HomeMy WebLinkAbout20041220Answer to Petitions for Reconsideration.pdfBARTON L. KLINE ISB #1526
MONICA B. MOEN ISB #5734
Idaho Power Company
O. Box 70
Boise , Idaho 83707
Telephone: (208) 388-2682
FAX Telephone: (208) 388-6936
Attorneys for Idaho Power Company
Street Address for Express Mail
1221 West Idaho Street
Boise , Idaho 83702
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
S. GEOTHERMAL , INC. an Idaho
corporation
Complainant
vs.
IDAHO POWER COMPANY, an Idaho
corporation
Respondent.
BOB LEWANDOWSKI and MARK
SCHROEDER
Complainants
vs.
IDAHO POWER COMPANY, an Idaho
corporation
Respondent.
Case No. I PC-O4-
Case No. IPC-04-
ANSWER OF IDAHO POWER
IDAHO POWER COMPANY TO
PETITIONS FOR RECONSIDERATION
ANSWER OF IDAHO POWER TO PETITIONS FOR RECONSIDERATION , Page
COMES NOW Idaho Power Company ("Idaho Power" or "Company ), by
and through its attorney, and pursuant to RP 331., hereby answers the Petitions for
Reconsideration of Order No. 29632 filed by Petitioners Bob Lewandowski and Mark
Schroeder and Energy Vision , LLC ("EnVision ). This answer also responds to the e-mail
comments provided to the Commission by Gerald Fleishman, Gary Seifert, Kurt Meyers
and Leslie Tidwell (collectively "Commenters
INTRODUCTION
From its inception , 9 210 of the Public Utility Regulatory Policies Act of
1978 ("PURPA"), 16 U.C. 9 824a-, has imposed a difficult balancing act on this
Commission and other state regulatory commissions that are required to implement
PURPA's provisions. On one hand , PURPA charges state commissions to implement
PURPA to encourage the development of qualifying cogeneration and small power
production facilities ("OFs
).
On the other hand , PURPA requires that commissions
provide this encouragement in a manner that ensures that electric utility customers do
not pay more for capacity and energy purchased from OFs than they would have paid if
the utility had obtained the same amount of energy and capacity by means of
constructing resources or purchasing energy or capacity on the wholesale market.
18 CFR 9 292.304(a)(2).
Stated another way, PURPA requires that customers be economically
indifferent to whether the utility serves their loads with OF resources, utility-owned
power plants or utility purchases from the wholesale market. If OF purchase rates and
policies are established so that they meet this customer indifference test , the maximum
ANSWER OF IDAHO POWER TO PETITIONS FOR RECONSIDERATION , Page 2
lawful encouragement to OF development has been provided and this Commission has
satisfied its obligations under PURPA. PURPA provides the opportunity for OF
developers to move forward with cost-effective projects. However, PURPA does not
guarantee that all OF projects will be developed.
Idaho Power is not seeking reconsideration of Order No. 29632. However
as discussed below, Idaho Power has concerns about the effect that the Commission
adoption of the monthly 10 aMW limit will have on the number of wind developers
responding to the Company s upcoming request for proposals ("RFP") for acquisition of
generation from wind projects. These concerns notwithstanding, the Company will use its
best efforts to work with OFs to implement the Commission s decision in Order No. 29632
to encourage OF development and to assure customer indifference thereby fully
complying with the requirements of PURPA.
II.
DISCUSSION
Commission Order No. 29632 Conferred Substantial
Benefits On Intermittent Generating Technologies Like
Wind and Solar.
In adopting 10 average MWs per month as the ceiling on entitlement to the
posted rates, the Commission substantially departed from past practice. As a result of
that change, low-capacity factor resources like wind and solar have received a very
significant benefit. Selection of 10 aMW per month as the ceiling on entitlement to posted
rates will allow wind projects , whose usual capacity factor is in the 30-330/0 range , to
develop projects with a nameplate capacity of more than 30 MW and still receive the
smaller than 10 MW rates" recently approved by the Commission in Order No. 29646.
ANSWER OF IDAHO POWER TO PETITIONS FOR RECONSIDERATION, Page 3
This increase in the ceiling provides significant economies of scale to wind
developers. The increased ceiling, coupled with recent increases in the posted rates and
renewed tax incentives, will strongly stimulate wind development. In fact, Idaho Power is
concerned that smaller wind developers may choose not to submit proposals in Idaho
Power s upcoming wind RFPs and instead opt to receive posted rates. Idaho Power is
moving quickly to issue its RFP for the purchase of approximately 200 MW of wind
powered generation by the end of 2007 with 100 MW of that generation to be available by
year-end 2006. A copy of the draft RFP has been posted on the Company s website and
will be issued formally in the very near future. Time will tell whether wind developers will
participate in the RFP or choose not to bid their wind generation projects into the RFP
because they have the option of receiving the posted OF rates without competition.
Preliminary indications are that a number of developers of smaller wind projects intend to
utilize the published OF rates rather than participate in the RFP process.
Even with all of these new competitive advantages, Petitioners assert that
they will not be able to develop their wind projects if they are required to make a legally-
enforceable commitment as to how much energy they will deliver to Idaho Power each
month. Idaho Power believes these claims are overstated and Order No. 29632
represents a reasonable balance of OF and customer interests as required by PURPA.
The Commission s Decision To Adopt A Market-Based
Pricing Remedy To Be Applied When the OF Fails
Meet Its Minimum Energy Commitment Is Both Lawful
and In the Public Interest.
(1 )The Commission regularly pursued in its authority
in adollii!J.g the market-based pricinQ remedy to be
gQplied when a OF fails to deliver its minimum
enerQV commitment.
ANSWER OF IDAHO POWER TO PETITIONS FOR RECONSIDERATION , Page 4
In Order No. 29632 , the Commission adopted a market-based pricing
remedy to be applied when a OF fails to deliver 900/0 of its monthly contract commitment.
Under this market-based pricing remedy, if a OF delivers less than 900/0 of its monthly
contract commitment , the OF is paid for its monthly deliveries at the same market-based
prices contained in the Company s Commission-approved rate schedule No. 86.
Petitioners argue that because the market-based pricing remedy adopted
by the Commission was not specifically proposed by any party in this case, the
Commission is legally precluded from adopting that remedy. To put Petitioners' argument
in context, a brief re-cap of the parties' positions on this issue may be useful:
(1 )Idaho Power presented testimony and exhibits in support of the
900 /1100/0 performance band that was ultimately adopted by the Commission.
(2)Commission Staff presented testimony and exhibits that supported
the performance band concept but proposed that the band be widened to 800 /1200/0.
(3)In conjunction with the performance band, Idaho Power proposed a
shortfall-energy remedy" that required OFs to pay Idaho Power liquidated damages when
a OF failed to deliver 900/0 of the monthly contract commitment amount.
(4)Commission Staff's testimony supported the shortfall-energy
remedy.
(5)The intervenors, Avista and PacifiCorp, generally supported the
performance band concept and also testified that a charge for integrating wind resources
onto the utility s systems would be another appropriate remedy.
(6)Petitioners Schroeder/Lewandowski testified that no remedy for
failure to deliver the minimum energy was appropriate.
ANSWER OF IDAHO POWER TO PETITIONS FOR RECONSIDERATION, Page 5
In Order No. 29632, the Commission did not adopt the exact
recommendation of any of the parties. Instead the Commission adopted a remedy that
occupies the middle ground between the Idaho Power/Staff shortfall-energy remedy
proposal and the Schroeder/ Lewandowski "no-remedy" position. The adopted market-
based pricing remedy is the same remedy currently included in the OF contract between
Idaho Power and Tiber Montana LLC for the Tiber Hydro Project. The Tiber Hydro
Project was financed and completed in June of 2003 and has been delivering energy to
Idaho Power ever since.
Petitioners argue that because the Commission did not adopt either the
shortfall-energy remedy or the no-remedy position, the Commission is legally precluded
from adopting the market-based pricing remedy. On pages 2 and 3 of their Petition
Schroeder/Lewandowski describe their legal argument this way: "This (the market-based
pricing remedy) is a 'solution' that no party to the proceeding proposed or even
addressed." (parenthetical added). Lewandowski/Schroeder go on to say: "Because the
Commission s decision is not based on the record it is not in conformity with the law.
The Lewandowski/Schroeder Petition continues: "The record of this proceeding contains
no references to the solution adopted by the Commission and hence fails to meet this
basic threshold.
Petitioners seem to be espousing the position that the Commission , in
making its decisions , must engage in a process akin to what is commonly known as
baseball arbitration " that is , the Commission can only choose one of the alternatives
specifically proposed by the various parties. This position simply is not in conformance
with Idaho law.
ANSWER OF IDAHO POWER TO PETITIONS FOR RECONSIDERATION , Page 6
In Industrial Customers of Idaho Power v. Idaho Pub. Uti/. Com 1 P.
786 , 134 Idaho 285 (2000), the Industrial Customers of Idaho Power ("ICIP") made the
same "baseball arbitration" argument Petitioners are making in this case. In the above-
cited ICI P case the Commission had received evidence regarding the appropriate number
of years to be used to amortize a deferral balance Idaho Power had accrued from DSM
expenditures. The Commission selected a 12 year amortization period. The ICIP argued
that evidence was presented to the Commission indicating the reasonableness of 24
and 5-year amortization periods but no evidence was presented discussing the
reasonableness of a 12-year period. As a result, the ICIP argued , the Commission could
not have selected a 12-year amortization period based on substantial competent
evidence in the record. In its opinion , the Idaho Supreme Court held that the Commission
was not limited to selecting one of the alternatives presented by the parties. In its opinion
the Court stated:
Appellants argue that evidence was presented indicating the
reasonableness of twenty-four, seven , and five year amortization
periods but that no evidence was presented discussing the
reasonableness of a twelve-year period. This Court has
recognized previously that the Commission , as finder of fact
need not weigh and balance the evidence presented to it but is
free to accept certain evidence and disregard other evidence.
See Application of Utah Power Light Co.107 Idaho 446 , 451
690 P.2d 901 906 (1984). Additionally, the Commission is free
to rely on its own expertise as justification for its decision. See
Boise Water Corp. v. Idaho Public Utilities Commission 97 Idaho
832 842 55 P.2d 163, 173 (1976); Intermountain Gas Co. v.
Idaho Public Utilities Commission 97 Idaho 113, 126, 540 P .
775 788 (1975).
(Industrial Customers of Idaho Power v. Idaho Pub. Utile Com
134 Idaho 285, 293 (2000)).
ANSWER OF IDAHO POWER TO PETITIONS FOR RECONSIDERATION , Page 7
(2)The Commission s adoption of a market-based p ricin
remedy is based on substantial competent evidence
on the record
Idaho Power Company witness Gale presented extensive testimony
describing the rationale underlying the Company s request for both the 900 /1100
performance band and the shortfall-energy remedy the Company proposed to implement
to provide liquidated damages when OFs fail to meet their minimum contract energy
commitment. Commission Staff also provided testimony on the need for a performance
band and the shortfall-energy remedy. Avista and PacifiCorp provided testimony, exhibits
and other evidence addressing the need for a remedy like the performance band to
encourage OFs to provide firm energy in accordance with contract commitments.
There is no question that the extensive testimony in this case supporting the
need for a remedy to protect customer interests if a OF fails to perform its contract
provides ample evidence upon which the Commission could base its adoption of the
market-based pricing remedy.
The Market-Based Pricing Remedy the Commission
Adopted When QFs Fail To Meet Their Minimum
Contract Commitment Is Fair and Reasonable.
Petitioners Schroeder/Lewandowski and EnVision as well as Commenters
argue that the market-based pricing remedy selected by the Commission will send
incorrect price signals to OF developers. This argument is a classic "red herring." First
the Petitioners argue that wind developers cannot control the wind so it is unfair to require
a legally-enforceable obligation to provide a specific amount of energy during a month.
They then argue that the Commission s market-based price remedy will incent them to
ANSWER OF IDAHO POWER TO PETITIONS FOR RECONSIDERATION , Page 8
dispatch their generation at inopportune times based on market prices. This argument is
internally inconsistent and simply does not match up with reality.
Even assuming that OFs can take steps to dispatch their resources to meet
the 900/0 threshold when market prices are below contract prices , that result is acceptable
to Idaho Power. This case grew out of the Company s desire to obtain firm, reliable
energy commitments from OFs. The Company will use these commitments to make
informed resource dispatch decisions. If OFs can perform within the parameters of their
contracts , that is precisely the result the Company is seeking from implementation of the
900 /1100/0 performance band and the market-based pricing remedy adopted by the
Commission. The Commission recognized the utility s need for predictability when it
stated in Order No. 29632: "As reflected in our 10 MW cap discussion, the Commission
finds that a legally enforceable obligation translates into contractual obligations for both
parties. For a OF it translates into an obligation or commitment to deliver its monthly
estimated production." (Order No. 29632 at p. 20).
Wind Developers Can Finance Their Projects Even If
They Are Required To Commit To Deliver A Monthly
Amount of Energy.
Predictably, Petitioner EnVision and the Commenters claims that unless the
Commission s Order is changed to eliminate the market-based pricing remedy, it will be
impossible for any wind project to obtain financing. Although Idaho Power is not
permitted to ask about individual OF project financing, in light of the recent re-instatement
of federal tax credits, recent increases in OF purchase prices and improved economies of
scale due to the adoption of the monthly 10 aMW ceiling on entitlement to published
ANSWER OF IDAHO POWER TO PETITIONS FOR RECONSIDERATION, Page 9
rates , Idaho Power is extremely skeptical of Commenters' claim that enforcing a minimum
energy commitment from OF developers will make all wind projects unfinancable.
Idaho Power s skepticism is reinforced by the fact that the Company already
has contracts with two wind developers and one hydro developer whose contracts contain
monthly commitment provisions and market-based remedies for failure to meet those
monthly commitments. These remedies are at least as stringent than the market-price
based remedy adopted by the Commission in Order No. 29632. All of these projects
have received financing and are either completed or currently under construction.
addition , Idaho Power continues to receive requests for contracts for wind generation
projects. The developers of those new projects are well aware of the requirements of
Order No. 29632 and have indicated they do not believe Order No. 29632 will provide any
impediment to financing and constructing these new projects.
Availability Factor Is Not A Reasonable Test For
Intermittent Resources Like Wind.
Both Petitioners now argue for the first time that the Commission should
consider requiring OFs to provide a minimum availability factor rather than actually
committing to provide any specific monthly amount of energy. Petitioners argue that
availability factor is a common utility standard for measuring reliability. While Petitioners
are correct that availability factor is one common utility measurement of reliability,
Petitioners fail to mention that availability factor only has meaning when it is applied to a
generating facility that is dispatchable. Availability factor is meaningless when applied to
intermittent resources that only have fuel on an if, as and when-available basis. Having a
unit available without fuel to operate the unit provides no reliability value to the utility.
ANSWER OF IDAHO POWER TO PETITIONS FOR RECONSIDERATION , Page 10
CONCLUSION
Commission Order No. 29632 represents a reasonable balancing of the
interests of OF wind developers and utility customers. Under Order No. 29632
Petitioners have the sole discretion to decide how much firm energy they want to commit
to provide each month. They know better than anyone what are realistic estimates of the
amount of energy they can expect to deliver on a firm basis each month. The
Commission correctly determined that it is not unreasonable to expect a OF that is being
paid firm energy prices to enter into a firm legally-enforceable obligation to supply firm
energy.
WHEREFORE , Idaho Power respectfully requests that this Commission
deny Petitioners' Petitions for Reconsideration.
Respectfully submitted this 20th day of Dece
BARTON L. KLINE
Attorney for Idaho Power Company
ANSWER OF IDAHO POWER TO PETITIONS FOR RECONSIDERATION , Page
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 20th day of December, 2004 , I served a
true and correct copy of the above and foregoing ANSWER OF IDAHO POWER TO
PETITIONS FOR RECONSIDERATION 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 Pursley 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 , I D 83703
James F. Fell
Stoel Rives LLP
900 S.W. Fifth Avenue, Suite 2600
Portland , OR 97204
Bob LivelyPacifiCorp
One Utah Center, 23rd Floor
201 S. Main Street
Salt Lake City, UT 84140
CERTIFICATE OF SERVICE , Page
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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
Glenn Ikemoto
Energy Vision , LLC
672 Blair Avenue
Piedmont, CA 94611
Gerald Fleischman
5437 Hickory Run Place
Boise, ID 83713
Gary Seifert
INEEL
O. 1625 - MS 3810
Idaho Falls, ID 83415-3810
Kurt Myers
2525 Fremont Avenue
Idaho Falls , I D 83415-3810
Leslie Tidwell
O. Box 2919
Ketchum, ID 83340
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CERTIFICATE OF SERVICE, Page 2
BARTON L. KLINE