20051216Reply comments.pdf

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IDAHO POWER COMPANY
O, BOX 70
BOISE, IDAHO 83707 '. r"I . i ", : J \
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BARTON L. KLINE
Senior Attorney
An IDACORP Company
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- !i i "IIS:::dOi;December 1'5, 2'005 '
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Jean D. Jewell , Secretary
Idaho Public Utilities Commission
472 West Washington Street
P. O. Box 83720
Boise , Idaho 83720-0074
Re:Case No. IPC-05-
Idaho Power Company s Reply Comments
Dear Ms. Jewell:
Please find enclosed for filing an original and seven (7) copies of Idaho
Power Company s Reply Comments regarding the above-described case,
I would appreciate it if you would return a stamped copy of this transmittal
letter in the enclosed self-addressed , stamped envelope.
Very truly yours
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Enclosures
Telephone [phone] Fax [phone] E-mail BKlinefWidahopower.com
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BARTON L. KLINE , ISB # 1526
MONICA B. MOEN, ISB # 5734
Idaho Power Company
1221 West Idaho Street
P. O. Box 70
Boise , Idaho 83707
Telephone: [phone]
FAX Telephone: [phone]
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Attorneys for Idaho Power Company
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 MILNER DAMWIND PARK LLC
CASE NO. IPC-05-
REPLY COMMENTS
COMES NOW , Idaho Power Company ("Idaho Power" or "the Company
and submits the following Reply Comments in response to the Comments of Windland
Incorporated ("Windland") dated November 28 , 2005.
Windland Comments
Windland requests that the Commission consider requiring the contract for
the Milner Dam Wind Park Project ("Project") to be revised to include liquidated
damages and to require that the Project developer agree to provide financial security
instruments to provide a source of funds if the Project fails to come on line in a timely
fashion. Wind land argues that this is necessary because the Federal Production Tax
REPLY COMMENTS , Page
Credit ("FPTC") may go away at the end of 2007 and , therefore , it is incumbent on the
Commission to require strict performance by the Project. Wind land asserts that
requiring strict compliance is in the public interest because the Project, as a mandatory
PURPA purchase , displaces other projects like Windland's project from acquisition by
Idaho Power via an RFP, thereby increasing Idaho Power s costs.
Windland correctly notes in its comments that the template PURPA Power
Purchase Agreement ("PPA") that Idaho Power has used for a number of years to
acquire energy from smaller OF projects , including wind OFs eligible to receive the
published rates, imposes no liquidated damages on OFs that fail to be operational by
the date pledged by the developers. Liquidated damages are specific and limited
amounts that a contracting party is required to pay to another contracting party in the
event an agreed-upon area of performance is not achieved.
The template agreement for smaller OF purchases does include
repercussions for the failure to meet the scheduled operation date. Instead of including
provisions for liquidated damages , the template agreement provides that a developer
failure to achieve the designated operation date within a ten month period after the
scheduled date constitutes an event of default and , if the default is not cured within the
timeframe stated in the PPA, the PPA is subject to termination and the Company can
pursue legal and equitable relief from the defaulting party.
In addressing Idaho Power s ability to sue a non-performing OF, Windland
correctly notes that most OF developers utilize single purpose entities to develop their
OF projects, and as a result , they tend to be , as Windland states
, "
hollow shells." As
such, if a OF fails to perform on time, there is usually little recourse to make Idaho
REPLY COMMENTS , Page 2
Power s customers whole if they have incurred damages due to a OF's failure to
perform.
In summary, Windland has correctly pointed out that the template contract
Idaho Power currently utilizes for OF projects entitled to the published rates provides
essentially a "free option" to the OF developer to sign a contract, lock in a rate , and then
go see if it can actually put together a project. The OF developer, in reality, undertakes
little financial risk for non-performance by signing a contract with Idaho Power.
Historical Commission Practice
Historically, the Commission has discouraged the inclusion of liquidated
damage clauses and security provisions in contracts with smaller PURPA developers
for failure to meet the scheduled operation date. Early in the Commission
consideration of implementation of PURPA in Idaho, the purchasing utilities suggested
that the Commission allow them to include liquidated damages provisions for OF
projects failing to meet their contract commitments, including the on-line dates. In an
effort to encourage PURPA development, the Commission elected not to impose the
types of commercial performance requirements that are common in other utility
resource acquisition contracts on small PURPA projects because those requirements
such as liquidated damages for failure to meet on-line dates , could have the effect of
discouraging PURPA development.
In the past, the Commission has approved the inclusion of liquidated
damages and security provisions in power purchase agreements between the Company
and large OF projects for failure to achieve specified milestone performance dates. See
IPUC Order No. 24805 at 4; Case No. IPC-92-4 (the "Meridian Generating Project
REPLY COMMENTS , Page 3
Case ). See also Order No. 26091 in Case No. IPC-95-12 addressing the Auger Falls
Hydro Project, which was scheduled to produce 43.6 MW , the "largest hydroelectric OF
resource in Idaho" and would have been capable of serving the "annual energy
requirements of approximately 20 000 customers.Id. at 5. In the case of larger OF
developments, the Commission has determined that the "risks of a OF must rest with its
investors and not the utility or its ratepayers" and has determined that the imposition of
liquidated damages on those projects is prudent. See Order No. 26041 at 2.
Windland is correct in its assessment that should multiple OF projects
entitled to the published rates fail to meet the scheduled operation dates, the collective
impact could adversely affect the Company s resource planning process. In a separate
future case, the Commission may wish to consider the aggregate risks to Idaho Power
and its customers if multiple OF developers entitled to published rates fail to construct
their projects and produce electricity by the scheduled operation dates and whether, in
response to those risks, future OF contracts should include liquidated damages
provisions and require some type of creditworthiness assurance from the PURPA
developers.
OF Project Economics
In its comments , Windland also claims that availability of the federal PTC
is vital to the development of wind-powered resources. Windland asserts that "the cost
structure of a commercial wind generation facility in the United States varies
enormously with the absence or availability of a . .. PTC" and that ratepayers are
affected by the availability, or lack thereof, of the PTC. See Comments of Windland
Incorporated , dated November 28, 2005 , at 2. Windland predicts that "current federal
REPLY COMMENTS, Page 4
fiscal realities will preclude the PTC being extended beyond December 2007.'d. As a
result, Wind land anticipates that construction of larger wind generation resources will
stop being cost effective.'d.
In numerous earlier orders , the Commission has been very explicit in its
direction that Idaho Power is not entitled to consider the financing structure and viability
of OF resources. As a result , Idaho Power has no way of knowing whether any of the
benefits of the PTC are actually flowed through to Idaho Power s customers in the form
of lower prices sought by wind developers. Obviously, wind developers , such as
Wind land that participate in a competitive resource acquisition process, will have a
much greater incentive to use the PTCs to lower their bid price. In the case of PURPA
facilities, particularly those facilities utilizing the published rates, because the purchase
price is administratively determined and does not vary with supply and demand , OF
developers may, in fact, lawfully retain all of the PTC.
Developer Delays
Finally, Windland references milestones allegedly missed by the
developer, Exergy, the sponsor of the Project, in the past. In August 2005, Idaho Power
granted an extension of the operation date of Exergy s Horseshoe Bend Wind Park
project for four months from October 31 , 2005 to March 1 2006 based on credible
documentation that (1) substantial progress had been made toward completion of the
project and (2) evidence that Hurricane Katrina impacted the shipment of equipment
required to timely complete the Horseshoe Bend project. The Commission should be
assured that if the explanations offered by Exergy in its request to extend the operation
date of its facility had not been reasonable and if the developer is unable to cure the
REPLY COMMENTS, Page 5
default within the timeframe specified in the parties' agreement, the Company would
have exercised its right under the agreement to terminate the agreement and seek legal
and equitable remedies.
Conclusion
As noted by Staff in its comments, the Project meets the Commission-
adopted criteria for entitlement to the published rates. As a result, Idaho Power
respectfully requests that the Commission approve the Firm Energy Sales Agreement
between Idaho Power and the Project as set out in the Company s Application in this
matter. If the Commission believes that the issues Windland has raised are worthy of
further consideration , Idaho Power believes that the correct procedural course to follow
would be for the Commission to open a separate docket in which the Commission could
consider whether, on a prospective basis , liquidated damages and reasonable financial
security for those damages should be included in future contracts with smaller OF
developers who are entitled to receive the published rates.
Respectfully submitted this 15th day of December , 2005.
BARTON L. KLINE
Attorney for Idaho Power Company
REPLY COMMENTS, Page 6
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 15th day of December, 2005 , I served a
true and correct copy of the within and foregoing REPLY COMMENTS upon the
following named parties by the method indicated below, and addressed to the following:
Scott Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington Street
O. Box 83720
Boise, Idaho 83720-0074
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BARTON L. KLINE
CERTIFICATE OF SERVICE