20070829final_order_no_30414.pdf

Office of the Secretary
Service Date
August 29, 2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASSIA GULCH WIND PARK, LLC AND
CASSIA WIND FARM, LLC,CASE NO. IPC-O6-
COMPLAINANTS,
IDAHO POWER COMPANY ORDER NO. 30414
RESPONDENT.
On September 13 2006, Cassia Gulch Wind Park, LLC and Cassia Wind Farm, LLC
(collectively Cassia or the Projects) filed a complaint against Idaho Power Company (Idaho
Power; Company) with the Idaho Public Utilities Commission (Commission) requesting a
Commission declaration and determination that, as a matter of law and policy, the cost
responsibility for transmission system upgrades to meet N -1 contingency planning conditions
should not be assigned to PURP A qualifying facilities (QFs) connecting to the system, but rather
should be rolled into the utility s plant-in-service rate base and recovered from rates and charges
for utility service of native load and other transmission customers.
On June 13, 2007, Idaho Power and Cassia filed a Joint Motion to Dismiss the
underlying complaint in Case No. IPC-06-21 and to approve a related June 13 , 2007
Settlement Stipulation (Stipulation). Reference IDAPA 31.01.01.272-276. The Commission in
this Order grants the Motion to Dismiss and approves the Stipulation.
COMPLAINT
Cassia Gulch Wind Park, LLC and Cassia Wind Farm, LLC are QFs within the
meaning of the Public Utility Regulatory Policies Act of 1978 (PURP A). Each of the Projects
has signed Commission approved Firm Energy Sales Agreements with Idaho Power. Reference
Case No. IPC-06-, Order No. 30086; Case No. IPC-06-, Order No. 30087. The
Projects will sell their entire output to Idaho Power.
This complaint involves a dispute concerning the terms and conditions of
interconnection by QFs to Idaho Power s high voltage transmission system. While the Federal
Energy Regulatory Commission (FERC) has jurisdiction with respect to interconnection for non-
ORDER NO. 30414
QF generators, state commISSIons, including the Idaho Commission, have jurisdiction with
respect to interconnection terms for PURP A qualifying facilities when the facilities sell their
entire output to a regulated utility. Citing FERC Docket No. RM02- 12-000 , Order No. 2006
Standardization of Small Generator Interconnection Agreements and Procedures, May 12 2005
~ 517 ("States continue to exercise authority over QF interconnections when the owner of the QF
sells the output of the QF only to the interconnected utility or to on-site customers
BACKGROUND
As reflected in the underlying complaint, as part of its integrated backbone electric
transmission system, Idaho Power owns and operates a 138 kV transmission system in the Twin
Falls, Idaho area. Idaho Power has received requests for the integration of up to 200 MW of new
generation to be connected to the 138 kV system. Most of the requests are from wind generating
projects that are PURP A qualifying facilities. The Cassia projects are among those wind
generation QFs requesting interconnection. The projects requesting interconnection are placed in
a transmission "queue" which is managed by Idaho Power in accordance with rules established
by FERC. Exhibit A to the Stipulation shows the requesting projects which have signed facility
study agreements, paid the required deposits and remain in the queue in the order they made their
interconnection request.
In June 2006 Idaho Power, based on engineering studies, was of the opinion that in
order to interconnect with all of the projects in the queue, it would be necessary to construct
network upgrades to the transmission system with a total estimated cost of approximately $60
million. With the exception of a relatively small portion of the system upgrade costs to be borne
by Idaho Power, the Company claimed and asserted that the $60 million cost of its transmission
system upgrades should be borne, in the first instance, by the QFs proposing to connect to the
Idaho Power transmission system.
On September 27, 2006, the Commission in Case No. IPC-06-21 issued a Notice
of Complaint (Regarding QF Responsibility for Transmission Upgrade Costs) and established a
schedule for written comments. In its Notice and Order No. 30135 , the Commission stated
The Commission finds that the issue as to whether transmission system
upgrade costs required to meet N-1 contingency planning conditions can and
should be allocated to QFs requesting interconnection is a policy issue with
generic implications for the state s major electric utilities, i., Idaho Power
Company, PacifiCorp dba Rocky Mountain Power and A vista Corporation
dba A vista Utilities. The issue is also one that affects PURP A qualifying
ORDER NO. 30414
facilities. We find the question presented has significant ramifications for the
future development of QF projects in areas where transmission upgrade is
required. An adequate record before the Commission must be developed.
Cassia recommends that the matter be processed pursuant to Modified
Procedure, i., by written submission rather than by hearing. It remains to be
seen whether an adequate record to resolve the policy question presented can
be developed in a paper case. The Commission is willing to consider this
matter without a hearing unless it subsequently appears that the public
interest requires a different procedure and method of record development.
Comments in Case No. IPC-06-21 were filed by Idaho Power, Rocky Mountain
Power, Avista, Cassia, Exergy Development Group of Idaho, LLC, Commission Staff and other
interested parties.
On November 28, 2006 , the Commission held oral argument in Boise on the
threshold issue presented for Commission determination by Cassia, i., whether a QF selling
generation to a utility has a responsibility to pay the transmission upgrade costs that result from
and that would not be incurred but for the QF's request for interconnection. Thereafter with the
tacit consent of the parties the Commission took the matter under advisement and an informal
stay of proceedings ensued.
SETTLEMENT STIPULATION
Idaho Power and Cassia presented for Commission consideration a Settlement
Stipulation that they contend is in the public interest and that represents a fair, just and
reasonable compromise of the issues raised in Cassia s complaint in Case No. IPC-06-21. The
Stipulation sets forth the basic principles of the settlement agreement between Cassia and Idaho
Power. Upon approval of the Stipulation, Cassia and Idaho Power will negotiate definitive
interconnection agreements and amendments or addenda to the Firm Energy Sales Agreements
and all other documents or instruments that may be required.
The key component of the Stipulation is the concept of "redispatch." Idaho Power
estimated cost of approximately $60 million to complete necessary transmission network
upgrades was based on the assumption that the requesting projects in the transmission queue
would not be dispatchable. Pursuant to Stipulation ~ 9, Cassia has agreed to install, at its
expense, equipment and communication facilities necessary to reduce its energy output to a
predetermined set-point within ten (10) minutes of when Idaho Power requires a reduction to the
set-point. Of course, Idaho Power notes that it cannot utilize these same facilities to increase
ORDER NO. 30414
Cassia s generation so the Cassia projects are not fully "dispatchable" in the normal utility sense.
However, for convenience, in the Stipulation, Cassia s agreement to reduce generation is referred
to as "Cassia Redispatch." Idaho Power will call for a Cassia Redispatch only when necessary to
respond to system emergencies or when identified transmission lines are out of service.
Redispatch would be implemented pro rata with other requesting projects in the queue who have
agreed to similar redispatch protocols.
Based on Cassia s commitment to Cassia Redispatch, and assumIng the other
requesting projects in the queue make similar commitments, Idaho Power performed additional
analysis to determine network upgrades that would be necessary to preserve system integrity.
This is referred to in the Stipulation as the "Redispatch Study" and costs for each requesting
project are shown in Exhibit B, Table B6 to the Stipulation. As reflected in the Stipulation, the
original estimate of $60 million decreases to approximately $11 million under the Redispatch
Study.
Idaho Power and Cassia believe that the redispatch component of the Stipulation is in
the public interest for two reasons. First, the redispatch approach allows Idaho Power to
significantly reduce the required investment to preserve system integrity and represents a least-
cost, but prudent, solution to the identified problem.Second, the "Cassia Redispatch"
commitment undertaken by Cassia allows the Cassia projects to be available to Idaho Power as a
resource with some ability to respond to system emergencies.
Flowing from the Redispatch Study, the Stipulation addresses responsibility for
network upgrade costs, sharing of network upgrade costs, refunds and interests on refunds and
security for payment.
Network upgrade costs will be allocated to each requesting project, including the
Cassia projects, based on: (a) their election of whether to be subject to redispatch, (b) their order
in the Idaho Power queue, and ( c) based on the megawatt interconnection capacity of each
requesting project, their pro rata share of the costs for the network upgrade required to
interconnect one or more requesting projects and the interconnection capacity that the particular
network upgrade adds.
Pursuant to ~ 13 of the Stipulation, Idaho Power and the requesting projects will
share the costs of the five planned phases of network upgrade as follows:
ORDER NO. 30414
Idaho Power will assume 100% of cost responsibility for phase one and
will include this cost in its rate base. Phase one upgrades will likely have
been required for native load in the near future.
Remaining four phases:
25% of the costs will be provided by the project as a non-
refundable contribution in aid of construction (CIAC);
25% of the costs will be funded by Idaho Power and included in
Idaho Power s rate base;
50% of the costs will be funded by projects as an advance in aid
of construction (AlA C) subject to refund. These costs will be
rate based using standard regulatory accounting principles.
While the proposed sharing formula is not based on any rigorous cost study, it reflects the
considered judgment of the parties that it is a reasonable compromise of the competing points of
view presented in the case and recognizes that electric power transmission systems by their
nature are joint use facilities and that many economic theories exist relating to cost allocation of
joint use facilities.
In concluding that the proposed sharing formula is in the public interest, Idaho Power
is mindful of its earlier position in this proceeding that "but for" the construction of the
requesting projects in the queue, the transmission upgrades originally identified by Idaho Power
would not be needed to provide adequate service to Idaho Power native load customers. As a
result, amounts paid by customers for network upgrades could result in customers paying more
than avoided costs for generation from Cassia and other QFs because their generation requires
network upgrades. While this situation remains substantially unchanged, Idaho Power believes
that there are a number of cost savings that will mitigate, if not totally eliminate, the adverse
affects on customers.
First, Idaho Power is ofthe opinion that the transmission upgrades identified in Table
B 1 in Exhibit B of the Stipulation will provide the Company with a more robust transmission
system serving the Magic Valley and the Wood River Valley. Although it is impossible to
quantify the precise amount of system benefit to native load customers that is provided by the
network upgrades, Idaho Power nevertheless expects some future customer benefit to flow from
the strengthened transmission system.
ORDER NO. 30414
Second, power generation from QF projects, such as the Cassia projects, serves to
some extent to place or defer the need for other generation projects in the Company s Integrated
Resource Plan (IRP). The costs for network upgrades for IRP generation projects would
normally be recovered from native load customers, either embedded in the energy rate in a
power purchase agreement or as a Company transmission investment included in rate base.
Third, under the settlement arrangements set out in the Stipulation, Idaho Power
believes it would be able to successfully defend a comparability claim brought by a FERC
jurisdictional customer claiming that Idaho Power and the Commission have given unlawful
preferential treatment to QF resources.
The final reason Idaho Power believes the Stipulation is fair is that the non-
refundable 25% portion funded by the QF project will never be placed in rate base. This
combination and the fact that 50% of the network upgrade will be refundable over time, it
contends, will provide an economic signal to QFs with the objective of balancing optimal siting
of energy resource with interconnection costs.
On June 26, 2007, the Commission issued a Notice of Motion to Approve Settlement
Stipulation and Dismiss Complaint in Case No. IPC-06-21. Also issued on the same date was
a Notice of Modified Procedure. The Commission established a comment deadline of July 25
2007 and a reply deadline of August 6, 2007. Comments were filed by Commission Staff and
two interested parties. Reply comments were filed by PacifiCorp. No party opposes approval of
the Cassia/Idaho Power Stipulation.
Commission Staff
Staff recommends approval of the Idaho Power/Cassia Settlement Stipulation.
Staff in its comments expressed concern regarding the timing, frequency and duration
of expected "Cassia redispatch." If redispatch is expected to occur frequently, for fairly lengthy
periods, or during especially critical times, Staff contends, the Company might be paying full
avoided cost rates for a resource that cannot be delivered when it is most valuable. Despite an
inability to predict the timing, frequency and duration of when redispatch is expected to occur
Staff notes that all parties seem to agree that it is likely to be minimal based on historical data.
In response to a Staff production request, Idaho Power contends that QFs subject to
redispatch are likely superior to those QFs that are not, because projects subject to redispatch can
ORDER NO. 30414
at least be operated at some less-than-capacity level, whereas projects not subject to redispatch
must be shut down entirely in the event transmission is constrained. Staff notes that those QFs in
the Twin Falls queue are far more likely to experience transmission constraints; projects outside
the Twin Falls queue should rarely, if ever, need to be shut down due to transmission constraints.
Staff believes that the cost of relieving transmission constraints should always be
balanced against the cost of not having the affected generator plants available for very brief
periods of time. When all costs are considered, Staff believes that redispatch may prove to be a
much more cost-effective solution than making very expensive transmission system
improvements. Staff believes that is the case here.
Staff states it knows of no analysis that could be done to determine precisely, or even
approximately, the proportions of transmission upgrade costs that should be borne by Idaho
Power and by the QFs. Staff believes that the fairest and most reasonable solution is for the
transmission costs to be shared. Staff believes that Cassia and Idaho Power have presented such
a proposal.
Regarding the proposed refund method for advances in aid of construction (AIAC),
although the term of the refund period is limited to ten years, Staff estimates that the actual
refund period will be closer to one or two years if the projects perform as expected. If a project
fails to meet its Mechanical Availability Guarantee in any month, it simply foregoes the refund
for that month, and the amount foregone is available for refund in future months. Because
unrefundable amounts accrue interest, and because the mechanical availability requirement is
only 50%, Staff views refunds as being nearly assured unless a project fails to be built or defaults
on its power sales agreement. Despite reservations, Staff supports the refund provisions in the
Stipulation as a reasonable compromise of the parties.
In assessing the effect of the Stipulation on customers, Staff prefaces its analysis with
the observation that "but for" the QFs in the Twin Falls area requesting interconnection, the
required upgrade identified in the Company s earlier transmission study ($60 million) would not
be required to provide adequate service to the Company s native load customers. The Company,
Staff notes, contends that there are benefits to be realized from the upgrades (Table B-1 in
Exhibit B of the Stipulation) that will mitigate, if not totally eliminate, the adverse affects on
customers. Staff addresses each of the benefits advanced by the Company and concurs in its
ultimate conclusion.
ORDER NO. 30414
Staff in its comments believes that the most compelling argument advanced by Idaho
Power in support of the Stipulation proposal for sharing of transmission upgrade cost is
recognition that QF projects displace or defer the need for other generation projects in the
Company s Integrated Resource Plan (IRP). Costs for network upgrades for IRP generation
normally are recovered from native load customers, either embedded in the energy rate or
through utility transmission investment included in rate base. If Idaho Power were not
contracting with QF projects, Staff contends it would likely be acquiring similar types of
generation through a Request for Proposal (RFP) process and incurring related transmission
investment expense.
Staff recommends that the proposal presented herein be accepted as a model that
could be used by other utilities.
PaciflCorp
PacifiCorp objects to extending the Cassia/Idaho Power cost allocation method, as
recommended by Staff, to other utilities. PacifiCorp notes that it was not a party to settlement
discussions between Cassia and Idaho Power or to the transmission study undertaken by Idaho
Power in the Twin Falls area even though PacifiCorp s Midpoint-Summer Lake transmission line
is part of the electrical system where these QFs are interconnecting with Idaho Power. Exhibit C
in the Settlement Stipulation lists only the underlying system of Idaho Power and is not inclusive
of other utilities that may be impacted by the system upgrades and redispatch scenarios
proposed.
PacifiCorp is also concerned that by Idaho Power agreeing to a settlement where they
pay up front for the network upgrade cost of an interconnection request, it will cause an increase
in Idaho Power s revenue requirements and may cause a change in Idaho Power s FERC filed
tariff rate. As a user of Idaho Power s transmission system, PacifiCorp states that it would likely
be subject to increased transmission costs necessary to serve its retail customers. PacifiCorp is
concerned that a broad rule implementing the Settlement Stipulation could set a precedent that
PacifiCorp might be forced to follow if a QF connects to the Company s system in the Goshen
area where constraints exist and which involves multiple utilities.
PacifiCorp notes also that the Settlement Stipulation provisions do not take into
consideration any impact to existing customers or to legacy transmission agreements such as the
Restated Transmission Services Agreement (RTSA) between PacifiCorp and Idaho Power. For
ORDER NO. 30414
example, PacifiCorp notes that in the RTSA PacifiCorp can utilize the reserve capability of its
west-side hydro system in its east-side control area. Up to 100 MW of east control area spinning
reserves can be met from resources in the west control area as well as bi-directional transfers of
104 MW of power and energy between the PacifiCorp west-side and east-side control areas.
PacifiCorp is concerned, and would like to ensure that the Settlement Stipulation does not impact
its ability to continue operating under the RTSA as it has historically.
PacifiCorp also references its initial comments filed with the Commission on October
, 2006 wherein PacifiCorp expressed its recommendation that the Commission require QF
developers to pay for all interconnection and system upgrade costs associated with their
respective projects.
Commission Findings
The Commission has reviewed the filings of record in Case No. IPC-06-
including the underlying complaint of Cassia and the Joint Motion of Idaho Power and Cassia to
dismiss the complaint and approve the June 13 , 2007 Settlement Stipulation. We have also
reviewed the filed comments of parties and the November 28 2006 transcript of proceedings.
This Commission, we find, has exclusive authority and jurisdiction over the
interconnection and allocation of interconnection costs for QFs when an electric utility is
required to interconnect under 18 c.F.R. ~ 292.303 of FERC's PURPA regulations (i., when
the QF's entire output is sold to a regulated utility). 18 C.R. ~ 292.306. We have such
jurisdiction and authority in this case because the Cassia projects are QFs with Commission
approved Firm Energy Sales Agreements requiring them to sell their entire output to Idaho
Power. See Standardization of Generator Interconnection Agreements and Procedures, FERC
Stats. & Regs. ~ 31 146, (2003) ("Order No. 2003"); and Standardization of Small Generator
Interconnection Agreements and Procedures, FERC Stats. & Regs. ~ 31 180 (2005) ("Order No.
2006" p. 135 , ~ 516). Under FERC rules, interconnection costs, including all reasonable costs of
connection, switching, metering, transmission, distribution, safety provisions and administrative
costs caused solely by such QF interconnection, may be assessed by this Commission against a
QF. 18 C.R. ~~ 292.306(a), (b); 292.101.7.
In November 2006 in oral argument and briefing, reasons were advanced for
alternate allocation methods; i., for allocating all or none of the transmission upgrade costs to
Cassia. The Commission finds that an appropriate allocation of costs is dependent on the
ORDER NO. 30414
circumstances and facts. Rates for QF purchases, the parties noted, must be both just and
reasonable to electric utility customers and in the public interest. 18 C.R. ~ 292.304(a)(I)(i).
One of the underpinnings of PURP A, we are reminded, is "ratepayer neutrality," i., the cost to
ratepayers of the QF purchase is to be no greater than the incremental cost if the contract power
was generated by the utility itself or purchased from another source. 18 c.F.R. ~ 292.1 0 1 (b).
Published avoided cost rates under the Commission-approved Surrogate A voided Resource
(SAR) methodology, we note, do not include a transmission component. It is a specific
allocation of transmission cost responsibility that we decide in this case.
The Cassia projects are two of many QFs in the Twin Falls area requesting
interconnection agreements with Idaho Power. All totaled, nearly 200 MW of new generation is
being offered. The transmission upgrade costs that the Company determined would be required
to accept 200 MW of new generation and to meet N -1 contingency planning conditions was $60
million. The "redispatch study" of Idaho Power reduces the $60 million prior transmission study
upgrade cost for its Twin Falls area 138 kV transmission system to $11 million. QFs accepting
redispatch agree to reduce generation when requested to respond to system emergencies or when
identified transmission lines are out of service. Projects agreeing to and subject to redispatch are
capable of being operated at some less-than-capacity level. This capability, we find, provides
Idaho Power with system operational benefits. It enables the Company to maintain the integrity
of its transmission system without compromising safety or reliability. The parties agree that
redispatch should be a rare occurrence. If it proves otherwise, the Commission expects to be
notified by the utility.
We congratulate the parties on fashioning what we find to be a workable, least-cost
and reasonable solution to capacity and operational constraints on its transmission system that
will benefit Idaho Power, its customers and Cassia. PURP A imposes on Idaho Power an
obligation to purchase QF power. 18 C.R. ~ 292.303(a). The cost sharing approach reflected
in the Stipulation (i., 25% non-refundable QF contribution in aid of construction (CIAC))
creates an incentive for QFs to consider economic efficiencies in the siting of their generating
facilities and reduces the potential for the shifting of costs from QFs to the Company and its
customers that might occur if no transmission upgrade costs were assessed against the QF. The
Commission recognizes the systemwide benefits that accrue to all customers on an integrated
transmission grid.The assignment of costs in this case balances the benefits accruing to
ORDER NO. 30414
customers of the grid with the cost responsibility of the QF necessitating the timing and
construction of the upgrade. In assessing the reasonableness of the cost-sharing proposal we also
find persuasive a recognition that QF projects in the Twin Falls queue displace or defer the need
for other or similar generation projects in the Company s Integrated Resource Plan (IRP),
resource acquisitions that would likely require related transmission investment by the Company.
Staff has requested that the Commission approve this "Cassia redispatch" approach
to interconnection as a template for evaluating transmission upgrade alternatives and assigning
cost responsibility in other instances of transmission constraints occasioned by QF requests for
interconnection.PacifiCorp opposes the template approach recommended by Staff.The
Commission believes the Settlement Stipulation is appropriate under the circumstances and facts
presented in this case and finds it reasonable to apply this approach to other QFs in the Twin
Falls 138 kV transmission queue. We do not adopt this approach as a template for other utility
or locations. The extent that any terms approved as part of the Stipulation will be applied in
future QF interconnection requests will depend upon the specific characteristics of that situation.
We do not discount PacifiCorp s concerns regarding transmission expense being
reflected in the Company s Open Access Transmission Tariff (OATT). We note only that this
Settlement provides for a sharing of expense and a non-refundable contribution by the QF.
Under FERC's transmission policies and resource acquisitions under a Request for Proposal , the
Company s entire transmission investment could be reflected in its OATT.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Idaho Power Company,
an electric utility, pursuant to the authority and power granted it under Title 61 of the Idaho Code
and the Public Utility Regulatory Policies Act of 1978 (PURP A).
The Commission has authority under PURP A and the implementing regulations of
the Federal Energy Regulatory Commission (FERC) to set avoided costs, to order electric
utilities to enter into fixed term obligations for the purchase of energy from qualified facilities
(QFs) and to implement FERC rules.
ORDER
In consideration of the foregoing, IT IS HEREBY ORDERED and the Commission
does hereby approve the June 13 , 2007 Settlement Stipulation between Idaho Power, Cassia
Gulch Wind Park LLC and Cassia Wind Farm LLC.
ORDER NO. 30414
IT IS FURTHER ORDERED and the Commission does hereby grant the Joint
Motion of Idaho Power and Cassia to dismiss the underlying complaint in Case No. IPC-06-
21.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code ~ 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this d-.~
day of August 2007.
i€LIf;,
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MARSHA H. SMITH, COMMISSIONER
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MACK A. REDFORD, COMMISSIONER
ATTEST:
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Barbara Barrows
Assistant Commission Secretary
bls/O:IPC-06-21 sw3
ORDER NO. 30414