20041123Press Release.pdf

IDAHO PUBLIC UTILITIES COMMISSION
Case No. IPC-04-8, Order No. 29632
November 22, 2004
Contact: Gene Fadness [phone]
Web site: www.puc.state.id.
Commission settles Idaho Power, small-power producer issues
BOISE - The Idaho Public Utilities Commission today issued an order defining the parameters of
contracts between Idaho Power and developers of small-power wind and geothermal projects.
Two operators of wind power projects and another operator of a geothermal project in Cassia
County filed complaints with the commission earlier this year alleging Idaho Power is requiring
contract terms that are contrary to federal PURP A provisions.
The energy crisis of the late 1970s prompted Congress to pass the Public Utilities Regulatory
Policies Act, or PURP A. Its purpose is to encourage the promotion and development of
renewable energy technologies as alternatives to burning fossil fuels or the construction of new
power plants. PURP A requires large electric utilities like Idaho Power to buy electricity
generated by small-power producers who obtain Qualifying Facility status. The rate utilities must
pay qualifying facilities (QFs) is set by the state commission. The rate, sometimes called
avoided-cost rate, is to be equal to the cost the electric utility avoids if it would have had to
generate the power itself or purchase it from another source.
A complaint was filed last March by U.S. Geothermal, which owns the IS-megawatt Raft River
Geothermal Power Plant being built in Cassia County. A separate complaint was filed by Bob
Lewandowski, operator of a wind project east of Boise, and Mark Schroeder, who is developing
a wind proj ect in the Hagerman-Bliss area. The complaints were consolidated by the commission
into one case.
Over recent months , the commission has started to receive more applications from wind and
geothermal projects seeking to qualify for PURPA rates. These types ofprojects pose new
challenges for the commission, regulated utilities and small-power producers. A major question
regarding wind projects in particular is the reliability of their output and if the commission
should treat such projects as "firm" sources of power. Firm power sources are more valuable
than non-firm, less predictable sources of power. Up until recently, most all PURPA projects in
Idaho have been small hydro facilities or co-generation projects at potato processing plants or
lumber mills where electricity is produced as a byproduct of the manufacturing process.
Essentially, the small-power producers objected to Idaho Power s contract provisions in three
major areas.
1) Idaho Power proposed to pay other than the commission-set posted rates when the output from
the complainants' projects is less than 90 percent or more than 110 percent ofprojected output.
Idaho Power claimed that when output is less than 90 percent it must find power from other
sources that can be more expensive. When output is more than 110 percent, Idaho Power said it
might have to sell the energy in the surplus market or reduce output at a more economic
generation plant.
The commission, by a 2-1 vote, agreed to the 90-110 performance band, but allowed the
developers more opportunities to revise their output estimates thereby allowing them greater
likelihood of staying within the performance band. The commission also lessened the severity of
the financial penalties QFs would receive for falling outside the performance band.
Commissioner Marsha Smith dissented on the performance band issue. The incentive for all
small-power producers is to provide all they power they can, she said. "They need to be paid to
stay in operation and if they do not produce, they do not get paid. The banding proposal would
operate as a penalty, not an incentive " Smith said.
Commission President Paul Kjellander and Commissioner Dennis Hansen said performance
bands are necessary because both parties of a contract must have reciprocal and enforceable
obligations. To qualify for the commission s posted rates, QF projects have an obligation to meet
at least 90 percent of their commitment. If QFs over-deliver there is also a consequence to the
company, the majority said. Ifunplanned 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 ramped down, the commissioners said.
Idaho Power had proposed allowing developers to revise their output estimates three times
during the first year of operation and then once every two years thereafter. The commission
ordered that QFs initially provide Idaho Power with one year of monthly generation estimates
followed by estimates every three months.
Further, the commission revised the financial penalties Idaho Power proposed if QFs fail to meet
production estimates. Idaho Power proposed that QFs that fail to deliver at least 90 percent pay
the difference if the price Idaho Power pays for replacement power (which would be priced at 85
percent of market price) is greater than the monthly contract price. Idaho Power agreed to cap the
penalty at 150 percent of the contract rate. Further, Idaho Power wanted to require that the QF
pay for the power Idaho Power would have to purchase to meet the shortfall if the price of that
power exceeded the contract price. The commission accepted the 85 percent of market price
provision but removed the shortfall penalty.
2) The complainants objected to Idaho Power s metered energy test as a method of determining
whether a project qualifies under the 10 MW limit the commission places on the size of small-
power projects to qualify for PURP A rates. Under commission rules, rates for projects larger
than 10 MW are determined on a project-specific basis. Idaho Power said the 10 MW capacity
exceeded if a QF meter reads greater than 10 000 kWh per hour. US Geothermal argued capacity
should be based on average annual energy delivered rather than an hourly measure because its
output will vary from 8 MW in the peak of summer to over 12 MW in winter. If limited to a 10-
MW turbine, U.S. Geothermal contends that its Raft River plant could not deliver close to an
average of 10 MW per year.
The majority on the commission ruled that the 10 MW capacity limit should remain, but that
Idaho Power s proposed metered energy test is "operationally too restrictive." Instead, the
commission ordered that QF generation be measured on a monthly basis, rather than hourly. To
qualify for PURP A rates, a QF must demonstrate that, under normal or average design
conditions, the project will generate at no more than 10 average megawatts in any given month.
The commission also capped the maximum monthly generation qualifying for payment.
Commissioner Smith dissented, saying capacity should be determined by an annual average.
Idaho Power is protected by contractual provisions that provide a maximum monthly capacity
amount and is not obligated to purchase excess deliveries, Smith said. "This is nothing more than
the status quo that has been available to all legitimate resources " she said.
3) The developers objected to an Idaho Power provision that allowed it to terminate its QF
contracts if Idaho allowed deregulation at the retail level and other parties were able to sell
electricity in Idaho Power s service territory. Under that scenario , Idaho Power argued, it would
be unable to fully recover its PURP A contract costs. The commission unanimously agreed to not
allow Idaho Power to terminate contracts if deregulation occurs. "We will not permit Idaho
Power to terminate QF contracts for reasons other than the default of the QF " the commission
said.
Documents related to this case can be accessed on the commission s Web site at
www.puc.state.id.. Click on "File Room " then "Electric Cases " and scroll down to Case No.
IPC-04-
Interested parties may petition the commission for reconsideration by no later than Dec. 20.
Petitions for reconsideration must set forth specifically why the petitioner contends that the order
is unreasonable, unlawful or erroneous. Petitions should include a statement of the nature and
quantity of evidence the petitioner will offer if reconsideration is granted.
Petitions can be delivered to the commission at 472 W. Washington St. in Boise, mailed to P.
Box 83720, Boise, ill, 83720-0074, or faxed to 208-334-3762.
END