20060301Comments.pdf

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CECELIA A. GASSNER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 6977
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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 APPROV AL )
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-O6-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Cecelia A. Gassner, Deputy Attorney General, and in response to the Notice
of Application and Notice of Modified Procedure issued in Order No. 29970 on February 8, 2006
submits the following comments.
BACKGROUND
On January 26 2006, Idaho Power Company ("Idaho Power or Company ) submitted for
approval an Energy Sales Agreement for the sale and purchase of electric energy between Idaho
Power Company and Co-Gen Co, LLC ("Co-Gen or Facility ). Co-Gen owns, operates and
maintains 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
STAFF COMMENTS MARCH 1 , 2006
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.
As represented, Co-Gen is a qualified small power production facility (QF) under the
applicable provisions of the Public Utility Regulatory Policies Act of 1978 (PURP A). In
accordance with PURP A, the Public Utility Commission of Oregon (OPUC) is the state regulatory
agency with jurisdiction to implement PURP A in the state of Oregon and to determine Idaho
Power s avoided costs in Oregon.
On December 29 2005, Idaho Power and Co-Gen entered into an Energy Sales Agreement
in conformance with the rates, terms and conditions established by the OPUC. Under the terms of
the Agreement, Co-Gen elected to contract with Idaho Power for a one-year term, commencing
January 1 , 2006. Co-Gen further elected to receive payments from the Company computed in
accordance with the Gas Market Method (Option 3) set out in Idaho Power s Oregon Tariff No. E-
, Schedule 85, dated August 11 2005 or its successor schedule as approved by the OPUC.
ANALYSIS
Most of the terms and conditions ofthe Agreement between Idaho Power and Co-Gen Co
LLC are nearly identical to those that are typically contained in similar agreements for projects
located in Idaho and subject to the jurisdiction of the Idaho Public Utilities Commission.
However, there are a few differences, primarily associated with rates. One of the primary
differences between Idaho Power QF contracts in Oregon and Idaho is that avoided cost rates are
computed for on-peak and off-peak hours in Oregon, while in Idaho there is no distinction between
on-peak and off-peak generation. Another difference is that the energy and capacity components
of the avoided cost rate are separately computed in Oregon. Under its Gas Market Method option
the energy payment component is based on monthly natural gas index prices.
Because of these differences, the rate that will be paid for purchases under the Agreement
will be different than the rates that would otherwise be paid in Idaho. Consequently, Staff
recommends that the amount approved for recovery in Idaho be equal to the actual amounts paid
under the contract, but not to exceed the amount that would be paid if this were an Agreement
within the jurisdiction of the Idaho Commission and subj ect to the avoided cost rates from Order
No. 29646. For a one-year contract in 2006, the applicable rate from Order No. 29646 is 51.
STAFF COMMENTS MARCH 1 , 2006
mills per kilowatt-hour. Reference Appendix B from Order No. 29646 Idaho Avoided Cost Rates
for Non-Fueled Projects, one-year contract length, on-line year 2006.
Unlike in Idaho, it is Staffs understanding that in Oregon, PURPA contracts are not
approved individually as they are submitted, but instead are held for consideration in the next
general rate case. Contracts are scrutinized as part of the general rate case, and the Order emerging
from the general rate case approves (or disapproves) cost recovery by the utility.
In OPUC Docket No. UM 1129, the OPUC recently authorized Idaho Power to adopt a
standard contract" with the rates, terms and conditions patterned closely after contracts approved
for Idaho Power in Idaho. Because this Agreement is based on a "standard" contract, and because
the rates to be paid are in accordance with an approved tariff in Oregon, Staff believes it would be
highly unlikely that the contract would not be approved for cost recovery in a general rate case.
The OPUC stated the following in its Order:
While we agree with parties that QF power purchase contracts are unique
among other power purchase contracts, we conclude that the unique
characteristics of QF contracts already provide utilities with sufficient
assurances, pursuant to the traditional regulatory compact that governs
cost recovery, and that costs incurred under the contracts will be
recovered. For example, in this Order, we have directed utilities to file
QF power purchase standard contract forms. Those forms will be pre-
approved for compliance with all standards set forth in this Order or still
applicable prior orders. Although pre-approval of the standard contract
form is not pre-approval of a utility s recovery of costs that are incurred
under a particular standard contract, utilities are assured, to the extent a
standard contract is entered into with a QF, that we have pre-approved
the rates, terms and conditions of the agreement with the QF. ...we find
utilities' lack of discretion regarding issues such as the location , timing,
and cost effectiveness of QF power contracts favors the likelihood of a
QF contract being deemed prudent. We determine that it is unnecessary
and inappropriate to treat cost recovery of costs incurred under QF
contracts any differently than cost recovery is handled for all other power
purchase contracts. Reference Oregon Public Utilities Commission Order
No. 05-584; May 2005.
All of Idaho Power s PURP A contracts, whether the facilities are located inside or outside
ofldaho, have historically been considered system resources. As system resources, contract costs
are allocated system-wide in accordance with accepted jurisdictional allocations. Staff
recommends that payments made for purchases under the Agreement be approved for recovery in
Idaho as PURP A contract costs through the annual Power Cost Adjustment (PCA) mechanism
STAFF COMMENTS MARCH 1 , 2006
subject to the customary jurisdictional allocation between Idaho and Oregon, and as discussed
previously, subject to a cap of 51.50 mills per kilowatt-hour for recovery of the Idaho share.
In the event the OPUC ultimately does not approve the Agreement, Staff recommends that
the Commission reserve the right to make an adjustment in the future to account for the difference
in the amount allowed for cost recovery in Idaho as a PURP A contract passed through the PCA at
100 percent, and a discretionary power purchase subject to the 90/10 sharing under the PCA.
RECOMMENDATIONS
Staff recommends that payments made under the Agreement be allowed as prudently
incurred expenses for ratemaking purposes, subject to the customary jurisdictional allocation
between Idaho and Oregon. Staff further recommends that the amount of costs allowed for
recovery in Idaho be capped at 51.50 mills per kilowatt-hour to reflect an amount that would be
paid if this were an Idaho PURPA Agreement. Finally, Staff recommends that the Commission
reserve the right to adjust the amount allowed for recovery in Idaho if the OPUC ultimately does
not approve the contract in Idaho Power s next general rate case in Oregon.
Respectfully submitted this day of March 2006.
Ceceha A. Gassner
Deputy Attorney General
Technical Staff: Rick Sterling
i: umisc :comments/ipceO6 .2CgIlJS
STAFF COMMENTS MARCH 1 , 2006
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 1ST DAY OF MARCH 2006
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-06-, 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
RANDY ALLPHIN
CONTRACT ADMINISTRATOR
IDAHO POWER COMPANY
PO BOX 70
BOISE ill 83707-0070
CERTIFICATE OF SERVICE