20040817Comments.pdf

"; ;'-
" r I , 1'- ,," J". I ,.
, ' '"
b- '
; ';._
L. f Y L :z:t.~,_,i
SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 1895
r~'!LED l...
inn!, l\YH~ ~M C)* ''-!V-Jkt..H... HI' v- '' u
UT It II I ES"; COtit':i/~s ION
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
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 COMPANY AND
THE J.R. SIMPLOT COMPANY.
CASE NO. IPC-O4-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Application, Notice of Modified Procedure and Notice of Comment/Protest Deadline issued on
July 22, 2004 submits the following comments.
BACKGROUND
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 lR. Simplot Company (Simplot) dated June 18
2004 (Agreement).
Simp lot 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
ST AFF COMMENTS AUGUST 13 2004
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 to February 29, 2004.
On March 5, 2004, Idaho Power filed an Application with the Commission requesting
approval of a Firm Energy Sales Agreement between Idaho Power and Simplot dated
February 19, 2004. Reference Case No. IPC-04- 7. Subsequent to initial Notice of Application
and Modified Procedure, and following the filing of Staff and Reply Comments, Idaho Power
requested that its Application be withdrawn. Reference Commission Order No. 29503 , May 27
2004.
Under the terms of the newly 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 9 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 s1 of each contract year.
The submitted Agreement, the Company states, is similar in many respects to recent QF
contracts between Idaho Power and Tiber Montana LLC (IPC- E-03-1), and United Materials of
Great Falls, Inc. (IPC-04-1).
Agreement 9 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.
ST AFF COMMENTS AUGUST 13 , 2004
ANAL YSIS
This contract includes several provisions that make it unique from some prior Idaho
Power contracts. Staff will discuss each of these unique provisions, but will not discuss those
provisions that are common to QF contracts that have been previously approved by the
Commission.
10 MW Size Limit
The Company in this Agreement defines energy delivered to Idaho Power exceeding
000 kW in a single hour as "Inadvertent Energy." Agreement 9 1.9. As reflected in the
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. This contract provision effectively limits Simp lot to a capacity of less than
10 MW; the current threshold for determining availability for published avoided cost rates. Staff
supports this contract provision.
Seasonalization of Rates
As an incentive for Simp lot 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. Reference Agreement 9 6.2. The months chosen to represent each season are the
same as those in the recently approved Renewable Energy of Idaho contract (IPC-04-5). Staff
believes that the refinement of months within each season as reflected in this contract is
appropriate.
Waiver of Environmental Attributes
As reflected in Agreement 9 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 Simplot project.
Noting the Commission s language regarding Environmental Attributes in Case No. IPC-04-
Order No. 29480, 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
STAFF COMMENTS AUGUST 13, 2004
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.
filing this Agreement, including the language in Article 8, Idaho Power states that it is presenting
the Commission with a real case or controversy and, therefore, the lack of ripeness identified by
the Commission in the declaratory judgment action is not present in this case.
Despite representations of the Company to the contrary, Staff believes that this case does
not present the question of ownership of Environmental Attributes. Simplot's cogeneration
project has been generating since 1991. While its power sales Agreement is new, Simplot's
cogeneration project and whatever environmental impacts it may have, either positive or
negative, are not new. Thus, Staff contends that no one would be willing to pay now for "green
tags" or other environmental attributes for which they have been enjoying the benefits for nearly
15 years. Because Simplot's cogeneration project would continue to generate 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 as if expressly set forth herein and includes same as an attachment to these
comments. In those attached 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 that if the
Commission determined that it has jurisdiction, that the Commission issue a declaratory order
stating that mandatory purchases from QFs under PURP A do not convey ownership of any
marketable environmental attributes. Accordingly, Staff recommended that any environmental
attributes remain with the QF.
Evergreen " Provision
The Agreement will "evergreen" or automatically renew from year-to-year unless
terminated. Agreement 9 5.1. Because the Agreement contains an avoided cost rate that is based
on a one-year contract length, Staff has no objection to the "evergreen" provisions in the
ST AFF COMMENTS AUGUST 13 2004
proposed contract. The one-year term also obviates the need for the "de-regulation" termination
option that Idaho Power has sought to include in other pending QF contracts and that is one of
the issues in Case No. IPC-04-08/10 currently before the Commission.
Energy Purchases Subsequent to Contract Expiration on December31, 2003
Idaho Power requests Commission approval of energy purchased from Simplot in
January and February 2004 pursuant to letter agreements dated December 22 2003 and
January 30, 2004. The letters reflect that the expiration of the Commission approved agreement
(January 24, 1991) and associated amendments (Nov. 30, 1993; Feb. 23, 2001) was
December 31 , 2003. The Company recites in the extension letters that the parties were engaged
in diligent contract negotiation for a new QF firm purchase power agreement and by letter
agreements the parties were extending the expiration date of the Commission approved
agreement to February 29 2004. The extension agreements were submitted under the signature
of Randy Allphin, Contract Administrator for Idaho Power. For purchases made subsequent to
the letter agreements, Idaho Power states that it intends to consider the effective date of the
Agreement to be March 1 , 2004, and requests that the Commission declare all payments it makes
to Simp lot for purchases of energy will 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. No Commission approval of the extension
agreement was requested. As part of its unified regulatory scheme in implementing PURP A, the
Commission has long required that signed power purchase contracts be presented to it for
review, approval and lock-in of avoided cost rates. The parties cannot by letter agreement
deprive the Commission of its ratemaking authority under PURP A and Idaho Code 9 61-502 and
61-503 or relieve the utility of its obligations under Idaho Code 9 61-307. Similarly, the parties
should not seek retroactive approval of a new contract with an effective date more than five
months past.
Although the Company neither sought nor obtained Commission approval of the contract
extension periods, Staff recommends that the purchases of energy in January and February 2004
be treated for ratemaking purposes as a purchase mandated under PURP A because the rates paid
by Idaho Power during the months of January and February 2004 were less than the current
published avoided cost rates for those same months. Staff also reluctantly recommends that the
STAFF COMMENTS AUGUST 13 2004
Commission approve the Agreement's March 1 2004 effective date. In making this
recommendation, Staff acknowledges that under the Company s PCA mechanism, PURP A costs
are recovered at 100% and non-PURPA costs are subject to a 90/10 sharing. Staff recommends
that Commission encourage the Company to manage its PURP A contract portfolio and expiring
contracts in a more vigilant and responsible manner.
RECOMMENDATIONS
Staff recommends approval of the Agreement as submitted.
Respectively submitted this
/~
day of August 2004.
Scott Woodbury
Deputy Attorney General
Technical Staff: Rick Sterling
i:umisc/commentslipcO4.16swrps
ST AFF COMMENTS AUGUST 13 , 2004