20040903Final Order No 29577.pdf

Office of the Secretary
Service Date
September 3, 2004
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR APPROVAL
OF AN AGREEMENT FOR SALE AND
PURCHASE OF ELECTRIC ENERGY
BETWEEN IDAHO POWER COMP ANY AND
THE J.R. SIMPLOT COMPANY.
CASE NO. IPC-O4-
ORDER NO. 29577
On June 25 2004 , Idaho Power Company (Idaho Power; Company) filed an Application
with the Idaho Public Utilities Commission (Commission) requesting approval of a Firm Energy
Sales Agreement between Idaho Power and J.R. Simplot Company (Simplot) dated June 18, 2004
(Agreement).
Simplot currently owns, operates and maintains a 15.9 MW cogeneration facility
(project) at its industrial site near Pocatello, Idaho. The project is a qualified cogeneration facility
under the applicable provisions of the Public Utility Regulatory Policies Act of 1978 (PURP A). As
reflected in the Company s Application, the Simplot project is currently interconnected to Idaho
Power and is selling energy to Idaho Power as a Qualifying Facility (QF) in accordance with a Firm
Energy Sales Agreement dated January 24 1991 (Order No. 23552) and as subsequently amended
on November 30 1993 (Order No. 25353) and February 23 , 2001 (Order No. 28730), and by two
letter Agreements signed by the parties that extended the term of the 1991 Agreement
February 29, 2004.
Agreement
Under the terms of the submitted Agreement, Simplot has elected to contract with Idaho
Power for a one-year term. The Agreement contains non-Ievelized published avoided cost rates
established by the Commission for energy deliveries less than 10 MW (Order No. 29391) for a
contract year March 1 2004 through February 28, 2005. The Agreement will "evergreen" or
automatically renew from year-to-year unless terminated. Agreement ~ 5.3. Idaho Power will pay
the published, less than 10 MW non-Ievelized non-fueled energy price in accordance with the
Commission Order in effect as of March 1 st of each contract year.
The Company in this Agreement defines energy delivered to Idaho Power exceeding
000 kW in a single hour as "Inadvertent Energy.Agreement ~ 1.9. As reflected in the
ORDER NO. 29577
Agreement, Simplot does not intend to generate and deliver Inadvertent Energy. If Simplot
accidentally generates and delivers Inadvertent Energy, Idaho Power will not purchase or pay for
Inadvertent Energy.
As an incentive for Simplot to deliver energy to the Company during times when it is of
greater value to Idaho Power, the Company has refined the seasonalization of rates to coincide to
the months in which Idaho Power has identified actual energy needs and periods of higher demands.
Agreement ~ 6.
As reflected in Agreement ~ 8., Idaho Power states that it waIves any claim to
ownership of "Environmental Attributes." Environmental Attributes include, but are not limited to
green tags, green certificates, renewable energy credits (RECs) and tradable renewable certificates
(TRCs) directly associated with the production of energy from the Simp lot project. Idaho Power
notes the Commission s language regarding Environmental Attributes in Case No. IPC-04-
Order No. 29480. In that Order the Commission stated:
We find that the issue presented by Idaho Power in its Petition does not present
an actual or justiciable controversy in Idaho and is not ripe for a declaratory
judgment by this Commission. Declaratory rulings are appropriate regarding
the applicability of any statutory provision or of any rule or order of this
Commission. See IDAPA 31.01.01.10 1; Uniform Declaratory Judgment Act
Idaho Code 10-1201 et seq. A declaratory ruling contemplates the resolution of
prospective problems. The rights sought to be protected by a declaratory
judgment may invoke either remedial or preventive relief; it may relate to
right that is only yet in dispute or a status undisturbed but threatened or
endangered; but in either event it must involve actual and existing facts. Idaho
Code Supreme Court in Harris v. Cassia County, 106 Idaho 513 , 516-517, 618
2d 988 (1984). We find that none of the predicates are present in this case. In
making this finding, the Commission notes that FERC on April 15 , 2004
(Docket EL03-133-001 107 FERC ~ 61 016) denied rehearing of its earlier
October 1 , 2003 Order (105 FERC ~ 61 004). We note also that the State of
Idaho has not created a green tag program, has not established a trading market
for green tags, nor does it require a renewable resource portfolio standard.
While this Commission will not permit the Company in its contracting
practice to condition QF contracts on inclusion of such a right-of- first refusal
term, neither do we preclude the parties from voluntarily negotiating the sale
and purchase of such a green tag should it be perceived to have value. The
price of same we find, however, is not a PURP A cost and is not recoverable
as such by the Company. Recovery of those expenses will be reviewed as are
all other non- PURP A costs.
ORDER NO. 29480
ORDER NO. 29577
Idaho Power states that it is willing to waive any legal rights to the Environmental Attributes, if the
Commission is willing to provide the Company with reasonable assurance that the Company will
not be penalized in a future revenue requirement proceeding for having agreed to forego any
ownership interest or right in the Environmental Attributes. By filing this Agreement, Idaho Power
states that it is presenting the Commission with a real case or controversy and, therefore, the lack of
ripeness ide~tified by the Commission in the declaratory judgment action is not present in this case.
Agreement ~ 24 provides that the Agreement will not become effective until the
Commission has approved without change all the Agreement terms and conditions and declared that
all payments to Simplot that Idaho Power makes for purchases of energy will be allowed as
prudently incurred expenses for ratemaking purposes. Should the Commission approve the
Agreement, Idaho Power intends to consider the effective date of the Simplot Agreement to be
March 1 2004.
Idaho Power further requests a Commission finding that all payments for purchases of
energy under the January and February 2004 extensions of the 1991 Agreement will be allowed as
prudently incurred expenses for ratemaking purposes. The rate paid for energy during the months
of January and February 2004 was the same rate specified in the 1991 Agreement for December
2003 (0.04201~/kWh) and is less than the then and current published avoided cost rates for those
same months.
Staff Comments
On July 22, 2004, the Commission issued Notices of Application and Modified
Procedure in Case No. IPC-04-16. The deadline for filing written comments was August 13
2004. The Commission Staff was the only party to file comments. Staff recommends that the
Agreement be approved and that all payments to Simplot under the Agreement be allowed as
prudently incurred expenses for ratemaking purposes. Staff agrees that the contract's definition and
treatment of "Inadvertent Energy" effectively limits Simplot to a capacity of less than 10 MW and
qualifies the cogeneration project for published avoided cost rates. Staff also expresses no objection
to the "evergreen provision whereby the rates are updated annually and the contract is
automatically renewed from year to year unless terminated. Agreement ~ 5.
Despite representations of the Company to the contrary in Agreement ~ 8.1 , Staff
believes that this case does not present the question of ownership of "Environmental Attributes.
Because Simplot's cogeneration project is presently generating and will continue to generate
ORDER NO. 29577
regardless of whether there are Environmental Attributes associated with the project, Staff believes
that the project's Environmental Attributes would have little or no marketable value. Furthermore
Staff questions whether the energy from the Simplot project could be certified as "green" under any
certifying organization s criteria, and whether the project even possesses any Environmental
Attributes with value as green tags, green certificates, RECs or TRCs.
In the event, however, that the Commission determines that the issue of Environmental
Attributes has been squarely presented, Staff incorporates its related comments filed in Case No.
IPC-04-2. In those comments, Staff stated its belief that neither PURP A or other federal law
(including the Energy Policies Act of 1992) nor Title 61 of the Idaho Code gives the Commission
jurisdiction over Environmental Attributes. Staff recommended in that case that if the Commission
determined that it has jurisdiction, that the Commission rule that mandatory purchases from QFs
under PURP A do not convey ownership of any marketable environmental attributes and that any
environmental attributes remain with the QF.
Idaho Power also requests treatment of energy purchased from Simplot in January and
February 2004 pursuant to Letter Agreement dated December 22, 2003 and January 30, 2004 as
required PURP A purchases. The letters reflect that the expiration of the Commission approved
Agreement (January 24, 1991) and associated amendments (November 30, 1993; February 23
2001) was December 31 , 2003. The Company in this filing requests an effective date for the
. Agreement of March 1 , 2004 and requests that the Commission declare all payments it makes to
Simplot for purchases of energy be allowed as prudently incurred expenses for ratemaking
purposes.
Staff contends that extension of the expiring PURP A contract was a significant change
or modification that required Commission approval.The Company letter filing with the
Commission was informational only. No Commission approval of the extension agreement was
requested. As part of its unified regulatory scheme in implementing PURP A, the Commission
Staff notes, has long required that signed power purchase contracts be presented to it for review
approval and lock-in of avoided cost rates. The parties, Staff contends, cannot by Letter Agreement
deprive the Commission of its ratemaking authority under PURPA and Idaho Code ~~ 61-502 and
61-503 or relieve the utility of its obligations under Idaho Code ~ 61-307. Similarly, Staff contends
that the parties should not seek retroactive approval of a new contract with an effective date more
than five months past.
ORDER NO. 29577
Although the Company neither sought nor obtained Commission approval of the two
contract extension periods, Staff recommends that the purchases of energy in January and February
2004 be treated for ratemaking purposes as purchases mandated under PURP A. Staff makes this
recommendation because the rates paid by Idaho Power during the months of January and February
2004 were less than the then current published avoided cost rates for those same months. Staff also
reluctantly recommends that the Commission approve the Agreement's March 1 , 2004 effective
date. In making this recommendation, Staff acknowledges that under the Company s PCA
mechanism period PURPA costs are recovered at 100% and non-PURPA costs are subject to a
90/1 0 sharing.
COMMISSION FINDINGS
The Commission has reviewed the filings of record in Case No. IPC-04-16 including
the Firm Energy Sales Agreement dated June 18, 2004, and the related comments and
recommendations of the Commission Staff. Based on our review of the record, we continue to find
it appropriate to process this case pursuant to Modified Procedure. IDAPA 31.01.01.204.
Idaho Power in this case requests Commission approval of a PURP A Firm Energy Sales
Agreement with the J.R. Simplot Company. Under the terms of the submitted Agreement, Simplot
has elected to contract with Idaho Power for a one-year term. We find that the Agreement contains
non-levelized published avoided cost rates established by the Commission for energy deliveries less
than 10 MW for a contract year March 1 , 2004 through February 28, 2005. Although the Simplot
cogeneration facility has a generation capacity of 15.9 MW, we find that the "inadvertent energy
contract provisions provide an adequate means of qualifYing the project for the published avoided
cost rates.
The submitted Agreement by its terms will "evergreen" or automatically renew from
year-to-year unless terminated. We find the evergreen clause to be acceptable, as it is coupled with
an annual change in QF purchase rates, i., an adoption of the published less than 10 MW non-
levelized non-fueled energy price in effect as of March 1 of each contract year.
Idaho Power requests Commission assurance that the Company will not be penalized in
a future revenue requirement proceeding for having agreed to forego any ownership interest or right
in the environmental attributes associated with Simplot's Pocatello cogeneration facility. The
Commission has reviewed its prior Order No. 29480 language in Case No. IPC-04-2 regarding
environmental attributes. The regulatory landscape has not changed. The state of Idaho has still not
created a green tag program, has not established a trading market for green tags, nor does it require
ORDER NO. 29577
a renewable resource portfolio standard. We note, as we did earlier, that the utility and QFs are free
to voluntarily contract and negotiate the sale and purchase of such green tags should environmental
attributes be perceived by the contracting parties to have value. The price of same we find
however, is not a PURP A cost and is not recoverable as such by the Company. Recovery of those
expenses will be reviewed as are all other non-PURP A costs.
As qualified above, the Commission finds it reasonable to approve the submitted
Agreement and further finds it reasonable to allow payments made under the Agreement as
prudently incurred expenses for ratemaking purposes.
The Agreement tendered is dated June 18 , 2004. The prior Commission approved
Agreement between Idaho Power and Simplot expired December 31 , 2003. Idaho Power requests
that all energy purchased from Simplot in January and February 2004 pursuant to Letter Extension
Agreements dated December 22 2003 and January 30 2004 be treated as purchases under PURPA
for purposes of PCA expense recovery. The Company also requests that the submitted Agreement
be approved for an effective date of March 1 , 2004. The contract rates for the purchases of energy
in January and February 2004 were less than the then current published avoided cost rates for those
same months. The contract rate for energy purchases subsequent to March 1 are pursuant to the
non-levelized published avoided rates established by the Commission in Order No. 29391 effective
December 15 , 2003. We find it reasonable to treat the purchases pursuant to letter extensions from
December 31 , 2003 through February 28, 2004 and purchases since March 1 , 2004, for accounting
and expense recovery as PURP A required purchases. We put the Company on notice that it must
improve its QF contracting practices. There are regulatory consequences associated with the
voluntary or involuntary nature of a purchase. Commission approval of QF contracts is not a
meaningless exercise. The Commission strongly encourages the Company to manage its PURP
contract portfolio and expiring contracts in a more vigilant and responsible manner.
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. 29577
ORDER
In consideration of the foregoing and as more particularly described and qualified above
IT IS HEREBY ORDERED and the Commission does hereby approve the June 18, 2004, Firm
Energy Sales Agreement between Idaho Power Company and the J .R. Simplot Company for an
effective date of March 1 2004.
IT IS FURTHER ORDERED and the Commission does hereby approve post
December 31 , 2003, energy purchases from J .R. Simplot Company as mandatory purchases
pursuant to PURP A and as qualifying for related regulatory expense treatment.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7) days
after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code ~ 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 3 ,J day
of September 2004.
PAUL KJELLA DER, PRESIDENT
MARSHA H. SMITH, COMMISSIONER
ATTEST:
vld/O:IPCE0416 sw
ORDER NO. 29577