20070126Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
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Street Address for Express Mail:
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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 APPROVAL
OF A FIRM ENERGY SALES AGREEMENT
FOR THE SALE AND PURCHASE OF
ELECTRIC ENERGY BETWEEN IDAHO
POWER COMPANY AND HOT SPRINGS WINDFARMLLc.
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
January 4 2007, submits the following comments.
BACKGROUND
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 between Idaho Power and Hot Springs Windfarm LLC
(Hot Springs) dated December 20 2006 (Agreement).
The Hot Springs facility will be located approximately 10 miles northwest of Glenns
Ferry, Idaho. Hot Springs warrants the facility will be a qualified small power production
STAFF COMMENTS JANUARY 26, 2007
facility (QF) under the applicable provisions of the Public Utility Regulatory Policies Act of
1978 (PURP A). 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.
The Agreement contains the non-Ievelized, published avoided cost rates set forth in Order
No. 29391. Under normal and/or average operating conditions, Hot Springs 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 ~ 7.6. Hot Springs has selected March 31 , 2007 as the Scheduled First Energy Date
and December 31 , 2007 as the Scheduled Operation Date.
ANALYSIS
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.
By 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.
In Order No. 29839, the Commission also identified several criteria that it would consider
to determine whether a particular QF wind generation facility, that 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.
STAFF COMMENTS JANUARY 26, 2007
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,
(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).
Staff has reviewed the information provided by the project developer to Idaho Power to
support its claim that it should be grandfathered. Staff notes the following with respect to
primary and secondary grandfathering criteria:
Primary criteria:
Submittal of a signed power purchase agreement to the utility
On July 14, 2006, Energy Vision LLC, the developer of the Hot Springs project, tendered
a signed Firm Energy Sales Agreement to Idaho Power for the facility. Because the signed
Agreement was submitted prior to August 4, 2005, one of the two primary criteria for
grandfathering is satisfied.
Submittal to the utility of completed Application for Interconnection Study and
payment of fee
On October 23 2006, Energy Vision LLC submitted applications for interconnection
studies for the Bennett Creek and Hot Springs projects accompanied by the required application
fees. For each of the two projects, applications were submitted for options to interconnect to
three different transmission lines in the vicinity. Although these requests were made more than a
year after the August 4 2005 date, they nevertheless provide some indication of the projects
progress.
Secondary criteria:
A wind study demonstrating a viable site for the project
On January 26, 2005 Energy Vision LLC retained an independent meteorologist with
expertise in evaluating wind resources for the purpose oflocating wind generation projects.
STAFF COMMENTS JANUARY 26, 2007
Working together, Energy Vision and the consultant gathered data wind data, modeled project
output and prepared analyses to confirm long-term energy production estimates and to assess the
economics of the proposed site. Energy Vision has almost three years of on-site data and up to
seven years often minute or hourly data for five meteorological stations relevant to the project.
Staff believes that the information and analysis completed by the project developer and its
consultant sufficiently demonstrates a viable site for the project.
A signed contract for wind turbines
As of August 4 2005, the facility did not have a signed contract for turbines. The
developer states that it 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.
Despite not having a contract for wind turbines prior to August 4 2005 , the developer did
provide documentation to Idaho Power of correspondence with 10 different turbine
manufacturers and suppliers prior to that date.
Arranged financing for the project
On March 1 2005 , the developer met with a finance company to begin discussions to
place financing for the project. On June 21 2005, the developer and the finance company
developed a term sheet detailing the financial structure for the project. The developer withheld
authorization for the finance company to proceed to obtain financing until after the Commission
had resolved issues related to grandfathering criteria. On October 5 , 2005 , the finance company
was authorized to proceed with the financing as laid out in the term sheet developed earlier. On
October 18 2006, Idaho Power received a letter from a well-known wind project financier
spelling out the acquisition, financing, and the turbine placement for the project, subject to
Commission approval of the power sales agreement, an acceptable interconnection agreement
and receipt of all required permits and regulatory approvals.
Based on its review of the information provided to Idaho Power, Staff does not believe
that actual financing for the project had been obtained prior to August 4 2005. However
significant progress had been made by that date, and financing commitments are now in place.
STAFF COMMENTS JANUARY 26, 2007
Related progress on the facility permitting and licensing path
It appears that very little, if any, progress had been made on permitting and licensing for
the project prior to August 4 2005. The developer provided evidence that project representatives
have appeared before the Elmore County Board of Commissioners to inform them of the
proposed project, but the date of the appearance was not stated. The developer also indicates that
it has discussed the project with the County s Planning and Zoning Department and with the
Mountain Home Air Force Base. On November 19 2006 a Notice of Self-Certification as a
Qualifying Small Power Production Facility was filed with the Federal Energy Regulatory
Commission. The Notice was accepted for filing by FERC on November 20 2006. On April 18
2005 site control was established via an easement with the property owners.
The Commission noted in Order No. 29872 in Case No. IPC-05-, that the degree of
substantial progress and project maturity that it would look for is a demonstration that the QF
project can be brought on-line in a timely manner and within a reasonable period following
contract execution and approval. The Commission stated it would look at the totality of the facts
presented.
Based on Idaho Power Company s review ofthe information provided by the developer
and in light of the procedure the Commission accepted in Cassia Wind Order No. 29954, Case
No. IPC-05-, Idaho Power contends that it would be reasonable to grandfather the Hot
Springs facility. The Company believes that the Hot Springs facility satisfies the grandfathering
criteria identified by the Commission in Order No. 29839, Case No. IPC-05-22.
Based on Staff s own review of the facility s progress with regard to the primary and
- ----- -- -- -- -- -- -- - - -- -- - -- -
secondary grandfathering criteria, Staff agrees with Idaho Power that the Hot Springs facility
should be grandfathered. At least one of the two primary criteria had been satisfied prior to
August 4 2005 (a signed power purchase agreement), and at least one of the secondary criteria
had been satisfied by that date (a wind study demonstrating a viable site for the proposed
project). Although not satisfying other secondary criteria before August 4 2005 , the project has
demonstrated that it had made some progress on most of them. In addition, the project has filed
the necessary applications for interconnection to satisfy the second primary criterion.
Furthermore, as in the case of Cassia Wind, the developer has now obtained a firm commitment
for financing and turbines for the facility.
STAFF COMMENTS JANUARY 26, 2007
Notable Contract Provisions
There are three provisions in the Agreement that distinguish it from other recent PURP
agreements:
1. Online Delay Damages
In the contract negotiations for this project, 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 of2005. 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. Staff supports this contract provision. 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.
2. Shortfall Energy Payments
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.
Staff believes that both the Fossil Gulch method and the u.S. Geothermal method are acceptable
alternatives for computing shortfall energy payments and has no objection to developers
choosing their preferred method.
3. 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-l8. 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. The Bennett Creek
STAFF COMMENTS JANUARY 26, 2007
and Hot Springs projects are the first wherein separate agreements will exist for power sales and
for interconnection.
Hot Springs has not yet signed an interconnection agreement. In response to production
requests, Idaho Power states that it has no reason to believe that a Uniform Interconnection
Agreement will not be signed for this project, and further, that if there are no cluster or queue
issues that arise requiring additional studies, it is anticipated that the Uniform Interconnection
Agreement could be signed by year-end 2007. (December 31 , 2007 is the Scheduled Operation
Date for the project.)
The first phase of the transmission analysis, the Feasibility Study, has just been
completed---Dnly one day before the submittal of these comments. The feasibility study
indicates that there are, at least for some of the interconnection options considered, cluster or
queue issues that will require further studies. The project developer now has the option of
proceeding to the next phase of transmission analysis, the System Impact Study. That study will
identify transmission upgrades and associated costs necessary in order for Idaho Power to
provide firm transmission service. In any case, no interconnection agreement yet exists.
Moreover, a completed interconnection agreement seems unlikely at least for several months.
Ideally, Staff would prefer that transmission and interconnection issues be resolved, and
that a signed interconnection agreement be submitted at the same time the power sales agreement
is submitted for Commission approval. Staff recognizes, however, that the QF may have good
reason to pursue each agreement separately, even consecutively. The power sales agreement and
the interconnection agreement for Hot Springs are on separate tracks and their timing does not
coincide. The risk to this approach, however, must remain with the project developer. In
instances like this one in which firm transmission may not be available to accommodate the
project without additional investment by the Company or consideration of non-firm transmission
as an alternative, prices in the related power sales agreement may be affected.
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 the 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 the required transmission upgrades, the Firm Energy Sales Agreement can stand
unaffected. However, if Hot Springs requests non-firm transmission, Staff submits that the
STAFF COMMENTS JANUARY 26 , 2007
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 Hot Springs acquires
firm transmission. Conversely, Staff suggests that some downward adjustment to the contract
rates could be warranted if non- firm transmission service is requested by Hot Springs. Staff
believes that the 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.
The Bennett Creek and Hot Springs projects are the first for Idaho Power in which
separate agreements will exist for power sales and for interconnection. Staff s concerns with
regard to the avoided cost rates being paid to the QF and whether the project acquires firm or
non-firm transmission are not unique, however, to these two projects. Staff has similar concerns
for wind projects with previously signed contracts that are located in areas with transmission
constraints.
RECOMMENDATION
Staff recommends that the Commission approve all of the Agreement's terms and
conditions and declare that all payments Idaho Power makes to Hot Springs for purchases of firm
energy will be allowed as prudently incurred expenses for ratemaking purposes. However, Staff
further recommends that Commission approval of the Firm Energy Sales Agreement be
contingent upon Hot Springs requesting firm transmission service and agreeing to participate in
funding any necessary transmission upgrades. Should Hot Springs 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.
Respectfully submitted this &6 day of January 2007.
~(-t'
Scott Woodbury
Deputy Attorney General
Technical Staff: Rick Sterling
i: umisc :commen tslipceO6. 34swrps
STAFF COMMENTS JANUARY 26, 2007
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 26TH DAY OF JANUARY 2007
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-06-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
MONICA B MOEN
BARTON L KLINE
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
RIC GALE
VP - PRICING & REGULATORY
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
~~.
ARY
CERTIFICATE OF SERVICE