28945.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE PETITION OF
IDAHO POWER COMPANY FOR A
DECLARATORY ORDER CONCERNING
ENTITLEMENT TO PUBLISHED RATES FOR
NON-FUELED SMALL POWER PRODUCTION
FACILITIES
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CASE NO. IPC-E-01-37

ORDER NO. 28945

On October 29, 2001, Idaho Power Company (Idaho Power; Company) filed an Application with the Idaho Public Utilities Commission (Commission) requesting a Declaratory Order clarifying the intent of Order No. 25884 issued by the Commission in Case No. IPC-E-93-28 dated January 31, 1995. Reference Commission Rules of Procedure, IDAPA 31.01.01.101. The Commission chooses to treat the Company’s filing as a Petition for Clarification. Reference IDAPA 31.01.01.325.
In Order No. 25884 the Commission approved two avoided cost rate methodologies for qualifying cogeneration and small power production facilities (QFs) smaller than 1 MW. Reference Public Utility Regulatory Policies Act of 1978 (PURPA); 18 C.F.R. § 292. One methodology was adopted for “…non-fueled projects, e.g., wind, solar, hydro…”, Order No. 25884, p. 14, and a separate methodology was approved for pricing power generated by “fueled projects.” Order No. 25884 did not provide examples of fueled projects but did state that it was the Commission’s intent to encourage the development of non-fossil fuel generation. Both methodologies assume the costs Idaho Power would avoid and the costs associated with a combined cycle combustion turbine (CCCT). The methodologies, although structured differently, are presumed to be equivalent, each representing the purchasing utility’s avoided costs, i.e., the “incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, such utility would generate itself or purchase from another source.” 18 C.F.R. § 292.101(b)(6) definition—Avoided Costs.
In this Order the Commission clarifies that the term “fueled projects” means fossil fueled projects and that the term “non-fueled projects” means non-fossil fueled projects.

Fueled Project Methodology
As reflected in the Company’s Petition, the published avoided cost rates for fueled projects track very closely to the typical cost structure for a CCCT. Rates for fueled projects contain a non-adjustable component equivalent to the fixed cost of the CCCT and an adjustable component which is intended to track the price of the natural gas fuel for a CCCT. The adjustable portion is changed annually based on the price of natural gas at the Sumas, Washington hub. Like the actual costs of a CCCT, the non-adjustable component is relatively small when compared to the cost of the adjustable component, i.e., the natural gas fuel.
Non-Fueled Project Methodology
In contrast, the published rates for non-fueled projects look more like the typical cost structure for a hydro plant than for a CCCT. The total costs, fixed and variable, are combined into a large non-adjustable payment with a small increment for variable O&M that is escalated at a fixed rate and the total amount is fixed over a 20-year life. The rates for non-fueled projects are currently higher than the rates for fueled projects.
Idaho Power states that it continues to receive requests from QFs seeking to develop projects smaller than 1 MW. Most developers seek to have their projects categorized as non-fueled so that they can receive higher, fixed prices. Many of these proposed projects, the Company states, utilize a “fuel” to produce the motive force for their generating facilities. For example, anaerobic digesters utilize animal waste to produce methane gas, which is then combusted to provide motive force for the production of electricity. Wood processing facilities desire to utilize wood waste to burn to produce steam for the motive force for their generation equipment. Clearly these generating facilities, the Company contends, utilize materials that have variable O&M expense associated with acquisition, storage and handling of the “fuel” for the facilities. On the other hand, this fuel is a “non-fossil fuel” consisting of a waste product that is a by-product of other industrial processes or agricultural products. It generally is not purchased from third parties and may or may not have market value for other uses. Thus, the Company admits, it is not subject to price fluctuations in the same manner that the price of fossil fuels varies over time.
Idaho Power states that it is cognizant of the possible system benefits associated with distributed generating resources using renewable sources of fuel. However, the Company states it is also desirous of complying with the Commission’s intent that there be a distinction between fueled and non-fueled projects.
Idaho Power requests that the Commission issue a Declaratory Order clarifying Order No. 25884 with respect to QF eligibility for entitlement to published rates for non-fueled small power projects. Order No. 28854, the Company states, clearly identifies renewable resources such as wind, solar, and hydro as being eligible for non-fueled rates. Additional clarification is required as to whether non-fossil fuel fired generating facilities utilizing waste products, as fuel will also qualify for non-fueled rates.

On November 8, 2001, the Commission issued Notices of Petition and Modified Procedure in Case No. IPC-E-01-37. The deadline for filing written comments was November 29, 2001. Comments were filed by J.R. Simplot Company, BioMass Energy Systems Technology, Idaho Diarymans Association, Idaho Farm Bureau, Twin Falls County Commissioners, Commission Staff and a number of interested parties.
On December 12, 2001, Idaho Power filed a motion to strike portions of comments of J.R. Simplot Company. On December 17, 2001, J.R. Simplot Company filed an answer to the Company’s motions.
The comments filed can be summarized as follows:
J.R. Simplot Company (Simplot)
Simplot in its comments addresses three issues: (1) QF eligibility for published non-fueled rates; (2) QF size; and (3) contract length.
QF Eligibility for Published Non-Fueled Rates.
Simplot believes that the intent of the Commission’s Order No. 25884 in Case No. IPC-E-93-28 is clear and that clarification is unnecessary. Because the two methodologies (fueled and non-fueled) are, as reflected in the Commission’s Notice language, presumed to be “equivalent,” the purchasing utility (and ultimately its ratepayers), Simplot contends, should be indifferent as to which method is used. Quoting language from the Order, Simplot contends that it is clear that the non-fueled rate is to be made available to all non-fossil fueled projects. Idaho Power’s concern that non-fossil fuels such as biomass may be considered “fuel” for purposes of the Commission’s Order, it states, is unwarranted. To remove any doubt, Simplot is supportive of the Commission issuing an Order clarifying that all projects, regardless of motive source are entitled to their choice of fueled or non-fueled rates.
QF Size and Contract Length.
Simplot additionally petitions the Commission to revisit and review what it contends are two related issues decided or implicated by Order No. 25884, i.e., the size of QF projects entitled to published avoided cost rates and contract length. Simplot contends that the effect of the Commission’s prior decisions has been opposite of what it intended. Instead of encouraging development, it discouraged development. Since 1994 (Order No. 25884), the Company, Simplot contends, has signed only two QF contracts. Only with the reinstatement of 20-year contracts and larger project size eligibility, Simplot argues, will the QF industry be able to assist the State’s regulated electric utilities in providing the capacity and energy they need.
Simplot recommends that the Commission issue an Order
1. Clarifying that all non-fossil fueled QF projects are entitled to choose whether they wish to sell their output to Idaho Power as either fueled or non-fueled;
2. Increasing the entitlement to the Commission’s SAR based avoided cost rates to all QFs that are 10 MW or less in capacity; and
3. Increasing the standard contract term for all QFs 10 MW or less in capacity from 5 to 20 years with the developer retaining the right to choose the term up to 20 years.
Idaho Power Response
Idaho Power responded to Simplot’s comments with a Motion to Strike that portion of Simplot’s comments pertaining to “contract length” and “size eligibility for published rates” as being unrelated to the clarification requested (i.e., the issue of entitlement to fueled versus non-fueled rates). If Simplot believes that the rules governing contracts between utilities and QFs should be changed, the Company contends that Simplot should file an application and assume the burden of proof that its proposed changes are in the public interest. This Commission, the Company contends, should resist Simplot’s invitation to expand the scope of this proceeding. To do otherwise, it states, would be procedurally improper.

Simplot Reply
Simplot believes that the issues raised regarding contract length and size are relevant in any proceeding addressing the manner QF rates are implemented. Nevertheless, Simplot states that it is indifferent whether the Commission addresses the two additional issues in this docket or a new docket is opened specifically for that purpose.
Idaho Dairymens Association
The Association believes that the Company’s request for clarification should result in an Order determining that non-fossil fuel fired generating facilities utilizing waste products as fuel, such as anaerobic digestion facilities for animal waste (to produce methane gas for power combustion) and wood waste product generation facilities, should be classified as non-fossil fueled projects. Such treatment, the Dairymen contend, would encourage the development of small power production to help ease the potential power shortages which can occur in times of drought; and in the instance of anaerobic digestion facilities would promote an innovative solution to the very contentious and sometimes problematic issue of properly disposing of animal waste and dairy facilities.
Support for this position was expressed by BioMass Energy Systems Technology, Twin Falls County Commissioners, Idaho Farm Bureau Federation, Kevin Pack, and Lee & Alfred McGlinsky.
Commission Staff
The Commission Staff contends that the initial practice of designating rates as “fueled” or “non-fueled” was never intended to be descriptive of the types of projects eligible for each type of rate. Rather, the designation as “fueled” and “non-fueled” was intended to refer to the manner in which each type of rate is computed. Staff suggests that different designations such as “levelized-variable fuel” and “levelized-non-variable fuel” might be more descriptive and avoid some confusion.
Because fueled and non-fueled rates are equivalent on a present worth basis at a fuel escalation rate of 6%, Staff recommends that the developer of any QF project, regardless of type, have the option to choose either fueled or non-fueled rates. Developers can choose the type of rates that produce a revenue stream best suited to their needs. For example, developers who need predictable revenue stream to satisfy financing requirements can choose non-fueled rates. Developers who need a cash flow that increases when fuel prices increase can choose fueled rates.
Staff would expect that most project developers, if given a choice, would choose non-fueled rates. Although presumably equivalent over the life of the contract, Staff notes that non-fueled rates do provide a higher revenue stream in the early years of the contract, and they also provide a predictable revenue stream that makes financing easier. Staff believes very few projects would use natural gas (or some other fuel whose price is driven by the natural gas market) and still meet the definition of qualifying facility under PURPA. Cogeneration projects are likely to be the only types of generation to use natural gas or other fossil fuel and still be considered a QF. Although there have been a few cogeneration projects developed in Idaho, Staff notes that none are less than 1 MW in size.
Although Staff recommends that QF developers be permitted to choose either fueled or non-fueled rates, if the Commission wishes to restrict certain types of rates to certain types of projects, Staff recommends that the definitions of “small power production facility” and “cogeneration facility” as defined by PURPA be used a guide. Reference 18 CFR § 292.201-206. Small power production facilities would be eligible for non-fueled rates and cogeneration facilities would be eligible for fueled rates.
COMMISSION FINDINGS
The Commission has reviewed the filings of record and comments in Case No. IPCE01-37. The Commission continues to find that the public interest does not require a hearing and that it is appropriate to process the Company’s Application pursuant to Modified Procedure, i.e., by written submission rather than by hearing. Reference IDAPA 31.01.01.204.
Idaho Power in this case requests a Declaratory Order clarifying the Commission’s intent regarding QF eligibility for published non-fueled rates, specifically as to whether projects fueled by animal or wood waste are eligible for non-fueled rates. Reference IDAPA 31.01.01.101. The Commission chooses to treat the Company’s request as a Petition for Clarification of Order No. 25884. Reference IDAPA 31.01.01.325. The issue is what distinction did the Commission intend by using the terms “fueled” and “non-fueled” in Order No. 25884 issued in 1995.
Staff contends that the fueled/non-fueled designation was never intended to be descriptive of the types of projects eligible for each type of rate because the rates were designed to be equivalent. The designation, Staff believes, was only intended to refer to the manner in which each type of rate was computed. Staff and all other commenting parties recommend that QF developers be permitted to choose either fueled or non-fueled rates.
The Commission has reviewed its prior Order No. 25884 issued in Case No. IPCE93-28. It seems clear to us that the Commission intended and meant something more than a calculation methodology when it used the terms “fueled” and “non-fueled.” By way of clarification, we find that the Commission’s intent in that Order was to use “non-fueled” to mean non-fossil fueled projects and “fueled” to mean fossil fueled projects. Accordingly, we find that projects fueled by animal or wood waste are non-fueled projects that are eligible for non-fueled rates.
Two additional issues were raised by Simplot in its comments, 1) QF size as it pertains to eligibility for published rates and 2) contract length. Simplot contends that the reasons cited by the Commission in 1995 for decreasing size and contract length have proven to be or are no longer valid.
The Commission finds that the issues of contract length and size limitations raised by Simplot are important issues meriting a separate forum or docket for discussion. Accordingly, we deny the Motion to Strike filed by Idaho Power Company and find it reasonable to open a generic case to review those issues. In this new case we will solicit comments from the QF community, regulated electric utilities required to purchase QF power pursuant to Sections 201 and 210 of the Public Utility Regulatory Policies Act of 1978, and any other interested person.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Idaho Power Company, an electric utility, pursuant to the authority and power granted it under Title 61 of the Idaho Code and the Public Utility Regulatory Policies Act of 1978 (PURPA).
The Idaho Public Utilities Commission has authority under the Public Utility Regulatory Policies Act of 1978 and the implementing regulations of the Federal Energy Regulatory Commission (FERC) to set avoided costs, to order electric utilities to enter into fixed term obligations for the purchase of energy from qualified small power production and cogeneration facilities, and to implement FERC rules.
O R D E R
In consideration of the foregoing and as more particularly described above, IT IS HEREBY ORDERED and the Commission by way of clarifying the intent of its Order No. 25884 issued in Case No. IPC-E-93-28 on January 31, 1995, does hereby state that the term “fueled projects” means fossil fueled projects and that the term “non-fueled projects” means non-fossil fueled projects.
Accordingly, IT IS FURTHER ORDERED that QF projects fueled by animal or wood waste are non-fueled projects and eligible for non-fueled rates.
IT IS FURTHER ORDERED that Idaho Power’s Motion to Strike is denied. The Commission Secretary is directed to open a new generic case docket (Case No. GNR-E-02-1) to consider the continued reasonableness of current QF size limitations on PURPA QFs for published rate eligibility (i.e., 1 MW) and restrictions on contract length (i.e., 5 years).
THIS IS A FINAL ORDER. Any person interested in this Order may petition for reconsideration within twenty-one (21) days of the service date of this order with regard to any matter decided in this Order. Within seven (7) days after any person has petitioned for reconsideration, any other person may cross-petition for reconsideration. See Idaho Code § 61-626.

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this _______ day of February 2002.

PAUL KJELLANDER, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

DENNIS S. HANSEN, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary

vld/O:IPCE0137_sw

ORDER NO. 28945 1

Office of the Secretary
Service Date
February 5, 2002