20040216Reply Comments of ID Power.pdf

MONICA MOEN , ISB # 5734
BARTON L. KLINE , ISB # 1526
Idaho Power Company
1221 West Idaho Street
P. O. Box 70
Boise, Idaho 83707
Telephone: [phone]
FAX Telephone: [phone]
Attorneys for Idaho Power Company
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF A PETITION FILED BY
IDAHO POWER COMPANY FOR APPROVAL)
OF MODIFICATIONS TO THE SECURITY
PROVISIONS REQUIRED TO BE INCLUDED)
IN AGREEMENTS BETWEEN IDAHO
POWER AND CO-GENERATORS AND SMALL POWER PRODUCERS
CASE NOS. IPC-O3-
AVU-O3-
PAC E-O3-
REPLY OF IDAHO POWER
COMPANY TO THE
COMMENTS OF THE
COMMISSION STAFF,
PACIFICORP AND AVISTA
COMES NOW Idaho Power Company ("Idaho Power" or the "Company ) and
hereby submits the following reply to the comments of the Staff of the Idaho Public Utilities
Commission ("IPUC" or the "Commission ), PacifiCorp and Avista Corporation ("A vista
regarding Idaho Power s Petition for an Order from the Commission authorizing Idaho
Power to accept modified insurance and lien rights as satisfactory risk mitigation measures
in agreements between Idaho Power and co-generators and small power producers
CSPPs ) that contain levelized avoided cost rates.
BACKGROUND
Without Commission-approved risk mitigation , CSPPs desiring levelized
avoided cost rates must post liquid funds as security for the overpayments inherent in the
REPLY OF IDAHO POWER COMPANY TO THE COMMENTS OF THE COMMISSION STAFF, PACIFICORP AND AVISTA - 1
levelized purchase rates. At one time , certain CSPPs purchased valued loss of income
insurance as a means of mitigating the risk that is intrinsic to levelized rate contracts.
However, over time , the cost of that type of insurance was no longer commercially
reasonable for CSPP facilities. Two of the mitigation methods permitted by Commission
Order No. 21692 1 as amended 2 are the purchase of certain basic insurance policies and
the establishment of certain lien rights.
However, due to changes in the insurance industry, several of the CSPP
projects with whom the Company contracts are not in specific compliance with the
insurance requirements of their agreements with Idaho Power despite implementation of
the measures set out in Order No. 21692 , as amended. Furthermore, the Company has
concluded that, in some circumstances, either second liens cannot be placed on an
existing CSPP project or the value of security obtained by placement of a second lien on a
project is tenuous at best.In its Petition , Idaho Power proposes to conform its CSPP
contract requirements to contemporary insurance industry standards and realistic lien rights
by modifying the insurance prerequisites and eliminating the second lien provision.
On January 15, 2004, in conformance with the Commission s Notice of
Petition , Notice of Modified Procedure and Notice of Comment/deadline issued on
December 5 , 2003 , the Commission Staff responded to Idaho Power s Petition and
recommended that the IPUC approve the modified insurance requirements for levelized
CSPP contracts as amended by the Staff and that the Company s request to eliminate the
second lien requirement as a mitigation option for CSPPs be denied. In its comments to
the Commission dated January 15 , 2004 , PacifiCorp generally supported the position of
1 Order No. 21692 was issued by the IPUC in Case No. U-1006-292 on January 11 , 1988.
2 Order No. 21692 was amended by IPUC Order No. 25240 that was issued in Case No. IPC-93-22 on
November 2, 1993.
REPLY OF IDAHO POWER COMPANY TO THE COMMENTS OF THE COMMISSION STAFF, PACIFICORP AND AVISTA - 2
Idaho Power but recommended that other classes of insurance coverage, in addition to
those set forth in Idaho Power s Petition , be required of CSPP developers as they contract
with the utilities for the sale of power.
On January 23, 2004, Avista submitted its reply comments to the
Commission in response to PacifiCorp s January 15, 2004 comments. As noted by Avista
(tJhe insurance requirements to which Idaho Power s Petition. . . relate are those that
secure the financial capacity of a PURPA project to discharge its contract obligations to the
purchasing utility (Ievelized rateJ purchase contract." Reply Comments of Avista at 2.
Avista notes that the Commission has not required uniform and standardized liability
, insurance requirements for PURPA developers and it "would not be appropriate to deal
with personal injury and property damage liability insurance in this docket which only.
address the security requirements for PURPA projects that receive payments at levelized
,avoided cost rates.Id. at 4.
INSURANCE REQUIREMENTS
Avista correctly characterizes the limited purpose of Idaho Power s Petition
and Idaho Power supports the comments set forth by Avista. Idaho Power only seeks
revise certain security components of its agreements with the CSPPs who have levelized
avoided cost contracts with the Company. Except to the extent that certain insurance is
required by the CSPPs to conform with Commission-required risk mitigation provisions
Idaho Power is not seeking Commission direction with respect to general insurance
requirements for CSPP projects in this docket.Idaho Power concurs with the
Commission s Staff's recommended clarifications and modifications to the insurance
requirements as proposed by the Company and respectfully requests that Staff's proposed
insurance requirements as illustrated in Attachment No.4 to the Commission Staff'
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comments be approved by the Commission.
SECOND LIEN RIGHTS
Future CSPP Agreements: On the basis that there does not appearto be a
good alternative to second liens as a security measure " the Commission Staff
recommends that the IPUC deny the Company s request to eliminate the second lien
requirements on CSPP projects. Comments of the Commission Staff at 6. Idaho Power
admits to mixed feelings on the subject of second liens. On the one hand , the Company
experience in enforcing second liens has not been good. On the other hand , the prospect
of "loaning " CSPP developers millions of dollars via levelized rates without any security is
not consistent with good business practice.
If the Commission accepts Staff's recommendation and continues to require
second lien security rights , the Company will retain outside counsel to complete the
paperwork required to establish those lien rights. The estimated legal fee for establishing a
second lien on a CSPP project is $1 000.00 to $1 500.00. Idaho Power hereby requests
that the Commission permit the Company to collect its cost of establishing the second liens
directly from the CSPPs electing to be paid levelized rates. Alternatively, the Company
requests that it be authorized to include those legal expenses as a part of the cost of
Qualifying Facility purchases in the PCA.
Pre.;existing CSPP Projects:If the Commission accepts Staff'
recommendation , the Company expects that the pre-existing CSPP projects with levelized
contracts that are currently required to meet the 292 Case security requirements will
continue to conform to those requirements. The only change in these requirements would
be any Commission-approved modifications to the 292 Case
, "
basic insurance" provisions.
CSPPs with levelized avoided rate contracts who have not been able to obtain
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Commission-required valued loss of income insurance at commercially reasonable rates
would be expected to comply with the 292 Case "basic insurance" component as requested
by Idaho Power in this Petition and as adjusted by the Staff but would not be obligated to
either continue to seek valued loss of income insurance or to grant a second lien in favor of
Idaho Power on their projects.
CONCLUSION
NOW WHEREFORE, based on the foregoing, Idaho Power Company hereby
requests that the Commission issue its Order:
(1 )finding that the modified insurance requirements shown in Attachment 4 to
the Commission Staff's comments be accepted as the "basic business insurance
coverages for purposes of risk mitigation as established in Order No. 21690, as amended,
for future CSPP agreements and for preexisting CSPP projects as their current insurance
is renewed;
(2). finding, for preexisting CSPP projects with levelized contracts who have not
been able to obtain Commission-required valued loss of income insurance and who have
not granted a second lien in favor of Idaho Power, that those projects be required to
comply with the 292 Case "basic insurance" component as shown in Attachment 4 to the
Commission Staff's comments but that those projects not be obligated to either continue to
seek valued loss of income insurance or to grant a second lien in favor of the Company;
and
(3)finding that, if the Commission determines that Idaho Power shall obtain a
second lien on all new CSPP projects with whom it enters into levelized rate agreements
then the Company is authorized to collect the reasonable attorneys fees and costs of
establishing the second lien directly from the CSPPs or, in the alternative, that the
REPLY OF IDAHO POWER COMPANY TO THE COMMENTS OF THE COMMISSION STAFF, PACIFICORP AND AVISTA - 5
Company is authorized to include those legal expenses as a part of the cost of Qualifying
Facility purchases in the PCA.
Respectfully submitted this 13th day of February 2004.
t)1i~/5.
MONICA B. MOEN
Attorney for Idaho Power Company
CERTIFICATE OF MAILING
I HEREBY CERTIFY that on the 13th day of February 2004 , I served a true and correct
copy of the- within and foregoing APPLICATION upon the following named parties by the
method indicated below , and addressed to the following:
Scott Woodbury
Deputy Attorney General
Idaho Public Utility Commission
472 West Washington Street
O. Box 83720
Boise , ID 83720-0074
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Dale G. Rasmussen
PacifiCorp
825 NE Multnomah
Suite 1800
Portland , OR 97232
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FAX
R. Blair Strong
Paine , Hamblen , Coffin, Brooke
& Miller LLP
717 W. Sprague Ave., Suite 1200
Spokane , WA 99201-3505
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FAX
AY7/\f3
MONICA B. MOEN
REPLY OF IDAHO POWER COMPANY TO THE COMMENTS OF THE COMMISSION STAFF, PACIFICORP AND AVISTA - 6