20050804order no 29839.pdf

Office of the Secretary
Service Date
August 4, 2005
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION OF
IDAHO POWER COMPANY FOR AN
ORDER TEMPORARILY SUSPENDING
IDAHO POWER'S PURP A OBLIGATION TO
ENTER INTO CONTRACTS TO PURCHASE
ENERGY GENERATED BY WIND-
POWERED SMALL POWER PRODUCTIONFACILITIES
CASE NO. IPC-O5-
ORDER NO. 29839
On June 17, 2005, Idaho Power Company (Idaho Power; Company) filed a Petition
with the Idaho Public Utilities Commission (Commission) requesting a temporary suspension of
the Company s obligation under Sections 201 and 210 of the Public Utility Regulatory Policies
Act of 1978 (PURP A) and various Commission orders, to enter into new contracts to purchase
energy generated by qualifying wind-powered small power production facilities (QFs). The
requested suspension would not affect new contracts with QFs utilizing other generating
technologies.
Idaho Power requests that the proposed temporary suspension remain in effect for a
period of time sufficient to allow the Commission to investigate the impacts on Idaho Power
customers arising out of the addition of substantial amounts of wind-powered generation
projects. Such a Commission investigation, the Company contends, 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.
The Commission in this Order reduces the published rate eligibility cap for non-
firmed wind projects to 100 kW, requires individual negotiation for larger wind QFs, establishes
criteria for assessing QF contract entitlement and discusses further procedure. This Commission
is supportive of wind generation and believes that it is a proven renewable energy technology
that can be, when properly integrated and economically developed, an important addition in the
resource portfolio of Idaho s electric utilities. The concern we address in this Order and case
docket is the proper pricing of intermittent wind generation purchased pursuant to federal
ORDER NO. 29839
obligation and the related utility integration costs that we find may not be fully reflected in the
published avoided cost rates.
BACKGROUND
Published Rates PURP A QFs
Idaho Power notes in its Petition and in its later filed testimony that in accordance
with Commission Order No. 29646 issued on December 1 , 2004, the current average levelized
published rates" for 20-year QF contracts are approximately $61 per megawatt hour (MWh).
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 states that it currently has pending before the Commission
applications for approval of additional wind-powered QF contracts in the amount of 21 MW.
Additionally, the Company contends that it 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, the Company notes that it had less
than 1 MW of QF wind-powered generation under contract.
Federal/State Tax Incentives
In addition to the avoided cost rates established by the Commission, the Company
contends that wind-powered QF development has also been stimulated by multiple federal and
state tax incentives. Just prior to the issuance of Order No. 29646, the federal government
reinstated an expired production tax credit equal to $18/MWh. Also present at the federal level
are accelerated depreciation rules and other tax incentives. At the state level, the Idaho
Legislature recently enacted a sales tax exemption to encourage the development of alternative
generating resources. (Idaho Code 9 63-3622 QQ).
2005 RFP 200 MWof Wind-Powered Resource
On April 22, 2005, the Commission accepted Idaho Power s 2004 Integrated
Resource Plan (IRP). Reference Order No. 29762. In the IRP, the Company, in consultation
with the Integrated Resource Plan Advisory Council, considered and evaluated a full range of
resource options, including wind generation. Based on those consultations, the Company used
an average price of $43/MWh for assessing the cost of wind resources. Using the $43/MWh
price assumption, the 2004 IRP called for 350 MW of wind-powered resource to be acquired in
the near term. Idaho Power s 2004 IRP described the Company s intention to issue competitive
ORDER NO. 29839
requests for proposals (RFPs) for 200 MW of wind-powered resource in 2005 in its near-term
action plan. The Company s 2005 RFP was issued on January 13 , 2005. The IRP also calls for
an RFP for an additional 150 MW of wind-powered resources in 2008.
In deciding to move forward with an RFP program to competitively acquire wind
resources, the Company states that it 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 the Company s hope that this strategy would moderate the
total cost of wind energy acquired by averaging the higher cost of small QF wind projects
acquired at the avoided cost rate with the presumably lower cost of wind acquired by
competitive RFPs. The Company states that its expectations have not been realized.
Idaho Power reports it has recently reviewed the bid responses received in its 2005
RFP. The bids received, on average, propose purchase rates of approximately $55/MWh. The
Company 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 cites also recent announcements by other regional utilities of
power purchase agreements with wind resource developers with substantially lower pricing
structures. For example, it states that in the State of Montana, North Western 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 $31.71/MWh.
Reference Montana PSC Order No. 6633b issued March 31 , 2005.
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, the Company states that it is likely
that it will be required to reduce the amount of wind generation acquired through the 2005 RFP
and also defer or perhaps eliminate its proposed 2008 RFP.
Without a temporary suspension of QF purchases, the Company speculates that
unsuccessful wind developers bidding in the 2005 RFP may decide to reconfigure their wind
projects to qualify for the PURP A mandatory purchase obligation at published QF rates. If that
occurs , the Company contends that it will be presented with an unmanageable influx of
intermittent generation. The Company believes that the only way to allow careful consideration
of the issues raised by its Petition and to assure that customers are not locked into long-term
ORDER NO. 29839
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.
Intermittent Wind Resources System Reliability
Idaho Power contends that the potential addition of large amounts of QF wind
generation could adversely affect system reliability. To assure system reliability, the Company
states that 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 its 2004 IRP , the Company performed an analysis of the costs and risks associated
with a resource portfolio consisting of 1 000 MW of wind. 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, the Company contends, adversely affects 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 Company states that
neither the Commission nor Idaho Power had much experience with wind resources. The cost
associated with the ancillary services needed to integrate intermittent wind resources onto the
utility s system was acknowledged but was not a factor included in avoided cost calculations.
Idaho Power contends that the time has come, 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 cost of acquiring ancillary services such as combustion turbine
peaking capacity in conjunction with adding intermittent QF wind resources, the Company
contends, must be considered in determining the costs the Company can avoid by purchasing QF
wind resources. An analysis of this type, the Company states, has not been performed looking
specifically at Idaho Power s system. A thorough analysis, it states, will require time and
considerable effort.
ORDER NO. 29839
Wind-Specific A voided Cost Rates
Idaho Power notes that the Company and the Commission have generally resisted
developing avoided cost rates specifically targeted to individual QF generating technologies.
However, in light of the large number of actual and potential QF wind resources seeking PURP
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 s system.
Proposed Suspension of Mandatory Purchase Obligation for Wind QFs
It is Idaho Power s belief that the Commission cannot conduct a review of system
reliability issues and wind-specific avoided costs without first instituting a temporary suspension
of the PURP A mandatory purchase obligation for new wind QF projects.Unless the
Commission orders a temporary suspension of the mandatory contract obligation under PURP A
the Company is concerned that wind QF 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.
During the proposed period of suspension, Idaho Power commits to 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 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 further 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
ORDER NO. 29839
resources as a way of providing prICIng discipline within the RFP
process.
On July 1 , 2005, the Commission issued Notices of Petition and Intervention
Deadline in Case No. IPC-05-22. Finding the Company Petition alone to provide
insufficient basis to grant the temporary suspension requested, the Commission established a
schedule for the prefiling of testimony and legal briefs and established a date for public hearing
and oral argument to develop a record for decision on the limited issue as to whether a
temporary suspension of Idaho Power s PURP A obligation to enter into contracts to purchase
energy generated by wind powered small power production facilities can or should be granted.
Public Hearing and Oral Argument
The public hearing and oral argument on the narrow issue of the requested temporary
suspension of Idaho Power s PURP A obligation to enter into contracts to purchase energy
generated by wind powered small power production facilities (the need for and appropriateness
of such relief and related procedural and jurisdictional matters) and/or the Commission s power
to suspend the PURP A avoided cost rate for wind facilities was held on July 22, 2005 in Boise
Idaho. The following parties appeared by and through their respective counsel:
Idaho Power Company: Barton L. Kline
Monica B. Moen
Commission Staff:Scott Woodbury
Deputy Attorney General
A vista Corporation:David Meyer
Exergy Development Group of Idaho:Peter J. Richardson
Richardson & O'Leary, PLLC
Windland Incorporated:William J. Batt
John R. Hammond, Jr.
Batt & Fisher, LLP
Cassia Wind Farm LLC and
Cassia Gulch Wind Farm LLC:
Dean J. Miller
McDevitt & Miller, LLP
Magic Wind LLC:Dean J. Miller
McDevitt & Miller, LLP
Energy Vision LLC:Glen Ikemoto
ORDER NO. 29839
PacifiCorp:Lisa Nordstrom
Renewable Northwest Project and
NW Energy Coalition:
William M. Eddie
lR. Simplot Company, although requesting and granted intervenor status, did not appear.
Commission Findings
The Commission has reviewed and considered the filings of record in Case No. IPC-
05-, including the filed briefs and testimony of parties and public comments. We have also
considered the filed and oral motions of the parties and related arguments.
On July 19, 2005 , Idaho Power filed a Motion to Modify Schedule proposing to defer
oral argument and hearing and to establish a workshop schedule to explore settlement
opportunities. The Motion was supported in full or with qualifying conditions by Renewable
Northwest Project, NW Energy Coalition Magic and Cassia. The Company s Motion was
opposed by Windland. The Commission adjourned the July 22 hearing briefly at the start of
proceedings to enable the parties to caucus and explore whether a settlement was possible. No
consensus being reached, the Commission reconvened and moved forward with the July 22
hearing.
Exergy at hearing orally moved to strike Staff prefiled testimony beginning at page 3
line 21 as being outside the narrow scope of issues noticed for hearing. The Commission took
the matter under advisement. The Staff testimony Exergy objected to was Staff's alternate
recommendation to the temporary suspension recommended by Idaho Power. We find that two
issues were identified for the July 22 hearing: (1) the Commission s legal ability to suspend and
(2) the need. for and appropriateness of such relief - and related procedural and jurisdictional
matters. We find that Issue 2 raises the question of methodology and that Staff's proposal was
an alternative to suspension and was within the scope of the hearing. To the extent that Exergy
felt disadvantaged, the Commission provided parties an opportunity to file reply briefs and
rebuttal testimony. Exergy requested neither. We find that Exergy s Motion to Strike is without
basis and should be denied.
Cassia Wind, Cassia Gulch and Magic Wind moved orally at the conclusion of
hearing for a Commission Order approving their eligibility and right to a firm energy sales
agreement with Idaho Power at the published avoided cost rates in effect on the date of the
ORDER NO. 29839
Company s Petition. The Commission in this Order establishes criteria for contract eligibility
and finds it unnecessary to treat the identified projects separately.
Idaho Power, Commission Staff, Avista, PacifiCorp, Windland, Cassia Wind/Cassia
Gulch, Magic Wind, Energy Vision and Renewable Northwest Project/NW Energy Coalition
offered testimony on July 22. Legal briefs were submitted by Idaho Power, A vista, PacifiCorp,
Exergy and a Joint Brief by Magic Wind, Cassia Wind and Cassia Gulch. The Commission
accepted the briefs as sufficiently laying out the party positions. Parties were provided the
opportunity to file reply briefs. Oral argument was waived.
Idaho Power at hearing in testimony reiterates the Company position set forth in the
underlying Petition. While the Commission in its Notice in this case stated that the Company
Petition alone provided insufficient basis to grant the temporary suspension requested, the
Commission s statement was not a disparagement of the Petition but was only a finding that a
more formal record (testimony, affidavits, hearing, etc.) needed to be established to constitute a
prima facie case for suspension.
Based on the record established in this case the Commission finds reason to believe
that wind generation presents operational integration costs to a utility different from other
PURP A qualified resources. We find that the unique supply characteristics of wind generation
and the related integration costs provide a basis for adjustment to the published avoided cost
rates, a calculated figure that may be different for each regulated utility. The procedure to
determine the appropriate amount of adjustment, we find, and the identification of what studies
if any, need to be performed to provide such a number is a matter appropriate for further
proceedings. The record reflects that a wind integration study if required may take six months to
develop. Idaho Power has requested a suspension period from six to nine months.
The Commission is presented in this case with a Company proposal to suspend its
obligation to purchase and a Staff proposal to reduce the published rate eligibility cap for
qualified intermittent wind projects from 10 aMW to 100 kW and to require individual
negotiation for larger wind projects. Exempt from Staff's proposal are those wind projects that
are offered on a firmed basis. The Commission finds Staff's proposal to be a reasonable
approach. In doing so we find that under PURP A standard rates for purchases need be published
only for QFs 100 kW and smaller. Reference 18 C.R. Section 292.304(c)(1). We find that the
published avoided cost rate for other generation types is not being challenged in this case. We
ORDER NO. 29839
find no reason to cast the net any further than necessary and find it reasonable to limit our Order
to intermittent wind QFs only. Reference 18 C.R. Section 292.304(c)(3)(ii). We find our
action in reducing the cap for published rates for wind projects to be just and reasonable to the
electric consumers of Idaho Power and in the public interest. Reference 18 C.F .R. Section
292.304(a)(1)(i). This Commission finds that it has continuing authority to review PURPA rates
in order to protect the public interest.
It was suggested in briefing and testimony that the 901110 performance band
established in Order No. 29632 sufficiently dealt with the firm versus non-firm characteristics of
wind and that no further adjustment is needed. In moving forward in this case we find that the
average monthly generation requirement that we established in Order No. 29632 may not capture
the integration requirements and operational demands placed on the utility by intermittent
generation and that the integration costs associated with same may not be fully reflected in the
published avoided cost rates. In moving forward with this case we do so in recognition that no
utility is required to pay more than its avoided cost for QF purchases. PURP A 9 21 O(b).
Idaho Power has a federal requirement to purchase qualifying wind generation
pursuant to PURP A, and the implementing rules and regulations of the Federal Energy
Regulatory Commission (FERC) and this Commission. The Commission recognizes that Idaho
Power is also seeking to purchase wind generation by way of a separate Request for Proposal
(RFP) process. The Company s RFP conforms with a resource acquisition strategy set forth in
its 2004 Integrated Resource Plan. We note of significance that an Integrated Resource Plan is a
living document and as such it is subject to change as new information becomes available or as
circumstances change. Bids in the Company s 2005 wind RFP were submitted in March 2005.
The Commission finds no persuasive evidence that the RFP bids were affected or influenced by
the published avoided cost rate. While the Commission is not directing that the Company
proceed in any particular manner with its RFP, we nevertheless encourage the Company to bring
the RFP process to conclusion.
At the beginning of hearing on July 22, the Commission adjourned to allow the
parties to explore whether any consensus could be reached regarding those PURP A projects that
were in various stages of negotiation with Idaho Power. The parties were unable to reach
consensus. Accordingly, this Commission finds it reasonable to establish the following criteria
to determine the eligibility of PURP A qualifying wind generating facilities for contracts at the
ORDER NO. 29839
published avoided cost rates. For purposes of determining eligibility we find it reasonable to use
the date of the Commission s Notice in this case, i.e., July 1 , 2005. For those QF projects in the
negotiation queue on that date, the criteria that we will look at to determine project eligibility
are: (1) submittal of a signed power purchase agreement to the utility, or (2) submittal to the
utility of a completed Application for Interconnection Study and payment of fee. In addition to a
finding of existence of one or both of the preceding threshold criteria, the QF must also be able
to demonstrate other indicia of substantial progress and project maturity, e., (1) a wind study
demonstrating a viable site for the project, (2) a signed contract for wind turbines, (3) arranged
financing for the project, and/or (4) related progress on the facility permitting and licensing path.
Pacifi Corp and A vista in this case have both requested similar procedural and
regulatory treatment as pertains to the availability of published rates for wind QFs. On the
evidence presented we find that neither PacifiCorp nor Avista are in the situation of having to
purchase an amount of QF wind generation as has been offered and presented to Idaho Power.
Nevertheless, because we find for administrative reasons that it is prudent and expedient to
examine this question for all jurisdictional utilities at the same time, we find this request to be
reasonable and justified. PacifiCorp and A vista are directed to participate in further proceedings
before this Commission in this docket. Idaho Power in conjunction with the other two utilities
and in consultation with other parties to this case is directed to file a proposed schedule for an
initial workshop to identify issues, required studies, and discovery parameters. Also to be filed is
a proposal for further procedure and related time lines. An initial report proposing same shall be
filed with the Commission within 30 days. Subsequent status reports shall be filed every 60 days
thereafter.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Idaho Power Company,
Avista Corporation dba Avista Utilities, and PacifiCorp dba Utah Power & Light Company,
electric utilities, 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 NO. 29839
ORDER
In consideration of the foregoing and as more particularly described above, IT
HEREBY ORDERED that the published rate cap for published avoided cost rates for eligible
wind projects be reduced from 10 aMW to 100 kW. Exempt are those wind projects offered on a
firmed up basis. Also exempt are those wind projects qualifying for contract as of July 1 2005.
IT IS FURTHER ORDERED that the Motions of Idaho Power to modify schedule
of Exergy to strike testimony and of Cassia Wind, Cassia Gulch and Magic Wind to obtain a
separate determination of contract eligibility are denied in a manner and as more particularly set
forth above.
IT IS FURTHER ORDERED that the docket in Case No. IPC-05-22 shall remain
open for further proceedings as set forth above.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 'f~
day of August 2005.
, . ,~~ ~~~
MARSHA H. SMITH, COMMISSIONER
ATTEST:
JJj.
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bls/O:IPC-05-22 sw
ORDER NO. 29839