20050110Reconsideration Order No 29682.pdf

Office of the Secretary
Service Date
January 10 2005
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
s. GEOTHERMAL, INC. AN IDAHO
CORPORATION,CASE NO. IPC-O4-
Complainant
vs.
IDAHO POWER COMPANY, AN IDAHO
CORPORATION,
Respondent.
BOB LEWANDOWSKI and MARK
SCHROEDER CASE NO. IPC-O4-
Complainants
vs.FINAL ORDER ON
RECONSIDERATION
IDAHO POWER COMPANY, AN IDAHO
CORPORATION,ORDER NO. 29682
Respondent.
On November 22, 2004, the Idaho Public Utilities Commission (Commission) issued
final Order No. 29632 in two complaint proceedings against Idaho Power Company (Idaho
Power; Company), Case Nos. IPC-04-8 and IPC-04-10.
The Complainants are small power producers and qualifying facilities (QFs) under
the Public Utility Regulatory Policies Act of 1978 (PURP A) and the implementing regulations of
the Federal Energy Regulatory Commission (FERC). The respondent, Idaho Power, an electric
utility, is required pursuant to PURP A and the implementing rules and regulations of FERC and
this Commission to purchase power from eligible QFs.
S. Geothermal, Inc. and Bob Lewandowski and Mark Schroeder alleged in their
complaints that Idaho Power was proposing PURP A contract terms that were unjust
unreasonable and unlawful. Among the contract issues addressed by the Commission in its final
ORDER NO. 29682
Order, the Commission provided specific guidance and direction with respect to the 10 MW
threshold for posted rate eligibility and the 900/0/110% performance band.
Regarding the 10 MW threshold, we stated:
It is the Commission s belief that a legally enforceable obligation translates
into reciprocal contractual obligations for both parties, a quid pro quo. It is
not just a lock-in of avoided cost rates but is also an obligation to deliver. . . .
We find that the 10 MW threshold limit, however, must have some import
some significance if eligibility is to mean anything. The Commission finds it
reasonable to define firmness as predictability on a monthly basis. By way of
eligibility criteria, we find it reasonable for the utility to make an initial
capacity determination and require that the QF demonstrate that under normal
or average design conditions the project will generate at no more than
aMW in any given month. To provide further definition and sideboards, we
also find it reasonable to cap the maximum monthly generation that qualifies
for published rates at the total number of hours in the month multiplied by 10
MW.
Regarding the 90%/110% performance band, we stated:
As reflected in our 10 MW cap discussion, the Commission finds that a
legally enforceable obligation translates into contractual obligations of both
parties. For a QF it translates into an obligation or commitment to deliver its
monthly estimated production. Idaho Power proposes that this delivery of
committed energy fall within a 90/110 band. Staff proposes that the band be
expanded to 80/120. We find 90/110 to be reasonable. The Commission
recognizes that excess energy is not accepted by the Company without
consequence. If unplanned for and not easily integrated the energy may as
suggested by the Company have to be sold in the surplus market or other
more economic resources of the Company backed down.
The Commission finds that energy delivered in excess of 110% should be
priced at 85% of the market or the contract price, whichever is less. As
reflected in our discussion of 10 MW we find it reasonable to cap the
maximum monthly generation that qualifies for published rates at the total
number of hours in the month multiplied by 10 MW. This is also a cap for
excess energy payments. By way of example, a QF that commits to deliver a
monthly total of 7 000 kWh in January and delivers greater than 90% of the
commitment amount that month will receive the posted rate for all energy up
to 110% of the 7 000 kWh commitment amount and 85% of the Mid-
market price for energy exceeding 110% up to the 10 MW cap. The QF will
receive no payment for any energy provided above the 10 MW cap.
Idaho Power proposes that if the QF delivers less than 90% of the scheduled
net energy" amount (for reasons other than forced outage or forced maj eure
ORDER NO. 29682
events) that the shortfall energy be priced at 85% of the market price, less the
contract rate, the difference capped at 150% of contract rate. The
Commission believes that such a shortfall energy pricing method might have
the potential of exacting too heavy a price. We instead find it reasonable
when the QF fails to deliver 90% of the monthly commitment amount to
price all delivered energy at 850/0 of the market price, or the contract rate
whichever is less.
Timely Petitions for Reconsideration of Order No. 29632 were filed by the
Complainants Bob Lewandowski and Mark Schroeder, and the following non-parties: Energy
Vision LLC (Glenn Ikemoto); Renaissance Engineering & Design PLLC (Brian D. Jackson);
West Slope Wind One LLC (LeRoy Jarolimek); Kurt Myers; Gerald Fleischman; Leslie Tidwell;
and Gary Seifert. All petitioners for reconsideration are interested in PURP A QF development.
Idaho Power and PacifiCorp filed Answers to the Petitions for Reconsideration. Energy Vision
LLC filed a reply to the utility Answers.
That portion of the Commission s Order for which reconsideration is requested is the
Commission s findings and decision regarding the 90/110 performance band and the payment
structure for shortfall energy. The reconsideration petitions can be summarized as follows:
Lewandowski and Schroeder
Messrs. Lewandowski and Schroeder in their Petition note that Idaho Power
proposal regarding shortfall energy was that whenever a QF's production falls below 90% of the
amount called for the QF would pay Idaho Power for the lost production. This shortfall energy
price would be either the contract rate or the Mid-C price, whichever is higher, with the shortfall
energy price capped at 150% of the contract rate. The Commission, Petitioners note, quickly
observed that "such a shortfall energy pricing method might have the potential of exacting too
heavy a price." Order No. 29632 p. 20. But the solution crafted by the Commission, Petitioners
contend, is a solution that no party to the proceeding proposed or even addressed. The
Commission s solution, they state, severely penalizes a QF even if production is only one-tenth
of one percent below the 90 percent target. As the Commission pricing mechanism was
proposed by no party to the case, Petitioners contend that it is not in conformity with law. Citing
Hayden Pines 111 Idaho 331 , 335 (1986). The Commission s ruling in this regard, Petitioners
contend, is unreasonable as renewable resources, such as hydro , solar and wind, are weather
dependent for the source of their fuel. Further exacerbating the price uncertainties introduced by
such a penalty, they contend, is the fact that there is no floor below which the rate could go.
ORDER NO. 29682
Petitioners contend that no penalty should be based on market price. Rather than
market price, they contend that any penalty should be based on a fixed scale of gradually
decreasing rates that correspond to a QFs decreasing availability factor. Alternatively, the
Petitioners suggest that the Commission could require that weather may be claimed as the event
of force majeure.
Energy Vision LLC (Glenn Ikemoto)
Energy Vision (EnVision) contends that the Commission s ruling regarding the
90/110 band and pricing mechanism for shortfall energy is unreasonable and not in conformity
with the PURP A requirement that states actively encourage the development of QF power in
furtherance of the federal government's goal of promoting energy independence.
EnVision contends that the incentives are reversed in the shortfall energy remedy
crafted by the Commission, i., when market prices are higher, the QF faces no penalty because
it will receive published prices anyway - no incentive to forecast more accurately. Alternatively
when market prices are lower, the QF faces a potentially severe penalty; however, this is exactly
when ratepayers would prefer to reduce QF deliverables.
EnVision also contends that published rates do not account for all relevant risk
considerations, i., (1) the forecast of gas prices do not consider the cost of achieving price
certainty, (2) construction cost overruns and excess inflation are also not explicitly accounted for
in the SAR, (3) regulatory risks are not accounted for, and (4) nor are the advantages of resource
diversity taken into account. EnVision contends that utility planning and long-term risks far
outweigh the operational risks addressed by the 90/110 band. If the Commission ignores the
long term risk cited, it also seems reasonable, Petitioners contend, to ignore the much smaller
operational risk of production variances.
The Commission, EnVision notes, correctly recognized that Idaho Power s proposed
penalty could result in QFs delivering the bulk of their commitment and still owe the utility
money. Unfortunately, EnVision contends that the Commission s approach which fixes the
problem of wiping out revenues introduces uncapped market risk. This risk, it contends, makes
projects unfinancable.
A classic measure of fairness, EnVision contends, is whether one party would take
the deal being offered to another. In this case, EnVision contends that the production variance is
nothing compared to price variance.
ORDER NO. 29682
EnVision contends that the record in this case is inadequate for selecting a penalty
linked solely to market prices. Petitioner contends that the fairest solution is to eliminate the
90/110 band. Alternative solutions suggested are (1) forecasting fees; (2) a published price
penalty; and (3) an expansion of the force majeure. EnVision requests a hearing to explore the
suggested alternatives.
Renaissance Engineering & Design PLLC (Brian Jackson)
Renaissance Engineering contends that its clients (farmers and ranchers) are
installing state of the art equipment with a proven 98% availability and are typically improving
the local power grid with capacitor banks and voltage regulation. The burden of forecasting
monthly generation with a potential penalty so very high, it states, is too severe and restrictive.
It is probably as difficult to predict energy prices into future years, it states, as it is to predict
monthly wind generation.
Renaissance Engineering contends that there is no precedent or justification for
differentiating between generation technologies or for paying less than published rates. To the
extent that the Commission requires a PURP A QF to look and operate and act like a merchant
power plant with a firm commitment of energy instead of a PURP A QF with a dedicated
resource, the Petitioner contends that the plant should then be allowed to market excess energy,
beyond its commitment to the Idaho utilities at market prices on the open market.
Renaissance Energy contends that the Commission is making complex something
that was initially simple, clean and efficient.
Kurt Myers
Mr. Myers believes there is a mistake in the wording of one sentence of the
Commission s Order. The sentence he states reads as follows: "We instead find it reasonable
when the QF fails to deliver 90% of the monthly commitment amount to price all delivered
energy at 85% of the market price, or the contract rate, whichever is less.This sentence, he
states, appears to contradict the sentence before it that mentions that Idaho Power s shortfall
proposal has the potential to "exact too heavy a price.The sentence which he believes is
mistaken, he states, would prevent anyone from ever doing a PURP A project in Idaho.
Gerald Fleischman
Mr. Fleischman supports the Commission Order dissent of Marsha Smith. The
Commission s decision, he contends, does not meet the intent of PURP A and builds another
ORDER NO. 29682
barrier to entry for small renewable energy projects. How can it make sense from a cost
standpoint, he queries, for a QF developer to install backup generation? Further, he queries
what are the costs of not integrating wind. In the long run, he states we need more
diversification or power supply both from an energy resource perspective and from an ownership
perspective. PURP A, he states, is the only law that provides a market for the smaller wind
power producer.
West Slope Wind One LLC (LeRoy J arolimek)
Mr. J arolimek contends that the below 90% shortfall penalty has guaranteed that it
will be nearly impossible for any renewable project like wind, geothermal, anaerobic digester or
biomass using a PURP A contract to secure financing.
The 90/110 band, Petitioner states , forces QFs to reduce estimated production from
the real potential production to fit within a very small window. The wind industry, he notes
states that monthly average energy production can vary as much as 24%. The Staff
recommended 80/120 band, he states, would put wind very close to what is a normal variance of
the monthly estimated projection.
Mr. Jarolimek contends that Idaho Power shortfall option is fairer than the
Commission s Order. The 90/110 band, he states, reduces a QF's ability to obtain fair market
value for their energy and makes it difficult to develop a profitable wind project. If a QF misses
monthly estimates by only one watt, it reduces the price for all monthly energy production.
Leslie Tidwell
Leslie Tidwell is an investor who before the Commission s Order was willing to
invest in a 3 MW wind farm (LeRoy Jarolimek's Farm). The Commission s shortfall energy
solution, Petitioner states, has caused Petitioner to cancel funding for the Jarolimek project. On
a small wind project without economies of scale, the returns to the investor, Petitioner states, are
barely average, even when using the avoided cost fee structure. Leslie Tidwell encourages the
Commission to eliminate the shortfall pricing mechanism.
Gary Seifert
Mr. Seifert contends that the Commission s Order is punitive to the extent that it will
eliminate all investment and financability of renewable wind projects in Idaho. The 85% of
market wording, he contends, eliminates all access for wind projects that need any external
ORDER NO. 29682
investment. The uncertainty the Commission s ruling invokes, he states, must be removed if
wind projects in Idaho are to obtain financing.
Idaho Power Answer
Idaho Power contends that PURP A requIres that customers be economically
indifferent to whether a utility serves its loads with QF resources, utility-owned power plants or
utility purchases from the wholesale market. PURP A, it states, does not guarantee that all QF
projects will be developed.
Idaho Power, the Company states , proposed a "shortfall energy" remedy that
required QFs to pay Idaho Power liquidated damages when a QF failed to deliver 90% of the
monthly contract commitment amount. Lewandowski and Schroeder recommended no remedy
for failure to deliver the minimum energy. The Commission s Order, the Company states, did
not adopt the exact recommendations of any of the parties. Instead the Commission, it states
adopted a remedy that occupies the middle ground between the Idaho PowerlStaff shortfall
energy remedy proposal and the SchroederlLewandowski no remedy position. The adopted
market band pricing remedy, the Company states, is the same remedy currently included in the
QF contract between Idaho Power and Tiber Montana LLC for the Tiber hydro project.
Petitioners argue, Idaho Power notes, that because the Commission did not adopt
either the shortfall energy remedy or the no remedy position that the Commission is legally
precluded from adopting the market based pricing remedy. The position advanced
Petitioners, characterized by Idaho Power as baseball arbitration, does not, it states, conform
with Idaho law. Citing Industrial Customers of Idaho Power v. Idaho Public Utilities
Commission 134 Idaho 285 , 293 (2000). The Court in the Industrial Customers case held that
the Commission is not limited to simply selecting one of the alternatives presented. As the Court
in the Industrial Customers noted, 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.
Citing Application of Utah Power Light Company, 107 Idaho 446, 451 (1984). Additionally
the Court in Industrial Customers noted that the Commission is free to rely on its own expertise
as justification for its decision. Citing Boise Water Corp. v. Idaho Public Utilities Commission
97 Idaho 832, 842 (1976); Intermountain Gas Company v. Idaho Public Utilities Commission
Idaho 113 (1975).
ORDER NO. 29682
This case, Idaho Power contends, grew out of the Company s desire to obtain firm
reliable energy commitments from QFs. The availability factor proposed by Petitioners as an
alternate, Idaho Power contends, only has meaning when it is applied to a generating facility that
is dispatchable. It is not, the Company contends, a reasonable test for intermittent resources like
wind.
PacifiCorp Answer
PacifiCorp contends that the 90/110 performance band adopted by the Commission is
both reasonable and lawful. QFs seeking firm pricing are subject to a "legally enforceable
obligation" to deliver energy and capacity in the contracted-for amount. For such an obligation
to have meaning, PacifiCorp contends that there must be some consequences associated with the
failure of QFs to deliver the contract amount within reasonable parameters.
It is the nature of the resource, PacifiCorp contends, and not the Commission
decision that puts intermittent and thermal resources on different footing. The Commission
decision, it states, treats all resources fairly by allowing the facility to determine the appropriate
monthly commitment levels.
Avoided costs, PacifiCorp contends, include both capacity and energy components.
A utility, it contends, cannot be said to avoid capacity cost if the QF is permitted to deliver or not
at its sole discretion. Some measure of meaningful certainty, is required, PacifiCorp contends.
Further, PacifiCorp notes that the Commission s Order recognizes that there are consequences to
the utility associated with over- and under-deliveries.
The performance band, PacifiCorp contends, is a reasonable, flexible method of
insuring that QFs live up to their delivery commitments. It allows QFs to receive firm pricing
based on aggregate monthly delivery commitments. Over- and under-deliveries are netted on a
monthly basis, rather than being imposed hourly or daily, and are further buffered by the 90/110
band. Additionally, PacifiCorp notes that QFs are permitted to periodically revise their monthly
delivery commitment throughout the contract term, and are excused from delivery in the event of
forced outages.
Contrary to Petitioners assertions, PacifiCorp contends that the performance band
does not force QFs to limit or minimize their output. Rather, it merely limits firm, capacity
benefits to the level at which the QF owner can reliably predict the monthly output of the
ORDER NO. 29682
facility. Non-firm pricing, it notes, is available for QFs who seek to deliver on an "as available
basis.
PacifiCorp further contends that the Commission s decision regarding the pricing for
shortfall deliveries is supported by substantial and competent evidence. Idaho Power proposed
that QFs falling below the performance band be required to pay an amount equal to 85% of the
market price for the shortfall, capped at 150% of the contract price. The Commission adopted a
less onerous solution by which all deliveries in a shortfall month are priced at 85% of the market
price, or the contract price, whichever is less. Petitioners assertion that this finding is not
supported by substantial evidence because it differs from any specific remedy proposed by any
of the parties , PacifiCorp contends is without merit. Citing Industrial Customers of Idaho Power
v. Idaho Public Utilities Commission 134 Idaho 285, 293 (2000).
PacifiCorp contends that the speculative consequences of the performance band on
financing options for QFs raised by Petitioners should have been presented at hearing. Similarly
it notes that there is no foundation in the record for Renaissance s proposal that QFs be allowed
to sell excess delivery amounts in the market.
Energy Vision LLC Reply
EnVision does not agree that a record has been adequately developed regarding using
market prices for performance shortfalls. Envision contends the performance band is the new
weapon of choice to impede renewables. Citing Idaho Power s most recent RFP , EnVision
contends that there is insufficient information in the record to decide whether the financing
barrier created by the performance mechanism is justified. The performance band, it states, is
not an economic issue, as represented by the utilities. Rather, it states, it is a financing issue.
Commission Decision
The Commission has reviewed the filings of record in Case Nos. IPC-04-8 and
IPC-04-10 including the underlying transcript and the Commission s Order No. 29632. We
have also reviewed the Petitions for Reconsideration, the utility Answers and the Reply, and the
Idaho case authorities cited therein. We have further reviewed our jurisdiction and authority
under PURP A and the implementing regulations of FERC.
Having reviewed our Order and the underlying record we find our reasonIng
regarding the 90/110 performance band and shortfall pricing structure to be sound, in furtherance
of the ends of PURP A and supported by the record. We find that Petitioners have failed to
ORDER NO. 29682
establish that the Commission decision is unreasonable, unlawful, erroneous or not in conformity
with law. Commission Rule of Procedure 331.01. We find that the Commission has broad
authority under PURP A to set the rates, terms and conditions of QF purchases and is not
precluded from fashioning a remedy different from the specific alternatives proposed by the
parties. 18 C.R. 9 292.304; Industrial Customers 134 Idaho 285 , 293 (2000).
The harshness or inequity we foresaw in Idaho Power s proposed shortfall remedy
was the very real possibility at month's end, with the combination of very low actual generation
and very high market prices, of a QF being out-of-pocket and having to pay the utility for
monthly contract energy shortfall amounts exceeding the calculated revenue for contract energy
provided to the utility. Such a result, we find, continues to be possible even with the 150% cap
proposed by the utility. We eliminated the possibility of such a result. Under our Order there is
no instance in which a QF project could end up owing Idaho Power at the end of the month for
energy not produced. Projects failing to produce at least 90% of their monthly energy
commitments are paid non-firm energy rates (the same as Idaho Power s non-firm Schedule 86
rates) capped at the rate that would have otherwise been paid under the contract.
This Commission finds no compelling reason to convene further hearings to explore
the new alternatives and proposals suggested for the first time on reconsideration. As indicated
in our prior Order, the Commission will consider the reasonableness of any signed contract
negotiated by and acceptable to the parties and their respective arguments as to the equity and
fairness in approving same.
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 the implementing regulations of
the Federal Energy Regulatory Commission (FERC) to set avoided costs, to order electric
utilities to enter into fixed term obligations for the purchase of energy from qualified facilities
and to implement FERC rules.
ORDER NO. 29682
ORDER
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED and the Commission does hereby deny each and everyone of the filed
Petitions for Reconsideration of Order No. 29632 in Case Nos. IPC-04-8 and IPC-04-10.
THIS IS A FINAL ORDER DENYING RECONSIDERATION.Any party
aggrieved by this Order or other final or interlocutory Orders previously issued in this Case Nos.
IPC-04-8 and IPC-04-10 may appeal to the Supreme Court of Idaho pursuant to the Public
Utilities Law and the Idaho Appellate Rules. See Idaho Code 9 61-627.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 10 +k
day of January 2005.
See Separate Dissent
MARSHA H. SMITH, COMMISSIONER
ENNIS S. HANSEN, C MMISSIONER
ATTEST:
bls/O:IPCE0408 10 sw3
ORDER NO. 29682
DISSENT OF
COMMISSIONER MARSHA H. SMITH
ORDER NO. 29682
CASE NOS. IPC-O4-8 AND IPC-O4-
I continue to believe that the Commission erred in its decision in Order No. 29632
and I would grant the Petitions for Reconsideration and conduct further hearings for the purpose
of developing further record and exploring the reasonableness of the Commission s decision
approving the 90/110% performance band and a market based rate for surplus and shortfall
energy.
~~~
MARSHA H. SMITH, COMMISSIONER