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LISA NORDSTROM
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-0314
IDAHO BAR NO. 5733
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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 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-O4-
CO MMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Lisa Nordstrom, Deputy Attorney General, and in response to the Notice of
Application, Notice of Modified Procedure and Notice of Comment Deadline issued in Order
No. 29611 on October 12 2004, submits the following comments.
BACKGROUND
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. The Company asked the Commission
to declare that all payments for energy purchases made under the Agreement be allowed as
STAFF COMMENTS NOVEMBER 2, 2004
prudently incurred expenses for ratemaking purposes and to approve the Agreement without
material change or condition.
Fossil Gulch intends to construct, own, operate and maintain wind generating equipment
in a wind park ("Project") at a site approximately 3Yz miles west-northwest of Hagerman, Idaho.
The Project will be a qualified small power production facility under the applicable provisions of
the Public Utilities Regulatory Policy 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 energy prices in accordance with
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 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.
STAFF COMMENTS NOVEMBER 2, 2004
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.
STAFF ANALYSIS
Contract Rates
The avoided cost rates contained in the Agreement are those that have been in effect
since December 15 2003 (Order No. 29391). However, 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 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. At the Commission s November 1 decision meeting, Staff proposed that new
dockets be opened for the purpose of reviewing and adopting new avoided cost rates reflecting
changes due to these recent events. Computation of the rates is a ministerial task done in
accordance with prior Commission orders; nevertheless, past practice has been for the Staff s
computation of the rates to be reviewed by the utilities to insure mathematical accuracy.
The conclusion of a general rate case affects avoided cost rates because cost of capital
figures are used in avoided cost computations in accordance with the approved methodology.
Although not specifically addressed in prior Commission orders, Staff believes that the
appropriate time to incorporate new cost of capital figures is following a general rate case.
Final Order in Idaho Power s general rate case was issued on May 25 , 2004 (Order No. 29505)
and a Reconsideration Order was issued on September 28 2004 (Order No. 29601). A Final
Order in Avista s general rate case was issued on October 8 , 2004 (Order No. 29602).
On Friday, September 24 2004, the Northwest Power and Conservation Council released
a new natural gas price forecast. Because the new forecast was released at about the same time
1 The Northwest Power Planning Council (NWPPC) is now known as the Northwest Power and Conservation
Council (NPCC).
STAFF COMMENTS NOVEMBER 2, 2004
as the Idaho Power and Avista rate cases were concluded, Staffhas incorporated both the new
cost of capital figures and the new natural gas prices in the computation of new avoided cost
rates.
The practice of updating avoided cost rates due to new fuel price forecasts can be traced
to Order No. 29124. In that Order, the Commission adopted a fuel price forecast dated April 25
2002 from the draft Fifth Northwest Conservation and Electric Power Plan 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 new rates computed 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 worth basis
over the life of the contract, the revenue from the Proj ect if paid under the existing rates will be
approximately $1.4 million less than if the new rates were applied.
Staff believes that the timing of the Agreement's submission to the Commission and the
NPCC's recently 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. While Staff raises this
issue for Commission consideration, we believe that the Commission should limit consideration
to the Agreement as presented to it as signed by the parties. The rates currently in effect are the
rates 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
STAFF COMMENTS NOVEMBER 2, 2004
in Case Nos. IPC-04-08 and IPC-04-, Staff recommends approval of these terms in this
Agreement because both parties have mutually agreed to them.
Environmental Attributes
As pointed out by Idaho Power in its Application, the 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. Staff notes
however, that it did not oppose allowing Simplot to retain the project's Environmental Attributes
for the Simplot Pocatello project, in part because Staff did not believe the project actually
possessed any Environmental Attributes. Unlike Simplot's thermal project , Fossil Gulch is a
renewable wind project with definite Environmental Attributes. Staff believes that a
Commission decision regarding ownership of them will have real significance and could
establish a precedent for future contracts. Staff recommends that the Commission approve the
contract terms allowing Fossil Gulch to retain ownership of any Environmental Attributes
associated with the Project.
RECOMMENDATIONS
Staff recommends approval of the contract 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.
Respectfully submitted this J- day of November 2004.
Technical Staff: Rick Sterling
i:umisc:comments/ldaho Power/ipceO4.191n.rps
ST AFF COMMENTS NOVEMBER 2, 2004
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 2ND DAY OF NOVEMBER 2004
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-04-, BY MAILING A COpy THEREOF POSTAGE PREPAID
THE FOLLOWING:
MONICA MOEN
BARTON L KLINE
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
RANDY ALLPHIN
CONTRACT ADMINISTRATOR
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
SEC
CERTIFICATE OF SERVICE