20040831Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL STAFF
FROM:SCOTT WOODBURY
DATE:AUGUST 25, 2004
RE:CASE NO. IPC-04-16 (Idaho Power)
FIRM ENERGY SALES AGREEMENT
R. SIMPLOT COMPANY (Pocatello)
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 to 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
DECISION MEMORANDUM
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
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. Reference Agreement ~ 6.2.
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 Simplot 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 declaratory judgment may invoke either remedial or
preventive relief; it may relate to a 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 P.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.
DECISION MEMORANDUM
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 ORDER NO. 29480 recoverable as such by the Company.
Recovery of those expenses will be reviewed as are all other non-PURP A
costs.
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 identified 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~ per 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
DECISION MEMORANDUM
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
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., Staff
believes that this case does not present the question of ownership of "Environmental Attributes.
Because Simplot's cogeneration proj ect is presently generating and will 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. . In those comments, Staff stated its belief that neither PURP A or
other federal law (including the Energy ~olicies 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 PURPA 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 s letter filing with
DECISION MEMORANDUM
the Commission was informational. 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.
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 a purchase mandated under PURPA. 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 90/10 sharing. Staff recommends that the Commission encourage the
Company to manage its PURP A contract portfolio and expiring contracts in a more vigilant and
responsible manner.
COMMISSION DECISION:
Idaho Power and Simplot have requested approval of a Firm Energy Sales
Agreement dated June 18 , 2004. Under the terms of a newly submitted Agreement, Simp lot 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
MW for a contract year March 1 , 2004 through February 28, 2005. Although the Simplot
cogeneration facility has a capacity of 15.9 MW, the Agreement contains a provision that defines
energy delivered to the Company exceeding 10 000 kW in a single hour as "Inadvertent Energy,
reflects that Simplot does not intend to generate and deliver inadvertent energy and states that
should Inadvertent Energy actually be generated and delivered, the Company would not purchase
or pay for Inadvertent Energy. The submitted Agreement will "evergreen" or automatically
renew from year to year unless terminated. Idaho Power will pay the published, less than
DECISION MEMORANDUM
MW non-Ievelized non-fueled energy price in accordance with the Commission Order in effect
as of March 1 of each contract year. Staff recommends that the contract rates be approved. Does
the Commission find that the Simplot project qualifies for published avoided cost rates?
Is the Commission willing to provide the Company 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? In considering the Company s request, the Commission must first
consider whether it has jurisdiction over environmental attributes associated with QF projects.
The Agreement tendered is dated June 18, 2004. The prior Commission approved
Agreement 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
, 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. Staff recommends that the purchases pursuant to letter extensions from
December 31 , 2003 through February 28, 2004 and purchases since March 1 2004, be treated for
accounting and expense recovery as PURP A required purchases. Staff recommends that the
Commission encourage the Company to manage its PURP A contract portfolio and expiring
contracts in a more vigilant and responsible manner. Does the Commission agree?
Scott D. Woodbury
blslM:IPCEO416 sw2
DECISION MEMORANDUM