20041103Comment.pdf

Jean Jewell
From:
Sent:
To:
Subject:
Ed Howell
Tuesday, November 02 , 20046:50 PM
Jean Jewell; Ed Howell; Gene Fadness; Tonya Clark
Comment acknowledgement
WWW Form Submission:
Tuesday, November 02 , 2004
6:50:11 PM
Case: IPC-E-04-
Name: Gerry FleischmanStreetAddress: 5437 Hickory Run Place
City: Boise
State: ID
ZIP: 83713
Home Telephone: [phone]
E-Mail: gf1eisch986~hotmai1. com
Company: Idaho Power Company
mai1ing 1ist yes no: yes
Comment description: Comment on Case IPC-E-04-19 by Gerald Fleischman , November 2 , 2004
I am writing in support of your approval of Idaho Power s request that all payments for
energy purchases made under the Agreement be allowed as prudently incurred expenses and to
approve the agreement without material change or condition. I also ask that the commission
state in no uncertain terms that this contract not be considered a precedent for futurepower sales agreements under Public Utili ties Regulatory Policy Act laws in Idaho.
The reasons to approve this agreement are several. First , both parties have signed it.
Second , it has some improved provisions as compared to previous contracts for wind power
sales to Idaho Power. But both Idaho power and PURPA scale proj ect developers are new at
this process and it can be expected that there will be many revisions of provisions in
these contracts as time goes on. For example , several provisions of this contract still
look like a contract for another kind of energy resource besides wind. Idaho Power acts as
if it has some "perfect" energy resource in its back pocket that allows it to continue to
confine and bind wind in such a way as to make its development (at least on a PURPA-project scale) nearly impossible. What other resource does Idaho Power think it can just
go and pick up on the ground somewhere in Idaho?
Here are some of the provisions that make it look like the wind developers have some
control over the wind.
14.3 Under no circumstances will the Seller deliver Net Energy or Inadvertent Energy
from the Facility in an amount that exceeds the Maximum Capacity Amount. Seller s failure
to limit deliveries to the Maximum Capacity Amount will be a Material Breach of this
Agreement.
The reason this proj ect is 10.5 MW rated output , is that currently, 1.5 MW is on the big
end , and therefore the most economically effective , of available wind turbines. Six
turbines provide a rated output of 9 MW. Seven provide a rated output of 10.5 MW. It is
very likely under good wind conditions that the wind park will put out 10.5 MWh during a
gi ven hour and extremely likely that many times during a month that the farm will put out
10.5 MW. There is a contradiction in terms in this agreement. It discusses "Inadvertent
Energy" then says that any instantaneous output of more than the "Maximum Capacity Amount"
is a material breach of the contract. You can t have it both ways. The Maximum Capacity
Amount should be changed to 10.5 MW and have no inadvertent energy provisions.
The main implication of all this discussion of going over the Maximum Capacity Amount is
there are large economies of scale in wind farms. If you changed the published rate to 20
MW there would be a developer wanting to put in a wind farm with 14 1.5 MW turbines for a
total of 21 MW.
14.I f the Seller desires to declare a Suspension of Energy Deliveries as provided
in paragraph 14. , the Seller will notify the Designated Dispatch Facility by telephone.
The beginning hour of the Declared Suspension of Energy Deliveries will be at the earliest
the next full hour after making telephone contact with Idaho Power. The Seller will
wi thin 24 hours after the telephone contact , provide Idaho Power a written notice in
accordance with Article xxv ill , that will contain the beginning hour and duration of the
Declared Suspension of Energy Deliveries and a description of the conditions that caused
the Seller to Declare a Suspension of Energy Deliveries.
Wi th wind power it is very likely that the wind park will generate no power for periods of
two or three hours. Why? Because there is no wind. Are the operators of the wind park to
be responsible for the wind when Idaho Power could monitor wind conditions and know that
the wind farm will not be putting out any power. This and other provisions provide another
barrier to entry, something that is exactly counter to the purpose and intent of PURPA
for renewable energy to enter the grid. It would be far more efficient from and economy of
scale perspective for Idaho Power to have the expertise to estimate wind power production
as it does for snow pack as it does for hydropower rather than have each individual PURPA-
scale wind farm do this itself. There is already plenty of incentive for a wind farm to
produce energy when the wind is blowing. In fact when asked what the worst problem or
crisis he could imagine would be during the tour from October 29 to October 1 , 2004 by
Idaho policy makers to southwest Minnesota sponsored by the U. S. Department of Energy, the
Idaho Energy Division and the Idaho Farm Bureau , the manager of the enXco Chanarambie Wind
Farm said
, "
the wind wouldn t blow
14.Generator Ramping - Idaho Power , in accordance with Prudent Electrical Practices
shall have the right to limit the rate that generation is changed at startup, during
normal operation or following reconnection to Idaho Power s system. Generation ramping may
be required to permit Idaho Power s voltage regulation equipment time to respond to
changes in power flow.
A wind farm s output will be going up and down all the time. 14.5 may be a killer for a
wind proj ect. Idaho Power surely does not know how a wind farm will ramp up and down
during normal operation. There should be some consideration that this is wind , that it is
energy, and if Idaho Power wants to rely totally on something it knows e. coal , then it
is not working in the best interests of the state of Idaho (and why we expect that it
interests lie exactly in sync with those of the state). Idaho Power has considerable
expert" power when it comes to these issues , but I have to ask , is Idaho Power
leadership of the same ilk as the men (these days it includes women) described in the song
Cool , Cool , Considerate Men , from the Musical 1776.
Oh say do you see what I see?
Congress sitting here in sweet serenity
I could cheer; the reason I s clear
For the first time in a year Adams isn I t here
And look , the sun is in the sky
A breeze is blowing by, and there I s not a single fly
I sing hosanna , hosanna
Hosanna , hosanna
And it I s cool
Come ye cool cool conservative men
The likes of which may never be seen again
We have land , cash in hand
Self-command future planned
Fortune flies , society survives
In neatly ordered lives with we11-endowered wives
We sing hosanna , hosanna
To our breeding and our banner
We are cool
Come ye cool cool considerate set
We I 11 dance together to the same minuet
To the right , ever to the right
Never to the left forever to the right
May our creed be never to exceed
Regulated speed , no matter what the need
We sing hosanna , hosanna
Enb1azoned on our banner
I s keep cool
What we do we do rationally
We never ever go off half-cocked , not we
Why begin till we know that we can win
And if we cannot win why bother to begin?
Rutledge:
We say this game I s not of our choosing
Why should we risk losing?
All:
We are cool
To the right , ever to the right
Never to the left forever to the right
We have gold , a market that will hold
Tradition that is old , a reluctance to be bold.
Dickinson:
I sing hosanna , hosanna
In a sane and lucid manner
We are cool
All:
Come ye cool cool considerate men
The likes of which may never be seen again
Wi th our land , cash in hand
Self-command future planned
And we I 11 hold to our gold
Tradition that is old , reluctant to be bold.
We say this game I s not of our choosing
Why should we risk losing?
We cool , cool , cool
Cool , cool , cool
Cool cool men.
In other words , should we always follow the advice , reasoning and council of these "cool
cool , considerate" men as if it always aligns exactly with the interests of the state and
its citizens? We would not be a nation independent from England is this reasoning had
prevailed in 1776. If we are not careful , we will end up with a large coal-fired plant in
Idaho and be losing the power that blows over our state every day.
Another issue that comes to mind here is that there is a big difference between large wind
and small wind. Large wind has its place , and it is what Idaho Power is going for with its
planned request for proposal for 200 MW of wind power. These two scales of wind
development are totally different in terms of their economic effect in rural areas. During
the Idaho Po1icymaker Wind Tour of southwest Minnesota , Jim Nichols , a county commissioner
from Lincoln County, Minnesota and the former Minnesota Secretary of Agriculture said
You need local ownership. Corporate ownership does not do as much good as local
ownership. Corporate ownership did not do us any good. You have to somehow get to the
local ownership model.
I believe we need both types of wind power development. There are many sites in Idaho that
should be developed by large companies. But what does the most good for rural economies is
local ownership. This is because local ownership has an intense interest in the well being
of the local community and will invest in that community. The Corn-er Stone Farmers
Cooperati ve in Luverne Minnesota is now investing in wind proj ects in the local area after
making money on its ethanol plant. In regard to this Jim Nichols said
, "
You don t have to
have incentives , but you need to create the market. If you have the market , it will come.
PURPA is the market for local ownership of wind power in Idaho. It is the only thing that
creates a market. If it is not right , there is no market for farmer-owned wind power no
matter what incentives the Idaho legislature creates.
This is important in relation to wind power in Idaho because there are considerable wind
resource areas that have perhaps 10 to 30 MW of wind power potential , but there arere1ati ve1y few that that 100 to 300 MW potential in one place. Without a PURPA law that
creates the market", these resource will not be developed , and the resource will continue
to sail by. This is different from the Midwest where most the land is privately owned and
much of this land has wind. In Idaho , most of the truly world-class wind resources are on
public land.
14.6 Scheduled Maintenance - On or before January 31 of each calendar year , Seller shall
submi t a written proposed maintenance schedule for that calendar year and Idaho Power and
Seller shall mutually agree as to the acceptability of the proposed schedule. The Parties
determination as to the acceptability of the Seller s timetable for scheduled maintenance
will take into consideration Prudent Electrical Practices , Idaho Power system requirements
and the Seller s preferred schedule. Neither Party shall unreasonably withhold acceptance
of the proposed maintenance schedule.
I don t really have any problem with this provision , except from my knowledge and
experience , wind farms almost never shut down for scheduled maintenance. Perhaps one
turbine at a time will be down , but almost never the entire farm. Also , since any wind
that blows by a shut down turbine is lost fuel and represents an opportunity cost , it
makes no sense for a wind farm to have any turbine out of service for any length of time.
What I have seen , from the tour to Minnesota , is that individual turbines are maintained
mostly on their own schedules in a fashion that will minimize its total maintenance cost.
When a wind farm has seven turbines , as is the case with Fossil Gulch , it would be very
seldom that all seven turbines be down at the same time. This provision makes sense for a
large natural gas or coal facility, but not for a wind farm. It would , perhaps for a wind
farm if one turbine was 100 MW , which may come some day, but that is a long way in the
future. For now, this provision makes no sense for wind power production. This is another
reason to declare , as you have for the other contracts mentioned by Idaho Power in itsapplication, Tiber , United Materials , Renewable Energy, that they are in no way to be used
as precedents.
2 Surplus Energy Price - For all Surplus Energy, Idaho Power shall pay to the Seller the
current month I s Market Energy Cost or the Base Energy Purchase Price specified in
paragraph 7. whichever is lower.
A1 though all variability of prices is an issue to wind power development because it is
extremely capital intensive in comparison to natural gas and coal-fired generation
contract article 7.2 limits the variability to the wind farm on the high side. As I will
point out about the "Shortfall Energy Payment" later , variability is one thing, but to not
allow a high side of the variability to be at least partially passed through to the wind
farm owner is totally unfair. I would think that if the wind farm owner is to be faced
wi th the risk of extremely high payments to Idaho Power for shortfall energy, it should at
least have the possibility of making extra money on Surplus Energy if the market price of
power is higher than the contract price. Having the possibility of making extra money for
surplus energy could offset the possibility of making high shortfall energy payments
perhaps making PURPA the market to which Jim Nichols refers.
4 Shortfall Energy Payment - The Shortfall Energy Payment amount is the Shortfall Energy
amount multiplied by the Shortfall Energy Price. The Shortfall Energy Payment will be
wi thhe1d from the current month I s energy payment. I f the current month I s energy payment
is less than the Shortfall Energy Payment , the Seller will make payment to Idaho Power of
the unpaid balance wi thin 15 days of being notified of the outstanding balance. Shortfall
Energy Payments are liquidated damages and not penal ties.
The issue of provision 7.4 is the definition of Shortfall Energy Payments as liquidated
damages and not as penal ties. Perhaps Idaho Power looks at them as liquidated damages , and
I argue that they are not and will certainly be viewed as penal ties by wind farm operators
who have every incentive to generate all the power they can. Most of this incentive comes
from the cost of capital , which means that any shortfall energy amount will probably be
due to a reduction in the wind available during the month. The question is , are shortfall
energy payments liquidated damages or penal ties? I say they are penal ties in light of the
nature of wind , and the lack of knowledge of Idaho Power of exactly what the effects of
wind power will be. In fact , the effect on the system of wind power may be stronglyposi ti ve. Where is this potential posi ti ve benefit reflected in this contract? Note the
comments from Jim Nichols , in his testimony before the Manitoba Clean Environment
Commission on the CEC's Wuskwatim Hearings , March 18 , 2004.
One of the things that I would urge you to consider is a mixture , a combination of wind
energy and hydropower energy. The one problem with wind , as you well know, is that it
doesn I t blow all of the time and you need to firm up the power. There is no battery for
wind generators. always asked this question. Our turbines now , our big turbines , one
turbine produces enough power for 500 homes. So I wou1dn I t even know what size battery
that would take , but it I s simply not an option. The best battery that we have seen for the
best backup for wind , or vice versa (my emphasis), is water power because you can store
the water behind the dams and release it when you need the power. So we believe here and
we wish we had more water resources in Minnesota. We simply do not. The combination of
wind and water would be an excellent mix. And it also allows you then to you don I t have to
build as many dams because you don I t have to run the water as much. You use it when the
wind isn t blowing. So that's one of the things we ve looked at here. And I've worked with
a little bit with the State of South Dakota on that because they do have some big existing
dams out on the Missouri River. So that's one of the things I guess I'd like to say is
that better development , more development of your wind resource would certainly be a great
thing for you I think as it has been for us in that then you would have less need for more
of the huge dams.
Any power a wind proj ect can deliver in a month when Idaho Power may have to go to the
market is a benefit to Idaho Power. True , if the amount delivered is not what Idaho Power
has planned , then hydropower resources or the market may have to be used. The problem with
the shortfall energy payment is that it penalizes the wind farm owner for generation lesspower than it predicts when the power it generates is not wi thin its control. This system
and gives no incentive for Idaho Power to invest in the "battery . This "battery" would be
an upgrading of existing hydropower operations or the construction of pumped storage
faci1i ties. In Idaho we have made a living on taking an intermittent , seasonal resourcewater, and upgrading it to be useful. Wind is the same kind of resource. As suggested by
Representati ve Butch Otter earlier this year , Idaho needs to upgrade the ability to store
water , and by my inference , energy in the state. Putting the entire burden of variable
supply on wind because it is wind is ridiculous in light of our dependence and
glorification of the benefits of hydropower. Placing the burden on wind to make it look
like a non-hydro conventional resource abdicates Idaho Power s and the state s duty to
investigate and invest in energy storage. It also does not create a market for PURPA scale
wind proj ects .
3 Shortfall Energy - If the month's Net Energy is less than 90% of the monthly Net
Energy Amount as specified in paragraph 6.2 of this Agreement for the corresponding month
Shortfall Energy will be the difference between 90% of the monthly Net Energy Amount and
the same month's actual Net Energy delivered to the Point of Deli very. Shortfall Energy
Price - For all Shortfall Energy, if the Market Energy Cost for the month in which the
Shortfall Energy occurs is less than the Base Energy Purchase Price for the same month
the Shortfall Energy Price will be o. If the Market Energy Cost for the month in which the
Shortfall Energy occurs is greater than the Base Energy Purchase Price for the same month
the Shortfall Energy Price will be the current month's Market Energy Cost less the Base
Energy Purchase Price. If the current month's Market Energy Cost less the Base Energy
Purchase Price is greater than 150 percent of the Base Energy Purchase Price , then the
Shortfall Energy Price will be 150 percent of the Base Energy Purchase Price.
Provision 7.3 Shortfall Energy, defines how the shortfall energy payments will be
calculated. This provision too , does not match wind or historical treatment of renewable
energy resources in Idaho. Because wind farms have every incentive to produce , including a
production tax incentive from the federal government and little incentive to not produce
a shortfall is most likely due to the wind availability.
Let's look at how hydropower is treated in Idaho. As it is now, if there is a shortage of
water for power generation , Idaho Power gets to submit a request to increase what it
charges customers through the Production Cost Adjustment process. The same applies to the
price of natural gas. If the price of natural gas goes up, Idaho Power gets to pass the
increased cost on to its customers. But in the case of wind , if there is a shortfall of
wind compared to some almost arbitrary estimate of how much there should be , the wind
energy source has to pay the market price to make up the difference. If Idaho Power owned
this resource , it would simply pass the increased cost on to its customers. If the
resource was the surrogate avoided resource (SAR) is there any doubt that it would get to
pass changes in the price of natural gas on to Idaho Power s customers?
This does not make a level playing field for PURPA proj ects compared to existing resources
or even to SAR resources. Wind has variability, but so does every other renewable energy
resource. As I mentioned earlier , it is as if Idaho Power has some perfect resource in its
back pocket and therefore feels free to downgrade and penalize any resource that does not
match up with this perfect resource. Yet it is very familiar with resources similar to
wind. When does our supply of water come for hydropower? In the winter. When is this water
used to generate power? Throughout the year. Wind is no different from hydropower , yet
hydropower is touted as the resource that gives a big competi ti ve advantage to our state.
But it would not be if investments were not made to make it usable.
Bonneville Power Administration is now offering a product it calls shaping, storage and
firming for wind power. It is charging, I think
, $
6 / MWh for this service. For thisprice, BPA takes in the wind power when it is generated then delivers the power when the
u1 timate customer wants it , shaped how that customer wants it , the next week. This is a
great product , but what is the BPA selling? Is it selling a current service , in other
words , one for which the price is paying for the current cost of delivering that service?
, what it is selling is infrastructure , the dams and reservoirs and generators that were
bui1 t over the last 65 years. These investments , the fruits of which BPA is now selling to
firm and shape" wind power , were almost all made before 1974.
In other words , it is selling a product that our ancestors created , not one Bonneville is
creating at the current time. If the ability to store energy were not already in place
Bonneville could do nothing to provide this product.
What I am saying is that Idaho needs a way to invest in the systems and equipment that can
provide to wind power what the dams , reservoirs and hydropower plants currently provide
for hydropower. This is not a current charge. This is a charge to build for the future.
Penal ties of the type imposed by the Shortfall Energy Payment in this contract do not
build for the future , they do not encourage the development of what is probably our next
great resource. It leads to the inevitable construction of a coal-fired power plant or
some other conventional , non-renewable resource that has to be imported into the state
and therefore something over which we have very little control.
We cannot ignore the idea that coal is a finite resource , as huge as it is. For example
in reference to Idaho Power s Jim Bridger coal-fired power plant , the August 23 Idaho
Power Update stated
, "...
the Bridger Coal Company, with coal reserves of more than 120
million tons , has served as the plant's primary source of fuel since the plant first
opened. Since the early days , Bridger Coal has provided more than 170 million tons of low-
sulfur fuel to the plant.This means this plant has less than 30 years of coal left.
Does it seem prudent that we should rely heavily on a resource that we know , in the case
of the low cost coal from the Bridger Coal Company Mine , has less than 30 years of supplyleft.
It seems a clear choice , do we begin now to make the investments needed to make use of
wind like we did with water , or do we rely on the short-term easy answers. Puni ti ve
provisions like Shortfall Energy and Shortfall Energy Payments do nothing to help us go in
this direction. A possible option for the Commission it to set a review point for PURPAproj ects for each Utility. It could be a number like 10% of each utili ties peak load in
Idaho. In Idaho Power service territory this would make it approximately 300 MW. Since the
cost of making use of wind , and this means making use of wind for what it is , not trying
to make it look like the perfect resource Idaho Power "has " in its back pocket , is very
much unknown at this time , in could be very fair to take in this amount of wind power
through PURPA projects and then review just what effect it has.
The effect may be posi ti ve or negative. With 300 MW of PURPA wind power it seems
reasonable that some reservoirs in the state such as Palisades or Brownlee may have
average higher water levels through the summer than they would without the 300 MW of wind
power. The hydropower would be used for peaking and the wind would come on as it comes.
There is little doubt that much of the water that flows out of Brownlee , for example , is
to produce power. Having Brownlee and Palisades Reservoirs higher throughout the summer
cannot be seen as anything but a great advantage for Idaho. The following excerpt from a
September 6 , 2004 Idaho Business Review article entitled , Idaho Power eyes wind generation
options , backs up this point:
If you have a megawatt of wind online , you can conserve water during that time " he
(Dennis Lopez , Idaho Power spokesman) said , referring to hydroelectric plants. "So you can
balance your portfolio with wind.
4 Shortfall Energy Payment - The Shortfall Energy Payment amount is the Shortfall Energy
amount multiplied by the Shortfall Energy Price. The Shortfall Energy Payment will be
wi thhe1d from the current month's energy payment. I f the current month's energy payment
is less than the Shortfall Energy Payment , the Seller will make payment to Idaho Power of
the unpaid balance wi thin 15 days of being notified of the outstanding balance. Shortfall
Energy Payments are liquidated damages and not penal ties.
Perhaps the most interesting thing to note about the Shortfall Energy Payment in this
contract is that it is different from the payment that was in the United Materials-Idaho
Power PURPA contract signed earlier this year. In the United Materials contract there was
no cap on the price the wind power generator could pay for "Shortfall Energy . This
contract has a cap of 250% of the PURPA published rate. In most cases a change such as
this from one contract to another would not be exceptional.. But when one of the parties
invo1 ved in a contract has so much "expert" power that it is considered omnipotent , one
has to ask the question
, "
If this party is so knowledgeable and all-knowing, how is it
possible that a change could occurred between this contract and the previous "perfect"
Uni ted Materials document.
One other item to note is from page 2 of the Notice of Application , Notice of Modified
Procedure , Notice of Commend Deadline , Order No. 29611. The application states:
The Agreement includes the 90%/110% band provisions that were included in the Tiber
United Materials , Renewable Energy and J. R. Simp1ot Agreements (Case Nos. IPC-E-03-, IPC-
04-, IPC-E-04-, and IPC-E-04-, respectively).
This statement implies that the referred to agreements are precedents in applying the
90%/110% band provisions for the current contract. It is interesting that Idaho Power
tries to use these as precedents when the Commission specifically stated that they were
not precedents." The Commission made the following statements in the following cases:
Case No. IPC-E-04-
Our decision in this case sets no precedent for our future regulation of such Agreementsor the utility.
And from Case No. IPC-E-04-, the United Materials contract order:
The Agreement terms we consider are presented in the context of a negotiated and
mutually accepted contract. As in our approval of the Tiber Montana contract (Case No.
IPC- 03- , Order No. 29232), we find it reasonable to approve its terms , both the tested
standard terms and the newer non-standard terms. In doing so , however , we once again note
that our decision sets no precedent for our future regulation of such agreements and
should not be viewed as precluding negotiating parties from challenging the reasonableness
of such terms for inclusion in any future QF contracts.
Also , in reference to following Commission approved avoided cost methodology for amounts
of power generation above the published-rate maximum of 10 MW you stated in the Renewable
Energy Case:
Idaho Power s failure to follow Commission-approved avoided cost methodology for
calculating Renewable Energy rates or request changes in that methodology, we find , is
both unacceptable and inexcusable. The Company and its employees are presumed to be aware
of the requirements in the Commission s Orders and the consequences of failing to follow
them. Idaho Code Title 61 , Chapter 7-Pub1ic Utilities Law-Enforcement and Penalties. If
the Company believes that the IRP-based methodology approved in Order No. 26576 is nolonger valid , then it is incumbent upon the Company to make a filing with the Commission
and request changes. As the Company is well aware , utility purchases under PURPA are
mandatory. Such purchases however , are to be priced at the Commission-determined avoided
cost rate for QFs smaller than 10 MW or pursuant to approved IRP-based methodology for QFs
larger than 10 MW. Should the Company choose not to follow avoided cost methodology in itscontracting practice , it does so at risk of having the contract regarded by this
Commission as a voluntary purchase.
There are benefits as well as disadvantages to wind power. Having provisions that make it
unduly difficult for wind PURPA-sca1e wind proj ects does no good in developing a resource
that will be of great benefit to Idaho in the long term.
I feel we have to create a reasonable , possible , market for PURPA-sca1e wind proj ects and
not allow Idaho Power s request for proposal process of obtaining wind power to substitute
for PURPA. The PURPA route of obtaining wind resources is a very different and will bring
in wind resources that will not be touched by the RFP process. As you have done on the
previous recent PURPA contracts , I recommend that you specifically state that this
contract does not set a precedent. Your order in the Lewandowski-Schroeder Complaint Case
IPC-E-04-10 should serve as the standard.
Transaction ID: 1121850.Referred by: http: / /www.puc. state. id. us/ scripts/po1yform. d11/ ipuc
User Address: 164.165.96.
User Hostname: 164.165.96.