20040609Notice of Scheduling Order No 29515.pdf

Office of the Secretary
Service Date
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
June 9 2004
IN THE MATTER OF THE PETITION FILED
BY IDAHO POWER COMPANY FOR
APPROVAL OF MODIFICATIONS TO THE
SECURITY PROVISIONS REQUIRED TO BE
INCLUDED IN POWER PURCHASE
AGREEMENTS BETWEEN ELECTRIC
UTILITIES (IDAHO POWER, A VISTA
CORPORATION DBA A VISTA UTILITIES, AND
ACIFICORP DBA UTAH POWER & LIGHT
CO MP ANY) AND PURP A Q ALIFYIN G
FACILITIES (QFs)
) CASE NOS. IPC-O3-
A VU-O3-) PAC-O3-
) NOTICE OF SCHEDULING
) ORDER NO. 29515
On November 5 , 2003 , Idaho Power Company (Idaho Power; Company) filed a
Petition with the Idaho Public Utilities Commission (Commission) requesting authority among
other things to eliminate the second lien requirement as a risk mitigation measure in PURP
Power Purchase Agreements containing levelized avoided cost rates. Staff objected to the
proposed elimination of the second lien requirement noting that without a second lien, PURP A
Qualifying Facilities (QFs) desiring levelized rates must post 35% liquid funds as security for the
calculated overpayment that results from the front-end loading that occurs with a levelized rate
structure. Idaho Power in reply comments represented that should the Commission continue
with the second lien requirement the Company intended to outsource the legal work and
requested that it be permitted to collect the estimated $1 000-500 cost directly from the QF or
alternatively recover the lien expense as part of its annual Power Cost Adjustment (PCA) filing.
Addressing this issue of cost recovery, Staff contended that this was a contract administration
cost and has never been a cost directly billed to QFs; nor was it the type of power cost that was
appropriate for recovery through the PCA. Staff opposed the direct billing of this cost to QFs or
the recovery of same through the PCA.
On April 27, 2004, the Commission issued final Order No.29482 in Case
Nos. IPC-03-, A VU-03-, and PAC-03-13. In its Order the Commission denied Idaho
Power s request to eliminate the second lien requirement as a risk mitigation measure for
PURPA Power Purchase Agreements containing levelized avoided cost rates. For new levelized
contracts the Commission authorized the Company to recover its lien expense from the
NOTICE OF SCHEDULING
ORDER NO. 29515
contracting QFs; or alternatively, permitted a QF to prepare the lien documentation and file the
lien itself.
On May 17, 2004, Idaho Power filed a Petition for Reconsideration (IDAP A
31.01.01.331) or in the alternative a Petition for Clarification (IDAP A 31.01.01.325) regarding
the portion of Commission Order No. 29482 that provides the option for QFs to prepare and file
the lien or security interest documentation. The specific Order language of concern to the
Company is the following:
The Commission continues to find value for ratepayers in the presence of a
second lien to secure overpayment liability. We recognize that securing a lien
may entail some expense. We assume the Company s decision to outsource is
based on a determination that the utility has no in-house expertise or that the
cost of outsourcing the task is less than performing the task itself. The
Commission finds that it is inappropriate to recover this type of expense as
part of the Company s PCA. We find it reasonable, however, for the
Company to assess this cost to QFs. Alternatively, we find it reasonable that
the QF be permitted to prepare the lien documentation and to file the lien
itself. The procedure that we approve for recovery of lien expense is for new
levelized PURP A contracts only.
Order No. 29482, p. 12.
Idaho Power states that it understands the Commission s desire to minimize QF
transaction costs, however, the Company is concerned with the conflict of interest created by
allowing QF developers to prepare and file the documents needed to secure Idaho Power
security interest in the assets of their respective QF projects. Idaho Code, Title 28, Chapter 9
the Company notes, sets out very precise documentation and filing requirements to protect
security interests. If the requirements are not filed precisely, the security interest is not perfected
and is subject to attack in the event of competing creditors seeking to foreclose on the QF'
assets. The QF's failure to correctly document, perfect and maintain its security interest in QF
project assets would jeopardize the Company s ability to maintain a priority creditor position on
the assets covered by the security interest.
Idaho Power maintains that QF developers do not have a proper incentive to do a
thorough job of creating and perfecting Idaho Power s security interest. If the Commission still
desires to provide this option to QF developers, Idaho Power requests that the Commission
clarify Order No. 29482 by requiring that QF developers electing to prepare and file the lien
documentation must permit the Company to review and approve all aspects of the creation of the
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ORDER NO. 29515
security interest. The Company also requests that the Commission clarify that if the
exercises this option to self file, Idaho Power will have no obligation to take remedial steps if the
QF developer fails to adequately cover all project assets or fails to file any required continuation
statements to maintain the viability of this security interest over the full-term of the contract.
Idaho Power notes that the recommended review and approval procedure will require
the Company to incur additional legal expense. Nevertheless, Idaho Power believes the initial
review and approval by Idaho Power is necessary to at least reduce the likelihood of potential
problems if a QF project experiences financial problems.
Of further concern to the Company, the Commission s final Order No. 29482 also
contains the following language:
. . .
For existing levelized PURP A contracts, the Company is expected to
administer its contracts in a responsible fashion and to require QF compliance
with Commission -292 security requirements. For those levelized
contracts without a second lien, the QF should be brought into compliance or
the Company should require a posting of liquid security. The Commission
expects the Company to follow Commission Orders. Reference Idaho Code
9 61-706. If liquid security is required but not enforced, it is the Company and
not its customers that are at risk for the foregone security.
Order No. 29482, p. 12.
Idaho Power believes that it is unreasonable for the Commission to require the Company to
accept a security interest created by the QF developer and then put the Company at risk if those
security interests are not enforceable or do not cover all of the assets associated with a
project. If the Commission gives QF developers the option to prepare and file the documents
needed to perfect Idaho Power s security interest in the QF's assets, the Company believes that it
should be relieved of any liability, even if it has review and approval authority, if it is ultimately
determined that the security interest provisions of the Commission s -292 security requirements
do not cover all of the QF assets or cannot be enforced.
If the Commission grants reconsideration, Idaho Power believes that written
comments would be sufficient to address the issues raised by its Petition.
COMMISSION FINDINGS
Idaho Power has requested reconsideration and/or clarification of that portion of
Commission final Order No. 29482 pertaining to the risk mitigation second lien requirements in
levelized contracts and the option provided to QFs to prepare and file related security interest
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ORDER NO. 29515
documentation. The Company requests that the QF be required to submit the proposed QF-
prepared security interest (second lien) filing to the utility for prior review and approval. The
Company also requests that the utility be relieved of any liability, even if it has review and
approval authority, should the QF -prepared lien later prove to be insufficient or unforceable.
The Commission finds it reasonable to grant Idaho Power Petition for
Reconsideration. Reference IDAPA 31.01.01.331; Idaho Code 9 61-626. The Company has
requested and the Commission further finds it reasonable to grant reconsideration by written
comment.
In granting reconsideration, we note that in Order No. 21446 in the -292 security case
the Commission made the following findings regarding lien rights:
We believe that some form of security and/or risk mitigation is necessary to
achieve an optimum level of ratepayer indifference. ...
The lien rights available to secure ratepayer interests in (QFJ projects areusually subordinate to the first lien of the project financier. The value of a
second lien position in all the QF property and facilities is the measure or
degree of control over the project that it imparts with respect to its continued
financing, operations and maintenance. Although it provides no liquid fund
for satisfaction of overpayment obligation, we nevertheless recognize it as a
valuable tool in safeguarding the interests of the ratepayer. To be acceptable
a lien should be subordinate only to the first lien of the project financier and
the FERC license, as evidenced by an appropriate policy of title insurance.
In Commission Order No. 21690 the Commission stated:
The value to the utility and the ratepayer of a lien is directly related to the
quality of the underlying QF. Hence, the 35% reduction in liquid security
requirement for this risk mitigation item shall remain in effect only so long as
the QF fulfills all requirements of Sections G. (Basic Insurance), H.
(Engineering Certification), 1. (Maintenance Escrow) and J. (Lien Rights).
Failure to maintain these terms and conditions at any time during the life of
the power sales agreement shall result in the 35% reduction being revoked.
Failure to establish and maintain the appropriate new level of liquid
overpayment security shall constitute breach of contract.
Order No. 29482, p. 6.
As part of this reconsideration, we note that our seminal decision to authorize recovery from QFs
of Company legal expenses related to second liens is also at issue.
NOTICE OF SCHEDULING
ORDER NO. 29515
YOU ARE ACCORDINGLY HEREBY NOTIFIED that the Commission finds it
reasonable to establish the following Schedule For The Filing of Comments on Reconsideration:
Rebuttal deadline
Friday, July 9, 2004
Friday, August 6, 2004
Monday, August 16, 2004
Idaho Power comment deadline
Reply comment deadline
YOU ARE FURTHER NOTIFIED that discovery is available in Case Nos.
IPC-03-, AVU-03-9 and PAC-03-13 pursuant to the Commission s Rules of Procedure
IDAPA 31.01.01.221-234.
ORDER
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED and the Commission does hereby grant Idaho Power s Petition for
Reconsideration of final Order No. 29482, and adopts the foregoing schedule for reconsideration
by written comment.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
q-fA.
day of June 2004.
61~~
(j
MARSHA H. SMITH, COMMISSIONER
ATTEST:
ill.
D. Jewell
ission Secretary
vld/O:IPCE0316 AVUE0309 PACE0313 sw2
NOTICE OF SCHEDULING
ORDER NO. 29515