20070227final_order_no_30259.pdf

Office of the Secretary
Service Date
February 27 2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
APPROVAL OF A POWER PURCHASE
AGREEMENT WITH TELOCASET WIND
POWER PARTNERS, LLC AND TO
INCLUDE THE ASSOCIATED EXPENSES IN
THE COMPANY'S ANNUAL POWER COST
ADJUSTMENT.
CASE NO. IPC-06-
ORDER NO. 30259
On December 15, 2006, Idaho Power Company (Idaho Power, Company) filed an
Application seeking approval of a Power Purchase Agreement (PP A) with Telocaset Wind
Power Partners, LLC (Telocaset). Idaho Power asked that the expenses associated with the
purchase of capacity and energy from the PP A be included in the Company s annual Power Cost
Adjustment (PCA).
On December 27, 2006, the Commission issued a Notice of Application and set a
deadline of January 10 2007, for interested parties to petition for intervention. Order No. 30209.
No petitions for intervention were filed. On January 26, 2007, the Commission issued a Notice
of Modified Procedure, setting a comment/protest deadline of February 22, 2007. Order No.
30230. Comments were filed by Commission Staff, the Idaho Farm Energy Association, the NW
Energy Coalition and the Renewable Northwest Project, and by one member of the public. With
this Order the Commission grants the Company s Application as more fully set forth below.
THE APPLICATION
Idaho Power seeks approval of its PPA with Telocaset and inclusion of the associated
expenses for the purchase of capacity and energy in the Company s annual Power Cost
Adjustment (PCA). This PP A is the result of Idaho Power s Request for Proposals for 200 MW
of wind-powered generation that originated with the Company s 2004 Integrated Resource Plan
(IRP). Application at 2. The Company issued an RFP for 200 MW of wind-powered generation
on January 13 , 2005. Id. In September 2005, the RFP was revised to ask for 100 MW, instead
of the 200 MW, because of the quantity of wind power the Company anticipated receiving from
PURP A qualifying facilities (QFs). Application at 3. In June 2006, Telocaset Wind Power
Partners of Houston, Texas was selected as the preferred bidder of the 2005 Wind RFP process.
Id.
ORDER NO. 30259
Idaho Power and Telocaset concluded negotiations of the PP A in December 2006.
Application at 4. The PP A guarantees an output of 196 000 MWh (annually) and has a planned
capacity of 100.65 MW. Id. The term of the PPA is 20 years, with an option for Idaho Power to
extend the term ofthe Agreement an additional 10 years. Id. If Telocaset should wish to sell the
facility, the PP A provides Idaho Power with a first right of refusal. Id.
The wind project is located in eastern Oregon, and would deliver its energy to a point
on the LaGrande-Brownlee 230 kV transmission line. Application at 4. The project is expected
to have an output profile with higher output coinciding with the summer and winter peak
demand. Id.
Prices under the PP A adjust seasonally and start at a base rate of $48/MWh with an
annual escalation rate of 3%. Application at 4. No payment is required for energy deliveries of
the maximum contract amount and Idaho Power will retain all green energy tags from the
project. Id. The PP A also provides that Telocaset will deliver detailed forecasting data
including wind velocity and duration, to Idaho Power. Id. The data will include real time access
to the forecasting service used by the project, including forecasts of energy to be delivered
during the next hour, next day, and next week. Id. This is expected to assist Idaho Power when
integrating the wind generation into the Company s resource supply mix. Application at 5.
The PP A contains provisions, similar to the 90%1110% delivery provisions contained
in Idaho Power s QF contracts, which would provide for damages and caps. Application at 5.
The PP A also contains penalties should the project fail to deliver the guaranteed annual output of
196 000 MWh. Id. Additionally, the obligations of the project will be secured by a guaranty
issued by Goldman Sachs. Id. Should the credit rating of Goldman Sachs fall below a
predetermined level, Goldman Sachs will be required to post a liquid form of performance
assurance. Id. The obligations ofIdaho Power will be secured by Idaho Power s balance sheet.
Id. The PP A also provided for certain "bridge" financing to Telocaset by Idaho Power to cover
Telocaset's cost exposure to acquire certain long lead-time items, such as a transformer and
certain engineering and design expenditures while the Commission is considering this
Application. Application at 5-6. Idaho Power states it will establish a reserve account and fund
the cost to enable Telocaset to proceed prior to approval of the Application. Id. at 6.
Idaho Power requests that the Commission issue an Order finding that the PP A is
prudent and approving inclusion of the prudently incurred power purchase expenses associated
ORDER NO. 30259
with the PPA in the Company s annual PCA. Id. The Company requests that its Application be
processed by Modified Procedure. !d.
COMMENTS
1. NW Energy Coalition and Renewable Northwest Project. Joint comments were
filed by the NW Energy Coalition (NWEC) and the Renewable Northwest Project (RNP). The
comments supported approval of the PP A and requested that the docket be processed in an
expedited fashion. NWEC and RNP stated that the PP A would be beneficial to both utility
ratepayers and the furtherance of renewable energy in Idaho Power s portfolio. They stated that
the price of $48/MWh and its 3% escalation rate will make this resource one of the most cost-
effective of all generation resources identified in Idaho Power s 2006 IRP. NWEC and RNP also
stated that they were "enthusiastic" about provisions in the PP A that commit Telocaset to
provide Idaho Power with detailed, real-time wind forecasting data. Their comments stated that
the combination of enhanced forecasting along with the geographic diversity offered by this
project could only serve to make the number of pending Idaho based wind projects more
attractive to Idaho Power.
2. Idaho Farm Energy Association. The Idaho Farm Energy Association stated that
the Horizon contract is a wise investment for the ratepayers, and that it supports this project and
further development of wind energy along with other renewables for the benefit of the citizens of
Idaho and the ratepayers. However, the organization also stated that the difference in price in the
PP A as compared to PURP A rates was entirely offset by the difference in the 901110
mechanisms between the two contracts, and that the Horizon project and PURP A projects have
essentially the same cost to the ratepayer. It stated that this project represents a $160 million
investment in a rural Oregon county while the energy will be paid for by Idaho customers. Idaho
Farm Energy Association states that a project of this size typically generates over $1 million per
year in local economic benefits, and that those benefits are desperately needed in rural Idaho.
3. Larry Zirker. Mr. Zirker filed comments stating that this Agreement is "very bad
for Idaho." He stated that approving the 1 00 MW Agreement would essentially be stopping four
small QFs from being built. He states that it would reduce the tax base on $120 000 000 of small
wind farms from supporting Idaho, and that many good-paying jobs would be lost. He also
commented that this would take 100 MW from the queue that Idaho Power will allow according
to its IRP.
ORDER NO. 30259
4. Commission Staff. Staff filed comments recommending that the Commission:
(1) find the PP A to be prudent; and (2) approve inclusion of the prudently incurred power
purchase expenses in the Company s PCA. Staffs comments reviewed the need for power, the
request for proposals (RFP) process, the PP A terms and conditions (including a price assessment
and transmission costs), as well as the requested ratemaking treatment of the expenses associated
with the contract.
Staff concluded that a need for wind generation was demonstrated by both the 2004
and 2006 IRPs. Idaho Power s need for new generating resources was recently debated in Case
No. IPC-06-, seeking Commission approval for the construction of the Evander Andrews
170 MW gas-fired peaking plant. Staff points out that the Commission found in that case that
the need for future power to meet the projected peak loads of Idaho Power was supported by
substantial and competent evidence. Staff states that unlike the need for peaking generation
filled by the Evander Andrews plant, wind generation is primarily intended to meet the
Company s need for energy. However, just as the IRPs demonstrated a need for capacity, they
also convincingly demonstrate a need for new energy resources.
Staff reviewed the 2005 Wind RFP process and concludes that the methodology used
as well as the process was fair, reasonable, and resulted in the best proposal being selected.
Horizon Wind Energy s Telocaset project scored the highest in all three major scoring categories
and was clearly the best proposal submitted in the RFP process.
In its price assessment Staff reports that the price in the PP A begins at $48/MWh in
2007 and escalates 3% annually. The levelized cost of the 20-year contract is estimated at
$62.38/MWh. Idaho Power is not required to pay for anything else other than the energy
delivered. Staff states that the price compares favorably to the avoided cost rates for PURP
QFs. The price from the PPA is approximately 2.3% below PURPA rates, when compared to a
20-year levelized PURP A rate, which is $63.84. Staff cautions that, while it is encouraging that
the purchase price in the PP A is below PURP A rates, that it is very important to recognize that
price alone should not be the only factor considered, and that the Telocaset project and the PP
is different from a PURP A QF and a PURP A contract.
The estimated cost for the necessary transmission upgrades and interconnection of
the project is $3.6 million. Of that amount, $2.3 million will be considered interconnection
costs, which Telocaset will be required to pay without refund, and the remaining $1.3 million
ORDER NO. 30259
will be considered "network upgrades" which under FERC's Large Generator Interconnection
rules is eligible for 100% refund. This provides firm transmission for 66 MW of the project's
100 MW capacity. The remaining 34 MW is interruptible and subject to possible curtailment by
Idaho Power according to the terms of the PP
Staff discusses many of the numerous provisions designed to protect Idaho Power in
the event Telocaset is unable to perform in accordance with the requirements of the PPA. These
include provisions for damages if the project fails to deliver its guaranteed annual output, delay
damages if the project does not become operational by the guaranteed in-service date of March
, 2008, and a performance assurance of $1 million prior to the in-service date, and $10 million
after the in-service date. If Telocaset fails to provide timely and reliable wind forecast data, the
PP A contains a provision that allows the Company to implement 90%1110% performance band
provisions as have been included in typical PURP A wind contracts. The obligations of Telocaset
under the PP A will be secured by a guaranty issued by Goldman Sachs, Horizon s parent
company. If the credit rating of Goldman Sachs falls below a predetermined level, it will be
required to post a liquid form of performance assurance.
Staff agrees with the proposed accounting treatment of the costs associated with the
PP A. The Company proposed that the costs of the PP A be recovered in a manner similar to non-
QF expenses, with 90% of variations captured through the Company s PCA mechanism until the
next general rate case, at which time the Company be allowed to include the costs of the PP A in
base rates. Staff recommends that any expenses related to the "bridge" financing be considered
for approval in a future proceeding, and that the Company keep track of the PP A as a separate
line item in the PCA until it is included in base rates in the next rate case.
Staff states that although many of the principal provisions of the PP A are similar to
prOVlSlons contained in the Company s existing PURP A contracts, there are many key
differences that should be noted, such as: (1) PURP A contracts are considered firm energy
agreements, implying that firm transmission capacity is available for the QF's entire output
while the PP A provides only firm transmission capacity for 66 of the 100 MW output for
Telocaset; (2) the PP A contains more stringent performance requirements, and has performance
assurances secured by Goldman Sachs guarantees; (3) green tags are provided to Idaho Power at
no additional cost under the PP A, whereas, the project developer under PURP A contracts retains
ORDER NO. 30259
them; (4) Idaho Power also gains real-time access to the wind forecasting service used by the
project providing next hour, next day, and next week forecasts of delivered energy.
Staff stresses that judgment as to the reasonableness of the PP A must be based on the
PPA in its entirety. Although Staff feels that specific provisions in the PPA could have been
stronger, it recognizes that all provisions were negotiated as part of a package. On the whole
Staff believes that the PPA is more attractive than ifthe project had contracted with Idaho Power
as a PURPA QF. If approved, Staff believes that the Telocaset Agreement will become a
valuable piece ofthe Company s resource portfolio.
Staff recommends that the Commission find the PP A to be prudent and approve
inclusion of the associated expenses in the PCA as requested.
D ISCUSSI 0 N/FIND IN GS
We have reviewed the record for this case, including the Application and comments.
No protests to the Commission s use of Modified Procedure were filed. We continue to find that
the public interest does not require a hearing to consider the issues presented in this case and that
Modified Procedure is appropriate. IDAPA 31.01.01.204. The Commission has jurisdiction
over Idaho Power, its Application for approval of a Power Purchase Agreement, and the issues
involved in this case by virtue of Title 61 , Idaho Code, specifically including Idaho Code 99 61-
129, 61-119, 61-301 , 61-302, 61-303 , 61-305, 61-307, 61-501 , 61-502 , and 61-503 , and the
Commission s Rules of Procedure, IDAPA 31.01.01.000 et seq.
The Commission has authority pursuant to Idaho Code 99 61-307, 61-502 and 61-
503 to approve utility contracts and the rates contained therein. In fact the Commission may
annul, supersede, or abrogate a contract and/or contractual rates between utilities and their
customers or suppliers if doing so is found to be in the public interest. Agricultural Products
Corporation v. Utah Power Light Co.98 Idaho 23 , 29, 557 P.2d 617 623 (1976) ("Private
contracts with utilities are regarded as entered into subject to reserved authority of the state to
modify the contract in the public interest"
Here, Idaho Power proposes a Power Purchase Agreement for a 100 MW wind
power project that was the result of its RFP for a wind power resource. We find that the RFP
process was conducted in a fair and reasonable manner, and that it resulted in the selection of the
best proposal. The price in the PP A compares favorably to the Company s only other wind
resource, PURP QFs. Additionally, Idaho Power is provided with several other benefits
ORDER NO. 30259
through the PP A that are not available in the standard PURP A agreements such as: More
stringent performance requirements and performance assurances secured by Goldman Sachs
guarantees; green tags provided to Idaho Power at no additional cost; and real-time access to the
wind forecasting service used by the project providing next hour, next day, and next week
forecasts of delivered energy. Moreover, the addition of wind generation on the western side of
the Company s service territory adds some geographic diversity to its growing portfolio of wind
resources.
After reviewing the record in this matter, we find the negotiated terms and contract
rates to be just, reasonable, and in the public interest. Consequently, we approve the Power
Purchase Agreement between Idaho Power Company and Telocaset Wind Power Partners, LLC.
We further find it reasonable to allow inclusion of the prudently incurred power purchase
expenses associated with the PP A in the Company s annual Power Cost Adjustment.
ORDER
IT IS HEREBY ORDERED that the Power Purchase Agreement between Idaho
Power Company and Telocaset Wind Power Partners, LLC is approved.
IT IS FURTHER ORDERED that Idaho Power is authorized to include the prudently
incurred power purchase expenses associated with the Telocaset PPA in the Company s annual
Power Cost Adjustment. The PP A should be tracked as a separate line item in the PCA.
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 with regard to any
matter decided in this Order.Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code 9 61-
626.
ORDER NO. 30259
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this bl7
f"I-.
day of February 2007.
MARSHA H. SMITH, COMMISSIONER
ATTEST:
O:IPC-06-31 dw3
ORDER NO. 30259