20041001Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:LISA NORDSTROM
DATE:OCTOBER 1, 2004
RE:IN THE MATTER OF IDAHO POWER COMPANY'S APPLICATION FOR
APPROVAL OF A FIRM ENERGY SALES AGREEMENT BETWEEN
IDAHO POWER COMPANY AND FOSSIL GULCH WIND PARK LLC.
CASE NO. IPC-04-19.
On September 14, 2004, Idaho Power Company filed an Application 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 to be constructed by Fossil Gulch near the town of
Hagerman, Idaho. 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.
THE AGREEMENT
Fossil Gulch intends to construct, own, operate and maintain wind generating
equipment in a wind park ("Project") at a site approximately 3Y2 miles west-northwest of
Hagerman, Idaho. The Project will be a qualified small power production facility under the
application provisions of the Public Utilities Regulatory Policy Act of 1978 ("PURP A"). The
Project will consist of seven (7) 1.5 MW 77 SLE General Electric wind turbines. 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 energy prices in accordance with
DECISION MEMORANDUM
Commission Order No. 29391 with seasonalization factors applied. Idaho Power s Application
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 (7) 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 (7) 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 limits 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. The Agreement includes the 90%/1 0% 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
prudently incurred expenses for ratemaking purposes.
Fossil Gulch desires to have this Project on line prior to the end of 2004 and has
advised Idaho Power that meeting this timetable is extremely important to their financing plans.
DECISION MEMORANDUM
As a result, Idaho Power is requesting that the Commission make every reasonable effort to
expedite its review of the Agreement and this Application on modified procedure.
STAFF RECOMMENDATION
In Order No. 29124, the Commission adopted a fuel price forecast from the draft Fifth
Northwest Conservation and Electric Power Plan, April 25 2002 of the Northwest Power
Planning Council (NWPPC) as a reasonable method for calculating a starting gas price in the
avoided cost methodology. The Commission stated that "natural gas prices can be updated when
a new NWPPC forecast become available." Order No. 29124 at 10. The Commission has since
approved updated gas prices based on an April 22, 2003 NWPPC forecast in December 2003.
Order No. 29391.
The Northwest Power and Conservation Council (NPCC)l released a new natural gas
price forecast on Friday, September 24, 2004. Staff believes that the timing of this newly
released natural gas price forecast raises legitimate questions of which avoided cost rates should
apply to the Fossil Gulch Firm Sales Agreement: the current avoided cost rates in effect at the
time the Firm Sales Agreement was signed or updated avoided cost rates that could be available
when the Commission issues an Order in this case?
Because Idaho Power and Fossil Gulch have requested an expedited review of this
Application, Staff recommends that the Commission process this case by Modified Procedure
and establish a 21-day comment period. The Commission may wish to solicit comments
specifically addressing which avoided cost rates should apply to this Project.
COMMISSION DECISION
Does the Commission wish to process this case pursuant to Modified Procedure as
recommended by Staff?
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(/ Lisa N ordstr
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1 The Northwest Power Planning Council (NWPPC) is now known as the Northwest Power and Conservation
Council (NPCC).
DECISION MEMORANDUM