20071001Contract Termination .pdf

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IDAHO
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An IDACORP company
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September 27 2007 IDAHO Pl!8L\C "'
UTILITIES COMfvlISSlui
Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
PO Box 83720
Boise, ill 83720-0074
Randy C. Allphin
Planning Administrator
Tel: [phone]
rallphinuv.idahopower.com
RE:Arrow Rock Wind Project, Case No. IPC-05-
Dear Ms. Jewell:
On October 5 , 2005 in Order No. 29886 , the Idaho Public Utilities Commission approved the Firm
Energy Sales Agreement ("Agreement") between Idaho Power Company and Arrow Rock Wind Inc.
Arrow Rock") for the sale of energy to Idaho Power Company from the proposed Arrow Rock
Wind Project (the "Project") to be located near Billings, Montana. As proposed, the 19 MW Project
would have been considered a Qualified Facility ("QF") under the Public Utility Regulatory Policies
Act of 1978. The specified Scheduled Operation Date within this Agreement was December 1 , 2005.
Within the Agreement, Paragraph 5.3 specified that the Seller must achieve an Operation Date within 10
months of the Scheduled Operation Date (October 1 2006). Because Arrow Rock did not meet the
Operation Date, on October 2, 2006 Idaho Power issued a default notice to the Project. As specified in
the Agreement the Project had 60 days to cure the default.
On October 31 , 2006, Arrow Rock indicated that the project was not under construction and would not be
constructed in the future. Arrow Rock suggested the potential substitution of an alternate project, one
located approximately 200 miles away using different equipment under different ownership. Idaho Power
had numerous telephone conversations with the Project and advised the Project that this potential alternate
project was not an acceptable cure to the October 1 , 2006 default notice.
On November 29 2006, Idaho Power notified the Project in writing that the previously provided
information in regards to an alternate project was not acceptable and requested the Project provide
additional information no later than December 4, 2006. Furthermore, if no new information was received
Idaho Power would proceed with the termination ofthe Agreement. Idaho Power has not received any
additional information and has informed the Project that Idaho Power would move forward with
termination ofthe Agreement.
POBox 70 Boise, Idaho 83707
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1221 W Idaho St Boise, Idaho 83702
Dama2es
The Agreement is silent in regards to any specific liquidated damages or damage calculations as a result
of this termination. Idaho Power believes a reasonable damage calculation is to determine the additional
energy cost, if any, that Idaho Power will incur as a result of this project's termination.
Idaho Power has calculated this energy value using the Integrated Resource Plan ("IRP") methodology
(i., the AURORA Model) using the 2004 IRP and the 2006 IRP as bases. The Agreement contains non-
levelized energy rates ranging from 52.69 Mills/Kwh to 81.25 Mills/Kwh. The approximate energy
payments that would have been paid to this Project over the fu1l20-year term of the agreement would
have been $78.2 million (a net present value of approximately $39.6 million). These energy payments
were calculated by multiplying the montWy rates within the Agreement by the estimated montWy energy
deliveries specified in the Agreement.
Using the 2004 IRP model Idaho Power has calculated the value of the same quantity of energy to be
approximately $65.4 million (a net present value of approximately $33.1 million). These calculations
indicate that the energy that would have been purchased from this project would have been approximately
$12.8 million (a net present value of approximately $6.5 million) greater then the IRP estimated value of
this energy.
Using the 2006 IRP model Idaho Power has calculated the value of the same quantity of energy to be
approximately $70.1 million (a net present value of approx $38.2 million). These calculations indicate
that the energy that would have been purchased from this project would have been approximately $8
million (a net present value of approximately $1.4 million) greater then the IRP estimated value of this
energy.
Based on these calculations, Idaho Power does not intend to seek any damages from Arrow Rock.
Moreover, Idaho Power is unaware of any legal cause of action Arrow Rock may have against third
parties related to their default.
As can be seen in the recent Hot Springs Wind Project, Bennett Creek Wind Project, and Alkali Wind
Project Agreements (Case Nos. IPC-06-
, -
35 and -36), Idaho Power is attempting to incorporate
delay damage calculation provisions within future PURP A agreements to deter these types of contract
terminations and also provide an actual damage calculation in the event a termination does occur prior
to a project being constructed.
At this time Idaho Power Company has terminated the Agreement with the Arrow Rock Wind
Project. If the Commission requires any further information or action from Idaho Power Company,
please notify me (388-2614) or attorney Lisa Nordstrom (388-5825).
;J;
ncerelY,
(J.
ndy C Allphin
Idaho Power Company
cc:Rick Sterling (IPUC)
Scott Woodbury (IPUC)
Lisa Nordstrom (IPCo)
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POBox 70 Boise, Idaho 83707 1221 W Idaho St. Boise, Idaho 83702