HomeMy WebLinkAbout20060626Comments.pdfSCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-0320
IDAHO BAR NO. 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 PETITION OF
MAGIC WIND LLC TO DETERMINE
EXEMPTION STATUS
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
Petition for Declaratory Order, Notice of Modified Procedure and Notice on Comment/Protest
Deadline issued on June 2, 2006, submits the following comments.
BACKGROUND
On August 4, 2005, the Idaho Public Utilities Commission (Commission) in Case No.
IPC-05-, Order No. 29839 , reduced the eligibility cap for avoided cost published rates for
non-firm wind projects from 10 aMW to 100 kW, required individual negotiation for larger wind
qualifying facilities (QFs), and established criteria for assessing QF contract entitlement.
Reference Public Utility Regulatory Policies Act of 1978 (PURP A). By Commission Order No.
29872 the date for grandfathering eligibility was changed from July 1 2004, the Notice of
Petition date, to August 4 2005 , the date of Interlocutory Order No. 29839.
STAFF COMMENTS JUNE 26, 2006
On October 20 2005 , Magic Wind LLC (Magic Wind) filed a Motion to Determine
Exemption Status with the Commission seeking a Commission determination that Magic Wind
was exempt from the rate eligibility cap established in Order No. 29839. The Motion was
accompanied by the supporting affidavit of Armand Eckert.
On November 4 2005, Idaho Power Company (Idaho Power; Company) filed a response
to Magic Wind's Motion contending that the Company was without sufficient information to
verify the truth or falsity of the factual allegations contained in the affidavit of Armand Eckert
and was therefore denying same and requesting that the Motion be denied. Following Idaho
Power s response, there was an informal stay of proceedings during which time the parties
engaged in further negotiations.
On April 26, 2006, Magic Wind requested a Declaratory Order declaring that Magic
Wind is entitled to receive from Idaho Power a Purchase Power Agreement that establishes
prices for surplus energy using the "modified PacifiCorp method." Reference Order. No. 30000
Case No. PAC-05-6 (Schwendiman); Reference IDAPA 31.01.01.101 - Petition for
Declaratory Order.
ANALYSIS
Rate Eligibility
In its Motion for a Declaratory Order, Magic Wind states that it has supplied to Idaho
Power various information and documentation establishing Magic Wind's entitlement to an
exemption from the rate eligibility cap as established by Order No. 29839. Magic Wind further
asserts
, "
Upon review of the information and documentation provided, Idaho Power agreed that
Magic Wind was exempt from the rate eligibility cap of Order No. 29839." In Idaho Power
Answer to Magic Wind's Motion for Declaratory Order, the Company admits to Magic Wind'
assertion regarding exemption from rate eligibility.
Staff has reviewed the information provided by Magic Wind in its initial Motion to
Determine Exemption Status and the accompanying affidavit of Armand Eckert, and agrees that
Magic Wind should be exempt from the rate eligibility cap of Order No. 29839. Therefore
Staff, Idaho Power and Magic Wind all seem to agree with regard to Magic Wind's entitlement
from the rate eligibility cap.
STAFF COMMENTS JUNE 26, 2006
Pricing of Surplus Energy
In Case Nos. IPC- E-04-8 and 04-, Order No. 29632 , the Commission established a
90/110 performance band" requirement, a provision that defines the minimum degree of
predictability required for published rate eligibility. Under PURP A contracts submitted by Idaho
Power and approved by the Commission, the price to be paid for energy purchases outside of the
performance band (Surplus Energy) is equal to 85% of the Mid-C market index price for each
month. In Order No. 30000, Case No. P AC-05-9 (Schwendiman), the Commission approved
an alternate mechanism ("PacifiCorp Method") for pricing energy deliveries that are outside the
90/110 performance band." The Schwendiman Agreement includes a computed set of fixed
rates (Non-Conforming Energy Purchase Prices) as a substitute for market-based rates.
Under a proposed Agreement tendered by Magic Wind to Idaho Power on AprilS, 2006
(Amended Agreement), Magic Wind submitted an Idaho Power template contract that was
modified to include a PacifiCorp-Schwendiman type fixed price mechanism for energy deliveries
outside the 90/110 performance band (Surplus Energy Prices).The Amended Agreement
modified the "PacifiCorp Method" so as to correct the calculation of variable operation and
maintenance expense as was suggested by Dr. Don Reading on behalf of the Idaho Farm Energy
Association in Case No. PAC-05-06 ("Modified PacifiCorp Method"Dr. Reading
characterizes the calculation of variable operation and maintenance expense in the Schwendiman
contract as an error. Staff has reviewed Dr. Reading s suggested "correction" to the calculation
of variable operation and maintenance expense, and agrees that his recommendation is
appropriate. A copy of the rates included in the Amended Agreement, incorporating the
adjustments proposed by Dr, Reading, is included as Attachment A.
Consistent with the "PacifiCorp Method " the Surplus Energy Prices have been derived
using the same avoided cost spreadsheet used to compute published avoided cost rates. The
Surplus Energy Prices reflect approximately a 14.5 percent discount from the published avoided
cost rates. The discount is equal to the difference in capital cost and fixed O&M cost between a
simple and a combined-cycle combustion turbine, plus the variable O&M costs of a combined-
cycle combustion turbine (CCCT). The source for the capital and O&M costs of a SCCT is
Idaho Power s 2004 Integrated Resource Plan. The 2004 IRP was accepted by the Commission.
Reference Case No. IPC-04-, Acceptance of Filing issued April 22, 2005. Staff believes
STAFF COMMENTS JUNE 26, 2006
that the resource costs included in the 2004 IRP are reasonable, and reflect the most up-to-date
costs available for a new SCCT resource in Idaho Power s service territory.
Idaho Power by letter response dated April 25, 2006 states its belief that the draft contract
presented by Magic Wind on AprilS, 2006 fails to acknowledge the role that market prices play
in determining the cost Idaho Power is likely to incur should the Magic Wind project fail to
perform in accordance with the terms of the Agreement. The change that Magic Wind proposes
Idaho Power contends, eliminates consideration of market prices and the determination of costs
Idaho Power will incur if Magic Wind does not provide the monthly amount of energy it agreed
to provide. It is Idaho Power s belief that elimination of market prices from consideration will
shift costs and risks to customers that should be appropriately borne by Magic Wind and that
such shift is inconsistent with PURP A. As a result, Idaho Power proposes to utilize the template
contract it has signed with numerous QFs similar to Magic Wind.
Staff believes that Idaho Power is correct in its belief that establishing fixed prices for
Surplus Energy will fail to acknowledge the connection between market prices and the cost
Idaho Power is likely to incur should the Magic Wind project fail to perform. However, fixed
price PURP A contracts, whether intermittent or not, currently have no connection between
market prices and the price Idaho Power actually incurs. The risk that long-term fixed prices for
PURP A contracts are inaccurate compared to market is already borne by ratepayers. Moreover
discount price risk would only occur if forecasts prove inaccurate, and today there is no way to
determine if the overall Mid-C price will turn out to be higher or lower than the discounted price.
Staff does not believe customers will face any greater risk under the fixed Surplus Energy Prices
contained in the Amended Agreement than under the 85% of Mid-C pricing mechanism. Staff
believes that the Surplus Energy Prices are a reasonable proxy for Mid-C market prices and
represent a fair price to be paid for energy that cannot be delivered predictably. In addition
unlike market prices, they offer a fixed, known set of prices that will be paid over the life of the
contract for energy delivered outside of the 90/110 percent performance band.
Applicability of the Schwendiman Agreement to Idaho Power
Idaho Power notes in its letter response that the Schwendiman Order No. 30000 stated
the Agreement did not set precedent. Idaho Power contends that the Company has fully satisfied
its mandatory purchase obligation under PURP A by offering to purchase the generation from
STAFF COMMENTS JUNE 26, 2006
Magic Wind's proposed wind farm by entering into a firm Energy Sales Agreement in the form
previously signed and tendered by Magic Wind on June 14 2005. Reference October 20 2005
Affidavit of Armand Eckert, p. 2.
In its comments in the Schwendiman case (Case No. P AC-05-9), Staff stated that it
does not view the Non-Conforming Energy Prices in the Schwendiman Agreement as necessarily
establishing a precedent to be followed in all future PacifiCorp contracts or in contracts for wind
projects that may be signed by other utilities. Staff went on to state, however, that the approach
used in the Schwendiman contract could provide a reasonable alternative for future wind
contracts for PacifiCorp, Idaho Power and Avista. Staff continues to believe that the pricing
method used in the Schwendiman contract is reasonable. Because the approach creates certainty
in rates for energy outside of the 90/110 percent band, and because the rates are a reasonable
proxy for market-based rates, Staff recommends that the pricing method be permitted as an
alternative to project developers seeking contracts with any of the electric utilities regulated by
the Commission.
Adaptation of the PacifiCorp Method to Idaho Power
In addition to computing fixed, discounted rates for energy outside of the 90/110 percent
band, the Amended Agreement adapts the "PacifiCorp Method" to Idaho Power s seasonalized
avoided cost rates. Seasonalized rates are rates to which a weighting factor has been applied in
certain months of the year. Idaho Power uses three seasons, with weighting factors of 0.735
1.20 and 1.00. PacifiCorp has never used seasonalized avoided cost rates.
Based on the recommendations of Dr. Reading, the seasonalization factors used in the
Magic Wind contract have not been uniformly applied to the capacity and energy components of
the avoided cost rates. Staff believes that the use of seasonalization factors already properly
recognizes the relative differences in value of capacity and energy throughout the course of the
year. Further manipulation of how the seasonalization factors are applied to capacity and energy,
as suggested by Dr. Reading, is not justified in Staff s opinion. Staff recommends uniform
application of established seasonalization factors to the capacity and energy components of the
rates. Staff s proposed rates are shown on Attachment B.
STAFF COMMENTS JUNE 26, 2006
RECOMMENDATION
Staff has reviewed the information provided by Magic Wind in its initial Motion to
Determine Exemption Status and the accompanying affidavit of Armand Eckert, and agrees that
Magic Wind should be exempt from the rate eligibility cap of Order No. 29839. Furthermore, it
appears that Idaho Power also agrees that Magic Wind should be exempt. Therefore, published
rate eligibility does not appear to be an issue in this case. The primary issue seems to be whether
Magic Wind is entitled to rates developed using a method similar to the method used for the
Schwendiman-PacifiCorp contract.
Staff believes that the modified PacifiCorp method provides a reasonable alternative for
pricing power that falls outside of the 90/110 percent performance band. Despite Idaho Power
objection to using the method for its contracts, Staff believes that a consistent pricing
methodology should be offered by all three utilities - Idaho Power, PacifiCorp and Avista.
Therefore, Staff recommends that the methodology be used to compute rates under this contract.
Further, Staff agrees that the adjustment to the computation methodology as proposed by
Dr. Reading (which he characterizes as an error) is appropriate and should be accepted. Staff
disagrees, however, with the manner in which Dr. Reading has applied seasonalization factors to
the computed rates. Staff recommends its own computation of the rates instead which are shown
on Attachment B.
Respectfully submitted this cY6 day of June 2006.
Technical Staff: Rick Sterling
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STAFF COMMENTS JUNE 26, 2006
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CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 26TH DAY OF JUNE 2006
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-05-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
MONICA MOEN
BARTON L KLINE
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
JOHN R GALE
VICE PRESIDENT REGULATORY
AFFAIRS
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
DEAN J MILLER
McDEVITT & MILLER LLP
PO BOX 2564
BOISE ID 83701
'.0SECRET Y
CERTIFICATE OF SERVICE