20070220final_order_no_30246.pdf

Office of the Secretary
Service Date
February 20, 2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
APPROVAL OF A FIRM ENERGY SALES
AGREEMENT FOR THE SALE AND
PURCHASE OF ELECTRIC ENERGY
BETWEEN IDAHO POWER COMPANY
AND HOT SPRINGS WINDFARM LLC
ORDER NO. 30246
CASE NO. IPC-06-
On December 26, 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 (Agreement) dated December 20, 2006 with Hot Springs
Windfarm LLC (Hot Springs). The Commission in this Order approves the submitted
Agreement.
Background
On August 4, 2005, the Idaho Public Utilities Commission (Commission) in Case
No. IPC-05-, Interlocutory 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. Reference Public Utility Regulatory Policies Act of 1978 (PURP A).
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 Order No. 29839.
In Order No. 29839, the Commission also identified several criteria that it would
consider to determine whether a particular QF wind generation facility, which had been in the
negotiation queue when Order No. 29839 was issued, was sufficiently mature so as to justify
grandfathering" the wind generation facility to entitlement to the published rates. These criteria
are as follows:
(1) Submittal of a signed power purchase agreement to the utility, or
(2) Submittal to the utility of completed Application for Interconnection
Study and payment of fee.
ORDER NO. 30246
In addition to a finding of existence of one or both of the preceding threshold criteria
the QF must also be able to demonstrate other indicia of substantial progress and project
maturity, e.
(1) A wind study demonstrating a viable site for the project
(2) A signed contract for wind turbines
(3) Arranged financing for the project, and/or
(4) Related progress on the facility permitting and licensing path.
(Order No. 29839, p. 10, August 4, 2005; final Order No. 29851.
Agreement
The proposed Hot Springs Windfarm will be located within Sections 25, SE Y4
, and 36, Township 4 S, and Sections 2 and 3 , Township 5 S, Range 8 E, Boise Meridian
Elmore County, Idaho. Hot Springs warrants the facility will be a qualified small power
production facility (QF) under the applicable provisions of PURP A. Agreement ~ 3.2. The
facility will consist of 12 Vestas wind turbines with individual nameplate ratings of 1.65 MW for
each unit, for a total facility nameplate generator rating of 19.8 MW. Agreement Appendix B-
The Agreement contains the non-Ievelized, published avoided cost rates set forth in Order No.
29646 with seasonalization factors applied. Agreement ~ 7.1. Under normal and/or average
operating conditions, the QF 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.
Based on Idaho Power Company s review of the information provided by the
developer of the project, Idaho Windfarms LLC, and in light of the procedure the Commission
accepted in Cassia Wind Order No. 29954, Case No. IPC-05-, Idaho Power has determined
that it would be reasonable to grandfather the Hot Springs facility based on satisfaction of the
following criteria identified by the Commission in Order No. 29839, Case No. IPC-05-22.
Primary criteria:
Prior to August 5, 2005, the developer had tendered a signed Firm Energy
Sales Agreement to Idaho Power for the facility. This satisfies one of the two
primary criteria for grandfathering.
ORDER NO. 30246
Secondary criteria:
As of August 5, 2005, the facility did not have a signed contract for turbines.
Idaho Power has reviewed the information provided by the developer and
determined that this developer believed that obtaining financing was the
highest priority on the critical path to project development and directed its
resources to that goal rather than turbine acquisition. As a result, prior to
August 4, 2005 , the developer had entered into a binding commitment to
obtain financing. The Company has also confirmed that as of August 4
2005, the facility had made substantial progress on the other secondary
criteria, except for acquisition ofturbines. As in the case of Cassia Wind, the
developer has now obtained a firm commitment for turbines for the facility
and filed the necessary applications for interconnection to satisfy the second
primary criteria.
Idaho Power notes that there are three contract provisions the Commission should be
aware of in its consideration of the Agreement:
1. In the contract negotiations, Idaho Power and Hot Springs agreed that an
on-line date of December 2007 is crucial to demonstrate that the project
was a viable project in August of 2005. This Agreement contains delay
damage provisions that require the project to pay Idaho Power damages if
the project comes on-line after December 31 , 2007. The delay damages
will accrue for a period of up to 90 days. Agreement ~~ 5.3 to 5.
2. The Agreement contains 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) and recently approved for Magic Wind Park
in Order No. 30206 issued in Case No. IPC-06-26. Hot Springs has
voluntarily selected the Fossil Gulch Method. Use of the Fossil Gulch
methodology is a negotiated term of the Agreement and is mutually
acceptable to Idaho Power and Hot Springs. Agreement ~ 7.
3. The Agreement reflects the changes to Idaho Power s Schedule 72
(Uniform Interconnection Agreement) approved in Order No. 30179
issued on November 17 2006 in Case No. IPC-06-18. Agreement ~
Hot Springs has selected March 31 , 2007 as the estimated Scheduled First Energy
Date and December 31 , 2007 as the estimated Scheduled Operation Date. Agreement, Appendix
Section 21.1 of the Agreement provides that the Agreement will not become effective
until the Commission has approved all of the Agreement terms and conditions and declared that
ORDER NO. 30246
all payments Idaho Power makes to Hot Springs for purchases of energy will be allowed as
prudently incurred expenses for ratemaking purposes.
On January 4, 2007, the Commission issued Notices of Application and Modified
Procedure in Case No. IPC-06-35. The deadline for filing comments was January 26, 2007.
Comments were filed by numerous proponents of renewable energy and by the Commission
Staff. Reply comments were filed on February 5 , 2007 by Idaho Windfarms LLC, the developer
of Hot Springs and on February 6, 2007 by Idaho Power. Sur-reply comments were filed by
Idaho Windfarms on February 8, 2007.
Staff Comments
Grandfathering
Based on Staffs review of the information provided with regard to the primary and
secondary grandfathering criteria, Staff agrees with Idaho Power that the Hot Springs facility
should be grandfathered.
Staff also comments on three provisions of the Agreement that distinguish it from
other recent PURP A agreements.
On-Line Delay Damages
In their contract negotiations, Idaho Power and Hot Springs agreed that an on-line
date of December 2007 is crucial to demonstrate that the project was a viable project in August
of 2005. The Agreement contains delay damage provisions that require the project to pay Idaho
Power damages if the project comes on-line after December 31 2007. The delay damages will
accrue for a period of up to 90 days. Staff supports this contract provision. Staff notes that at
least six recent QF projects have failed to meet their contractual on-line dates; therefore, Staff
believes it is reasonable for Idaho Power to begin inserting damage provisions into PURP A
contracts to provide a mechanism for the Company to be made whole if it incurs higher costs to
acquire replacement power.
Shortfall Energy Payments
The Agreement contains the Fossil Gulch methodology for computing shortfall
energy payments. Reference Agreement ~ 7.3; Case No. IPC-04-, Order No. 29630. The
Fossil Gulch method was recently approved by the Commission for Magic Wind Park in Order
No. 30206, Case No. IPC-06-26. Use ofthe Fossil Gulch methodology is a negotiated term of
ORDER NO. 30246
the Agreement and is mutually acceptable to Idaho Power and Hot Springs. Staff believes that
both the Fossil Gulch method (Order No. 29630) and the U.S. Geothermal method (Order No.
29632) are acceptable alternatives for computing shortfall energy payments and has no objection
to developers choosing their preferred method.
Separate Interconnection Agreement
The Agreement reflects the changes to Idaho Power s Schedule 72 approved in Order
No. 30179 issued on November 17 2006 in Case No. IPC-06-18. One of the significant
changes in Schedule 72 was the creation of a standard interconnection agreement (Uniform
Interconnection Agreement) that is separate from the power sales agreement. Hot Springs has
yet to sign an interconnection agreement. Staff recognizes that a QF may have good reason to
pursue each agreement separately, even consecutively. In response to Staff production requests
Idaho Power states that it has no reason to believe that a Uniform Interconnection Agreement
will not be signed for the project, and further, that if there are no cluster or queue issues that
arise requiring additional studies, it is anticipated that a Uniform Interconnection Agreement
could be signed by year end 2007. (December 31 , 2007 is the Scheduled Operation Date for the
project.) The risk to this approach, Staff contends, must remain with the project developer.
The published avoided cost rates contained in the Agreement, Staff believes, are
based on an assumption that firm transmission would be available to deliver a project's output
without additional Company investment. Consequently, Staff believes that firm transmission
capacity is a prerequisite in order for a project's output to be deliverable on a firm basis. As long
as Hot Springs requests firm transmission and agrees to appropriate terms subsequently
established for making any required transmission upgrade, the Firm Energy Sales Agreement
Staff believes, can stand unaffected. However, should the project request non-firm transmission
Staff submits that the power product that it delivers must also be considered non-firm. Staff
cannot support payment of the full published avoided cost rates contained in the Agreement
unless the project acquires firm transmission. Conversely, Staff suggests that some downward
adjustment to the contract rates could be warranted if non-firm transmission service is requested.
Staff believes that the energy product delivered by Hot Springs and the price ultimately paid for
that product is necessarily determined by both the terms in the power purchase agreement and
the interconnection agreement.
ORDER NO. 30246
Staff recommends approval of the terms and conditions of the Agreement. However
Staff recommends that Commission approval of the Agreement be contingent upon the QF
requesting firm transmission service and agreeing to participate in funding any necessary
transmission upgrade. Should the QF request non-firm transmission service and decline to
participate in funding any transmission upgrades, Staff recommends that the Commission reserve
the ability to adjust the rates contained in the Agreement to fairly account for the reduced
firmness of the energy delivered or any additional transmission cost incurred by Idaho Power.
Reply Comments - Idaho Windfarms LLC
Idaho Windfarms LLC on behalf of its affiliate Hot Springs disagrees with Staff s
recommended inclusion of conditions related to transmission services. While Idaho Windfarms
recognizes the implicit linkage between avoided cost calculations and firm transmission services
it contends that this is not the proper proceeding to deal with transmission-related issues. Idaho
Windfarms ' objection is based on the following:
A record for transmission related decisions has not been developed.
A decision on such issues is not currently required.
Adding transmission considerations now is inconsistent
grandfathering.
with
Idaho Windfarms states it is aware that most of the PURP A wind projects with
approved power purchase agreements are currently negotiating their interconnection
arrangements. This process, it contends, has been complicated by a lack of existing policies
related to the cost responsibilities associated with system upgrades and many complex issues
such as:
The lack of explicit system upgrade costs in the current avoided cost
calculation.
The FERC requirement for reimbursement of system upgrade costs which
produce network benefits.
The quantification of network benefits.
The reasonableness of the load and resource scenario used in the N-
study.
The reasonableness of the system upgrade plan.
The appropriateness of various full or partial funding and reimbursement
mechanisms.
The above issues, it states, are presently being addressed through discussions and negotiations
between the parties. Idaho Windfarms contends that Hot Springs is not in the transmission
ORDER NO. 30246
constrained area near Twin Falls. Some of the issues faced by the other projects will, however, it
contends, impact Idaho Windfarms' transmission negotiations. Idaho Windfarms states that
there has been no information placed in the record of this proceeding which would allow for an
informed Commission decision on any of these matters.
Regardless of the manner in which the issues noted above are resolved with regard to
the project, Idaho Windfarms contends that they will almost certainly be brought to the
Commission for approval. That, it states, will be the appropriate time to make decisions related
to transmission services and to establish the Commission s policies on these matters.
The Hot Springs project, Idaho Windfarms contends, has requested firm transmission
service. The completed Transmission Feasibility Studies have preliminarily identified the costs
associated with such service. Idaho Windfarms contends that there is no reason, in the context of
this case, to assume the project and Idaho Power will fail to achieve an appropriate agreement
regarding transmission cost responsibility. Nor, it contends, is there any reason in this
proceeding to predetermine the substance of, or limits on, the interconnection agreements. Idaho
Windfarms believes that transmission service consistent with Idaho s avoided cost calculation is
achievable, but it is too early to determine the form the interconnection agreements will take.
Idaho Windfarms contends that it is unfair to force it to accept restrictions which have not been
applied to the rest of the PURP A projects. That, it states, would be unreasonably prejudicial to
Idaho Windfarms' upcoming interconnection negotiations. Idaho Windfarms ' projects , it states
should have the same rights and obligations that are ultimately applied to the other PURP A
projects.
Staff comments, Idaho Windfarms notes, correctly state that the Hot Springs project
is one of the first to separate transmission service and power purchasing obligations, in
compliance with Commission Order No. 30179. Those changes, however, it states, were
essentially ministerial and did not address any of the issues related to firm transmission services
and cost responsibility. Those changes, it states, do not provide a basis for restricting the
project's transmission options before the establishment of the Commission ultimate
transmission policies.
Reply Comments - Idaho Power
The avoided costs contained in the Agreement, Idaho Power contends, were
established on the assumption that the costs Idaho Power can avoid by purchasing firm energy
ORDER NO. 30246
from Hot Springs are financially equivalent to the fixed and variable costs of a firm
dispatchable, combined cycle combustion turbine owned and operated by Idaho Power.
At this time, Idaho Power states it has no reason to believe that the Hot Springs
project will not acquire firm transmission to allow deliveries of firm energy to Idaho Power.
Idaho Power states it does not know what system upgrade costs, if any, the project may be asked
to pay so that delivery can provide firm transmission and the project can deliver firm energy to
Idaho Power. Finally, it states there is no indication that the project intends to do anything
differently than what it has contractually committed to do - that is, deliver firm energy to Idaho
Power.
All that being said, Idaho Power states it is in full agreement with Staffs comments
that the project is not entitled to be paid the published avoided cost rates contained in the
Agreement unless the project contracts for firm transmission service to be provided for the full
20-year term of the Agreement.
Idaho Power recommends that the Commission include findings in its Order
confirming that the published avoided cost rates are available only to QFs that obtain firm
transmission for the full term of the firm energy sales agreements. The Order, it states, should
also provide that the requirement to obtain firm transmission would not preclude a QF from
seeking lower cost firm transmission service. Finally, it contends that the Order should provide
that after the project has entered into a transmission arrangement, then Idaho Power or Staff can
ask the Commission to review the transmission arrangements to confirm that the rates contained
in the Agreement are appropriate based on the type oftransmission the project has acquired.
Commission Findings
The Commission has reviewed and considered the filings of record in Case No. IPC-
06-, including the underlying Agreement, the filed comments and recommendations of the
public and Commission Staff, the reply and sur-reply comments of Idaho Windfarms LLC and
the reply comments of Idaho Power. Based on our review of the developed record, 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.
A Firm Energy Sales Agreement for the Hot Springs Windfarm has been presented
for Commission approval. Idaho Power contends and Staff agrees that the project is entitled to
grandfathered treatment and exemption from the Commission s Order reducing the eligibility
ORDER NO. 30246
cap for avoided costs published rates for non-firm wind projects from 10 aMW to 100 kW.
Based on the developed record, the Commission agrees that grandfathering is appropriate and
that the project satisfies the grandfathering eligibility criteria established in Order Nos. 29839
and 29872 in Case No. IPC-05-22.
The Agreement is for a 19.8 MW wind project located in Elmore County. As
represented and pursuant to contract, under normal and/or average conditions the generation
from Hot Springs will not exceed 10 aMW on a monthly basis. We thus find the project is
qualified to receive the published avoided cost rates approved by the Commission. The
Commission finds the Agreement submitted in this case contains acceptable contract terms and
includes the non-Ievelized published rates approved by the Commission in Order No. 29646. We
further find it reasonable to allow payments made under the Agreement as prudently incurred
expenses for ratemaking purposes.
We note that the Hot Springs project has yet to sign an interconnection agreement.
In our approval of separate agreements for power purchase and interconnection in Order No.
30179, we recognized the functional separation between power supply and delivery mandated by
FERC. Interconnection is managed by Idaho Power s Power Delivery (Transmission) business
unit, while power purchase agreements fall within the purview of Idaho Power s Power Supply
(Marketing) business unit. In our Order at page 4 we stated "It does not appear requiring two
separate agreements will make it any more burdensome for non-utility generators to develop
projects.We have no reason to question this expectation.
Staff contends that the published firm rates presume that the energy will be delivered
on a firm basis. Should firm transmission capacity not be requested by the QF or should the QF
decline to participate in the funding of necessary transmission upgrades, Staff contends that the
rates should be adjusted downward. Idaho Power is in general agreement with Staff and believes
that the Order should not be silent on this issue. Idaho Windfarms contends that the Hot Springs
project has requested firm transmission service, and that there is no reason, in the context of this
case, to assume that the project and Idaho Power will fail to achieve an appropriate agreement
regarding transmission cost responsibility. Idaho Windfarms contends further that the developed
record in these cases provides no basis for establishing conditions to its generation agreements
related to transmission services. The Commission agrees with Idaho Windfarms and finds it
ORDER NO. 30246
reasonable to approve the Hot Springs Agreement without conditions related to transmission
service.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Idaho Power Company,
an electric utility, and the issues raised in Case No. IPC-06-34 pursuant to the authority and
power granted it under Title 61 of the Idaho Code and the Public Utility Regulatory Policies Act
of 1978 (PURPA).
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 and as more particularly described above, IT IS
HEREBY ORDERED and the Commission does hereby approv~ the December 20, 2006 Firm
Energy Sales Agreement between Idaho Power Company and Hot Springs Windfarm LLC.
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.
ORDER NO. 30246
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this J..O
t4.
day of February 2007.
~~
1J
MARSHA H. SMITH, COMMISSIONER
ATTEST:
Je . D. Jewell
Commission Secretary
bls/O:IPC-06-34 sw
ORDER NO. 30246