20040917Post Hearing Brief.pdf

BARTON L. KLINE ISB #1526
MONICA B. MOEN ISB #5734
Idaho Power Company
O. Box 70
Boise , Idaho 83707
Telephone: [phone]
FAX Telephone: [phone]
Attorneys for Idaho Power Company
Street Address for Express Mail
1221 West Idaho Street
Boise , Idaho 83702
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rlLI r iES CUr"! ISSION
BEFORE THE IDAHO PUBLIC UTiliTIES COMMISSION
S. GEOTHERMAL , INC. an Idaho
corporation
Complainant
vs.
IDAHO POWER COMPANY, an Idaho
corporation
Respondent.
BOB lEW ANDOWSKI and MARK
SCHROEDER
Complainants
vs.
IDAHO POWER COMPANY, an Idaho
corporation
Respondent.
POST-HEARING BRIEF , Page
Case No. I PC-04-
Case No. I PC-04-1 0
) POST-HEARING BRIEF
Introduction
At the close of the technical hearing on September 3, 2004 , the
Commission granted the requests of the Complainants to file post-hearing briefs
addressing the topic of firm vs. non-firm OF purchases. Counsel for U.S. Geothermal
indicated that in his brief he intended to address the approach the Commission has
historically taken to define firm vs. non-firm OF energy. Commission Kjellander also
requested that the parties address the issue of "intermittent" resources in their briefs.
Idaho Power does not believe there is any real dispute as to how the
Commission has historically differentiated between firm and non-firm OF resources. As a
result, the Company will not spend a great deal of time in this brief discussing that history.
As Idaho Power pointed out in its direct testimony, regardless of how firm OF energy has
been defined in the past, fundamental changes have occurred at Idaho Power and in the
electric utility industry in general since the Commission last addressed this issue in the
early 1980's. The real question presented to the Commission in these two cases is
whether the Commission should continue with the 1980's paradigm or if a different
approach is in the public interest.
Idaho Power considers the question raised by Commissioner Kjellander to
be extremely important. Intermittent resources like wind or solar are not a subset of firm
resources. Because their "fuel supply" can vanish and re-appear very quickly, they are
clearly best described as a non-firm , as-available resource. If the Commission adopts the
position espoused by Complainants Lewandowski and Schroeder that all energy
generated by intermittent wind resources must be purchased as firm energy at the
POST-HEARING BRIEF , Page 2
published rates, the impact of that decision on future RFP solicitations for wind resources
and the financial consequences to the Company s customers could be substantial. As a
result, the treatment of purchases of intermittent OF resources may merit additional
consideration outside of these complaint proceedings.
II.
Argument
The Commission Should Consider The Distinction
Between Firm And Non-Firm OF Energy In Light Of
Current Conditions.
In seeking leave to file a post-hearing brief, counsel for U.S. Geothermal
indicated that it was his intention to use the post-hearing brief to address the
Commission s prior orders that define the terms "non-firm" and "firm" in the context of
energy purchased from OFs. Idaho Power does not believe there is any dispute as to
how the Commission has traditionally used those terms. In Order No. 15746 issued in
1980 in Case No. P-300-, the Commission noted that, under Section 292.304(d) of the
FERC rules , a small power producer has the option of selling power to a utility either on
an "as-available" basis or "pursuant to a legally enforceable obligation." In Order No.
15746 and subsequently in Order No. 18190 issued in 1983 in Case No. U-1006-200, the
Commission defined the "as-available sale" to correspond to non-firm energy and the
pursuant to a legally enforceable obligation" to correspond to firm energy. As the
Commission noted in Order No. 18618 issued in Case No. U-1 006-216, "The Company is
correct, therefore , when it asserts that Order Nos. 18190 and 18358 distinguish between
firm and non-firm energy prices and that it is the 'quality of the energy produced' by the
co-generator or small power producer that determines its price." (Order No. 18618, p. 3.
POST-HEARING BRIEF, Page 3
In Order No. 18618 , the Commission also stated:
. . . energy is considered firm if it is provided by the seller pursuant
to a legally enforceable obligation to deliver and if it is of sufficient
reliability that it can serve to defer or avoid construction of the
company s own plants. Hydro projects -- both those of the
company and those of small power producers -- have always been
assumed to meet this definition. (Order No. 18618, p. 9).
As Idaho Power noted in its direct testimony in this case , using the definition
of firm energy established in the early 1980', a OF is only obligated to sign a contract
and provide an estimate of what it thinks it will generate each month over the twenty (20)
to thirty-five (35) year term of its agreement to be entitled to receive firm energy prices.
As Mr. Gale noted , in today s world , the actual firmness of the energy deliveries under
these 1980's vintage contracts more closely resembles non-firm energy deliveries than
firm energy deliveries. In the Firm Energy Sales Agreements ("FESA') without the
900 /1100/0 band provision , OF developers provide an estimate of what they expect to
generate each month , but there is no requirement, nor is there any economic incentive
for OF developers to provide accurate estimates or to actually deliver energy in the
monthly amounts they estimate they will provide in the Firm Energy Sales Agreement.
The actual amount of energy delivered by OF's under these agreements can fluctuate
between 0 MW and 10 MW , hour-to-hour, day-to-day, month-to-month , either because
the project has lost its motive force or the developer has chosen to reduce generation for
some other reason. With the exception of the five new OF contracts which include the
900 /1100/0 band , Idaho Power s OF contracts do not require OF's to provide the higher
value firm energy Idaho Power s customers are paying for.
POST-HEARING BRIEF, Page 4
Conditions Have Changed Since The 1980's When
The Commission Defined "Non-Firm " And "Firm
Energy To Be Purchased From QFs
In his direct testimony, Idaho Power Witness Ric Gale identified material
changes in electric industry conditions that argue for this Commission to approve OF
contract requirements that properly value the quality of energy delivered by OF's to
utilities in today s world. These changed conditions include:
(a)Idaho Power has changed from an energy-constrained company to
a capacity-constrained company. Seasonal peaks require the Company to have a high
degree of confidence that energy purchases will be delivered in the amounts and at the
times specified to match seasonal peak energy demands.
(b)Transmission constraints require that the Company more precisely
anticipate its needs for firm energy imports. The ability to rely on firm resources within
the utility s control area is increasingly important.
(c)The growing prominence of intermittentgeneratihg technologies
such as wind and solar, require a new approach in the Company s PURPA contracting
procedures.
(d)The Company s increased use of firm market purchases as hedges
to manage risk under its Commission-approved Risk Management Policy escalates the
importance of firm resource availability.
Of these changed conditions, the fact that since the 1980's Idaho Power
has changed from an energy-constrained utility to a capacity-constrained utility provides
the strongest rationale for the Commission to allow the Company to require OF's to
commit to deliver a specific amount of energy each month.
POST-HEARING BRIEF, Page 5
When the Commission defined firm energy in the 1980', it did so in an
environment when Idaho Power was energy-constrained. As a result, the difference in
value between energy delivered whenever it was generated and energy delivered in
specific monthly amounts was less significant. However, as a capacity-constrained utility,
requiring OF developers to commit to deliver firm energy in specific monthly amounts
increases the quality and thus the value of that energy to Idaho Power.
Complainants continue to assert that it is not necessary to require OF's to
commit to monthly energy amounts because OF's represent an insignificant portion of
Idaho Power s total resource portfolio. In fact, just since 2002 when the Commission
issued its orders increasing OF entitlement to the published rates from 1 MW to 10 MW
authorizing twenty-year OF contracts and increasing OF rates, Idaho Power has entered
into new OF contracts with a total nameplate capacity of nearly 60 MW. Adding the U.
Geothermal and Schroeder OF resources to that total would contribute another 22+ MW
bringing the total OF contract additions to approximately 80 MW nameplate. This total is
very nearly equal to the capacity of the Company s Danskin combustion turbine. At a
time when the Company s Integrated Resource Plans clearly demonstrate that the
Company needs to add additional dispatchable capacity on its system, and the SAR is a
dispatchable combustion turbine resource, maintaining the 1980's definition of firm
energy overstates the value of OF resources.
The Commission Has Not Explicitly Addressed the
Value of Intermittent QF Resources
As discussed in the previous section of this brief , the Commission s prior
orders have only differentiated between firm and non-firm OF resources. "Intermittent"
is the electric industry term used to describe generating resources such as wind or solar
POST-HEARING BRIEF, Page 6
whose output can fluctuate significantly on a minute-to-minute basis. These
fluctuations can be due either to periods when the wind stops blowing or the sun goes
behind a cloud or to periods when the wind blows so hard that the wind-generation
resource shuts off to protect itself. The fluctuations in intermittent resource generation
can range between zero generation to the full nameplate capacity of the generator over
a very short period of time. Consequently, intermittent OF resources are the
penultimate example of non-firm, if, as and when-available resources.
Intermittent resources present a new challenge to utility resource planners
and system operators. While the Commission s orders issued in the early 1980's to
implement PURPA include references to wind resources, the expected Idaho
applications of wind generation technology contemplated in those orders was the small
wind turbine of the type that we think of today as the typical net-metering resource.1 It
is only within the last few years that tax incentives and improved generating equipment
- technology have made large-scale wind development feasible in Idaho and surrounding
states.
As utilities add significant amounts of non-dispatchable, intermittent
resources onto their systems , utility system operational and reserve requirements will
make it necessary for utilities to find cost-effective ways to integrate intermittent
resources. Integration could include adding firm dispatchable generating resources like
the SAR , to cover energy shortfalls occurring when intermittent wind resources rapidly
reduce generation or cease generation entirely. Integration could also involve
In the early 1980's federal income tax incentives and California state income tax incentives led to the
development of large-scale wind projects in the state of California. In reality, many of these large
California wind farms were tax shelters. As soon as the tax incentives were depleted, many of the
California wind farms fell into disrepair and some were abandoned.
POST-HEARING BRIEF, Page 7
optimized operation of hydroelectric generating resources to deal with intermittent
resources. In its 2004 IRP , Idaho Power discusses the potential interaction between
wind resources and the Company s hydro system. Several witnesses in this case
described BPA's program that allows wind resource developers to purchase integration
services from BPA. The possibility of discounting the purchase price of wind resources
to recognize the problems with integrating intermittent resources onto the utility
system was also discussed.
With the obvious exception of the Complainants, all of the witnesses in
this case have expressed concern with the Complainants' contention that their
intermittent wind resources are entitled to be paid the published rate for all of the
energy they generate. One issue that came up during the hearing that Idaho Power
believes deserves additional attention is the interaction between PURPA resource
acquisition requirements and the Company s plans described in its 2004 Integrated
Resource Plan- to issue an RFP in the very near'future to acquire 200 MW of wind
resources. If wind resources qualify to be paid firm energy PURPA rates for all of their
generation , there will be no incentive for wind developers to competitively bid resources
into the Company s RFP process. If wind developers follow the scenario described by
S. Geothermal witnesses at the hearing and create multiple 9.9 MW qualifying
facilities so that they can receive the published firm rates , it is unlikely that customers
will capture any benefits of economies of scale or competitive pricing usually gleaned
from a competitive bidding (RFP) program.
Recognizing that there are a number of significant issues directly related
to paying firm energy prices to intermittent OF resources , it may be desirable for the
POST-HEARING BRIEF , Page 8
Commission to initiate an investigation to address the unique problems associated with
acquisition of wind resources. The regulations implementing PURPA at 9 18 CFR
9 292.304(c)(3)(ii) authorize Commissions in setting standard rates for OF purchases to
differentiate among qualifying facilities using various technologies on the basis of the
supply characteristics of the different technologies. Subsection (e) of the same CFR
section allows the Commission to consider, in setting rates for OF purchases , the
availability of capacity or energy from a qualifying facility during the system , daily and
seasonal peak periods, the ability of the utility to dispatch the qualifying facility and the
expected or demonstrated reliability of the qualifying facility. As a result, the
Commission has authority to treat intermittent resources as non-firm OF resources. A
Commission investigation of intermittent resource issues could be informal and utilize
the workshop process to discuss the issues and concerns of utility resource planners
and wind developers including OF's. In the meantime , Idaho Power believes that the
Firm Energy Sales Agreement that it has provided to Lewandowski and Schroeder is a
reasonable approach to the acquisition of intermittent OF energy resources that is fair
to both OF's and customers.
Idaho Power s Proposed Firm Energy Sales
Agreement Pays Full Avoided Costs To Wind
Resource Developers.
Contrary to Complainants' assertions , Idaho Power is not seeking to pay
less than full avoided cost for OF resources , nor is it changing the methodology for
computing avoided costs. By including a monthly energy commitment -- the 900 /1100
band -- the Company is simply requiring the OF to specify how much of the energy it will
provide will be firm and how much will be non-firm. To the extent a OF provides firm
POST-HEARING BRIEF , Page 9
energy, it should receive prices based on the firm energy provided by the dispatchable
SAR.
An alternative approach would pay the published rates to OF's that are
willing to sign a long-term contact that includes a commitment to provide monthly energy
amounts and pay a slightly discounted price to OF's that are willing to sign a long-term
contract and provide a good-faith estimate of their monthly generation but are unwilling to
provide a monthly energy commitment. Such an approach would be another way to
recognize the difference in value between firm and "less-firm" energy.
Idaho Power recently filed with the Commission a new twenty-year Firm
Energy Sales Agreement with Fossil Gulch Wind Park , LLC for a 10.5 MW wind project
to be built near Hagerman, Idaho. The Fossil Gulch Project is proposed to be online by
the end of this year. Table 1 below depicts the monthly energy commitments from the
Fossil Gulch Project.
Season
Season 2
Season 3
POST-HEARING BRIEF, Page 10
TABLE
Month kWh
March 100,625
April 689,296
May 501 984
July 910,208
August 781 958
November 1 ,884 234
December 2,425,295
June 711 046
September 2,422 340
October 621 565
January 1 ,923 853
February 559,792
Even though the nameplate capacity rating of the Fossil Gulch Project is
10.5 MW , Table 1 shows the amounts of energy Fossil Gulch is committing to provide
to Idaho Power each month. These amounts are typical of the capacity factor of most
wind resources. Fossil Gulch will receive firm energy prices for the amounts of energy
shown on Table 1 within the 900 /1100/0 band and non-firm energy prices for any
additional energy delivered up to 10 000 kWh per hour.
The Firm Energy Sales Agreement Idaho Power has offered to
Lewandowski and Schroeder provides these two wind resource developers with the
same opportunity Fossil Gulch has recently accepted to receive payment at firm rates
for a portion of their respective project's total monthly energy generation. If the amount
Complainants specify is actually provided , firm prices will be paid. Additional energy
delivered up to 10 000 kWh per hour would be purchased at non-firm prices. Idaho
Power continues to believe that the Firm Energy Sales Agreement it has offered to both
Lewandowski and Schroeder is a reasonable approach that can work for both wind
developers and the Company s customers.
The Commission Has Rejected Mandatory Standard
Form Contracts for OF'
During the hearing in this case, cross-examination by counsel for
Complainants inferred that Idaho Power has acted inappropriately by proposing the
inclusion of 900 /1100/0 provision in the Firm Energy Sales Agreement without first
obtaining Commission permission to do so. In fact, this Commission has explicitly
indicated that it does not believe that a mandatory standard form contract is in the
public interest in Idaho.
POST-HEARING BRIEF, Page
In Order No. 15746 issued in 1980 in Case No. P-300-, the
Commission required Idaho Power and all other Idaho jurisdictional utilities to create a
standard form contract which would be on file with the Commission and would be
offered to all OF developers. If the utility desired to modify that standard form contract
it would be necessary for the utility to obtain Commission approval to do so.
Three years later, in Order No. 18190 issued on July 21 , 1983, the
Commission rescinded its standard contract requirement saying: "In keeping with the
freedom to contract approach announced in this order, the Commission will no longer
require that Idaho Power Company retain a standard form contract on file at the
Commission in the Company s official tariff book.
Since the issuance of Order No. 18190 in 1983 , Idaho Power has filed at
least fifty OF contracts with the Commission. Each one has individually-negotiated
provisions, and this Commission has reviewed each contract based upon the individual
provisions of that contract. In addition , the Company has filed five, and the
Commission has approved four, Firm Energy Sales Agreements that contain the
900 /1100/0 provision that Complainants object to. Therefore, Complainants' argument
that Idaho Power was obligated to obtain Commission permission prior to including the
contested contract provisions in the FESA's offered to Complainants is simply incorrect.
III.
Conclusion
One of the basic tenants of PURPA is the concept of customer neutrality.
Under the concept of customer neutrality, Idaho Power s customers should be
indifferent as to whether Idaho Power purchases energy from OF's or it purchases an
POST-HEARING BRIEF, Page 12
equivalent amount of firm energy on the wholesale market or generates an equivalent
amount of energy with its own resources. If Idaho Power purchases firm energy on the
wholesale market, it has the right to specify when that energy is to be delivered, and if
the seller fails to deliver in the amounts and at the times specified in the contract
liquidated damages are available. If Idaho Power constructs the SAR, it has the ability
to dispatch that plant and obtain energy in the amounts and at the times it is needed.
the Commission accepts the Complainants' argument that all of the energy they
generate should be priced as firm energy even though Complainants make no
commitment to deliver a specified monthly amount of energy, Idaho Power will not be
purchasing resources that have an equivalent value to the resources Idaho Power
would otherwise acquire, and the concept of customer neutrality will be violated.
Idaho Power is not unmindful that there are public policy considerations
that the Commission must evaluate whenever it addresses PURPA issues. However
the Commission should not minimize the fact that in the past two years Idaho Power
" .
has entered into five contracts with OF resource developers totaling nearly 60 MW of
nameplate capacity. Each of those five contracts contain the provisions that are at
issue in this proceeding. Idaho Power believes this demonstrates that it is reasonable
to expect OF developers to provide the kinds of commitments that are necessary to
ensure that customers receive resources of equivalent value from OF developers and
customer neutrality is maintained.
Dated at Boise, Idaho this 17th day of September, 2004.
BART N L. KLINE
Attorney for Idaho Power Company
POST-HEARING BRIEF , Page 13
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 17th day of September, 2004, I served a
true and correct copy of the POST-HEARING BRIEF upon the following named parties
by the method indicated below, and addressed to the following:
Scott Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington Street
O. Box 83720
Boise, ID 83720-0074
Conley E. Ward
Givens Pu rsley LLP
601 W. Bannock Street
O. Box 2720
Boise, ID 83701-2720
Daniel Kunz, President
S. Geothermal, Inc.
1509 Tyrell Lane, Suite B
Boise, ID 83706
Peter J. Richardson
Richardson & O'Leary PLLC
99 East State Street, Suite 200
O. Box 1849
Eagle, ID 83616
Don Reading
Ben Johnson Associates
6070 Hill road
Boise , ID 83703
James F. Fell
Stoel Rives LLP
900 S.W. Fifth Avenue , Suite 2600
Portland , OR 97204
Bob Lively
PacifiCorp
One Utah Center, 23rd Floor
201 S. Main Street
Salt Lake City, UT 84140
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R. Blair Strong
Paine , Hamblen , Coffin , Brooke
& Miller, LLP
717 W. Sprague Ave., Suite 1200
Spokane , WA 99201-3505
Clint Kalich
Manager of Resource Planning
and Analysis
A vista Corporation - MSC-
O. Box 3727
Spokane, W A 99220-3727
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QMtt-
BARTON L. KLINE