20040319PacifiCorp Comments.pdf

DEAN S. BROCKBANK
USB# 7149
[phone] phone
[phone] fax
CHADE. PAULSON
OSB# 98319
PacifiCorp
825 NE Multnomah
Suite 1800
Portland, Oregon 97232
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Attorneys for PacifiCorp
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER A PETITION FILED
BY IDAHO POWER COMPANY FOR AN )
ORDER DETERMINING OWNERSHIP
OF THE ENVmONMENT AL
ATTRIBUTES ASSOCIATED WITH A
QUALIFYING FACILITY UPON
PURCHASE BY A UTILITY OF THE
ENERGY PRODUCED BY A
QUALIFYING FACILITY
Case No. IPC-04-
ACIFICORP' S
COMMENT /PROTEST
OF IDAHO POWER COMPANY'
PETITION FOR DECLARATORY
ORDER
Pursuant to the Notice of Comment/Protest Deadline issued by the Idaho Public
Utilities Commission ("IPUC") on February 20, 2004, PacifiCorp files the following:
Overview of PacifiCorp
PacifiCorp is an investor-owned utility headquartered in Portland, Oregon
serving retail customers located in six western states: Idaho, Oregon, Washington, Utah
California, and Wyoming. Approximately 85 percent of PacifiCorp s customers are
residential; approximately 11 percent are commercial; and approximately 4 percent are
industrial.PacifiCorp is regulated by the Federal Energy Regulatory Commission
PACIFICORP'S COMMENT/PROTEST OF IDAHO POWER COMPANY'
PETITION FOR DECLARATORY ORDER -
pursuant to the Federal Power Act and by the state public utility regulatory commissions
in each of the six states in which PacifiCorp conducts retail electric operations.
PacifiCorp has long-term, fixed rate contracts with 13 "qualifying facilities" (as
such term is defined in the Public Utility Regulatory Policies Act of 1978 ("PURP A"
QFs ) in Idaho, ranging from 80 KW to 6 MW, none of the QF contracts are levelized.
Idaho does not currently have a Renewable Portfolio Standards ("RPS") program that
issue Green Tags, also known as renewable energy certificates (called "RECs" herein)
that are a tradable commodity associated with each Megawatt Hour ("MWh") generated
by a QF.
II.Introduction
In the instant proceeding petitioner Idaho Power Company ("Idaho Power ) has
requested that IPUC issue a declaratory order declaring:
that ownership of any Green Tags issued to the developers of energy
produced from renewable resources be vested in those developers
conditioned upon the requirement that QF developers from whom the
Company purchases energy grant to Idaho Power a right of first refusal to
purchase said Tags.
PacifiCorp requests that the IPUC deny petitioners requested order and instead
issue an order declaring that, pursuant to obligations imposed by PURP A, ownership of
all RECs associated with energy produced and delivered by a QF pass to the purchasing
utility that purchases the output of the QF.
III.Argument
Idaho Power petitioned the IPUC to issue a declaratory order granting ownership
of any RECs to QF developers.RECs identify generation as having come from a
renewable resource. Historically, QF developers have effectively sold the entire output
PACIFICORP'S COMMENT/PROTEST OF IDAHO POWER COMPANY'
PETITION FOR DECLARATORY ORDER -
of their QFs to purchasing utilities under PURP A-mandated contracts. This bundled
output included those characteristics that now are separately identified as RECs. Indeed
it was those specific characteristics identified as having come from that particular
resource that enabled the developer to use PURP A to require the utility to purchase the
power generated from it. Utilities throughout the nation have counted the output of QFs
fueled by renewable resources as renewable power, and according RECs to the generator
would disrupt this neutral assumption based upon the resources covered under PURPA'
definition of QFs.
Idaho Power argues that now that a market has developed in the generation of
environmental attributes that comprise RECs, the RECs should be "unbundled" from the
overall output of the facilities, and that ownership of the RECs should, without
compensation to the purchasing utility, be changed to the QFs. This would in Idaho
Power s view, compensate QFs for the "risks" they incurred in deciding to construct their
QF projects, could lead to additional green energy sources without the need to increase
energy prices, and would act as incentive for green power investments.
Idaho Power s analysis is flawed. It confuses a shifting of benefits from the QF
developer to the purchasing utility with a reduction in project development risks. To the
extent that a robust market develops for RECs the cash flow from a QF may shift the
balance from being an uneconomic investment to an economic investment. However, it
is important to recognize that shift for what it is: a transfer of financial benefit from the
purchasing utility s ratepayers to the QF developer for the developer s financing source.
The QF is assured, under PURP A, of a long-term offtake contract at the
purchasing utility s avoided-cost rates. Thus perhaps the key risk-that of finding a
PACIFICORP'S COMMENT/PROTEST OF IDAHO POWER COMPANY'
PETITION FOR DECLARATORY ORDER -
purchaser for its product is already removed by PURP A. The ability of the QF developer
to qualify for this benefit is contingent on the QF's use of a renewable resource that it can
use to require the utility to purchase energy at avoided, rather than market costs. By
allowing the QF to at once force a utility to buy power from it under PURP A and
simultaneously keeping RECs away from the utility, the QF is effectively selling "null"
or generic power to the utility, which is not the intent of the PURP A requirement. The
ratepayers and utilities continue to bear the risks, not QFs, and granting ownership of the
RECs to QFs in addition would result in a windfall to QF developers at the expense of
ratepayers.
Even if the order that Idaho Power requests were to encourage more QF activity,
as Idaho Power suggests, the program could result in the development of inefficient
competitors, any entity that relies on a mandated purchase at a price that is protected from
market forces, such as the QFs, is by definition unlikely to be competitive economically.
Otherwise the project would stand on its own without PURP A protection. Transferring
the right to RECs from the purchasing utility to the QF developer would exacerbate this
perverse incentive.
a. Utilities and their ratepayers bear the risks associated with QF
generation and should receive the benefits arising therefrom.
Utilities are not free to choose whether to make purchases from QFs on economic
grounds. QFs come into existence by choosing not to participate in the market, but rather
trigger PURPA, which requires utilities to enter into contracts with them at the utilities
avoided costs. In fulfilling this requirement, utilities purchase the output of the QF.
PACIFICORP'S COMMENT/PROTEST OF IDAHO POWER COMPANY'
PETITION FOR DECLARATORY ORDER -
Over the past few years , a secondary market has developed in the identifying
feature of the electricity as having come from the QF as a renewable resource. This new
market has not created anything that was not there before a certificate that shows
that renewable power was generated and delivered to the grid; rather, it just permits an
owner of a renewable resource to sell the certificate generated by that resource into a
nascent market that accords positive financial values to the certificate, which until now
had always gone with that power.
The new market, created for RECs, is a secondary market for the identifying
factors of renewable resource generation. Those identifying factors were always there
and they always went with the energy.QFs now desire to unfairly profit from the
existence of this secondary market by keeping for themselves that sliver of the QF output
that identifies the generation as having come from a renewable resource.
The Commission is being asked to permit QFs to withhold from the purchasing
utility the very essence of what, under PURP A, required the utility to purchase the power
from the QF in the first place. Simply because a market has developed in an aspect of
what had always gone with the power, the QFs believe that they can now not deliver it to
the ratepayers, but rather separately sell that portion of the output on that secondary
market. The aspect of the QFs ' power that qualified it in the first place to force the
ratepayers to buy it at avoided, rather than market, costs should not be taken from the
ratepayers and given to the QFs to separately sell, unless the QF's right to require
ratepayers to pay avoided costs for the power is also taken.
Idaho Power is asking that the QFs be able to keep the benefit of an involuntary
transaction, while profiting from anew, secondary market. Allowing QFs the benefit of
PACIFICORP'S COMMENT/PROTEST OF IDAHO POWER COMPANY'
PETITION FOR DECLARATORY ORDER -
selective market participation-forcing the utility to buy its output in a mechanism that is
not a free market, while at the same time selling a portion of the output into what a
secondary, free market will accept-provides QFs with a multiple of the benefits from
that output without bearing any of the risks. PURPA is already a sufficiently market-
distorting mechanism. With this precedent of allowing QFs to slice off and separately
market any portion of what had always belonged to ratepayers, other portions of what the
ratepayers are required to pay for through PURP A, may also be sliced off for sale in the
future once there is a market according positive financial value to those portions. The
result would be a continuing windfall for the QFs at the continuing expense of the
utilities and their ratepayers. Traditional regulatory principles dictate that reward should
follow risk, or that the bearer of the risks and costs should likewise obtain the benefits.
Ratepayers have consistently borne the risk of PURP A-mandated contracts and should
therefore retain the benefits of those contracts.
Ratepayers of PacifiCorp and other utilities that bear the risks in the QF
contracts should receive the benefits. The ratepayers should not be deprived of a benefit
they have always gotten for the past quarter-century under PURPA, simply because a
secondary market has developed for that portion of the power that identifies it as having
qualified under PURP A in the first pace. Any other determination would result in
double-billing the ratepayer and a windfall for the QF.
b. Requiring utilities' ratepayers to pay avoided costs as well as the
market rate for RECs would result in increased energy costs.
Utilities do not voluntarily enter into QF contracts. The price for QF energy is
based on avoided costs, not market costs, which Congress has determined adequately
PACIFICORP'S COMMENT/PROTEST OF IDAHO POWER COMPANY'
PETITION FOR DECLARATORY ORDER -
compensates QFs that would otherwise be unable to compete in the market. Were the
QFs required to sell power at market prices in competition with all other resources, RECs
would naturally be part of the contract price subject to competitiveness and cost.
However, because QFs obtain the statutory benefit of avoided costs, which are not based
on market forces, Idaho Power s proposed order would require the utility to separately
negotiate via the marketplace, with QFs, for RECs associated with the energy they are
already purchasing. The expenses for "unbundled power" (power plus RECs) would
logically be in excess of what would have been negotiated in the market to begin with.
Intent of RPS Programs
RPS programs are intended to promote renewable energy in the market place by
attracting the most efficient renewable energy competitors.Typically, load serving
entities are required to purchase renew abies up to a mandated percentage of total load
served. Complying entities then must select resources based upon least cost. Resources
must therefore compete against each other, rather than against a set level of avoided cost.
The approach of PURPA is inherently less efficient than the RPS approach, since
it does not require competition among similar resources. For load-serving entities, one of
the potential future benefits of QF contracts is that they can help meet future RPS goals
whether at the national or state level. However, according RECs to the generator will
deprive the ratepayers of this benefit and the load-serving entity may have to buy RECs
from the very same QF generator or from elsewhere, even if the entity s power purchase
agreement with the QF is the reason the RECs exist (as proof of power delivery) in the
first place. This scenario poses onerous costs to the customer and the load serving entity
and creates an undue windfall for the QF, all without increasing the total amount of
PACIFICORP'S COMMENT/PROTEST OF IDAHO POWER COMPANY'
PETITION FOR DECLARATORY ORDER -
renewables for the funds expended by the load-serving entity on top of the funds for the
original power purchase agreement with QFs. Thus the approach proposed by Idaho
Power can undermine the benefits of future renewables programs, including benefits from
local economic development due to the arrival of new power plants. Instead, existing
QFs will merely earn more windfalls without direct financial benefits to surrounding
communities.
IV.Conclusion
QFs have voluntarily withdrawn from the market, and utilities bear the risk of that
decision. Idaho Power s requested order would be a direct detriment to the ratepayers.
The benefits should follow the risks, and the approach proposed by Idaho Power would
set into motion a process whereby QFs can set aside non-power features with positive
market value for sale, leaving the ratepayers with generic power equivalent to power
generated from a non-renewable resource against the intent of PURP A for utilities to buy
cleaner power. Further, granting RECs to QFs can reduce the effectiveness of future
national and/or state renewables programs that intend, in part, to incentivize more plant
investments for local economic development.
Absent the REC, power generated by a QF is undifferentiated from other power a
utility utilizes to meet its obligation to serve and, therefore, the facility that produces this
undifferentiated power should no longer be considered a QF. The REC is an essential
aspect of a generation facility s output that resulted in the facility being designated a QF
under PURP A in the first place.
For the reasons set forth above, PacifiCorp requests that IPUC deny Idaho
Power s petition for declaratory order, and instead issue an order that ownership of the
PACIFICORP'S COMMENT/PROTEST OF IDAHO POWER COMPANY'
PETITION FOR DECLARATORY ORDER -
environmental attributes (RECs) associated with a QF pass to the purchasing utility along
with the purchased power.
Service of pleadings, exhibits, orders and other documents relating to this
proceeding should be served on the following:
Dean S. Brockbank
Senior Counsel for PacifiCorp
PacifiCorp
One Utah Center
201 South Main 22nd Floor
Salt Lake City, UT 84111
[phone] phone
[phone] fax
Chad E. Paulson
Senior Counsel for PacifiCorp
PacifiCorp
825 NE Multnomah
Suite 1800
Portland, OR 97232
[phone] phone
[phone] fax
f;: 11-Chad E. Paulson
Senior Counsel for PacifiCorp
PACIFICORP'S COMMENT/PROTEST OF IDAHO POWER COMPANY'
PETITION FOR DECLARATORY ORDER -