -23