20050909Comments.pdf

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SCOTT WOODBURY ,: L~)
DEPUTY ATTORNEY GENERAL 'lonr: c:cfd-9
IDAHO PUBLIC UTILITIES COMMISSION1JUJ 0U
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PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BARNO. 1895
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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 THE APPLICATION OF
IDAHO POWER COMPANY FOR APPROVAL
OF A FIRM ENERGY SALES AGREEMENT
FOR THE SALE AND PURCHASE OF
ELECTRIC ENERGY BETWEEN IDAHO
POWER COMPANY AND ARROW ROCK
WIND, INC.
CASE NO. IPC-O5-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Application, Notice of Modified Procedure and Notice on Comment/Protest Deadline issued on
August 19 2005 , submits the following comments.
BACKGROUND
On July 28, 2005, Idaho Power Company (Idaho Power; Company) filed an Application
with the Idaho Public Utilities Commission (Commission) requesting approval of a Firm Energy
Sales Agreement (Agreement) between Idaho Power and Arrow Rock Wind, Inc. (Arrow Rock)
dated July 28 2005. Under the Agreement, Arrow Rock will sell and Idaho Power will purchase
electric energy generated by the Arrow Rock Wind Generating Proj ect, located near Billings
Montana, in an area more particularly described as located approximately 100 miles northwest of
STAFF COMMENTS SEPTEMBER 9, 2005
Billings, Montana in Wheatland County on the west side of Highway 191 in the NW 1/4 of
Section 36, Township 10 N, Range 15 E. The nameplate rating of the wind facility is 19.5 MW.
Under normal and/or average conditions, the project will not exceed 10 aMW on a monthly
basis.
As represented, Arrow Rock will be a qualified small power production facility (QF)
under the applicable provisions of the Public Utility Regulatory Policies Act of 1978 (PURP A).
Idaho Power contends that the Agreement comports with the terms and conditions of
Commission Order No. 29632 (Us. Geothermal et al v. Idaho Power) and avoided cost Order
No. 29646. The Agreement is for a 20-year term and contains the published non-Ievelized
avoided cost rates set forth in Order No. 29646. Arrow Rock has selected December 1 2005 as
the scheduled Operation Date for this facility.
Arrow Rock has made arrangements with NorthWestern Energy to deliver the net energy
from its Montana facility to the Idaho Power electrical system. The transmission arrangement
with NorthWestern Energy means that the Company will receive firm energy from the facility
rather than the intermittent energy generally associated with a wind-generating project. Energy
deliveries from the Arrow Rock project are for nine months out of the year and exclude
deliveries during the spring months of March, April and May when the value of energy on the
Company s system is the lowest.
Idaho Power acknowledges the Company s Petition in Case No. IPC-05-22 and
represents that Arrow Rock was in the final stages of negotiations with Idaho Power immediately
prior to the Petition filing and that prior to that date Arrow Rock had submitted an executed
Agreement to the Company. It is Idaho Power s contention that Arrow Rock provides a firm
energy product and is appropriate for exempting from the temporary suspension requested by the
Company in Case No. IPC-05-22.
Section 22 of the Agreement provides that the Agreement will not become effective until
the Commission has approved all the Agreement's terms and conditions and declared that all
payments that Idaho Power makes to Arrow Rock for purchases of energy will be allowed as
prudently incurred expenses for ratemaking purposes.
STAFF COMMENTS SEPTEMBER 9, 2005
ANAL YSIS
The general location of the Arrow Rock project is shown on Attachment A. The Project
is located in central Montana within the service territory of NorthWestern Energy. Arrow Rock
will comprise 13 wind turbines of the total 90 turbines that constitute a larger project termed the
Judith Gap Project. Attachment B shows the location of the Arrow Rock Project in relation to
the Judith Gap Proj ect. Each of the small, square numbered dots on the map represents a
separate wind turbine. It is Staffs understanding that the entire Judith Gap Project is currently
under construction, including those turbines yet to be purchased by Arrow Rock from Invenergy,
the owner and developer of the Judith Gap Project. If the Agreement is approved, the Arrow
Rock Project will be the third project located in Montana selling its output to Idaho Power under
a PURP A agreement.
The Judith Gap Project was the successful bidder in a recent Request for Proposals (RFP)
issued by NorthWestern Energy. Under the agreement between Judith Gap and NorthWestern
NorthWestern will purchase 135-150 MW of generation from Judith Gap at a price of$31.71 per
MWh and will bear whatever costs must be incurred to integrate the project's generation into its
system. Presently, these costs remain unknown.
Arrow Rock has an agreement to lease the land on which the turbines are being erected
and to lease the transmission interconnection facilities needed to deliver output to NorthWestern
Energy s system. Arrow Rock has also agreed to purchase 13 of Judith Gap s wind turbines. At
the present time, Arrow Rock does not yet own the turbines, but it is trying to obtain a letter of
intent with Invenergy to purchase them. As of the filing date of these comments, a signed letter
of intent has not been obtained. Because Arrow Rock does not yet have either an ownership
agreement or a signed letter of intent to purchase the turbines, Staffhas concern about Arrow
Rock's ability to have control of the generation facilities. Despite these concerns, however, there
are no Commission rules requiring or specifYing ownership or lease arrangements.
The generation produced by Arrow Rock will be delivered to NorthWestern, who in turn
will "firm" the energy and deliver a flat 10 MW product to Idaho Power. Under the power sales
Agreement between Arrow Rock and Idaho Power, Arrow Rock will only sell its output to Idaho
Power in nine months of the year. In March, April and May, Arrow Rock will sell its output to
NorthWestern under a separate agreement. The terms of that separate agreement have not been
provided to Staff or to Idaho Power.
STAFF COMMENTS SEPTEMBER 9, 2005
As understood by Staff, Arrow Rock will not assume responsibility for operation and
maintenance of the project, but will instead contract with Invenergy to insure operation and
maintenance, either under one of the various agreements discussed above or under a separate
agreement.
Under its Agreement with Idaho Power, Arrow Rock will sell its output to Idaho Power at
the published non-Ievelized avoided cost rates. For purposes of comparison, these non-Ievelized
rates are equal to approximately $59.62 per MWh on a levelized basis. Notably, the price Arrow
Rock will be paid by Idaho Power is substantially higher than the $31.71 per MWh price
NorthWestern Energy is paying to the adjacent Judith Gap project for its generation.
Admittedly, NorthWestern will have to incur additional costs beyond the $31.71 per MWh paid
to Judith Gap in order to integrate the generation into its system. Nevertheless, the $59.62 per
MWh to be paid by Idaho Power to Arrow Rock is apparently high enough to entice Arrow
Rock, Invenergy and NorthWestern Energy to structure this Agreement with Idaho Power, rather
than include generation from the 13 turbines in the Judith Gap generation sold to NorthWestern.
Even with the additional transmission and firming costs Arrow Rock must incur in order to sell
to Idaho Power, it presumably generates more revenue than it would if it sold directly to
NorthWestern Energy as a part of the overall Judith Gap Project.
Certainly, one view of this Agreement could be that 13 turbines have been "carved off'
from the Judith Gap Project so that 10 aMW of project output could be sold to Idaho Power at a
higher price than would otherwise have been received. This arrangement, Staff believes
illustrates some of the problems of wind projects still being debated in Case No. IPC-05-22.
The disparity between Idaho s published avoided cost rates for QFs and the prices bid in wind
RFPs create incentive for larger projects, both within and outside the state, to disaggregate 10
aMW portions in order to seek higher rates.
However, even with the apparent price differential, this Agreement represents a better
deal to Idaho Power and its ratepayers than other PURP A contracts. The rate being paid
Idaho Power is the same as the rate paid under any other PURP A contract, but Idaho Power is
receiving a completely firm, thus more valuable product in return. Moreover, unlike other
contracts, Idaho Power is not required to accept output from the project during March, April and
May when it normally is not seeking to acquire power. When viewed from this perspective, the
Agreement appears to be a good deal for Idaho Power and its ratepayers.
ST AFF COMMENTS SEPTEMBER 9 2005
In the final analysis, Staff sees nothing about the Agreement that either violates PURP A
or that is not in compliance with prior Commission orders. As a result, Staff recommends that
the Commission approve the Agreement. Those aspects of the Arrow Rock Project that cause
concern, such as the disparity between Idaho s avoided cost rates paid for 10 aMW of Arrow
Rock output and the prices paid for the remaining Judith Gap output, ownership status, and the
disaggregation of large projects into 10 aMW pieces, can perhaps be addressed and remedied in
the context of Case No. IPC-05-22.
Staff believes that the Arrow Rock Project is unaffected by Order No. 29839 concerning
wind project eligibility. Under the Order, wind projects that are firmed, as the Arrow Rock
proj ect is, are not subj ect to the change in published rate eligibility and grandfathering criteria.
Consequently, Staff believes that the Company s Application should be approved without delay
due to ongoing proceedings in Case No. IPC-05-22.
RECOMMENDATION
Staff recommends approval of the Agreement.
RESPECTFULLY submitted this 17;( day of September 2005,
Sco D. Woodbury
Deputy Attorney General
i :umisc:comments/ipceO5 .24swrps
STAFF COMMENTS SEPTEMBER 9 , 2005
Location of the Arrow Rock Wind Project
Attachment A
Case No. IPC-05-
Staff Comments
9/09/05
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Attachment B
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Case No. IPC-05-
Staff Comments
9/09/05
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CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 9TH DAY OF SEPTEMBER 2005
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-05-, BY MAILING A COpy THEREOF POSTAGE PREPAID TO THE
FOLLOWING:
BARTON L KLINE
MONICA MOEN
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
RAND Y ALLPHIN
CONTRACT ADMINISTRATOR
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
TED SORENSEN
ARROW ROCK WIND INC
5203 SOUTH 11 TH EAST
IDAHO FALLS ID 83404
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SECRETARY
CERTIFICATE OF SERVICE