20060403Reply comments.pdf

, "
IDAHO POWER COMPANY
O, BOX 70
BOISE, IDAHO 83707
", "' ~
: ~1 \
MONICA MOEN
Attorney
An IDACORP Company
!' \\,!:': '
Aprfl '3, 2006
; .::" ~, \ '), '
Jean D. Jewell , Secretary
Idaho Public Utilities Commission
472 West Washington Street
P. O. Box 83720
Boise , Idaho 83720-0074
Re:Case No. IPC-06-
Reply Comments of Idaho Power Company
Dear Ms. Jewell:
Please find enclosed for filing an original and seven (7) copies of the
Reply Comments of Idaho Power Company regarding the above-entitled 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
Monica Moen
MM:jb
Enclosures
Telephone [phone] Fax [phone] E-mail MMoen(gjidahopower.com
..J
MONICA MOEN , ISB # 5734
BARTON KLINE, ISB # 1526
Idaho Power Company
1221 West Idaho Street
P. O. Box 70
Boise, Idaho 83707
Telephone: [phone]
FAX Telephone: [phone]
, ;~ ;' j
,' 3: :J ;
" , j c, i ! ;
"..- ,, '
,I J
, ':, .) : :.;: ;
Attorneys for Idaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR APPROVAL)
OF AN ENERGY SALES AGREEMENT
FOR THE SALE AND PURCHASE OF
ELECTRIC ENERGY BETWEEN IDAHO
POWER COMPANY AND CO-GEN CO, LLC )
CASE NO. IPC-06-
REPLY COMMENTS OF
IDAHO POWER COMPANY
COMES NOW Idaho Power Company ("Idaho Power" or the "Company ) and
in accordance with the Notice of Application and Notice of Modified Procedure issued
pursuant to Order No. 29970 , dated February 8 , 2006 , and the scheduling agreement
reached by counsel for the parties to this matter, hereby submits the following Reply
Comments to the Comments of the Commission Staff dated March 1 , 2006 ("Comments
BACKGROUND
On January 26, 2006, Idaho Power submitted an Application to the
Commission seeking confirmation that payments for energy purchased under an Energy
Sales Agreement for the sale and purchase of electric energy between Idaho Power and
REPLY COMMENTS OF IDAHO POWER COMPANY - 1
Co-Gen Co LLC ("Co-Gen ) would be allowed for rate making purposes. Co-Gen owns a
10 MW nameplate capacity wood waste (biomass) generation unit that is located adjacent
to the Prairie Wood Products Mill in Prairie City, Oregon , approximately 100 miles west of
Ontario , Oregon ("Facility"). The Facility is located in the service area of the Oregon Trails
Electric Cooperative ("OTEC") and in Idaho Power s electrical control area. Generation
from the Facility is delivered to Idaho Power over the transmission lines of OTEC and the
Bonneville Power Administration.
The Facility is a qualified small power production facility ("OF") under the
applicable provisions of the Public Utility Regulatory Policy Act of 1978 ("PURPA"). The
Public Utility Commission of Oregon ("OPUC") is the state regulatory agency with
jurisdiction to implement PURPA in the state of Oregon. The OPUC has primary
jurisdiction over the Energy Sales Agreement and determines Idaho Power s avoided costs
in Oregon.
On December 29 2005, Idaho Power and Co-Gen entered into an Energy
Sales Agreement ("Agreement") in conformance with the terms and conditions established
by the OPUC. Under the terms of that Agreement, Co-Gen elected to contract with Idaho
Power for a one-year term , commencing on January 1 , 2006. Co-Gen further elected to be
paid using the Gas Market Method (Option 3) set out in Idaho Power s Oregon Tariff No. E-
, Schedule 85 , dated August 11 , 2005. In its Application , Idaho Power sought an Order
from this Commission declaring that Idaho s jurisdictional share of costs for purchases of
energy under the Agreement be allowed as prudently incurred expenses for ratemaking
purposes.
REPLY COMMENTS OF IDAHO POWER COMPANY - 2
OPUC Order No. 05-584 directed Idaho Power to file a "standard" OF
purchase contract for review and approval by the OPUC. See Page 59 of Order No. 05-
584 issued May 13, 2005 in OPUC Docket No. UM 1129. As noted in Staff's Comments
unlike in Idaho , the OPUC does not approve PURPA contracts individually at or near the
time of their execution.Instead, those contracts are held for consideration in the
Company s next Oregon general rate case. The Order emerging from that general rate
case either approves or disproves cost recovery by the utility. Because the Agreement
between Idaho Power and Co-Gen is based upon the OPUC-approved "standard" contract
and because the rates in the Agreement are the rates required by the approved tariff in
Oregon, it is extremely unlikely that the Agreement would not be approved for cost
recovery in an Oregon general rate case.
Staff notes in its Comments that most of the terms and conditions of the
Agreement are nearly identical to those typically contained in PURPA agreements
submitted to this Commission by Idaho Power for approval. However, the Option 3, Gas
Market Method ordered by the OPUC to determine the rates paid to Co-Gen differs
considerably from the methodology used to set avoided costs in Idaho. Under Option 3
the rate to be paid to Co-Gen is based on tl:'te average monthly spot prices of natural gas at
Sumas. As a result, there is a reasonable likelihood that purchase prices to be paid for
energy under the Agreement will be higher than the purchase prices that would be paid if
the Facility were situated in Idaho.
Perhaps in anticipation of that result , the Commission Staff recommended
that, in Idaho, the jurisdictional amount approved for rate recovery by Idaho Power under
the Agreement be equal to the actual amounts paid under the Agreement provided those
REPLY COMMENTS OF IDAHO POWER COMPANY - 3
amounts do not to exceed 51.50 mills per kilowatt-hour, the avoided cost rate established
by this Commission in Order No. 29646.
Idaho Power respectfully submits that the rate recovery limitations
recommended by the Staff contravene the intent of the Federal scheme with respect to
PURPA and may result in Idaho Power being unable to recover all of its expenses
prudently incurred to comply with PURPA's mandatory OF purchase obligation. Such
result would be manifestly unfair, would ignore the doctrine of comity between the states of
Idaho and Oregon and would be in direct contradiction to Federal law and Federal Energy
Regulatory Commission s ("FERC") regulations (1) obligating Idaho Power to purchase the
electrical energy output of OFs at rates established by the public utilities commission of the
state having jurisdiction over the qualified facilities located within the state; and (2)
authorizing Idaho Power to recover all prudently incurred costs associated with OF
purchases. The Company submits the following arguments in support of its position.
II.
ARGUMENTS
Federal Law Authorizes The Individual States To Determine
Avoided Cost Rates For The Purchase Of Electrical EnergyProduced By Qualified Facilities Located Within Their
Jurisdictions.
Congress passed PURPA as part of the National Energy Act in an effort to
encourage the development of renewable energy technologies as alternatives to the
construction of new fossil fuel-fired generating facilities by electric companies. Rosebud
Enter., Inc. v. Idaho Pub. Util. Comm 128 Idaho 624 , 627 , 917 P.2d 781 , 784 (1996).
Section 210 of PURPA requires that electric utilities offer to purchase power generated by
qualified cogenerations or small power producers. 16 U.A. ~ 824(a)-3(a).
REPLY COMMENTS OF IDAHO POWER COMPANY - 4
Section 21 O(f) of PURPA provides that "each State regulatory authority shall
. . . implement such (FERC) rule. . . for each electric utility for which it has ratemaking
authority." 16 U.A. 9 824(a)-3(f)(1). PURPA did not divest FERC of its exclusive
jurisdiction to regulate wholesale utility transactions. It did , however, allow FERC to, in
essence , delegate its authority to the states to set the "avoided cost" rates paid by an
electric utility over which a state had ratemaking authority.
FERC regulations provide no precise formula for calculating the rate a utility is
to be paid for purchasing OF-produced electric energy. The rules only prescribe that the
rates paid by utilities for OF purchases shall not exceed "the incremental cost to the electric
utility of alternative electric energy." 16 U.A. 9 824(a)-3(b).This cost is generally
referred to as the utility s "avoided cost" rate.
In effect
, "
(t)he grant of authority to the states (by Congress) in implementing
the regulation of sales and purchases between OFs and electric utilities and determining the
avoided costs is broad.Rosebud Enter.128 Idaho at 627 917 P.2d at 784. The U.
Supreme Court in Federal Energy Regulatory Comm n v. Mississippi 456 U.S. 742, 102
Ct. 2126 (1982), has determined that PURPA and the regulations promulgated
thereunder do not run afoul of either the Tenth Amendment to the U.S. Constitution or to the
Commerce Clause.
The U.S. Supreme Court stated that "it is difficult to conceive of a more basic
element of interstate commerce than electric energy, a product used in virtually every home
and every commercial or manufacturing facility. No State relies solely on its own resources
1 "Incremental cost of energy" is defined as "the cost to the electric utility of the electric energy which, but
for the purchase from such cogenerator or small power producer, such utility would generate or purchase
from another source." 16 U.A. 9 824(a)-3(d).
REPLY COMMENTS OF IDAHO POWER COMPANY - 5
in this respect." FERC v. Mississippi 456 U.S. at 757 , 102 S.Ct. at 2136. In FERC v.
Mississippi the utilities involved in that case sold their retail customers power that was
generated in part beyond Mississippi's borders and offered reciprocal services to utilities in
other states. The Court stated that "(t)he intrastate activities of these utilities, although
regulated by the Mississippi Public Service commission , bring them within the reach of
Congress' power over interstate commerce.Id.
Consistent with the provisions of Section 21 O(f) of PURPA that "each State
regulatory authority shall. . . implement such (FERC) rule. . . for each electric utility for
which it has ratemaking authority," the Public Utility Commission of Oregon established
avoided cost rates that the regulated electric utility companies doing business within its
jurisdiction , like Idaho Power, are required to pay OFs who generate electricity within the
state of Oregon and who choose to sell their output to those utilities. 16 U.A. ~ 824(a)-
3(f)(1). Those rates are deemed to be "just and reasonable to the electric consumers of the
electric utility and in the public interest." 16 U.A. ~ 824(a)-3(b)(1). Idaho Power has
accepted its PURPA-imposed obligation to purchase power generated by Co-Gen in
conformance with the avoided cost rates approved by the OPUC.
The I PUC Staff recommends that expenses recoverable by Idaho Power in
Idaho as a result of the Company s Federally-mandated obligation to purchase electric
generation offered by a OF located in Oregon , under the jurisdiction of the OPUC and at
rates set by the OPUC , be limited by "the amount that would be paid if this were an
Agreement within the jurisdiction of the Idaho Commission and subject to the avoided cost
rates (set by the Idaho Commission)." Comments at 2. Commission acceptance of this
proposal would frustrate accomplishment of the Congressional purposes expressed in
REPLY COMMENTS OF IDAHO POWER COMPANY - 6
PURPA and FERC's implementing rules.(W)hen regulations promulgated by the
sovereigns conflict, federal law necessarily controls.FERC v. Mississippi 456 U.S. at 767
102S.Ctat2141.
The Agreement under consideration is between Idaho Power and a OF facility
generating electricity in the state of Oregon. It is uncontested that the "OPUC is the state
regulatory agency with jurisdiction to implement PURPA in the state and to determine Idaho
Power s avoided costs in Oregon." Comments at 2. The IPUC Staff agrees that Idaho
Power is obligated to pay OF purchase prices in accordance with the tariffs required by the
OPUC.
Should this Commission limit Idaho Power s ability to recover all of Idaho
allocated share of the costs the Company is required to pay OF developers under the
Oregon tariff, it is ignoring Federal law and the regulations set out by FERC that each state
regulatory authority implement the rules necessary for each electric utility for which it has
ratemakinq authority in order to satisfy the requirements of PURPA. See also 16 U.
~ 824(a)-3(f)(1). FERC's rules permit each state to set the purchase price for OF power
generated within a state at the maximum level approved by PURPA - the full avoided costs.
The tariffs established by the OPUC for OF-generated electric power in the
state of Oregon are presumed to be "just and reasonable to the electric consumers of the
electric utility and in the public interest" and consistent with the mandates set by Congress
in PURPA. 16 U.A. ~ 824(a)-3(b)(1). Should this Commission limit Idaho Power
ability to recover the full amount of the avoided costs determined to be in the public interest
in Oregon, it would , in effect, be repudiating the validity of the rates set by the state of
Oregon for an electric utility for which Oregon has ratemaking authority.
REPLY COMMENTS OF IDAHO POWER COMPANY - 7
The Doctrine Of Comity Dictates That Idaho Should Respect
Oregon s Implementation Of PURPA.
In reaching its decision in this case , this Commission should consider the
doctrine of comity. Comity is not mandatory like "full faith and credit." Comity has been
described as "that courtesy on the part of one state , by which within her territory the laws of
another state are recognized and enforced , or another state is assisted in the execution of
her laws.Pettibone v. Nichols 203 U.S. 192 211 27 S.Ct. 111 , 117 (1906).
States may differ in the manner in which they implement PURPA. Federal
law directs Oregon to establish the OF purchase rates to be paid by electrical utilities within
its jurisdiction. The OPUC permits Idaho Power to recover Oregon s jurisdictional share of
the expenses Idaho Power incurs by purchasing energy produced by OFs located within
the state of Idaho. Numerous Commission orders explain how Idaho customers benefit
Idaho Power s required purchase of energy produced from OFs. The doctrine of comity
may not be a binding obligation such as "full faith and credit" but it should be duly
considered when this Commission makes its determination in this case.
Purchasing Energy Produced By A OF Is Mandated By Federal
Law And FERC Regulations And Limiting Idaho Power s Ability
To Recover Its Expenses For OF Energy Purchased In Oregon
Would Be Contrary to Federal Law.
PURPA , in effect, removes discretion from both regulators and utilities.
PURPA requires that electric utilities purchase power produced by cogenerators or small
power producers that obtain qualifying status under FERC regulations. 16 U.A. 9
824(a)-3(a). In exchange , PURPA requires regulators to ensure that utilities recover all
prudently incurred costs associated with those required purchases. PURPA states as
follows
REPLY COMMENTS OF IDAHO POWER COMPANY - 8
(FERC) shall issue and enforce such regulations as are necessary to
ensure that an electric utility that purchases electric energy or
capacity from a qualifying cogeneration facility or qualifying small
power production facility in accordance with any legally enforceable
obligation entered into or imposed under (16 U.A. ~ 824(a)-
recovers all prudently incurred costs associated with the purchase
(16 U.A. ~ 824(a)-3(m)(7)(A))(emphasis added).
In 18 C.R. ~ 292.401 , FERC requires each state regulatory authority to
establish rules for the electric utilities for which it has ratemaking authority that implement
the purposes and intentions of PURPA. FERC "recognizes that economic and regulatory
circumstances vary from State to State and utility to utility." 45 Fed. Reg. 12231 (1980).
Thus , the means by which the states implement PURPA and the programs to encourage
small power production and cogeneration may vary from state to state. FERC maintains
however, that a rate for OF purchases established by a state "meets the statutory
requirements if it equals avoided costs.Id. at 12222.
Idaho Power has a legally enforceable obligation to purchase energy offered
by a qualified small power producer. 16 U.A. ~ 824(a)-3(m)(7)(A) ensures that, as a
result of that Federally-mandated obligation Idaho Power can recover "all prudently
incurred costs associated with the purchase." The costs associated with Idaho Power
purchase of energy produced by Co-Gen are determined by the OPUC. Co-Gen has
elected to contract with the Company using the Gas Market Method (Option 3) set out in
Idaho Power s Oregon Tariff No. E-, Schedule 85.
The OPUC has determined that this tariff is an electric utility s avoided cost to
purchase OF-produced generation in the state of Oregon. By definition , since the tariff
represents a utility s avoided costs , the tariff meets the statutory requirements imposed by
PURPA and are presumed valid. Because this tariff meets the statutory requirements and
REPLY COMMENTS OF IDAHO POWER COMPANY - 9
because Idaho Power will not pay rates to Co-Gen above the approved Oregon tariff, the
rates paid by Idaho Power to that OF are "prudently incurred costs associated with the
purchase." 16 U.A. 9824(a)-3(m)(7)(A). Furthermore, since Go-Gen entered into an
OPUC-approved standard agreement with Idaho Power and will receive the standard rates
permitted thereunder, it cannot be said that Idaho Power is incurring costs imprudently.
Should this Commission limit the ability of Idaho Power to recover 100% of the
state of Idaho s allocated share of costs prudently incurred as a result of the Company
Federally-mandated purchase of energy from an Oregon-sited qualified facility, the
Commission would , in effect, confiscate the assets of the Company without just
compensation in violation of the U.S. Constitution.
Equity Dictates That Idaho Power Be Permitted To Recover The
Full Amount Of Its Prudently Incurred Costs To Purchase Energy
Produced By A Qualified Facility In Oregon.
Until the OPUC elects to amend the avoided cost rates electric utilities such
as Idaho Power are obligated to pay for OF power generated within the jurisdiction of the
OPUC , Idaho Power is required, under Federal and state law , to pay those rates. The
Company has no discretion to either refuse to purchase that electricity from OFs or to pay
rates inconsistent with the OPUC-mandated tariffs.
It is only equitable that Idaho utility customers pay their share of the cost of
energy produced by Oregon OFs. Oregon customers within Idaho Power s service territory
are expected to do the same. The harsh effects of limiting Idaho Power s ability to recover
the full amount of its prudently incurred costs to acquire energy produced from OFs is at
odds with the purpose and intent of PURPA and inconsistent with the principals of
fundamental fairness.
REPLY COMMENTS OF IDAHO POWER COMPANY -
Respectfully submitted this 3rd day of April 2006.
~ (/3.
MONICA B. MOEN
Attorney for Idaho Power Company
REPLY COMMENTS OF IDAHO POWER COMPANY - 11
CERTIFICATE OF MAILING
I HEREBY CERTIFY that on the 3rd day of April 2006, I served a true and
correct copy of the within and foregoing REPLY COMMENTS OF IDAHO POWER
COMPANY upon the following named parties by the method indicated below, and
addressed to the following:
Randy Crockett
R. Johnson Lumber Co.
O. Box 66
Riddle, OR 97469
Hand Delivered
x U.S. Mail
Overnight Mail
FAX
Cecelia A. Gassner
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington Street
O. Box 83720
Boise , ID 83720-0074
Hand Delivered
S. Mail
Overnight Mail
FAX
MONICA B. MOEN
CERTIFICATE OF SERVICE