20060627Comments of NW Energy Coalition.pdf

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Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
472 W. Washington St.
Boise, ill 83702-5983
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Re: Comments on IPC-05-
Dear Ms. Jewell:
Renewable Northwest Project and NW Energy Coalition provide the following
comments on the Petition for Declaratory Order filed by Magic Wind in the above-
referenced matter.
Established in 1994, RNP promotes the responsible expansion of solar, wind and
geothermal energy in the Northwest. RNP works to establish policies that support
renewable energy development and nurture the development of a market for renewables.
RNP's unique coalition of members includes renewable energy project developers, public
and consumer interest groups, turbine manufacturers, environmental organizations and
others. RNP's address is 917 SW Oak St, Suite 303; Portland, Oregon, 97205.
The NW Energy Coalition is a non-profit regional alliance of over 100 diverse
environmental, civic, consumer, low-income customer advocacy groups, energy
efficiency and renewable energy businesses, and progressive utilities in Idaho, Montana
Washington and Oregon. NW Energy Coalition advocates for increased energy
conservation efforts, sustainable and ecologically-sound management of electric
generating infrastructure, increased reliance on renewable sources of energy, and
appropriate rate design policies consistent with these goals. In Idaho, the Coalition has
numerous individual members and eleven (11) member organizations. NW Energy
Coalition s address is: 219 First Ave South, Suite 100, Seattle, W A 98104.
The questions presented by Magic Wind's petition are essentially (1) whether the
essential pricing terms ofthe contract recently approved by the Commission in Order
30000 ("PacifiCorp method") should also be available to Magic; and (2) if so, should the
PacifiCorp method be corrected to properly split the respective value of capacity and
energy in the published PURP A prices. We submit that both questions be answered
yes. "
Magic Wind's petition for declaratory relief should be granted in full because it is
reasonable and more protective of ratepayer interests than the contract terms demanded
by Idaho Power.
P.O. Box 1612, Boise, 1083701 208-342-7024 Fax: [phone] www.AdvocatesWest.org
RNP and NWEC Comments
Page 2 of 6
The Commission should not force Magic Wind to accept contract terms
demanded by Idaho Power because such terms are inconsistent with PURP A regulations
unreasonable, and result in windpower qualifying facilities ("Wind QFs ) receiving less
than full avoided costs for their power deliveries.
While we support Magic Wind's effort to obtain contract terms that provide
greater certainty for both the developer and Idaho Power ratepayers, we also must ask the
Commission to encourage utilities and Wind QFs to negotiate contract terms that are
more efficient and create more value for both the Wind QFs and the utilities' rate payers.
PacifiCorp Method Is Protective of Ratepayer Interests
The essential terms of the PacifiCorp method are equally, if not more protective
of ratepayer interests than the terms demanded by Idaho Power Company.
A key purpose for the use of published rates is to eliminate speculation about the
future price of energy and capacity. The published rates are, by Commission order
reasonable and economic rates. Under the PacifiCorp method, any deliveries outside the
90/110 band always will be purchased for the discounted "Surplus Energy Prices" stated
in paragraph 7.2 of Magic s proposed agreement.
Idaho Power has argued that its contract model, which pays 85% of a non-firm
Mid-C price for deliveries outside the 90/110 band, is likely to result in ratepayers paying
a lower total price than they would under the PacifiCorp method. Idaho Power
Comments, PAC-05-9. Underlying this argument is the speculative assumption that
non-firm Mid-C prices will be below the published rate for the majority the 20-year
contract term; and that Idaho Power s pricing method will not encourage low-ball
production forecasts by Wind QFs.
As Idaho Power s comments in the Schwendiman case confirm, however, the
non-firm Mid-C prices may well exceed the published rates (as they did in 2005). The
best that can be said for Idaho Power s terms is that they might sometimes result in
payments for deliveries outside the band that are less costly than payments under the
published rates. Ratepayers should value the certainty created by the PacifiCorp method
which ensures that all out-of-band deliveries are purchased at a price that is lower than
the published rate.
The Commission should approve the use of the PacifiCorp method for Magic
Wind.
The PacifiCorp "Non-Conforming Energy" Price Calculation Is Erroneous
Magic seeks the Commission s approval of an economically correct approach to
splitting the published rates into capacity and energy components. At its core, the task
here is simple. The split should divide the costs of building and ownership of a pure
capacity resource regardless of how much it runs (i.e. the capital and fixed O&M costs
RNP and NWEC Comments
Page 3 of 6
for a simple cycle combustion turbine), from the additional costs of running the surrogate
avoided resource ("SAR"). Variable O&M costs, by definition, vary with the amount of
time the SAR is assumed to run. Therefore the variable O&M costs should be included
in the energy component when the published rate is split.
We have reviewed the letter of Dr. Don Reading submitted on behalf of the Idaho
Farm Energy Association in the Schwendiman matter (and attached to Magic s petition in
this case), and agree with the principal arguments stated therein. Of particular interest in
this case is the impact in Idaho Power s service territory of wrongly including the
variable O&M costs of a peaking resource with the capacity component when splitting
the published rate. Idaho Power s variable O&M costs for a peaking resource would be
calculated at a 59% capacity factor (as provided in the Company s 2004 IRP) versus 18%
for PacifiCorp. Thus, the impact of the error is much greater on the price paid to the
WindQF.
Compounding the problem, this assumed 59% capacity factor is a hypothetical
number created to compare costs in the IRP process. (We understand it is based on the
maximum amount of time Idaho Power can theoretically run a peaker plant due to air
quality permitting constraints.) We believe Idaho Power actually only runs its peakers
for a few hundred hours per year, not 5 000+ hours. To use such a high capacity factor
for a peaking resource to reduce the price paid to Wind QFs for out-of-band deliveries
would be particularly unreasonable.
The Commission should grant Magic Wind's requested declaratory relief and
order that all variable O&M costs be included in the energy component of the split
published rate.
The Idaho Power Contract Model Violates PURP A Regulations
The Commission should not require that Magic sign Idaho Power s form of the
90/110 band, because the market-based price for out-of-band deliveries is unlawful under
PURP A regulations.
First, the 90/110 band does not comply with either of the two pricing alternatives
of 18 C.R. ~ 292.304(d)(2). Section 292.304(d) of the FERC's PURPA rules provides
to a QF the option either to (1) provide energy only when the QF chooses to provide
energy to the utility, or (2) provide energy or capacity pursuant to a legally enforceable
obligation for the delivery of energy or capacity over a specified term. If a QF elects the
second option, the QF has a further option, namely that the purchase rate be based on
either (a) the utility s avoided costs, calculated at the time of delivery, or (b) the utility'
avoided cost, as calculated at the time the legally enforceable obligation is incurred.
The requirement that out-of-band deliveries in a certain month be priced at the
discounted Mid-C Non-Firm monthly average price is a clear example of "avoided costs
calculated at the time of delivery," as provided in Section 292.304( d)(2)(i) of the FERC's
rules, rather than a "projected" avoided cost, pursuant to Section 292.304(d)(2)(ii). Yet
RNP and NWEC Comments
Page 4 of 6
deliveries within the 90/110 band, priced at the published rates, are a clear example of a
projected" avoided cost.
In short, rather than complying with the FERC regulations which give the QF the
choice of "either" of the options under 18 C.R. ~ 292.304(d)(2), Idaho Power would
extend Wind QFs no choice but to accept a hybrid version of both options. Yet the QF'
deliveries still must be made to Idaho Power as a legally enforceable obligation. The
Commission should discontinue the use of this unlawful pricing method.
Second, Idaho Power s version of the 90/110 band requires Wind QFs to be paid
at least 15% less than the full avoided cost for power delivered outside the band.
approved Schedule 86, Idaho Power itself defines the term "avoided energy cost" as the
Mid-C Non-Firm Average - the same starting point for calculating the price paid for
energy delivered outside of the 90/110 band under Idaho Power s QF contracts.
Despite having defined the Mid-C Non-Firm Average price as "avoided energy
cost " Idaho Power s QF contracts require the actual price paid for energy delivered
from QFs be reduced by 15% below than the Mid-C Non-Firm Average.
The supposed basis for reducing the avoided energy cost by 15% is to compensate
for assumed transaction costs incurred by Idaho Power. However, this rough
compensation rubric does not account for energy deliveries by QFs during times when a
utility is acquiring expensive marginal energy resources from the market, or dispatching
high-cost peaking resources. At such times, any delivery of energy to the utility's system
is available for use by the utility at very low marginal cost, or likely can be resold on the
market at a substantial net gain. Moreover, there is no solid evidence that transaction
costs amount to 15% of Mid-C Non-Firm Average prices.
The Commission Should Seek Alternatives To The 90/110 Performance Band
Although Magic s proposed contract is an improvement over Idaho Power
requested contract and should be approved, the Commission should affirmatively request
that utilities and developers negotiate contract terms that are both more valuable to
ratepayers and require the best level of achievable performance for Wind QFs.
Both PacifiCorp s and Idaho Power s versions of the 90/110 band unduly
discriminate against Wind QFs because they impose a requirement (the monthly forecast
of production provided months ahead) that wind QFs cannot accurately meet with any
known forecasting method; and because it imposes a price penalty for failing to meet that
forecast, which wind QFs cannot avoid. See Notice of Proposed Rulemaking on
Imbalance Provisions for Intermittent Resources 111 FERC ~ 61 026 (April 14, 2005)
(finding transmission tariff provisions to be discriminatory against wind facilities because
they imposed performance requirements that were impossible for wind facilities to meet);
see also Notice of Proposed Rulemaking on Preventing Undue Discrimination and
Preference In Transmission Service Dockets RM05-25-000 and RM05-17-000 (May 19
2006) at ~ 239 (FERC proposes to "create new energy and generator imbalance schedules
based on three principles (including) . . . (2) the charges must provide an incentive for
RNP and NWEC Comments
Page 5 of 6
accurate scheduling, such as by increasing the percentage of the adder above(and
below) incremental cost as the deviations become larger; and (3) the provisions must
account for the special circumstances presented by intermittent generators and their
limited ability to precisely forecast or control generation levels, such as waiving the more
punitive adders associated with higher deviations ) (emphasis added).
Wind QFs can only minimize their exposure from the 90/110 band penalties by
providing artificially low forecasts of power production. See PacifiCorp Reply
Comments, P AC- E-05-09. This fact undercuts the very purpose of the 90/110 band
which is supposedly to encourage (not discourage) the reliable delivery of power from
Wind QFs.
But legalities aside, the 90/110 band is an example of a public policy that seemed
reasonable when adopted, but has proven to be ineffective. The bandwidth may be useful
and relevant for renewable technologies like geothermal power that can control their
output. In relation to wind, the 90/110 band is nothing more than an inaccurate and ever-
changing price reduction; its penalties are imbalanced, unfair and fail to provide
significant value to utility operations. Moreover, to our knowledge, no other state
imposes a similar banding requirement on wind projects. Yet many other states have
much more significant wind energy penetration than Idaho does today.
Better contracting alternatives exist that could offer terms that are "similarly
rigorous" to the 90/110 band (Order 29880) and also create more useful planning
information for utilities. Most importantly, the combined use of a mechanical availability
guarantee (MAG), together with the use of high quality short term forecasting by
companies such as 3Tier Environmental Forecast Group, would create both a high level
of performance by the QFs, while also offering utilities accurate tools for dispatch.
Currently, Idaho Power s contracts with Wind QFs do not require short-term
forecasting. Thus, apart from its own dispatch personnel and engineers continually
reviewing wind plant output and estimating the expected persistence of that output over
the next hour or two, Idaho Power has very little useful information about expected wind
performance.
This is an extremely unfortunate situation for ratepayers and the utility. Idaho
Power makes frequent purchases and sales of energy on the market. If Idaho Power knew
with 90% certainty that its wind portfolio would produce a certain number of megawatts
over the next few hours, the Company would be in a much stronger position to make
market transactions.
Lastly, the cumulative mass of approved QF contracts in Idaho appears sufficient
in size to delay or reduce the size of other resource acquisitions by utilities, provided
those approved QFs are developed. It may be appropriate to require more certainty for
QFs to meet commercial operation dates, so that utilities can make better decisions in
reliance upon expected future QF power deliveries. By requiring the use of a 90/110
band pricing approach, the Commission has expressed its support for long-term planning
RNP and NWEC Comments
Page 6 of 6
certainty. Better long-term planning certainty can also be enhanced through contract
terms that ensure the project will be built and operational by a date certain.
The Schwendiman contract offers one alternative to create greater certainty in this
regard through the use of a liquidated damages provision assessing financial penalties if
the Wind QF fails to meet its online date. See Schwendiman contract, Section 2. The
fairness of this particular approach may not extend to other developers. Because other
approaches may be also reasonable, we recommend this issue be explored for
establishment as a general policy by the Commission when considering reinstatement of
standard offers in for Wind QFs under PURP
Thank you for your consideration of these comments.
William M. Eddie
On behalf of Renewable Northwest Project and
NW Energy Coalition
cc:
Bart Kline
Monica Moen
Idaho Power Company
O. Box 70
Boise, ill 83707-0070
John R. Gale
Idaho Power Company
O. Box 70
Boise, ill 83707-0070
Dean J. Miller
McDevitt & Miller LLP
O. Box 2564
Boise, ID 83701