20070619Decision memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:JUNE 19,2007
SUBJECT:CASE NO. IPC-06-21 (Cassia Wind v. Idaho Power)
CASSIA/IDAHO POWER MOTION TO APPROVE SETTLEMENT
STIPULA TION AND DISMISS COMPLAINT
COMPLAINT
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.
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. 30086. 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-
QF generators, state commissions, including the Idaho Commission, have jurisdiction with
DECISION MEMORANDUM
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 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 Avista Corporation
dba A vista Utilities. The issue is also one that affects PURP A qualifying
facilities. We find the question presented has significant ramifications for the
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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, A vista, 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.
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. Reference IDAP A 31.01.01.272-276.
SETTLEMENT STIPULATION
Idaho Power and Cassia present for Commission consideration a Settlement
Stipulation that they contend is in the public interest and that represents a fair, just and
reasonable comprise 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
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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
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.
DECISION MEMORANDUM
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:
Idaho Power will assume 100% of cost responsibility for phase one and
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 (AIAC) 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 of the 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. Though it is impossible to
quantify the precise amount of system benefit to native load customers that is provided by the
DECISION MEMORANDUM
network upgrades, Idaho Power nevertheless expects some future customer benefit to flow from
the strengthened transmission system.
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.
COMMISSION DECISION
While the tendered Stipulation and Settlement Agreement resolves the instant dispute
between Idaho Power and Cassia, the parties note that a number of other QFs seeking to
interconnect their projects to Idaho Power s energy delivery system are similarly situated with
Cassia in the Twin Falls queue (other requesting QFs). These other requesting QFs are of
sufficient size and in locations such that their interconnection to the Company s system will
require network upgrades. To provide uniform treatment to these other requesting QFs, Idaho
Power desires to utilize the terms and conditions contained in the Stipulation and Settlement
Agreement as a template for negotiation of additional interconnection agreements.
Idaho Power has delivered copies of its Motion and Stipulation to all requesting
projects in the Twin Falls queue and potential other requesting QFs that the Company is aware
of. Idaho Power and Cassia request that the Commission process this Motion by Modified
Procedure, i., by written submission rather than by hearing. Reference Commission Rules of
Procedure , IDAPA 31.01.01.201-204. Staff has discussed the recommended procedure with
Cassia, Exergy and Avista. Staff recommends Modified Procedure with a July , 2007
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comment deadline and an August 6, 2007 reply deadline. Does the Commission find Staff s
recommended procedure to be acceptable?
Scott Woodbury
bls/M:IPC-O6-21 sw2
DECISION MEMORANDUM