20050921final order on reconsideration order no 29872.pdf

Office of the Secretary
Service Date
September 21 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 GENERA TED BY WIND-
POWERED SMALL POWER PRODUCTION
FA CILITIES
CASE NO. IPC-O5-
ORDER NO. 29872
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). On July
, 2005, the Commission issued Notices of Petition and Intervention Deadline in Case No. IPC-
05-22. A public hearing and oral argument were held on July 22, 2005 in Boise, Idaho to
address, in part, the requested temporary suspension of Idaho Power PURP A purchase
obligation, the need for and appropriateness of such relief and related procedural and
jurisdictional matters.
On August 4, 2005, the Commission issued Interlocutory Order No. 29839. The
Commission s Order reduces the published rate eligibility cap for non-firm wind projects from
10 aMW to 100 kW, requires individual negotiation to secure rates for larger wind QFs
establishes grandfathering criteria for assessing contract and published rate entitlement and
discusses further procedure. The Commission s Order, in part, contains the following findings:
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 published avoided cost rates. F or 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)
ORDER NO. 29872
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.
On August 23 , 2005 , pursuant to a Petition request of Windland Incorporated
(Commission Rules of Procedure 321.01; 323.03) the Commission designated the interlocutory
Order No. 29839 language set out above as a final Order No. 29851 for purposes of
reconsideration and appeal. The Commission in Order No. 29851 also for statutory and
procedural purposes stated that the August 5, 2005 Petition for Reconsideration filed by
Windland Incorporated was to be regarded as filed on August 24 2005.
Since its issuance of final Order No. 29851 on August 23, 2005, the Commission has
noticed and/or received the following Petitions for Reconsideration (Idaho Code ~ 61-626 and
Commission Rule of Procedure 331.01), Cross-Petition for Reconsideration (RP 331.02),
Petitions for Stay (RP 324) and related Answers:
Windland Incorporated Petitions for Reconsideration and Stay
Windland Incorporated (Windland) in its August 24 2005 Petition for
Reconsideration of interlocutory Order No. 29839 (final Order No. 29851) requests that the
Commission reconsider its decision regarding "grandfathering,contending the published
avoided cost rates for wind QFs are above avoided cost, do not accurately reflect the cost of
alternative energy and are unjust and unreasonable. Citing PURP A, Section 21 O(b )(2).
Windland contends that the grandfathering policy established by the Commission extends
published rate entitlement to QFs that have no legal obligation under contract law and no
contractual or legal right to protection. Citing A. W. Brown v. Idaho Power 121 Idaho 812, 816
(1992); Rosebud Enterprises v. IPUC et al.128 Idaho 609, 620 (1996) and Rosebud Enterprises
v. IPUC and Idaho Power 131 Idaho 1 9 (1997); rehrg denied (1998).
Windland on August 9, 2005 petitioned for stay of the Commission s interlocutory
Order No. 29839 (final Order No. 29851) until such time as Windland'Petition for
Reconsideration regarding "grandfathering is resolved and/or until such time as the
Commission issues an Order regarding the law governing grandfathering and the parties
relationships concerning wind powered QF contracts. Windland contends that "if the
ORDER NO. 29872
Commission does not reverse its decision regarding grandfathering, the consequence is that
Idaho Power s ratepayers will pay at least $3.3 million dollars more for a PURPA 10.5 MW
nameplate capacity project as opposed to the same amount of energy being procured through the
average RFP bid ($55MWh).Windland contends the Commission s Order detrimentally
impacts Idaho Power s ability to acquire least cost resources and is not in the public interest and
is contrary to law.
Energy Vision LLC Petition for Reconsideration
EnVision requests that the Commission reconsider its Order by changing the power
contract cut-off date from July 1 , 2005 to August 4, 2005, the effective date of interlocutory
Order No. 29839. EnVision states its belief that a utility s obligation to enter into PURPA
contracts under existing prices and terms continues until those prices or terms are changed by
subsequent Commission Order, not by Commission notice and that the relevant Order is No.
29839 issued on August 4, 2005.
Commission Staff Cross-Petition and Petition for Reconsideration
By way of Petition for Reconsideration of Order No. 29851 and Cross-Petition to
Windland's Petition for Reconsideration, Staff contends that requiring anything other than a
legally enforceable obligation and/or a demonstration of the "but for test to qualify for
grandfathering eligibility and entitlement for a contract at published avoided cost rates is not in
conformity with the requirements and procedures previously established by the Commission for
obtaining qualifying facility status and eligibility for rates and exemptions. (Cited authority
omitted.Specifically, Staff contends that the second threshold criteria enumerated by the
Commission in Order No. 29851 , i.e.
, "
(2) submittal to the utility of a completed Application for
Interconnection Study and payment of fee" is not properly a threshold criteria for determining
entitlement to published avoided cost rates. Staff contends that an interconnection study
application is not an enforceable, binding QF commitment to provide power and submittal of
same should not provide the QF with a non-binding option to secure a contract and lock-in an
avoided cost rate. Submittal of an interconnection study application, Staff contends, should be
regarded instead as an additional indicia of substantial progress and project maturity.
ORDER NO. 29872
Contrary to Windland' s contention at Petition for Reconsideration page 3 , Staff
contends that the Commission did not find that avoided cost rates are set too high for wind QFs.
The Commission language cited, Staff contends, speaks for itself:
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.
Order No. 29839, p. 8.As the Commission further states, Staff notes
, "
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.Id.
Idaho Power Company Petitions for Reconsideration and Stay
Idaho Power requests that the Commission reconsider its determination that one of
the primary criteria the Commission will consider in deciding whether or not to exempt a QF
project from application of the 100 kW published rate eligibility cap is whether or not, prior to
July 1 , 2005 , the QF had filed an interconnection study application and paid the interconnection
study fee. Idaho Power believes that the filing of an interconnection study application and
paying the engineering fee should not be a primary criterion, but, instead, should be included on
the list of secondary criteria indicating progress toward QF project completion. A QF is entitled
to be grandfathered, the Company contends, only if the QF can demonstrate (1) that it has
entered into a contract or "legally enforceable obligation" binding itself to perform in accordance
with the agreement or alternatively it must demonstrate that
, "
but for" the actions of the utility, it
would have entered into such a legally enforceable obligation.
Idaho Power also petitions the Commission for an Order staying the Company
obligation to enter into contracts with wind QFs that claim an exemption from the 100 kW size
limit based on the fact that the QF had filed an interconnection application and paid the
interconnection study fee on or before July 1 , 2005. While there is no question that completion
of the interconnection process is one of the major milestones on the critical path toward
developing a QF project, the Company contends that submittal of an application for an
ORDER NO. 29872
interconnection study does not commit the QF to anything. Submittal of a request for an
interconnection study is, the Company states, only the first step in the interconnection process. It
can be withdrawn or abandoned at any time at the sole discretion of the developer and does not
commit the QF to any project development activities.
Magic Wind LLC, Cassia Wind Park LLC, and Cassia Wind LLC (collectively Magic and
Cassia) Answers
In answer to Staff s Petition for Reconsideration, Magic and Cassia contend that the
Commission has discretion in fashioning grandfathering criteria and that the A. W. Brown
requirement of a legally enforceable obligation or a meritorious complaint at the time of a
proposed change in rates is not mandatory and is not required under principles of stare decisis.
Citing A. W. Brown 121 Idaho 812 (1992). By lowering the published rate eligibility cap to 100
kW from 10 aMW, the present circumstance is different, Magic and Cassia contend, from the
circumstance in A. W. Brown justifying a different exemption policy.
In answer to Idaho Power Company s Petition for Reconsideration, Magic and Cassia
dispute Idaho Power s assertion that a request for an interconnection study is only the first step
in the interconnection process. IPCo Petition, p. 5. In fact, Magic and Cassia state submission
of an interconnection application is not just the "first step" in the interconnection process but as
evidenced in transcript Exhibit 605 Idaho Power describes the interconnection application this
way:
Receipt of the completed application and the associated fee will be
considered the official notification to Idaho Power of your intention to
interconnect.
This official notification of intent to interconnect, Magic and Cassia contend, becomes the basis
for notification to the public of the amount of capacity Idaho Power considers being committed
for supply to the Company. As reflected in its Answer to Staffs Petition, QF projects that are
willing to follow the directions of Idaho Power and pay thousands of dollars for interconnection
applications are just as sincere and committed as those QFs signing and submitting a Purchase
Power Agreement.
In Answer to Windland' s Petition for Reconsideration, Magic and Cassia contend
that PURP A rates continue until changed by a competent Order following hearing and by
definition are fair, just and reasonable. The Commission in its Order, Magic and Cassia contend
ORDER NO. 29872
determined there were enough facts to warrant an investigation and made no finding that the
published avoided cost rates were too high for wind QFs. Magic and Cassia support the
Commission s grandfathering criteria as a reasonable balancing of interests and contend that the
signed contract or meritorious complaint requirement of A. W. Brown is not a legally required
limitation mandated by law. Nor also, they argue, is the legally enforceable obligation
grandfathering requirement affirmed by the Court in Rosebud 131 Idaho 1 (1997).
Idaho Power Answer
Idaho Power by way of answer to Windland'Petition for Stay agrees with
Windland's conclusion that the rates in grandfathered QF wind contracts will exceed the
Company s current avoided costs, interpreting the Commission s language "the unique supply
characteristics of wind generation and related integration costs provide a basis for adjustment
the published avoided cost rates" as evidencing a Commission determination that the published
avoided cost rates should be adjusted. Idaho Power cites two FERC decisions both issued in
1995 for Commission consideration. In Connecticut Light Power 70 FERC 61 012 (1995)
and Southern California Edison Co., San Diego Gas Electric Co.70 FERC 61 215 (1995), the
Federal Energy Regulatory Commission (FERC) noted that if utilities are required by state law
or policy to sign contracts that reflect rates for QF sales at wholesale that are in excess of
avoided costs, those contracts will be considered to be void ab initio (Connecticut Light
Power 70 FERC 61 012, 61 030 (1995)).
In considering the issues associated with "grandfathering" of QF projects, the
Company cites an extensive body of Idaho law on this issue. See, Empire Lumber v. Washington
Water Power 114 Idaho 191 (1988); A. W. Brown 121 Idaho 812 (1992); Rosebud 131 Idaho
(1998); Rosebud 128 Idaho 609 (1996). In the above-cited cases, Idaho Power states that the
Idaho Supreme Court upheld the Commission s establishment of criteria based on contract
commitment by the QF, to guide its determination as to whether or not a particular QF project
was grandfathered to the prior rates. In A. W. Brown 121 Idaho 812 828 (1992), the Idaho
Supreme Court quoted the Commission s description of the criteria adopted by the Commission:
The QF must be able to exhibit that it has laid a proper foundation entitling it
to contract consideration and the current avoided cost rates. There must be
an indication that the QF pursued a power contract with some diligence
. . .
indeed this Commission has stated a CSPP is not entitled to contract rates
until it is ready, willing and able to sign a contract. It must show that but for
the actions of the utility it was otherwise entitled to a contract. In most cases
ORDER NO. 29872
this will entail making a comprehensive binding offer showing with the
reasonable specificity, design and size characteristics and indicate a
willingness to rely on proposed contract terms and proceed there under.
(A. W. Brown 121 Idaho 812, 817 (1992))
Review of the above referenced Empire, A. W. Brown and Rosebud cases, Idaho
Power contends, demonstrates that the Commission has established QF contract commitment
the principle test to be applied to the individual facts that are unique to each QF project seeking
grandfather status.
Exergy Development Group of Idaho LLC Answer
By way of answer to Windland's Petitions for Reconsideration and Stay, Exergy
contends that Windland fundamentally misconstrues the Commission s Order as requiring Idaho
Power to enter into contracts and as determining that the published avoided cost rates are too
high for wind QFs. Instead, Exergy contends that the Commission found only that there was
sufficient evidence to investigate the costs of integrating wind into Idaho Power s system. Those
costs, it states, have not been fully explored. Exergy characterizes Windland's Petition as not
ripe for adjudication and an impermissible collateral attack on prior avoided cost rate Order No.
29646 (December 2004). Reference Idaho Code ~ 61-625. Exergy contends that in the ensuing
investigation, integration costs will have to be balanced with any identified benefits and include
a consideration of the Order No. 29632 90/110 band requirement.
Commission Findings
The Commission has reviewed and considered the filings of record in Case No. IPC-
05-22 including the transcript of the July 22, 2005 proceedings, the prehearing legal briefs
interlocutory Order No. 29839 and final Order No. 29851. We have also reviewed and
considered the Petitions for Reconsideration filed by Windland Incorporated, Commission Staff
and Energy Vision LLC, the Cross-Petition for Reconsideration filed by Commission Staff, the
Petitions to Stay filed by Idaho Power and Windland Incorporated, and the related and respective
answers filed by Magic Wind LLC, Cassia Wind Park LLC and Cassia Wind LLC, Idaho Power
Company and Exergy Development Group LLC.
On August 23 , 2005, the Commission in Order No. 29851 designated the following
language set forth in prior interlocutory Order No. 29839 a final Order for purposes of
reconsideration and appeal:
ORDER NO. 29872
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 published avoided cost rates. F or purposes of determining
eligibility we find it reasonable to use the date of the Commission s Notice in
this case, i., 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.
Order No. 29839, pp. 9-10.
The underlying premise of Windland's Petition for Reconsideration is that the
published avoided cost rates exceed the incremental cost of wind-generated alternative electric
energy. Windland contends that it is unlawful for the Commission to require Idaho Power to
enter into contracts with eligible wind QFs at the published avoided cost rate. Citing PURPA
Section 210(b)(2). Although the Commission in Order No. 29839 (and Order No. 29851)
recognized that "wind generation may present operational integration costs to regulated electric
utilities different from other PURP A qualified resources " we have made no determination that
the published avoided cost rates established in Order No. 29646 (December 1 , 2004) are unjust
and unreasonable or are set too high for wind QFs. Indeed, we find there is as yet no established
record to support such a determination. As defined by FERC regulations, a utility s avoided cost
is the incremental cost of energy or capacity or both which, but for the purchase from the QF, the
utility would generate itself or purchase from another source. 18 C.R. ~ 292.101(b)(6). Idaho
Power s avoided cost and published rates are not based on the current market price of a particular
renewable generation technology. Nor are the rates benchmarked on utility Request for Proposal
(RFP) bids for renewable resources, Integrated Resource Plan (IRP) estimates or contract prices
for similar resources in neighboring states. The published rates instead are based on a
hypothetical Surrogate Avoided Resource (SAR), presently a natural gas combined cycle
ORDER NO. 29872
combustion turbine. The published avoided cost rate methodology produces generic rates
applicable to Idaho Power, as well as Avista and PacifiCorp. Neither Idaho Power nor the other
two utilities contend that the SAR methodology is no longer an appropriate methodology for
calculating avoided costs. We have no record to support an alternate methodology. What we
have done in this case docket based on the developed record to date and a Commission finding
that "the unique supply characteristics of wind generation and the related integration costs
provide a basis for adjustment to the published avoided cost rates is to authorize an
investigation and to reduce the QF size cap for published rate eligibility to 100 kW for wind QFs
offering power on a non-firmed basis. 18 C.R. ~ 292.304(c)(1). We expect that the parties
following workshops in this matter will file a report and recommendations with the Commission.
The Commission understands the predicament that Idaho Power faces with its current
wind RFP and with its statutory PURP purchase obligation. The Commission is obliged
however, to enforce PURP A and FERC rules and regulations that require utility purchases of QF
capacity and energy. 18 C.R. ~ 292.303(a). Mandatory PURPA resources offered under the
Commission approved avoided cost methodology cannot be declined by Idaho Power because
the Company would prefer to acquire similar resources through a competitive non- PURP A IRP
related RFP process.
Regarding Commission Staff and Idaho Power s Petitions for Reconsideration, the
Petitioners contend that the second threshold criteria enumerated by the Commission, i.e.
, "
(2)
submittal to the utility of a completed Application for Interconnection Study and payment of fee
is not properly a threshold eligibility criteria for determining entitlement to published avoided
cost rates but should be regarded as an additional indicia of substantial progress and project
maturity. The Petitioners remind the Commission that we have previously in complaint and
grandfathering cases adopted a "legally enforceable obligation" standard for published rate
entitlement, and/or a requirement that an eligible QF demonstrate that it was "ready, willing and
able" to contract to deliver power, that it had attempted to secure a contract and that "but for" the
actions of the utility would have had a signed and approved contract at the published rate.
The Commission agrees that the legally enforceable obligation to provide power
requirement of QFs is a reasonable standard. We have always required that signed PURPA
contracts be presented for review, approval and lock-in of rates. It is a tested standard that has
withstood judicial scrutiny. It is certainly a reasonable standard to impose when avoided cost
ORDER NO. 29872
rates are reduced, but it is not a standard that is required by PURP A or FERC rules. It is also, we
find, not required in this instance when the underlying avoided cost rates have not changed or
been determined to be unjust or unreasonable.
This Commission is not rigidly bound by principles of stare decisis to follow prior
precedent so long as a record is developed and sufficient findings supported by the evidence
show that our action is not arbitrary and capricious. We did so in this case. Weare a regulatory
agency that performs both legislative and quasi-judicial functions. Our change in published rate
availability for certain wind QFs was based on a showing that there was a need to investigate the
integration costs of intermittent wind generation to determine whether an adjustment to the
published avoided cost rate for non-firm wind QFs was required. It was also recognition of the
significant increase in the number of PURPA wind projects since our Lewandowski/U.
Geothermal Orders and our December 2004 change in avoided cost rates. We did not eliminate
the utility s obligation to purchase from wind QFs, but we established greater administrative
control of contracts during the period of our investigation. For wind QFs greater than 100 kW
offering power on an unfirmed basis, the door to a purchase contract is not closed. For projects
not qualifying for the published rate, individual negotiation of rates under an IRP based
methodology is required. Under such IRP based methodology, Company proposed rate
adjustments, if any, are based on individual project characteristics and are separately considered
by the Commission.
The change in published rate availability we established in Order No. 29839 and final
Order No. 29851 , however, was reason, we found, to consider the reasonable expectations of
wind QFs in the negotiating queue for published rate contracts and to establish grandfathering
criteria for those eligible projects actively engaged in contract negotiation with a utility and able
to demonstrate project maturity and entitlement. The grandfathering criteria we established for
published rate eligibility was fashioned in such manner as to recognize and not discount the
considerable time, effort and energy expended by some QFs in developing their projects, a
process for some that included not only required negotiations with the utility but also with
financing entities, turbine suppliers and efforts to prove project viability and secure the rights to
project sites. We also considered the equity arguments advanced by those QFs who relied on
utility representations regarding the effect of interconnection study applications. Reference
Exhibit 605. The degree of substantial progress and project maturity that we look for in projects
ORDER NO. 29872
that have not submitted a signed power purchase agreement to the utility by our grandfathering
cut-off date is a demonstration that the QF project can be brought on line in a timely manner and
within a reasonable period following contract execution and approval.
Based on the foregoing discussion offered by way of clarification, the Commission
finds it reasonable to deny the Petitions for Reconsideration filed by Windland and Idaho Power
and the related Petitions to Stay and to re-affirm the grandfathering criteria established in
interlocutory Order No. 29839 and final Order No. 29851. We similarly find it reasonable to
deny the Petition and Cross-Petition for Reconsideration filed by Commission Staff.
Regarding Energy Vision LLC's Petition, based on the record developed in this case
we find it reasonable to grant reconsideration and to change the date for grandfathering eligibility
from July 1., the date of our Notice, to August 4, 2005, the date of our interlocutory Order No.
29839. In so doing we note that until published rate eligibility was changed by Commission
Order on August 4, 2005, Idaho Power had a continuing obligation under PURPA, FERC rules
and the Orders of this Commission to offer to purchase QF power at the published rate and to
engage in contract negotiations with eligible QFs.
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
(QFs) and to implement FERC rules.
ORDER NO. 29872
ORDER
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED that the Petition for Reconsideration of final Order No. 29851 filed by
Energy Vision LLC is granted and the Commission for good cause shown and without further
notice or hearing does hereby change the date for grandfathering eligibility from July 1 , 2005
the date of our Notice of Petition, to August 4 2005, the date of interlocutory Order No. 29839.
IT IS FURTHER ORDERED for reasons described above that the remaining
Petitions and Cross-Petition for Reconsideration of final Order No. 29851 filed by Windland
Incorporated, Idaho Power Company and Commission Staff and the related Petitions for Stay
filed by Windland Incorporated and Idaho Power Company are denied.
THIS IS A FINAL ORDER ON RECONSIDERATION. Any party aggrieved by
this Order or other final or interlocutory Orders previously issued in this Case No. IPC-05-
may appeal to the Supreme Court of Idaho pursuant to the Public Utilities Law and the Idaho
Appellate Rules. See Idaho Code ~ 61-627.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this d-./.s:t
day of September 2005.
/~~
MARSHA H. SMITH, COMMISSIONER
~l~DE IS S. HANSEN, COMMISSIONER
ATTEST:
~JRJe D. Jewell
Commission Secretary
bls/O:IPC-05-22 sw3
ORDER NO. 29872