20041112Final Order No 29630.pdf

Office of the Secretary
Service Date
November 12 2004
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
'IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR APPROVAL
OF A FIRM ENERGY SALES AGREEMENT
BETWEEN IDAHO POWER COMP ANY AND
FOSSIL GULCH WIND PARK, LLC.ORDER NO. 29630
CASE NO. IPC-04-
On September 14, 2004, Idaho Power Company (Idaho Power; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) requesting an Order
approving a Firm Energy Sales Agreement ("Agreement") dated September 9, 2004, between
Idaho Power and Fossil Gulch Wind Park, LLC ("Fossil Gulch"
).
Under the Agreement, Fossil
Gulch would sell and Idaho Power would purchase electric energy generated by wind-powered
generating equipment. The Company asked the Commission to declare that all payments for
energy purchases made under the Agreement be allowed as prudently incurred expenses for
ratemaking purposes and to approve the Agreement without material change or condition.
On October 12, 2004, the Commission issued a Notice of Application, Modified
Procedure and Comment Deadline and specifically solicited comments on which avoided cost
rate should potentially apply to the Agreement. Order No. 29611. Three public comments were
received in addition to those submitted by Commission Staff. Based on the comments, the law
and the record, the Commission grants Idaho Power s Application.
THE APPLICATION
Fossil Gulch intends to construct, own, operate and maintain wind generating
equipment in a wind park ("Project") at a site approximately 3.5 miles west-northwest of
Hagerman, Idaho. The Project will be a qualified small power production facility (QF) under the
applicable provisions of the Public Utility Regulatory Policies Act of 1978 ("PURP A"). Fossil
Gulch has selected January 1 , 2005 , as the scheduled operation date and December 15 , 2004, as
the first energy date.
The term of the Agreement is 20 years from the operation date, and the Agreement
provides for Idaho Power to pay the published non-Ievelized rates in accordance with
Commission Order No. 29391 with seasonalization factors applied. Idaho Power s Application
ORDER NO. 29630
describes the Agreement as being similar to the Tiber Hydro and United Materials wind project
agreements previously approved by the Commission.
Fossil Gulch desires to utilize seven 1.5 MW wind turbine generators. To avoid
pushing the Project above the 10 MW nameplate capacity, Fossil Gulch has agreed to adjust the
controls on its turbine generators so that in aggregate, the electrical output of the seven wind
turbines will not exceed 10 000 kWh in any hour. If energy in excess of this amount
Inadvertent Energy ) is accidentally generated, Idaho Power will not purchase or pay for it.
Because Fossil Gulch has agreed to limit its generation below 10 000 kWh per hour
and in recognition of the benefits of encouraging the development of a wind energy project in its
control area, Idaho Power requests the Commission approve the use of published Qualified
Facility (QF) avoided cost rates for this Project, even though the Project's nameplate capacity
exceeds 10 MW. Idaho Power notes that the Commission recently approved a Firm Energy
Sales Agreement with J .R. Simplot Company that included the same Inadvertent Energy
provisions. Order No. 29577. This Agreement includes the 90-110% band provisions that were
included in the Tiber, United Materials, Renewable Energy and J.R. Simplot Agreements (Case
Nos. IPC-03-, IPC-04-, IPC-04-, and IPC-04-, respectively).
The Fossil Gulch Agreement includes the same Environmental Attributes provision
(Section 8.1) approved by the Commission in Order No. 29577 for the J.R. Simplot Pocatello QF
contract. The Agreement does not provide for any purchase of the Project's Environmental
Attributes by Idaho Power, and the Company is not seeking to recover any value for
Environmental Attributes in this Agreement.
The Agreement contains non-Ievelized, non-fueled published avoided cost rates in
conformity with applicable Commission Orders. All applicable interconnection charges and
monthly operation and maintenance charges under Schedule 72 will be assessed to Fossil Gulch.
Section 24 of the Agreement provides that the Agreement will not become effective
until the Commission has approved all of the Agreement's terms and conditions , and declared
that all payments Idaho Power makes to Fossil Gulch for energy purchases be allowed as
prudently incurred expenses for ratemaking purposes.
PUBLI C COMMENTS
In response to the Notice of Application, Modified Procedure and Comment Deadline
issued in Order No. 29611 , the Commission received three comments from Idaho Power
ORDER NO. 29630
customers. One commenter indicated that the Application should be approved "if it means (
reduction in rates for all customers." The commenter also questioned why Idaho Power does not
build the facility itself rather than buy the energy from Fossil Gulch.
A second customer from Boise noted that while he "applaud ( s) the use of renewable
power" and makes a voluntary contribution to its use on his electric bill, he was concerned that
using an outside corporation to provide this energy to Idaho Power would add an unnecessary
layer of administration. He believes Idaho Power should be "more involved in developing this
for themselves" rather than buying this type of Idaho-produced energy from another entity.
After offering a detailed analysis of the contract provisions, a third Idaho Power
customer supported approval of the Application. He also requested "the Commission state in no
uncertain terms that this contract not be considered a precedent for future power sales
agreements under the Public Utility Regulatory Policies Act laws in Idaho" as it did in Case Nos.
IPC-04-1 and -5 (the United Materials and Renewable Energy Agreements, respectively).
ST AFF COMMENTS
Contract Rates Staff explained that the avoided cost rates contained in the
Agreement are those that have been in effect since December 15 2003 (Order No. 29391).
However, Staff notes that three recent events have triggered the computation of new rates-the
conclusion of general rate cases for Idaho Power and A vista, and the release on September 24
2004 of a new natural gas price forecast by the Northwest Power and Conservation Council
(NPCC) 1 . Although Staff has already computed new rates, they have yet to be adopted by the
Commission.
The new rates computed by Staff using the Council's September 24, 2004 natural gas
price forecast and Idaho Power s revised costs of capital are approximately 5 mills/kWh higher
than the rates currently in effect and that are contained in the Agreement. On a present value
basis over the life of the contract, the revenue from the Project if paid under the existing rates
will be approximately $1.4 million less than if the new rates were applied.
Staff contends that the Commission should limit consideration to the Agreement as
presented to it and as signed by the parties.The rates currentl y in effect are the rates
1 The Northwest Power Planning Council (NWPPC) is now known as the Northwest Power and Conservation
Council (NPCC).
ORDER NO. 29630
incorporated in the Agreement and no other rates are yet available. Therefore, Staff believes the
Commission should approve the Agreement as submitted.
Contract Terms and Conditions:Some of the terms of this Agreement-
specifically the capacity limit of 10 000 kWh per hour and the 90-110% performance band-
have been included in several contracts previously approved by the Commission. Although these
contract terms are currently the subject of dispute in Case Nos. IPC-04-8 and IPC-04-
Staff recommends approval of these terms in this Agreement because both parties have mutually
agreed to them.
Environmental Attributes The Agreement does not provide for any purchase of
the Project's Environmental Attributes by Idaho Power, and the Company is not seeking to
recover any value for Environmental Attributes in this Agreement. Staff recommends that the
Commission approve the contract terms allowing Fossil Gulch to retain ownership of any
Environmental Attributes associated with the Proj ect.
Recommendation:Staff recommends approval of the Agreement as submitted.
Staff also recommends that the Commission declare that all payments Idaho Power makes to
Fossil Gulch for energy purchases under the Agreement be allowed as prudently incurred
expenses for ratemaking purposes.
COMMISSION FINDINGS
The Commission has reviewed the filings of record in Case No. IPC-04-
including the underlying Agreement the public comments and the 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. IDAP A 31.01.01.204.
Idaho Power in this case requests Commission approval of a PURP A Energy Sales
Agreement with Fossil Gulch Wind Park, LLC. Under the terms of the submitted Agreement
Fossil Gulch has elected to contract with Idaho Power for a 20-year term. We find that the
Agreement contains non-Ievelized published avoided cost rates approved by the Commission in
Order No. 29391 for QF energy deliveries less than 10 MW. Although the Fossil Gulch wind
facility has a generation capacity of 10.5 MW, we find that the "Inadvertent Energy" contract
provisions provide an adequate means of qualifying the project for the published avoided cost
rates.
ORDER NO. 29630
Based on the comments, the law and the record, we find it reasonable to approve the
submitted Agreement. The Agreement terms we consider are presented in the context of a
negotiated and mutually accepted contract. Although the avoided cost rates are likely to change
in the near future, we find it reasonable to approve the Agreement's terms based upon the
published rates that were in place at the time the Agreement was negotiated in good faith. We
find it reasonable to allow payments made under the Agreement as prudently incurred expenses
for ratemaking purposes.
With regard to the Environmental Attributes associated with this wind project, we
continue to note that the utility and QFs are free to voluntarily contract and negotiate the sale and
purchase of potential green tags. Order Nos. 29480 and 29577. However, the price of green tags
for said environmental attributes is not a PURP A cost recoverable by the Company. We find
that the Agreement does not provide for any purchase of the Project's Environmental Attributes
by Idaho Power, and the Company is not seeking to recover any value for Environmental
Attributes in this Agreement.
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
In consideration of the foregoing and as more particularly described and qualified
above, IT IS HEREBY ORDERED and the Commission does hereby approve the September 9
2004, Firm Energy Sales Agreement between Idaho Power Company and Fossil Gulch Wind
Park, LLC.
THIS IS A FINAL ORDER. Any person interested in this Order or in interlocutory
Orders previously issued in this case may petition for reconsideration within twenty-one (21)
days of the service date of this Order with regard to any matter decided in this Order or in
interlocutory Orders previously issued in this case. Within seven (7) days after any person has
ORDER NO. 29630
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 J- ff-
day of November 2004.
Mt~ ;J Jh~
MARSHA H. SMITH, COMMISSIONER
ENNIS S. HANSEN, COMMISSIONER
ATTEST:
~aA~ Ib~
Barbara Barrows
Assistant Commission Secretary
O:IPCE0419 In2
ORDER NO. 29630