20040312Comments.pdf

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SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 1895
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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 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-
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
February 20 2004 submits the following comments.
BACKGROUND
On February 4, 2003 , Idaho Power Company (Idaho Power; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) requesting approval of an
Energy Sales Agreement (Agreement) between Idaho Power Company and United Materials of
Great Falls, Inc. (United Materials) dated January 6 2004. Under the Agreement, United
Materials would sell and Idaho Power would purchase net electric energy and surplus energy
generated by United Materials ' generation facility. United Materials proposes to design
construct, install, own and maintain a 9 MW wind generating facility (the Horseshoe Bend Wind
STAFF COMMENTS MARCH 12, 2004
Park or the Project) located at the United Materials industrial facility near Great Falls , Montana.
The project will be a Qualifying Facility (QF) under the applicable provisions of the Public
Utilities Regulatory Policy Act of 1978 (PURP A).
As represented by Idaho Power, the Agreement includes purchase prices consistent with
the non-levelized "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 Horseshoe Bend Wind Park 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" on an hourly basis all energy deliveries
from the Project to Idaho Power. This will result in flat hourly energy scheduled into the Idaho
Power system.
The submitted Agreement is the first wind energy generation sales agreement to be
executed by Idaho Power. Idaho Power reports that it has developed a cogeneration and small
power producer agreement concept that is consistent for all QF (Qualifying Facilities under
PURP A) proj ects 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 because the project is not directly connected to the
Idaho Power system.
ANALYSIS
Staff has reviewed the rates contained in the Agreement and finds that they comport with
Order No. 29391 , the most recent Commission order establishing avoided cost rates. However
because this Agreement is the first for a wind energy generation project and because it contains
numerous 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 United Materials.
Opportunity for QFs to Participate in the Firm Energy Sales Agreement
Traditionally contracts between Idaho Power and QFs have been denominated as "Firm
Energy Sales Agreements." However, the energy purchased under some ofthese contracts is not
STAFF COMMENTS MARCH 12, 2004
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 the
specified amounts at the 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 ofthe utility s costs.
Moreover, 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 surplus
sales.
In the past, Commission rules have not established specific performance criteria for QF
resources to determine their firm or non- firm status. Because of the small size of many QFs, the
similarity of many early projects, and the Commission s past policies to encourage development
of renew ables, nearly all QFs were considered firm energy projects and eligible for the full
published avoided cost rates. Now, however, particularly with the introduction of new
generation technologies in Idaho, there is wide disparity in the performance characteristics of
new proj ects. 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's actual performance, Idaho
Power has included provisions for "Base Energy,
" "
Shortfall Energy" and "Surplus Energy.
The provisions will encourage United Materials to provide energy with a greater degree of
firmness " while at the same time allowing a reasonable amount of flexibility to United
Materials in operating its facility. 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
insure that Idaho Power pays no more than if it purchased equivalent energy from the market.
Included as Attachment 1 are graphical representations of six different scenarios intended
to illustrate how this contract works. The first three scenarios are for situations where market
energy costs are higher than the Base Energy Price in the Agreement. The second three
scenarios are for situations where market energy prices are less than the Base Energy Price. It
STAFF COMMENTS MARCH 12 2004
may be helpful to view these graphs while reading the following descriptions of the contract
terms.
Base Energy
United Materials is required at two-year intervals to estimate its monthly generation.
Base Energy is all energy delivered by United Materials that is less than 110 percent of the
amount which it has estimated. Payment for all Base Energy is made at the non-levelized
published avoided cost rate. Scenario 1 of Attachment I depicts the concept of Base Energy.
The non-levelized published avoided cost rate is paid for all Base Energy generation that falls
within a band of 90-110 percent of the estimated monthly generation amount.
Shortfall Energy
The Agreement also includes a purchase price adjustment provision in the event United
Materials' generation falls short of the estimated amount. Under this provision , United
Materials' actual net monthly generation is compared to the estimated monthly generation. If the
amount of actual generation is 90 percent or less ofthe month's estimated generation, the
difference between the actual generation and the estimated generation is defined as "Shortfall
Energy." If the market energy cost is greater than the Agreement's price for energy in the month
that the shortfall occurs, then a "Shortfall Energy Payment" is offset against the Base Energy
Payment. Scenario 2 of Attachment 1 depicts the concept of Shortfall Energy.
Staff notes that it is possible that the QF project owner could end up owing Idaho Power
in a given month if the project experiences a severe energy shortfall and if market energy cost
sufficiently exceeds the contract's Base Energy rates.
Surplus Energy
Under the concept of "Surplus Energy," each month United Materials actual net
generation will be compared to the monthly generation estimated by United Materials. If United
Materials ' actual generation exceeds 110 percent of a month's estimated generation, the energy
in excess of 110 percent is valued at the Surplus Energy Price. The Surplus Energy Price is
equal to 85 percent of the Mid-C non-firm index for the month. Scenario 3 of Attachment
depicts the concept of Surplus Energy.
STAFF COMMENTS MARCH 12 2004
According to Idaho Power, whether energy produced by United Materials is Surplus
Energy or not is at the sole discretion of United Materials since United Materials sets the
monthly estimated generation levels indicated in the Agreement. United Materials can reset the
monthly estimated generation amounts every two years to reflect its increased operating
experience and to allow United Materials to respond to changes in expected wind, equipment
performance, etc. The only limitation placed on United Materials by the Company is that the Net
Firm Energy estimated for each month cannot exceed the nameplate rating of the generation
equipment.
Scenarios 4 , and 6 of Attachment 1 illustrate the same concepts, but in the instance
where Market Energy Cost exceeds the Base Energy Prices contained in the contract.
Staff believes it is reasonable in this case to include contract provisions regarding project
standards of firmness however, these are not provisions that have been required by the
Commission in the past and should be further evaluated in future contracts. 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 similar contract provisions are the appropriate for projects other than United
Materials or whether firmness standards should be required at all, Staff believes, should not be
determined in the context of a negotiated and mutually accepted contract..
STAFF COMMENTS MARCH 12 2004
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.
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. The weighting factors used
for seasonalization remain the same as in previous contracts, but the months in which each factor
applies have been re-arranged to better align the seasons with the months in which Idaho Power
has identified actual energy needs. The months included in each season are the same as in the
Company s most recent contract (Tiber Montana contract, see IPC-03-, Order No. 29232).
The seasons and their associated weighting factors are as follows:
Season Weighting Factor
735
1.20
1.00
Months
March-May
June, July, Nov., Dec.
Jan., Feb., Aug., Sep., Oct.
Staff believes that the seasons identified in the Agreement are reasonable, but recognizes that
different months may be more appropriate for each season in future contracts.
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 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
construction of the Project. Once construction of the Project has begun, United Materials may
not terminate the Agreement as specified in Section 21.3. As ofthe date of the filing of these
comments, Congress has not renewed the Federal Production Tax Credit.
STAFF COMMENTS MARCH 12, 2004
RECOMMENDATIONS
Idaho Power and United Materials have presented a negotiated PURP A contract for
Commission approval. The contract rates are non-levelized 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.
encouraging increased firmness, and seasonality) not be viewed as precedential.
Respectively submitted this ~ 'fh day of March 2004.
Technical Staff:Rick Sterling
i:umisc/commentslipcO4.1swrps
STAFF COMMENTS MARCH 12 2004
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6
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 12TH DAY OF MARCH 2004
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO, IPC-04-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
MONICA MOEN
BARTON L KLINE
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
RANDY C ALLPHIN
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
SEC
CERTIFICATE OF SERVICE