20030404Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
472 WEST WASHINGTON STREET
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 1895
RECEIVED illFiLED
2003 APR -4 PH 2: 51
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UTILITIES COM~1ISSI0N
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR APPROVAL )
OF AN AGREEMENT FOR SALE AND
PURCHASE OF FIRM ELECTRIC ENERGY
BETWEEN IDAHO POWER COMPANY AND TIBER MONT ANA LLC.
CASE NO. IPC-O3-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Application, Notice of Modified Procedure and Notice of Comment /Protest Deadline issued on
March 17 2003 , submits the following comments.
BACKGROUND
On February 20 2003, Idaho Power Company (Idaho Power; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) requesting approval of a
Firm Energy Sales Agreement (Agreement) between Idaho Power Company and Tiber Montana
LLC (Tiber). Under the Agreement, Tiber would sell and Idaho Power would purchase, during
certain months of the year, net firm electric energy and surplus energy generated by Tiber
generation facility. Tiber proposes to design, construct, install, own and maintain a 7.5 MW
STAFF COMMENTS APRIL 4, 2003
hydroelectric generating facility located on the outlet works of the existing Tiber Dam, located
approximately 15 miles south of the city of Chester in Liberty County, Montana. The proj ect
will be a Qualifying Facility (QF) under the applicable provisions of the Public Utilities
Regulatory Policy Act of 1978 (PURP A).
On February 3 2003 , Idaho Power and Tiber entered into a Firm Energy Sales Agreement
(Agreement) pursuant, Idaho Power contends, to the rates, terms and conditions approved by the
Commission in Order Nos. 29069 and 29124. In the Agreement, Tiber elected to contract with
Idaho Power for a 20-year term using the non-levelized published avoided cost rates (posted
rates) and committed to deliver energy to the Company only during the months of May, June
July, August, September and October of each contract year. An entity identified as
NorthWestern Energy (the distribution company serving areas formerly served by Montana
Power) will purportedly purchase the plant's output during the balance of the year.
The Tiber Project is located outside of Idaho Power s service territory. The entity
transmitting the Project's power to Idaho Power s transmission system, NorthWestern Energy,
has purportedly agreed to "firm" all energy deliveries from Tiber to Idaho Power. This will
result in flat monthly energy scheduled into the Idaho Power system.
The Agreement between Idaho Power and Tiber is the first Firm Energy Sales Agreement
under PURP A to be executed by the Company since the mid 1990s. When compared to other
Firm Energy Sales Agreements approved by the Commission prior to the mid 1990s, certain
terms and conditions of the Agreement between Idaho Power and Tiber have been updated and/or
revised in conformance with (1) current Commission Orders, (2) current technologies, and (3)
current utility standards.
ANALYSIS
Staff has reviewed the rates contained in the Agreement and finds that they comport with
Order No. 29124, the most recent Commission order establishing avoided cost rates. However
because this Agreement contains terms and conditions significantly different than have been
included in prior QF contracts, Staff believes it is important to address these new and/or revised
terms and conditions because they directly affect the amounts Idaho Power will pay to Tiber.
Measurement of the 10 MW Rating
Under Commission Order Nos. 29069 and 29124 QFs up to 10 MW in size are eligible
STAFF COMMENTS APRIL 4, 2003
for the posted rates. However, Idaho Power states, these Orders did not specify the manner in
which the size of the QF was to be measured. Measurement of the size of a QF can be
determined on the basis of such methods as nameplate designation, net generation or gross
generation. To address this uncertainty, Idaho Power and Tiber have agreed to include the
concept of "Optional Energy" in lieu of reference to the nameplate rating used in prior firm
energy agreements.
Optional Energy" is defined in Section 1.10 of the Agreement as "Energy which is
produced by the Facility, scheduled by the Transmitting Entity and delivered to the Point of
Delivery in an amount that exceeds 10 000 kWh in any single hour." The Agreement provides
that Idaho Power is not obligated to purchase Optional Energy. Prior to its delivery, the parties
have the option to mutually agree on both the purchase and the sales price for Optional Energy.
Including the concept of Optional Energy, Idaho Power states, allows Tiber to install generating
capacity with a nameplate rating greater than 10 MW while still qualifying to be paid the posted
rates the Commission established for projects smaller than 10 MW.
Staff believes that Idaho Power s proposal to use net generation measured on an hourly
basis in determining whether the project is under the 10 MW threshold is reasonable. Staff
believes that net generation of a QF project in a single hour, rather than gross average generation
or nameplate capacity, is what should be used to define its capacity for eligibility of posted rates.
Net generation in a single hour actually metered as entering Idaho Power s system is an
appropriate basis for determining the amount of payment by the utility.
Staff does not believe nameplate capacity should be used to define capacity for purposes
of determining qualification for posted rates. Nameplate capacity often exceeds the actual
capacity of some projects, particularly those that typically operate at low capacity factors such as
wind. Similarly, Staff does not believe gross generation would be an appropriate way to measure
capacity. Some types ofprojects, particularly geothermal, have a sizeable internal energy
requirement. Staff believes that the use of net generation treats all technologies fairly.
In the present case, because the nameplate rating of the Tiber Project is proposed to be 7.
, Idaho Power believes Optional Energy is not likely to be an issue. Staff agrees. With a
nameplate capacity of 7.5 MW and considering NorthWestern Energy s agreement to firm the
project's output on a monthly basis, it would be impossible for the net generation measured on an
hourly basis to exceed 10 000 kWh in any hour unless Tiber expands its capacity at some point in
STAFF COMMENTS APRIL 4, 2003
the future. Because expansion is possible, however, Staff does not object to the inclusion of this
provision in the contract.
Staff notes that Idaho Power s proposal would allow Tiber (or other QFs if this provision
is included in future contracts) to install generating capacity with a nameplate rating greater than
10 MW while still qualifying to be paid the posted rates the Commission established for proj ects
smaller than 10 MW. In theory, a very large project could elect to sell only 10 MW of its output
under a PURP A contract at the posted rates, leaving the remaining output to be sold in some
other manner. Staff believes the principles outlined in Order No. 26772 (Case No. UPL-96-
the "Earth Power case ) should continue to be followed henceforth with regard to whether
multiple 10 MW contracts, perhaps with different utilities, would be permitted if the proposed
Tiber contract terms are adopted. In Order 26772 the Commission ruled that the term "project"
equates with "qualifying facility." Thus, each qualifying facility is only entitled to one PURP
contract. If this principle were followed with regard to the 10 MW project size threshold, it
would preclude a large project from breaking its generation into several 10 MW blocks for sale at
posted rates under multiple contracts or to multiple utilities. However, it would not prevent a
large project from selling 10 MW of its output under a single contract to one utility and
marketing the remainder outside ofPURP A.
Encouraging Increased "Firmness" of QF Contracts
Traditionally contracts between Idaho Power and QFs have been denominated as "Firm
Energy Sales Agreements." The energy purchased under these contracts, Idaho Power contends
is not "firm energy" as that term is commonly defined by the electric industry. Firm energy
purchases Idaho Power makes from non-QF suppliers specify the amounts to be delivered during
heavy-load or light-load hours for the term of the agreement. If the energy is not delivered in the
specified amounts at the specified times, liquidated damage provisions in the non-QF purchase
agreements allow Idaho Power to acquire the energy from other sources and receive
reimbursement from the defaulting supplier for all of the Company s costs.
Idaho Power also points out that the combined cycle combustion turbine (CCCT), which
is the Surrogate Avoided Resource (SAR) the Commission has used to set the posted rates, is
also a dispatchable producer of firm energy. If Idaho Power constructs a CCCT, the energy from
that CCCT resource would be dispatched on a firm basis to meet customer loads or to allow for
STAFF COMMENTS APRIL 4, 2003
surplus sales.
Idaho Power states that the Transmission Agreement between Tiber and NorthWestern
Energy requires NorthWestern to firm Tiber s generation on a monthly basis. Tiber s generation
can, and likely will, vary from one month to the next, but it cannot vary within a month
according to the Transmission Agreement. Consequently, from Idaho Power s perspective
Tiber s generation will be more like a true firm-energy purchase. Nevertheless, Idaho Power
believes that it is still necessary to include some additional provisions in the Tiber Agreement to
encourage firmness.
Idaho Power concedes that it is probably not realistic to hold most QFs to the same
standard of firmness as utility-owned generating plants or non-QF suppliers. However, Idaho
Power and Tiber have included provisions in the Agreement to bring Tiber s project performance
more in line with projects that actually provide firm energy production. The provisions will
encourage Tiber to provide energy with a greater degree of "firmness" while at the same time
allowing a reasonable amount of flexibility to Tiber in operating its facility. These types
provisions require QFs using various generating technologies to actually perform on a firm basis
to receive the posted firm rates.
Under the concept of "Surplus Energy," Tiber is required to estimate its monthly
generation. Each month, Tiber s actual net generation will be compared to the monthly
generation estimated by Tiber. If Tiber s actual generation exceeds 110 percent of a month'
estimated generation, the energy in excess of 110 percent is valued at the Surplus Energy Price.
The Surplus Energy Price is a market-based price.
The Agreement also includes a purchase price adjustment provision in the event Tiber
generation falls short ofthe estimated amount. Under this provision, Tiber s actual net monthly
generation is compared to the estimated monthly generation as described in the foregoing
paragraph. If the amount of Net Firm Energy is 90 percent or less of the month's estimated
generation, all of that month's generation will be deemed to be Surplus Energy for which Idaho
Power will pay Tiber the Surplus Energy Price or the posted avoided cost rate, whichever is less
as defined by the Agreement.
According to Idaho Power, whether energy produced by Tiber is Surplus Energy or not is
at the sole discretion of Tiber since Tiber sets the monthly estimated generation levels indicated
in the Agreement. Tiber can reset the monthly estimated generation amounts every two years to
STAFF COMMENTS APRIL 4, 2003
reflect its increased operating experience and to allow Tiber to respond to changes in water
supplies, etc. The only limitation placed on Tiber by the Company is that the Net Firm Energy
estimated for each month cannot exceed the nameplate rating of the generation equipment.
Staff agrees with Idaho Power that the generation provided by many QF projects is not
firm as defined by industry standards. Staff also agrees that the posted avoided cost rates adopted
by the Commission are based on the costs of a combined-cycle combustion turbine that would
provide firm generation. However, while Staff believes it is reasonable in this case to include
contract provisions regarding project standards of firmness given Tiber s concurrence, this is not
a provision that has been required by the Commission in the past and should be further evaluated
if opposed by developers in the future.
QF projects in the past have consisted mostly of small hydropower projects, many located
on irrigation canals, whose generation was relatively steady and predictable. The handful of
existing wood waste and cogeneration projects have provided generation in an even more
predictable fashion. Still, there is wide variation in the predictability and "firmness" of existing
projects. Now, with the strong interest in developing wind energy projects, the very different
generating characteristics of various technologies make the potential problem of paying firm
rates for non-firm generation all the more important. Wind projects generally are unable to
deliver energy predictably on a short-term basis. On a long-term basis, however, their output
may be more predictable than a small hydro project.
Staff believes that Idaho Power s proposal in this contract to require the project to
commit two years in advance to monthly generation amounts accomplishes the goal of attaining
planning certainty, but stops short of penalizing the project for inability to predict generation
hours, days or weeks in advance. As a result, this project can qualify for firm energy rates if the
developer can reasonably predict monthly generation levels.
Whether the 90 percent minimum or the 110 percent cap are the appropriate bounds for
projects other than Tiber or whether firmness standards should be required at all should be
determined, Staff believes, at the time other projects seek contracts with Idaho Power.
Seasonality
Previous Commission Orders and QF agreements recognized that the value of energy
generated differs in accordance with the season in which it is actually delivered to Idaho Power.
STAFF COMMENTS APRIL 4, 2003
As an incentive for a QF to deliver energy to the Company during times when it is of greater
value to the Company, the posted rates have historically been "seasonalized." This means that
generation in high demand months is paid at a rate of 120 percent of the avoided cost rate
generation in shoulder months at 100 percent and generation in low demand months at 73.
percent of the avoided cost rate.
Idaho Power has seasonalized the rates in this Agreement. However, to better align the
seasons with the months in which Idaho Power has identified actual energy needs, the months
within each season have been modified from prior QF contracts to account for those periods of
higher demand. Currently, the seasons and their associated weighting factors are as follows:
Se::Json Weie)1tine "F::Jdor
735
1.20
1.00
Months
March - May
June - Sept:
Oct. - Feb.
Idaho Power is proposing in this Agreement that the months of August and September be
moved to "Season 3" and the months of November and December be moved to "Season 2." This
adjustment does not change the overall annual average payment - the average payment continues
to be the posted rate.
Idaho Power s 2002 Garnet Report, which was filed with the Commission as a follow-up
to the 2002 IRP, identifies the months of November and December as months in which there is a
need for additional generation capacity. The Company has also recently issued a request for
proposals (RFP) for capacity and energy in November and December in addition to the months of
June - August. Neither the Garnet Report nor the Company s RFP precisely support the
proposed modifications to the months included in each season, although they do support it
generally. The fact is that Idaho Power s months of greatest need or surplus change over time as
new resources are acquired. The changes proposed by the Company are reasonable at this point
in time, but Staff recognizes that different months may be more appropriate for each season in
future contracts. Thus, for this Agreement, Staff believes it is appropriate to move November
and December to Season 2. August and September, however, are months in which the Company
is not expected to have as great a need for additional capacity. Consequently, Staff believes it is
appropriate to move these months to Season 3.
STAFF COMMENTS APRIL 4, 2003
RECOMMENDATIONS
Idaho Power and Tiber have presented a negotiated PURP A contract for Commission
approval. The contract rates are unlevelized and conform to Commission posted rates for QFs
smaller than 10 MW. Staff believes that because both parties find the terms of the Agreement
acceptable and because the proposed rates and terms do not violate prior Commission Orders
that the Commission should not stand in the way of the Agreement. Staff recommends that the
Agreement be approved and that those non-standard terms unique to this contract (i.
measurement of the 10 MW rating, encouraging increased firmness, and seasonality) not be
viewed as precedential.
Respectfully submitted this 1'1 day of Apri12003.
Scott Woodbury
Deputy Attorney General
Technical Staff: Rick Sterling
i:umisc:commentslipceO3 ,1 sWl1Js
STAFF COMMENTS APRIL 4, 2003
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 4TH DAY OF APRIL 2003
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-03-, BY MAILING A COpy THEREOF POSTAGE PREPAID, TO
THE FOLLOWING:
BARTON L KLINE
MONICA MOEN
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
RANDY C ALLPHIN
CONTRACT ADMINISTRATOR
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
fo~SE RET. Y
.......
CERTIFICATE OF SERVICE