20070226final_order_no_30253.pdf

Office of the Secretary
Service Date
February 26, 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 IDAHO WINDS, LLC ORDER NO. 30253
CASE NO. IPC-06-
On December 26, 2006, Idaho Power Company ("Idaho Power" or "Company ) filed
an Application with the Commission requesting approval of a 20-year Firm Energy Sales
Agreement between Idaho Power and Idaho Winds LLC dated December 12, 2006
Agreement"
On January 19, 2007, the Commission issued a Notice of Application and Modified
Procedure, and solicited comments from interested parties. Order No. 30221. Staff timely filed
comments, as well as two members of the public. Idaho Winds filed comments in response on
February 12 2007.
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.
Reference Public Utility Regulatory Policies Act of 1978 (PURP A). 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 ofInterlocutory Order No. 29839.
THE AGREEMENT
According to the Application, the wind generating facility is known as the Alkali
Wind Farm Facility ("Facility ) and will be located approximately six miles northwest of Glenns
Ferry in Elmore County, Idaho. Idaho Winds warrants 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 12 GE wind turbines with individual
generator ratings of 1.5 MW for each unit, for a total facility nameplate generator rating of 18
MW. The Agreement contains the non-Ievelized, published avoided cost rates set forth in Order
No. 29391. Under normal and/or average operating conditions, Idaho Winds will not generate
ORDER NO. 30253
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 (18 MW) but will not purchase or pay for Inadvertent Energy.
Agreement ~ 7.
Based on Idaho Power s review of the 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 averred that it would be reasonable to grandfather the Facility based on
satisfaction ofthe criteria identified by the Commission in Order No. 29839, Case No. IPC-05-
22. In Order No. 29839, the Commission established primary and secondary criteria to consider
when evaluating whether a site should be grandfathered. Order No. 29839 at 10.
The primary criteria to determine project eligibility are: (1) submittal of a signed
power purchase agreement to the utility, or (2) submittal to the utility of a completed Application
for Interconnection Study and payment of fee. Id. According to the subject Application, Idaho
Winds submitted a signed Firm Energy Sales Agreement to Idaho Power for the Facility.
addition, Idaho Winds submitted a generation interconnection study for the Facility on January
, 2005 for a 10 MW project along with a $2 000 initial feasibility analysis fee. Idaho Power
asserted that this threshold criteria is, therefore, satisfied.
The secondary criteria is that the QF demonstrate other indicia of substantial progress
or maturity, usually by showing: (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 license path. Id. The Application states that Idaho
Winds wrote a letter to Idaho Power on August 15, 2005 describing the status of the Facility. As
of August 4, 2005 , Idaho Winds had obtained firm commitments to finance the Facility. Idaho
Winds also had made substantial progress on the other criteria, except for the acquisition of
turbines. At this time, Idaho Winds has obtained a firm commitment for turbines for the Facility.
Idaho Winds selected December 30, 2007 as the Scheduled First Energy Date and
December 31 , 2007 as the Scheduled Operation Date. Section 24 of the Agreement provides that
the Agreement will not become effective until the Commission has approved all of the
Agreement's terms and conditions and declared that all payments Idaho Power makes to Idaho
Winds for purchases of energy will be allowed as prudently incurred expenses for ratemaking
purposes.
ORDER NO. 30253
Idaho Power requests that the Commission issue an Order approving the Firm Energy
Sales Agreement and declaring that all payments for purchases of energy under the Agreement
be allowed as prudently incurred expenses for ratemaking purposes.
COMMENTS
Public Comments
Two comments were filed by members of the public. One commenter supported the
Application and the Company s purchase of wind-generated power. The other commenter
expressed concern that wind farms may not receive the previously published prices, and noted
her beliefthat the Company may be "sabotaging clean energy solutions.
Staff Comments
Staff reviewed the information provided by the project developer to Idaho Power to
support its claim that it should be grandfathered. Based on Staffs own review of the Facility
progress with regard to the primary and secondary grandfathering criteria, Staff believes that the
Facility should be grandfathered.
In addition, Staff noted three provisions in the Agreement that distinguish it from
other recent PURP A agreements:
1. Online Delay Damages
In the contract negotiations for this project, Idaho Power and Idaho Winds 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. Staff supported this contract provision
as it believes it is reasonable for Idaho Power to begin inserting damage provisions into PURP
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
Staff also noted that the Agreement contains the methodology for computing shortfall
energy payments that the Commission approved in the Firm Energy Sales Agreement between
Idaho Power and u.S. Geothermal. Case No. IPC-04-, Order No. 29632. Idaho Winds has
voluntarily selected the u.S. Geothermal method. Use of the U.S. Geothermal methodology is a
negotiated term of the Agreement and is mutually acceptable to the parties. Staff believes that
ORDER NO. 30253
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
Lastly, Staff noted that the Agreement reflects the changes to Idaho Power
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.
Idaho Winds 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.
The first phase of the transmission analysis, the Feasibility Study, was completed on
February 5, 2007. The Feasibility Study indicates that upgrades to both the local distribution
system and the nearby transmission system are necessary. A second phase study, the
Transmission System Impact Study, has been started. Staff noted that the study will further
identify transmission upgrades and associated costs necessary in order for Idaho Power to
provide firm transmission service. The costs associated with the Network Transmission portion
of this project could be reduced if other projects in the vicinity that will use some of the same
transmission facilities proceed with construction, however, cost sharing arrangements have yet to
be worked out.
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 recognized, however, that the QF may
have good reason to pursue each agreement separately, even consecutively. The power sales
agreement and the interconnection agreement for this project are on separate tracks and their
timing does not coincide. Staff believes that 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
ORDER NO. 30253
consideration of non-firm transmission as an alternative, prIces III 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.
long as Idaho Winds 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 Idaho Winds requests non-firm transmission, Staff submits
that the power product that it delivers must also be considered non-firm. Staff does not support
payment of the full published avoided cost rates contained in the Agreement unless Idaho Winds
acquires firm transmission. Conversely, Staff suggested that some downward adjustment to the
contract rates could be warranted if non-firm transmission service is requested by Idaho Winds.
Staff believes that the product delivered by this project and the price ultimately paid for that
product is necessarily determined by both the terms in the power purchase agreement and the
interconnection agreement.
This project and the recent Bennett Creek and Hot Springs projects are the first for
Idaho Power in which separate agreements will exist for power sales and for interconnection.
Staffs concerns with regard to the avoided cost rates being paid to the QF and whether the
project acquires firm or non-firm transmission, however, also extend to wind projects with
previously signed contracts that are located in areas with transmission constraints.
Staff recommended that the Commission approve all of the Agreement's terms and
conditions and declare that all payments Idaho Power makes to Idaho Winds for purchases of
firm energy from the Facility will be allowed as prudently incurred expenses for ratemaking
purposes. However, Staff further recommended that Commission approval of the Firm Energy
Sales Agreement be contingent upon Idaho Winds requesting firm transmission service for the
Facility and agreeing to participate in funding any necessary transmission upgrades. Should
Idaho Winds request non-firm transmission service and decline to participate in funding any
transmission upgrades, Staff recommended 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.
ORDER NO. 30253
Idaho Winds Reply Comments
Idaho Winds noted that it is aware that most of the PURP A wind projects with
approved PP As are currently negotiating their interconnection arrangements. This has been
complicated by a lack of existing policies related to the cost responsibilities associated with
system upgrades. The various parties face many complex issues, such as:
The lack of explicit system upgrade costs in the current avoided cost
calculation.
The Federal Energy Regulatory Commission ("FERC") requirement for
reimbursement of system upgrade costs that 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.
It further recognized that these issues are presently being addressed through discussions and
negotiations between the various parties. It noted that while Idaho Winds' project is not in the
transmission-constrained area near Twin Falls, some of the issues faced by the other projects
will, however, impact Idaho Winds' transmission negotiations. It asserted that there has been no
information placed in the record of this proceeding that would allow for an informed
Commission decision on any of these matters.
Idaho Winds believes that conditioning the approval of the Agreement on
transmission matters in this proceeding would require the Commission to prejudge the outcome
of the ongoing negotiations and make at least a partial policy decision. It asserted that such
decisions should wait until a comprehensive proposal is submitted and a fully developed record
is available.
Idaho Winds further stated that regardless of the manner in which the issues noted
above are resolved with regard to the project, they will almost certainly be brought to the
Commission for approval. It emphasized its belief that that will be the appropriate time to make
decisions related to transmission services and to establish the Commission s policies on these
matters.
Idaho Winds noted that this project has requested firm transmission service and the
completed transmission Generator Interconnection Feasibility Study has preliminarily identified
the costs associated with such service. It asserted that there is no reason, in the context of this
ORDER NO. 30253
case, to assume the project and Idaho Power will fail to achieve an appropriate agreement
regarding transmission cost responsibility.
It agreed with Staff's comment that this project and the recent Bennett Creek and Hot
Springs projects are the first to separate transmission services and power purchasing obligations
in compliance with the Commission s Order No. 30179. Idaho Winds averred, though, that those
changes were essentially ministerial and did not address any of the issues related to firm
transmission services and cost responsibility. Idaho Winds does not believe that those changes
provide the basis for restricting the Facility s transmission options before the establishment of
the Commission s ultimate transmission policies.
FINDINGS
The Commission has reviewed and considered the filings of the parties in this matter.
We find that the Idaho Winds project satisfies the grandfathering eligibility criteria established in
Order Nos. 29839 and 29872 in Case No. IPC-05-22.
The Agreement is for an 18 MW wind project located in Elmore County. As
represented and pursuant to contract, under normal and/or average conditions the generation
from Idaho Winds 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.
With regard to the power purchase agreement and transmission of the generated
energy, the issues presented here are similar to those that arose in Case Nos. IPC-06-34 and
IPC-06-35. We agree with Idaho Winds that this is not the time to make a ruling as to the
transmission service. That issue will be addressed when the parties present an interconnection
agreement to the Commission.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Idaho Power, an electric
utility, and the issues raised in this matter 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).
ORDER NO. 30253
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
IT IS HEREBY ORDERED and the Commission does hereby approve the December
2006 Firm Energy Sales Agreement between Idaho Power Company and Idaho Winds LLC
Case No. IPC-06-36.
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 9 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ;1.(.;
day of February 2007.
~NT
MARSHA H. SMITH, COMMISSIONER
Commissioner Hansen Voted with the Majority
Before leaving Office
DENNIS S. HANSEN , COMMISSIONER
ATTEST:
~ .
~~Jewe
Commission Secretary
O:IPC-06-36 - cg2
ORDER NO. 30253