20040423Final Order No 29479.pdf

Office of the Secretary
Service Date
April 23, 2004
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR APPROV AL )
OF AN AGREEMENT FOR SALE AND
PURCHASE OF ELECTRIC ENERGY
BETWEEN IDAHO POWER COMPANY AND
UNITED MATERIALS OF GREAT FALLS, INc.
CASE NO. IPC-O4-
ORDER NO. 29479
On February 4, 2004, Idaho Power Company (Idaho Power; Company) filed an
Application with the Idaho Public Utilities Commission (Commission; IPUC) requesting
approval of an Energy Sales Agreement (Agreement) between Idaho Power and United Materials
of Great Falls, Inc. (United Materials) dated January 6, 2004. The Commission in this Order
approves the submitted Agreement.
Background-Energy Sales Agreement
United Materials proposes to design, construct, install, own, operate and maintain a 9
MW wind generating facility (the Horseshoe Bend Wind Park or the Project) located at the
United Materials industrial facility near Great Falls, Montana. The Project will be a qualified
small power production facility (QF) under the Public Utilities Regulatory Policy Act of 1978
(PURPA).
As represented by Idaho Power, the Agreement includes purchase prices consistent
with the "posted rates" approved by the Commission in Order No. 29391. United Materials has
elected to contract with Idaho Power for a 20-year term and has agreed to arrange for delivery of
energy to the Idaho Power electrical system across the system of another utility.
The submitted Agreement is the first wind energy sales agreement to be executed by
Idaho Power. Idaho Power reports that it has developed a cogeneration small power producer
(CSPP; QF) agreement concept that is consistent for all QF projects regardless of their energy
resource (wind, hydro, geothermal, wood waste, etc.) that incorporates (1) current IPUC Orders
(2) current technologies, and (3) current utility industry standards. The submitted Agreement
the Company states, contains many of these concepts as well as several unique provisions since
the project is not directly connected to the Idaho Power system. The following is a brief
description of some of these concepts and unique provisions:
ORDER NO. 29479
A. Opportunity for QFs to Participate in the Firm Energy Sales
Agreement: In order to eliminate the need to predetermine the firm or
non-firm status of a Qualifying Facility (QF) resource (i., wind, hydro
biomass) and, instead, to provide an opportunity for QF resources to
receive the Firm Published Avoided Cost Rate based upon the QF'
actual performance, Idaho Power has included the concepts of "Shortfall
Energy" and "Surplus Energy." Reference Agreement Sections 1.21 and
24.
Surplus Energy: Under the concept of "Surplus Energy," the QF is
required to estimate its monthly kWh generation (Agreement Section
6.2). Each month, the actual net kWh of generation will be compared to
the monthly kWh of generation estimated by the QF developer. If a
project's actual kWh of generation exceeds 110% of a month's estimated
kWh of generation, the energy in excess of 110% is valued at the Surplus
Energy Price as described in Agreement Section 7.3. The Surplus Energy
Price is a market-based price.
Shortfall Energy: Under this concept, a project's actual net montWy
kWh of generation is compared to the estimated monthly kWh of
generation. In accordance with Agreement Section 1.21 , if the amount of
Net Energy is less than ninety percent (90%) of the month's estimated
kWh of generation, the difference between the actual net monthly kWh of
generation and 90% of the estimated monthly kWh of generation is
defined as "Shortfall Energy." If the market energy cost as defined in
Agreement Section 1.13 is greater than the Agreement's price for energy
in the month that shortfall energy occurs, then a "Shortfall Energy
payment" is off-set against the project's energy payment. If the market
energy cost is less than the Agreement's price for energy for the month in
which Shortfall Energy occurs, no Shortfall Energy payment is
calculated.
Whether a QFs energy production is Surplus Energy, Shortfall Energy or
qualifies for the firm published avoided cost, the Company states, is at
the sole discretion of the developer since the developer sets the monthly
estimated generation levels. The only limitation placed upon the
developer by the Company is that the Net Energy estimated for each
month cannot exceed the nameplate rating of the generation equipment
and/or the capacity rating of the interconnection equipment. The Project
has chosen to make use of non-firm transmission capacity to deliver the
Project's energy to Idaho Power. United Materials must therefore
consider the risk of energy delivery reductions due to transmission
capacity interruptions in setting its estimated Monthly Net Energy
amounts.
ORDER NO. 29479
B. Seasonality: As an incentive for United Materials to deliver energy to
the Company during times when it is of greater value to Idaho Power, the
published avoided cost rate is "seasonalized.The seasons generally
correspond to the months in which Idaho Power has identified actual
energy needs and periods of higher demand. Reference Agreement
Sections 6.2 and 7.
C. Firm Energy Deliveries: The United Materials Project is located outsideof Idaho Power service territory. Northwestern Energy, the
Transmitting Entity for this project, has agreed, on an hourly basis, to
firm all energy deliveries from United Materials to Idaho Power and to
other scheduling requirements as specified in Agreement Article 10.
D. Environmental Attributes: As reflected in Agreement Article 8, Idaho
Power notes its intention to file a Petition for Declaratory Order with the
Commission in regards to the "Environmental Attributes.Reference
Case No. IPC-04-2. Idaho Power is seeking a Commission ruling
concerning whether the Environmental Attributes associated with a QF
project are owned by the project or the utility at the time a utility
purchases electricity from a QF project. The Commission s final Order
will be included and become an integral part of the Agreement. United
Materials reserves the right to cancel the Agreement within 30 days of the
Commission s final Order regarding Idaho Power s Petition.
Agreement Article 22 provides that the Agreement will not become effective until
the Commission has approved all of the Agreement's terms and conditions and declared that all
payments Idaho Power makes for purchases of energy to United Materials will be allowed as
prudently incurred expenses for ratemaking purposes. Should the Commission approve the
Agreement, Idaho Power intends to consider the effective date ofthe Agreement to be January 6
2004. United Materials has estimated an operation date of December 31 , 2004. As reflected in
the Company s Application, the Agreement contains non-Ievelized published avoided cost rates
in conformity with applicable Commission Orders. Because the project is located outside the
Idaho Power service territory, no interconnection charges or montWy operation and maintenance
charges under Schedule 72 will be assessed.
As reflected in Agreement Section 21.3 United Materials may terminate the
Agreement on 60 days prior written notice if (1) the Federal Production Tax Credit or other
similar economic incentive is not renewed, modified or created in a manner that enables United
Materials to participate in these economic incentives in the same manner as if the Project was
commercially online as of the date of the Agreement, (2) and United Materials has not begun
ORDER NO. 29479
construction of the Project. Once construction of the Project has begun, United Materials may
not terminate the Agreement as specified in Section 21.
Pursuant to Agreement Section 21.2 , Idaho Power may terminate the Agreement on
60 days prior written notice if (1) existing Idaho law is modified to allow persons or entities
other than Idaho Power to sell electric capacity or energy at retail in Idaho Power s exclusive
service territory, and (2) such change in law results in Idaho Power being unable to fully recover
in its retail revenue requirement all costs attributed to this Agreement.
Idaho Power requests that the Commission issue an Order approving the Energy Sales
Agreement between Idaho Power and United Materials of Great Falls, Inc. The Company further
requests a Commission finding that all payments for purchases of energy under the Agreement
will be allowed as prudently incurred expenses for ratemaking purposes.
On February 20, 2004, the Commission issued Notices of Application and Modified
Procedure in Case No. IPC-04-1. The deadline for filing written comments was March 12
2004. Commission Staff and five interested parties filed timely comments. The Comments can
be summarized as follows:
Public Comments
Three of the five commenting parties support the renewable resource contract with
one recommending that the Commission approve Idaho Power s Application before the
Company changes its mind. A fourth commenter, Mr. Jay Contway, owns property adjacent to
the proposed windfarm and voices opposition to the contract. The areas of concern raised by
Mr. Contway are: (1) depreciation of land value for future development; (2) noise pollution of
the surrounding area, particularly at his home; and (3) aesthetic depreciation of his land caused
by the wind turbines.
The fifth commenting party offers a critique of the Agreement and contract clauses
which, he states, are punitive to the developer because they necessitate an expenditure of money
by the developer to control something over which he really has no control, i., the wind. Wind
the commenter states , is a viable resource but has some unique characteristics, one of which is
that it is intermittent, which is far different than being unreliable. The fact that wind varies on a
minute-to-minute, hour-to-hour and day-to-day basis are characteristics that could be
successfully integrated into the Company s supply system. Wind power, he states , can be used
ORDER NO. 29479
to upgrade the ability of the Company s existing hydropower facilities to supply peaking energy
and can thereby increase the value of such facilities. Idaho Power, he states, needs energy,
capacity and peaking capacity. The resource which supplies these needs best is hydropower.
The integration of wind energy, a low cost energy, allows the Company to store water and use it
when the Company needs to generate power. The problem with wind power, as with other base
load energy resources, is that it does not adjust to handle variations in daily, monthly, weekly
and seasonal loads. This ability to follow load (in addition to just plain energy), the commenter
states, is what Idaho Power needs.
The commenter suggests that it will be far better for all parties concerned, including
customers of Idaho Power, that the money that United Materials is spending on daily, monthly,
and annual energy production predictions, the daily redelivery of power by the transmission
entity, the capital, operation and maintenance and fuel costs of the "insurance" generation system
be paid instead to Idaho Power so that the Company can upgrade and improve facilities that can
provide peaking power. Having individual wind farms supply their own backup energy
resources, the commenter suggests, is not nearly as cost effective or as useful to Idaho Power as
building what it needs to upgrade the entire system to not only take in wind but to provide a far
more robust system for every generating resource. The commenter suggests that we are at
critical juncture. We can either start thinking in terms of upgrading our power system, or
continue to simply rely on imported natural gas that can t be controlled by anyone in Idaho.
Commission Staff
Staff has reviewed the rates contained in the Agreement and finds that they comport
with the Commission-established avoided cost rates in Order No. 29391. Staff notes that this is
the first agreement for a wind energy generation project for Idaho Power and that it contains
numerous terms and conditions significantly different than have been included in prior QF
contracts. Many of the new and/or revised terms and conditions directly affect the amounts
Idaho Power will pay to United Materials. Specifically addressed by Staff is (a) the Company
approach to tying contract rates to the degree of firmness of energy supplied and (b) the
Company s realignment of months used in the seasonalization or weighting of the annual prices
paid to QFs.
ORDER NO. 29479
Firm Energy
Staff notes that traditionally the contracts between Idaho Power and QFs have been
denominated as "Firm Energy Sales Agreements." However, Staff notes that the energy
purchased under some of these QF contracts is not "firm energy" as that term is commonly
defined by the electric industry. Firm energy purchases that a utility 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 a specified amount at specified times
liquidated damage provisions in the non-QF purchase agreements allow the utility to acquire the
energy from other sources and receive reimbursement from the defaulting supplier for all the
utility s costs.
In the past, Staff notes that Commission rules have not established specific
performance criteria for QF resources to determine their firm or non-firm status. Nearly all QFs
were considered firm energy projects and eligible for the full published avoided cost rates. Now
however, Staff notes that particularly with the introduction of new generation technologies in
Idaho, there is a wide disparity in the performance characteristics of new projects. In order to
eliminate the need to predetermine the firm or non-firm status of a QF resource (i., wind
hydro, biomass), and instead, to provide an opportunity for QF resources to receive the firm
published avoided cost rate based upon the QF actual performance, Idaho Power has included
provisions for "base energy,
" "
shortfall energy" and "surplus energy." The provisions require
QFs using various generating technologies to actually perform on a firm basis to receive the
posted firm rates. For non-firm energy delivered under the Agreement, and for firm energy not
delivered, the provisions help ensure that Idaho Power pays no more than if it purchased
equivalent energy from the market. Staff believes that it is reasonable in this case to approve the
contract provisions regarding project standards of firmness; however, Staff notes that these are
not provisions that have been required by the Commission in the past and may be appropriate for
further evaluation in the future. Staff believes that the reasonableness of such provisions should
not be determined in the context of a negotiated and mutually accepted contract.
Seasonality
As an incentive for a QF to deliver energy to the Company during times when it is of
greater value to the Company, posted avoided cost rates have historically been "seasonalized.
Generation in high demand months is paid at a rate of 120% of the avoided cost rate, generation
ORDER NO. 29479
in shoulder months at 100% and generation in low demand months at 73.5% of the avoided cost
rate. The rates in the submitted Agreement are seasonalized. The weighting factors used for
seasonalization remain the same as in prior QF contracts, but the months in which each factor
applies have been re-arranged by the Company to better align the seasons with the months in
which Idaho Power states it has identified actual energy needs. The months included in each
season are the same as in the Company s most recent QF contract (Tiber Montana contract see
IPC-03-, ON 29232). The seasons and their associated weighted factors are as follows:
Season Weighting Factor Months
735
1.20
1.00
March-May
June, July, November, December
January, February, August, September, October
Staff believes that the seasons identified in the Agreement are reasonable. Staff recognizes that
other months for future contracts may be demonstrated to be more appropriate.
Staff recommends that the United Materials Agreement be approved and that the non-
standard terms unique to the contract (i., encouraging increased firmness, and seasonality) not
be viewed as precedential.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.
COMMISSION FINDINGS
The Commission has reviewed the filings of record in Case No. IPC-04-l including
the underlying Agreement and the public comments and the comments and recommendations of
Commission Staff. Based on our review of the record, we continue to find it appropriate to
process this case pursuant to Modified Procedure. IDAP A 31.01.01.204.
Idaho Power in this case requests Commission approval of a PURP A Energy Sales
Agreement with United Materials of Great Falls, Inc. The Project is a 9 MW qualifying wind
generation facility located in Montana.The contract rates set forth in the Agreement are
consistent with the posted rates approved by the Commission in Order No. 29391 for QFs less
than 10 MW. The Commission notes that Idaho Power has adopted a new contract approach
with PURP A QFs and seeks to price QF energy based on the firmness of energy delivered. The
Commission saw a similar approach in last year s Idaho Power/Tiber Montana contract, a hydro
ORDER NO. 29479
project. Reference Case No. IPC-03-l7. This approach in PURPA contracts is different from
historical practice, which differentiated only between firm and non-firm energy. The terms and
conditions of this new generation of contract have yet to be tested in the crucible of a complaint
proceeding. It remains to be seen whether this approach for purchases of QF renewable energy
is in the public interest.
Public comments filed in this case range from support to opposition. The party
opposing the Agreement is the owner of property adjacent to the project site. He raises land use
nuisance and property value issues that are beyond this Commission s jurisdiction. One party
suggests that the 60-day utility cancellation option exercisable ifIdaho Power s utility monopoly
is threatened may result in unbankable projects. Reference Agreement Section 21.2. Extensive
comments were filed discussing the complementary aspects and operational opportunities wind
generation brings to a hydro-based utility. Staff in its Comments addresses those aspects of the
Agreement that relate to the firmness of energy supplied and seasonality. The Commission
appreciates the public and Staff input and is pleased that the Company is adding a wind project
to its contract resource portfolio.
The Agreement terms we consider are presented in the context of a negotiated and
mutually accepted contract. As in our approval of the Tiber Montana contract (Case
No. IPC-03-, Order No. 29232), we find it reasonable to approve its terms , both the tested
standard terms and the newer non-standard terms. In doing so, however, we once again note that
our decision sets no precedent for our future regulation of such agreements and should not be
viewed as precluding negotiating parties from challenging the reasonableness of such terms for
inclusion in any future QF contracts. We find it reasonable to allow payments made under the
Agreement as prudently incurred expenses for ratemaking purposes. We address the Agreement
Article 8 Environmental Attributes "right of first refusal" term separately in Case No. IPC-04-
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 (PURP A).
The Commission has authority under PURP A and implementing regulations of the
Federal Energy Regulatory Commission (FERC) to set avoided costs, to order electric utilities to
ORDER NO. 29479
enter into fixed term obligations for the purchase of energy from qualified facilities, and to
implement FERC rules.
ORDER
In consideration of the foregoing and as more particularly described and qualified
above, IT IS HEREBY ORDERED and the Commission does hereby approve the January 6
2004, Energy Sales Agreement between Idaho Power Company and United Materials of Great
Falls, Inc.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by 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.
ORDER NO. 29479
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 23 ,..9..
day of April 2004.
~t.-
MARSHA H. SMITH, COMMISSIONER
ATTEST:
Je D. JewellCo ission Secretary
vld/O:IPCEO401 sw
ORDER NO. 29479