HomeMy WebLinkAbout20050617Petition.pdfBARTON l. KLINE , ISB # 1526
MONICA B. MOEN , ISB # 5734
Idaho Power Company
1221 West Idaho Street
O. Box 70
Boise, Idaho 83707
Telephone: (208) 388-2682FAX: (208) 388-6936
E-mail: BKline ~ idahopower.com
MMoen ~ idahopower.com
Attorneys for Idaho Power Company
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION OF
IDAHO POWER COMPANY FOR AN
ORDER TEMPORARilY SUSPENDING
IDAHO POWER'S PURPA OBLIGATION
TO ENTER INTO CONTRACTS TO
PURCHASE ENERGY GENERATED BY
WIND-POWERED SMAll POWER
PRODUCTION FACiliTIES.
CASE NO. IPC-05- c::t
PETITION
Idaho Power Company ("Idaho Power" or "the Company ), pursuant to
RP 053, hereby requests that the Commission issue its order temporarily suspending
Idaho Power s obligation, under 99 201 and 210 of the Public Utility Regulatory Policies
Act of 1978 ("PURPA") and various Commission orders, to enter into new contracts to
purchase energy generated by qualifying wind-powered small power production facilities
QFs" or "Qualifying Facilities ). Idaho Power s request for a temporary suspension of
its PURPA purchase obligation is limited to new contracts for purchases of energy from
wind-powered QFs. The suspension would not affect new contracts with QFs utilizing
other generating technologies.
PETITION, Page
Idaho Power requests that this temporary suspension remain in effect for
a period of time sufficient to allow the Commission to investigate the impacts on Idaho
Power s customers arising out of the addition of substantial amounts of wind-powered
generation projects. Such a Commission investigation would consider: (1) the impact of
intermittent wind resources on the Company s total cost of power supply, (2) the impact
of intermittent wind resources on the reliability of electric service to customers, (3)
whether the current avoided cost methodology correctly measures the power supply
costs the Company can actually avoid by adding intermittent wind generating resources
and (4) such other matters as the Commission deems appropriate. This Petition is
based on the following:
Background
PURPA Requirements . Sections 201 and 210 of PURPA require
electric utilities to offer to purchase electric energy from qualifying cogeneration and
small power production facilities.1 PURPA further specifies that the purchase rates set
by state Commissions for electric utility purchases of energy generated by QFs may not
exceed the incremental cost to the electric utility of alternative electric energy.PURPA
defines incremental cost as the cost to the electric utility of the electric energy which
but for the purchase from such QFs, such utility would generate or purchase from
another source.3 PURPA also requires state Commissions to set the rates for
purchases of power from QFs at levels that are just and reasonable to the utility
16 use 9 824a-3(a)
16 use 9824a-3(b)
16 use 9 824a-3(d)
PETITION , Page 2
customers and in the public interest and that do not discriminate against QFs, but that
are not more than avoided costs.
.t!igher Avoided Cost Rates and Multiple Tax Incentives Have
Stimulated Wind-Powered QF Development.In Order No. 29646 issued on
December 1 2004, in Case No. IPC-04-, the Commission established the current
avoided cost purchase rates ("published rates ) which Idaho Power is legally obligated
to offer to QFs that are designed to generate not more than 10 aMW per month.
accordance with Order No. 29646 , the current average levelized "published rates" for
20-year QF contracts are approximately $61.00 per MWh. This average levelized rate
is approximately 250/0 higher than the average levelized published purchase rates in
effect in 2003.
Since Order No. 29646 was issued , Idaho Power has received approval
from the Commission for QF contracts with a total nameplate capacity of 71.5 MW , with
wind-powered QFs making up 61.5 MW of that total. Idaho Power currently has
pending before the Commission applications for approval of additional wind-powered
QF contracts in the amount of 21 MW. In addition, Idaho Power has received contacts
from developers intending to pursue new QF projects with a nameplate capacity of
267.5 MW including 193 MW of new wind-powered QFs. Prior to the issuance of Order
No. 29646, Idaho Power had less than 1 MW of QF wind-powered generation under
contract.
16 use 9 824a-3(b)(1) and (2).
The published rate for 2003 OF contracts set in Order No. 29124 was approximately $49 per
MWh. The primary reasons the avoided cost rate increased so sharply between 2003 and 2004
is because Idaho Power s cost of capital increased and the Northwest Planning and eonservation
eouncil's forecast of natural gas costs increased in 2004. In accordance with the approved
avoided cost methodology established in Order No. 29124, these increases were reflected in
Order No. 29646.
PETITION , Page 3
Another major factor stimulating wind-powered QF development is the
package of tax incentives adopted at the state and federal levels. Just prior to the
issuance of Order No. 29646, the federal government reinstated an expired income tax
credit equal to $18.00 per MWh. This production tax credit, together with accelerated
depreciation rules and other tax incentives at the federal level , has stimulated the
development of wind generation. In addition , the state of Idaho has recently enacted
sales tax exemptions to encourage development of alternative generating resources.
(Idaho Code , 963-3622QQ.The combination of federal and state tax incentives and
the increase in energy purchase rates established in Order No. 29646 has caused a
rapid increase in the number of QFs , including wind-powered QFs , seeking contracts to
sell their generation to Idaho Power.
Attachment 1 graphically depicts the level of development activity for all
OF facilities (including wind) since PURPA was implemented in Idaho. Attachment
also shows the sharp increases in the level of OF development activity, including wind-
powered OF projects seeking to sell their output to Idaho Power since Order No. 29646
was issued in December of 2004.
.ImPacts of Accelerated Wind Development
Interaction Between PURPA Published Rates and Bid Prices In
RFPs.The Commission accepted Idaho Power s 2004 Integrated Resource Plan
IRP") in Order No. 29762 issued on April 22, 2005. In the IRP , Idaho Power, in
consultation with the Integrated Resource Plan Advisory Council ("IRPAC"), considered
and evaluated a full range of resource options , including wind generation. Based on
PETITION, Page 4
those consultations, the Company used an average price of $43.00 per MWh for
assessing the cost of wind resources.
Utilizing the $43.00 per MWh price assumption , the 2004 IRP called for
350 MW of wind-powered resource to be acquired in the near term.6 The selected
resource portfolio (Portfolio No. 11) also included up to 200 MW of combustion turbine
capacity, in part, to accommodate the need to provide "firming" for the low-capacity
factor, intermittent wind resources.
Idaho Power s 2004 IRP describes the Company s intention to issue
competitive requests for proposals ("RFPs ) for 200 MW of wind-powered resource in
2005 in its near-term action plan ("2005 RFP"
).
The 2005 RFP was issued on
January 13 , 2005. The RP also calls for an RFP for an additional 150 MW of wind-
powered resources in 2008 ("2008 RFP,,
In deciding to move forward with an RFP program to competitively acquire
wind resources , the Company was hopeful that a bidding process would allow the
Company to take advantage of competition and the economies of scale associated with
larger size wind generation projects. It was hoped that this strategy would moderate the-
total cost of wind energy acquired by averaging the higher cost of smaller QF wind
projects acquired at the avoided cost rate with the presumably lower cost of wind
acquired by competitive RFPs. Unfortunately, these expectations have not been met.
Idaho Power has recently reviewed the bid responses received in the
2005 RFP. The bids received, on average, propose purchase rates of approximately
IRP, p. 2.
IRP, p. 75.
IRP, p. 77.
PETITION, Page 5
$55.00 per MWh. Idaho Power believes that the bids the Company has received in the
2005 RFP are not reflective of market prices for wind generation and are being unduly
influenced by the current published avoided cost rates. The Company s belief that the
bids it has received in the 2005 RFP have been unduly influenced by the published
avoided cost rates is supported by recent announcements by other regional utilities of
power purchase agreements with wind resource developers with substantially lower
pricing structures. For example , in the state of Montana, NorthWestern Energy recently
received Montana Commission approval for an agreement with Judith Gap LLC under
which NorthWestern will purchase 135-150 MW of wind resource at a price of $31.
per MWh.
In light of the large number of MWs of QF wind resources already
acquired and proposed and the high bid prices received in the 2005 RFP , it is likely that
Idaho Power will be required to reduce the amount of wind generation acquired through
the 2005 RFP. For the same reasons , it is likely that the 2008 RFP will need to be
deferred or perhaps eliminated.
In Order No. 29632 issued in case Nos. IPC-04-8 and IPC-04-, the
Commission limited the availability of the published rates to QF projects with the
capability to generate no more than 10 aMW in any given month. While limiting the
entitlement to published rates to projects up to 10 aMW provided much-needed
certainty as to which OF projects were entitled to the published rates, the decision to set
the entitlement to published rates at 10 aMW allows large (i.e., 30 MW nameplate
capacity assuming a 330/0 capacity factor) wind resources to qualify for the published
Public Service eommission of Montana Final Order No. 6633b issued on March 31 2005, in Docket
02005.14.
PETITION , Page 6
rates. It will not be difficult for a 150 MW wind project to reconfigure itself into five 30
MW wind projects and qualify each project for the published rates.
As a result, without a temporary suspension of QF purchases, the
unsuccessful wind developers bidding in the 2005 RFP may decide to reconfigure their
projects to qualify for the PURPA mandatory purchase obligation at published QF rates.
If that occurs, Idaho Power will be presented with an unmanageable influx of intermittent
generation. Idaho Power believes that the only way to allow careful consideration of the
issues raised by this petition and assure that customers are not locked into long-term
contracts at above-market prices is for the Commission to permit the Company to
temporarily suspend its obligation to purchase energy from new wind-powered QF
projects.
The Potential Addition of Larqe Amounts of QF Wind Generation
Could Adversely Affect System Reliability It is undisputed that wind generation is an
intermittent resource. Generation from wind-powered resources may drop rapidly due
to lack of wind or, even more problematically for the utility, due to high winds causing
wind machines to shut down to prevent over-speed damage. To assure system
reliability, intermittent wind resources must be "firmed" by ancillary services. This
firming can be provided by the purchase of load-following services and reserves from a
third party supplier if the ancillary services and transmission are available on a firm
long-term basis or self-provided by the utility primarily through the acquisition of peaking
resources, such as gas-fired combustion turbines, that the utility can dispatch.
In the Company s 2004 IRP, the Company performed an analysis of the
cost and risks associated with a resource portfolio consisting of 1 000 MW of wind
PETITION, Page 7
(Portfolio No.3). That analysis concluded that in order to safely integrate 1 000 MW of
intermittent wind generation, it would be necessary to contemporaneously add 640 MW
of combustion turbines to provide capacity when the intermittent wind resources were
not operating. Adding intermittent resources without also adding ancillary firming
capacity will adversely affect system reliability.
When the Commission in Order No. 29124 adopted the combined cycle
combustion turbine as the surrogate avoided resource for setting avoided costs, the
need to consider the costs associated with the ancillary services needed to integrate
intermittent wind resources onto the utility s system was addressed. At that time neither
the Commission nor Idaho Power had much experience with wind resources. Idaho
Power had not signed any significant wind QF contracts or built any wind resources.
The time has come for Idaho Power, perhaps in conjunction with an
independent third-party consultant, to undertake a thorough analysis of the amount of
intermittent resources that can be added to the Company s system without jeopardizing
system reliability. In addition , the costs of acquiring ancillary services such as
combustion turbine peaking capacity in conjunction with adding intermittent QF wind
resources must be considered in determining the costs the Company can avoid by
purchasing QF wind resources. An analysis of this type has not been performed looking
specifically at Idaho Power s system. A thorough analysis will require time and
considerable effort.
Avoided Costs For Wind-Powered Resources Must Be Re-
Addressed. Idaho Power and the Commission have generally resisted developing
avoided cost rates specifically targeted to individual QF generating technologies.
PETITION , Page 8
However, in light of the large number of actual and potential QF wind resources seeking
PURPA contracts, it has become apparent to Idaho Power that a reassessment of how
avoided costs should be computed for intermittent wind generating resources should be
undertaken. Such an analysis would , for the first time, consider the above-described
costs of firming and integrating intermittent QF wind resources into the Company
system.
A Temporary Suspension of New QF Wind Projects Is Needed. In
Idaho Power s judgment, the Commission cannot conduct a review of system reliability
issues and wind-specific avoided costs without first instituting a temporary suspension
of the PURPA mandatory purchase obligation for new wind QF projects. Prior history
clearly demonstrates that when a utility asks the Commission to consider changing
avoided cost rates, potential developers inundate the utility with contract and
interconnection requests in order to obtain "grandfather" status. To undertake an
orderly wind resource avoided cost investigation, it is imperative that the Commission
implement a temporary suspension of mandatory contracting for purchases of wind QF
resources. Unless the Commission orders a temporary suspension of the mandatory
contract obligation under PURPA, Idaho Power is concerned that wind OF developers
will inundate Idaho Power with requests for contracts and file complaints, meritorious or
otherwise, in order to position themselves for an entitlement to be "grandfathered" to the
existing published avoided cost rates.
Commission authorization of a temporary suspension of the PURPA
contract obligation is not without precedent. In Order No. 19348 issued in Case No. U-
1500-156, the Commission , on its own motion , imposed a one-year moratorium on
PETITION , Page 9
purchases from QFs located within the service areas of non-investor-owned utilities that
purchase energy supplies from BPA. That moratorium was eventually lifted and Idaho
Power continues to be the purchaser of considerable amounts of energy from QF
projects located in the service areas of Idaho municipalities and co-ops. Such
purchases will likely increase , as many potential QF resources are located outside
Idaho Power s service area and municipalities and co-ops remain unwilling to purchase
QF resources.
Actions To Be Taken DurinQ the Suspension Period . During the
period of suspension, Idaho Power will undertake the following: (1) The Company will
retain an independent third party consultant to assist the Company in preparing an
analysis which will assess the total amount of additional wind resources the Company
system can absorb without adversely affecting the Company s overall power supply
costs and system reliability. The results of this analysis will be presented to the
Commission for its consideration. (2) The Company will prepare and file with the
Commission a proposal for computing avoided costs specifically tailored to the
attributes of intermittent wind-powered resources, including the additional costs
attributable to peaking resources to integrate significant amounts of wind generation.
(3) Idaho Power will prepare and present to the Commission a report describing
possible steps that could be taken to increase the likelihood that future RFPs for wind
resources reflect actual resource costs and market prices for wind resources rather than
published avoided cost rates for all types of smaller QF projects. This analysis will
include a review of the pros and cons of the utility including an ownership option for
wind resources as a way of providing pricing discipline within the RFP process.
PETITION , Page 10
Procedure If the Commission determines that it is in the public
interest to consider the issues raised bY. Idaho Power in this Petition, Idaho Power
suggests that the Commission first issue its Order granting the temporary suspension
requested by Idaho Power. Secondly, the Company proposes that the Commission
expeditiously convene a prehearing conference to define the issues to be addressed
and to establish a schedule for processing and considering the issues raised by this
Petition. The prehearing conference order would include a schedule for Idaho Power to
present the reports described in Section 5 above.
Conclusion
It is important to emphasize that this Petition does not represent a
retreat by Idaho Power from a commitment to acquire a significant amount of renewable
resources within a balanced resource portfolio consisting of new generation
transmission and demand-side management initiatives. This Petition is necessitated by
a number of potentially adverse consequences for our customers that neither the
Company nor the Commission could have foreseen when the current process for setting
QF rates began. The Company believes the issues raised in this Petition should be
considered by the Commission at this time and not after the impacts on customers have
become inevitable and acute.
WHEREFORE , Idaho Power respectfully requests that the Commission
issue its Order:
Temporarily suspending Idaho Power s obligation under 99 201 and
210 of PURPA to enter into new contracts to purchase energy generated by wind-
powered QFs; and
PETITION , Page
Convening a prehearing conference to define issues and establish
a schedule for processing and considering the issues raised in this Petition.
Respectfully submitted this 17th day of June, 2005.
~ ~tL ~
BARTON L. KLINE
Attorney for Idaho Power Company
PETITION , Page 12
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