20061207Comments.pdf

RECEIVED
SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 1895
2006 DEC - 7 AM 8: 48
iDAHO F'Ul3L.1C
UTILITIES COM~:Ai8SI0f'!
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 A FIRM ENERGY SALES AGREEMENT
FOR THE SALE AND PURCHASE OF
ELECTRIC ENERGY BETWEEN IDAHO
POWER COMPANY AND MAGIC WIND PARK 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, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Application, Notice of Modified Procedure and Notice of Comment/Protest Deadline issued on
November 8, 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.
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 DECEMBER 7 2006
On October 20 2005, Magic Wind in Case No. IPC-05-34 filed a Motion to Determine
Exemption Status seeking a Commission determination that Magic Wind was exempt from the rate
eligibility cap established in Commission Order No. 29839. On August 15 2006, the Commission
in Order No. 30109 determined that Magic Wind was entitled to an exemption. The Commission
further declared that Magic Wind was not entitled to receive from Idaho Power a PURP A QF
Purchase Power Agreement that established fixed prices for surplus energy outside the 90/110
performance band using the "Modified PacifiCorp Method." Reference Order No. 30000, Case
No. PAC-05-
On October 27 2006, Idaho Power Company (Idaho Power; Company) filed an Application
with the Idaho Public Utilities Commission (Commission) requesting approval of a 20-year Firm
Energy Sales Agreement between Idaho Power and Magic Wind Park LLC (Magic Wind) dated
October 11 , 2006 (Agreement).
Agreement
The Magic Wind facility will be located in Sections 1 2 and 11 , Township 9 S , Range 13 E
Boise Meridian, Twin Falls County, Idaho. Magic Wind warrants that the facility will be a
qualified small power production facility (QF) under the applicable provisions of the Public Utility
Regulatory Policies Act of 1978 (PURP A). The facility will consist of eight wind turbines with
individual nameplate ratings of 2.5 MW for each unit. The nameplate capacity of the facility will
be 20 MW. The Agreement contains the non-levelized, published avoided cost rates set forth in
Order No. 29391. Under normal and/or average operating conditions, Magic Wind will not
generate more than 10 aMW on a monthly basis. Energy delivered in excess of this monthly
amount is Inadvertent Energy. Idaho Power will accept Inadvertent Energy that does not exceed the
Maximum Capacity Amount (20 MW) but will not purchase or pay for Inadvertent Energy.
Agreement ~ 7.
As reflected in the Application and Appendix B to the Agreement, Magic Wind is one of the
generating resources that may be affected by the outcome of the Cassia Wind complaint, Case No.
IPC-06-, a dispute regarding cost responsibility for funding upgrades to Idaho Power
transmission system. Magic Wind has selected July 31 , 2007 as the Scheduled First Energy Date
and December 31 , 2007 as the Scheduled Operation Date for the facility. These dates are subject to
revision depending on the time required to resolve the issues raised in the Cassia Wind Complaint.
STAFF COMMENTS DECEMBER 7 2006
ANALYSIS
The Magic Wind Agreement contains all of the current rates, terms and conditions contained
in other recently approved Idaho Power PURP A contracts, but with one notable exception relating
to pricing for energy deliveries that fall short of the "90/110 percent performance band " a provision
that defines the range of predictability required for published rate eligibility (i., shortfall energy).
In this Agreement, Magic Wind and Idaho Power are seeking to adopt terms first introduced in the
Fossil Gulch agreement, rather than terms used by all other subsequent Idaho Power contracts
approved following Commission decisions in the u.S. Geothermal case (Case No. IPC-04-8110).
In accordance with Order No. 29632 (u.S. Geothermal case), recent PURP A contracts
submitted by Idaho Power and approved by the Commission price energy purchases outside of the
performance band at 85% of the Mid-Columbia (Mid-C) market index price for each month.
However, in the subsequent Schwendiman case (Case No. P AC-05-, Order No. 30000), the
Commission approved an alternate mechanism (PacifiCorp Method) for pricing energy deliveries
that are outside the 90/110 percent performance band. The Schwendiman Agreement includes a
computed set of fixed rates (Non-Conforming Energy Purchase Prices) as a substitute for market-
based rates.
In Magic Wind's Case No. IPC-05-, in addition to receiving an exemption from the
current moratorium on wind contracts for projects larger than 100 kW, Magic Wind requested a
Declaratory Order from the Commission declaring that Magic Wind is entitled to receive from
Idaho Power a Purchase Power Agreement that uses a "Modified PacifiCorp Method" to establish
fixed prices for surplus energy outside the 90/110 percent performance band. The Commission in
Order No. 30109 declined to direct Idaho Power to accept the Schwendiman-type method for
pricing energy deliveries outside the 901110 performance band, noting that the Schwendiman
Agreement was a negotiated and mutually acceptable agreement, whereas in the Magic Wind case
the negotiating parties were not in agreement.
As reflected in this Application, Magic Wind next inquired of Idaho Power as to whether it
would be possible to utilize the methodology for computing shortfall energy payments the
Commission approved in the Firm Energy Sales Agreement between Idaho Power and Fossil Gulch
Wind Park LLC (Case No. IPC-04-, Order No. 29630), rather than the more recent
methodology for determining shortfall energy payments established by Commission Order No.
29632 in Case No. IPC-04-8/10, the U.S. Geothermal case. Under the Fossil Gulch Method if the
STAFF COMMENTS DECEMBER 7 2006
QF delivers less than 90% of the scheduled "net energy" amount (for reasons other than forced
outage or force majeure events) the shortfall energy is priced at 85% of the market price, less the
contract rate, the difference capped at 150% of contract rate. In the u.S. Geothermal case the
Commission shared U.S. Geothermal's concern that under certain conditions use of the Fossil
Gulch methodology could have adverse results for QFs. (Order No. 29632, p. 20). Despite this
concern, Magic Wind has voluntarily selected the Fossil Gulch method believing that it presents
less risk than that associated with use of the u.S. Geothermal Method. Agreement ~~ 7.5. Use
of the Fossil Gulch methodology is a negotiated term of the Agreement and is mutually acceptable
to Idaho Power and Magic Wind.
Generally, the Commission s past practice has been to allow negotiated terms and
conditions in PURP A contracts as long as those terms and conditions do not violate prior
Commission Orders, do not adversely affect ratepayers, and as long as the QFs and utilities are in
mutual agreement. The Commission has rejected contracts in which these standards have not been
met. Negotiated terms and conditions have in the past not generally included pricing issues
however.
In the case of the Magic Wind Agreement, clearly the parties are in mutual agreement. In
addition, Staff does not believe that negotiated terms of the Agreement violate any prior
Commission Order. Terms in the u.S. Geothermal case related to pricing of shortfall energy were
established at least in part because of u.S. Geothermal's objection to the terms proposed by Idaho
Power that had been included in the Fossil Gulch contract signed previously. Furthermore, because
the Commission allowed a deviation from the u.S. Geothermal terms in the Schwendiman case
Staff does not believe that the Commission intended for the u.S. Geothermal terms to become the
standard to which all future contracts must adhere. Staff believes that the Fossil Gulch
Schwendiman, and the U.S. Geothermal methods all present reasonable alternatives for pricing of
shortfall energy.
Staff does have some concern, however, that price-related terms in PURP A contracts not
become completely subject to negotiation between the parties. The Fossil Gulch, Schwendiman
and u.S. Geothermal contracts reflect three different methods for pricing shortfall energy. Fair
pricing of shortfall energy is particularly important for wind projects because Staff believes it is
likely that they will frequently have shortfall energy due to the difficulty in predicting intermittent
generation in advance. While the utilities are responsible for administering contracts
STAFF COMMENTS DECEMBER 7 2006
administration in the future becomes much more difficult for both the utilities and for the
Commission Staff as more pricing variations are adopted. Staff cautions against creating a
smorgasbord of different pricing options from which QFs can choose. Staff believes that three
pricing options provide a reasonable and sufficient set of choices for future contracts.
With regard to whether the Fossil Gulch method or the u.S. Geothermal method offers
greater protection to the utility and its ratepayers, it is impossible to determine. Under some
combinations of shortfall generation and market prices, one method results in a higher payment to
the QF, but under other combinations the other method produces a higher payment. Because future
market prices are unknown, neither method can be judged superior.
Both methods are based on sound, yet different logic. Under the Fossil Gulch method, a
shortfall energy penalty is assessed whenever market prices (85% of Mid-C) are higher than the
contract price. There is no penalty when market prices are less than the contract price. This
method is based on the logic that in the event of a shortfall in generation, Idaho Power would have
to pay more if it purchased replacement energy from the market at prices higher than specified in
the contract. Under the U.S. Geothermal method, market prices are paid for shortfall energy
whenever market prices are less than the contract rate. This method is based on the logic that
market prices reflect non-firm energy rates, and non-firm rates are what should be paid for shortfall
energy. Attachment A shows amounts that would be paid under both methods for a hypothetical
expected quantity of energy and for various actual generation amounts and market prices.
Despite the differences in the two methods, both represent reasonable attempts to fairly
price shortfall energy. Because both methods have been used in prior contracts, Staff is not
opposed to allowing QFs and utilities to make a choice based on their own assessments of perceived
risks, expected market prices, and expected wind project performance. Consequently, Staff has no
objection to the inclusion of the Fossil Gulch method in this Agreement, rather than the u.S.
Geothermal method.
RECOMMENDATION
Staff recommends approval of all of the Agreement's terms and conditions and that the
Commission declare that all payments Idaho Power makes to Magic Wind for purchases of energy
will be allowed as prudently incurred expenses for ratemaking purposes.
STAFF COMMENTS DECEMBER 7 2006
Respectfully submitted this
Technical Staff: Rick Sterling
i :umisc :commen tslipceO6 .26swrps
STAFF COMMENTS
7JJ day of December 2006.
Scott Woodbury
Deputy Attorney General
DECEMBER 2006
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 7TH DAY OF DECEMBER 2006
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO, IPC-06-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
BARTON L KLINE
MONICA B MOEN
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
RANDY C ALLPHIN
CONTRACT ADMINISTRATOR
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
CERTIFICATE OF SERVICE