HomeMy WebLinkAbout20070209Comments.pdfCECELIA A. GASSNER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-0314
BARNO. 6977
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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 APPROV AL )
OF A POWER PURCHASE AGREEMENT
WITH IDAHO WINDS, LLc.
CASE NO. IPC-O6-
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission, by and through its Attorney of record
Cecelia A. Gassner, Deputy Attorney General, in response to the Notice of Application and Notice
of Modified Procedure in Order No. 30221 issued on January 19 2007, submits the following
comments.
BACKGROUND
On December 26, 2006 , Idaho Power Company ("Idaho Power" or "Company ) filed an
Application with the Commission requesting approval of a 20-year Finn Energy Sales Agreement
between Idaho Power and Idaho Winds LLC ("Idaho Winds ) for the Alkali Wind Generation
Facility ("Facility ) dated December 12 2006 ("Agreement"
The Facility will be located approximately 6 miles northwest of Glenns Ferry, 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
STAFF COMMENTS FEBRUARY 9, 2007
will consist of 12 GE wind turbines with individual nameplate ratings of 1.5 MW for each unit, for a
total facility nameplate generator rating of 18 MW.
The Agreement contains the non-levelized, published avoided cost rates set forth in Order
No. 29391. Under nonnal and/or average operating conditions, the Facility 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 ~ 7.2. Idaho
Winds has selected December 30, 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-finn 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
detennine 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.
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 pennitting and licensing path.
Order No. 29839 at 10.
STAFF COMMENTS FEBRUARY 9, 2007
Staff has reviewed the infonnation 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
Prior to Idaho Power filing its petition on June 17, 2005 in Case No. IPC-05-
Suspension Petition ), Idaho Power and the Facility developer had completed contract
negotiations and were prepared to sign a Finn Energy Sales Agreement for this Facility. At the time
Idaho Power filed the Suspension Petition, Idaho Power advised the developer that Idaho Power
would not sign the Finn Energy Sales Agreement until the Commission had considered the
Suspension Petition. Idaho Power believes that in light of the fact that the parties had fully
negotiated and were ready to sign the FESA prior to August 5, 2005, the first primary criteria should
be deemed to have been met. Staff agrees.
Submittal to the utility of completed Application for Interconnection Study and payment
of fee
On January 31 2005, Idaho Winds LLC submitted a generation interconnection study
application for a 10 MW project accompanied by the required application fees. The developer
withdrew the application on May 26, 2005 at the recommendation of Idaho Power Company
transmission group because the developer desired to increase the Facility size to 18 MW, consistent
with its request for a Power Purchase Agreement. At that time Idaho Power Company
transmission group correctly advised the developer that the interconnection application could not be
amended but instead, a new application had to be filed. The developer decided to defer submitting a
revised generation interconnection application until the Power Purchase Agreement was signed, an
event which both Idaho Power and the developer believed was imminent. Idaho Winds did not want
to pay the required $10 000 application fee deposit and risk losing it if the Power Purchase
Agreement was not signed for some reason. As explained above, however, the filing of Idaho
Power s Suspension Petition caused the signing of the Power Purchase Agreement to be delayed.
A completed Interconnection Application was eventually submitted to Idaho Power on October 25
2006.
STAFF COMMENTS FEBRUARY 9, 2007
Because the initial Interconnection Application was submitted prior to August 4 2005, and
because further delays were, for the most part, not the fault of the developer, Staff believes this
threshold criteria should be considered satisfied.
Secondary criteria:
A wind study demonstrating a viable site for the project
On March 10 2005 , Idaho Winds LLC received a wind study for the Facility site prepared
by WindLogics, Inc., a well-known finn with expertise and extensive experience in conducting
wind studies. The study provided a detailed, comprehensive look at the overall wind regime of the
entire Facility site, including long-tenn variability and statistical analysis of the wind resource.
Energy estimates were made for the assumed wind turbine type, and an annual capacity factor was
computed based on analysis of wind speed data. In addition to the study, Idaho Winds has a 50-
meter meteorological tower installed at the project site collecting wind data. Staff believes that the
wind study sufficiently demonstrates a viable site for the project.
A signed contract for wind turbines
As of August 4, 2005, Idaho Winds did not have a signed contract for turbines for the
Facility. In an October 25 2006 letter to Idaho Power, the developer states that it is customary to
enter into a contract for the supply of wind turbines approximately one year before project startup,
when issues that affect the details of the supply order have been addressed and resolved. The
developer believes that it is not practical or reasonable to acquire a signed wind turbine supply
contract two years in advance of startup.
Now however, as in the case of Cassia Wind, the developer has now obtained a finn
commitment for turbines for the Facility. On November 10, 2006 GE Energy confinned in a letter
to Idaho Winds that turbines had been committed for the Facility project under previously
negotiated tenns.
Arranged financing for the project
On June 15 , 2005 , Idaho Winds received a letter from a reputable lender
.. .
offering to
provide the necessary construction and tenn financing, contingent upon the typical tenns and
STAFF COMMENTS FEBRUARY 9, 2007
conditions in the wind industry for a financial closing of this size and type." Later, in November
2006 when Idaho Winds decided to pursue a detennination of grandfathering eligibility for the
Facility project, Idaho Power asked for more definitive evidence that financing had been obtained
for the project. In response, Idaho Winds provided another otherwise identical letter from the same
lender, except this time using the language "commit to provide the necessary construction and tenn
financing..." The letter also noted that the lender had already provided debt financing for four wind
power projects built by an affiliate of Idaho Winds.
Staff views the second letter as clarification to the first, rather than as an indication that the
lender s commitment had somehow increased. There is no evidence that financing has yet closed;
however, Staff believes it is reasonable to delay the closing until after the Power Sales Agreement
has been approved. Based on the evidence, Staff believes that the requirement for financing prior to
August 4, 2005 should be considered to have been met.
Related progress on the Facility permitting and licensing path
It appears that significant progress had been made on pennitting and licensing for the project
prior to August 4, 2005. Idaho Winds states that it had a series of meetings with the Elmore County
Growth and Development Director and was infonned that the necessary local pennits could be
obtained in about three months. On May 10, 2005, Idaho Winds submitted the following pennit
applications to Elmore County accompanied by the required application fees: 1) Zoning and
Development Ordinance Amendment/Zoning Change Application, 2) Zoning Pennit Application
3) Application for Conditional Use Pennit, and 4) Application for Variance. Because the project
size was later increased from 10 MW to 18 MW, new applications were submitted on October 25
2006. A public hearing on the applications was conducted on December 20, 2006.
On January 21 2005 , site control was established via a land lease agreement with the
property owner. On January 26 2005, a Notice of Self-Certification as a Qualifying Small Power
Production Facility was filed with the Federal Energy Regulatory Commission.
On May 10, 2005, Idaho Winds advised the Idaho Transportation Department, Division of
Aeronautics, of the project plans and submitted a required Notice of Proposed Construction or
Alteration to the Federal Aviation Administration. Additional notification letters and applications
were submitted to the two agencies on October 23 2006 to reflect the increase in project size from
10 MW to 18 MW.
STAFF COMMENTS FEBRUARY 9, 2007
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. Order No. 29872 at 11. The Commission stated it would look at the
totality of the facts presented.
Based on Idaho Power Company s review of the infonnation 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 Facility. The
Company believes that the Facility satisfies the grandfathering criteria identified by the Commission
in Order No. 29839, Case No. IPC-05-22.
Based on Staffs own review ofthe Facility s progress with regard to the primary and
secondary grandfathering criteria, Staff agrees with Idaho Power that the Facility should be
grandfathered. Both of the two primary criteria had been satisfied prior to August 4, 2005 (a signed
power purchase agreement and an Application for Interconnection), and at least three of the
secondary criteria had been satisfied by that date (a wind study demonstrating a viable site for the
proposed project, project financing, significant progress on pennitting and licensing). Although not
satisfying the remaining secondary criteria before August 4 2005, the developer has now obtained a
finn commitment for financing and turbines for the Facility.
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 Idaho Winds 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
STAFF COMMENTS FEBRUARY 9 , 2007
power. Idaho Power included similar provision in recently filed agreements for the Bennett Creek
and Hot Springs wind generation facilities.
2. Shortfall Energy Payments
The Agreement contains the methodology for computing shortfall energy payments the
Commission approved in the Finn Energy Sales Agreement between Idaho Power and U.
Geothennal (Case No. IPC-04-, Order No. 29632). Idaho Winds has voluntarily selected the
US. Geothennal method. Use of the U.S. Geothennal methodology is a negotiated tenn of the
Agreement and is mutually acceptable to Idaho Power and Idaho Winds. Staff believes that both the
Fossil Gulch method and the US. Geothennal 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-06-18. One of the significant changes
in Schedule 72 was the creation of a standard interconnection agreement (Unifonn 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 Unifonn Interconnection
Agreement will not be signed for this project, and further, that ifthere are no cluster or queue issues
that arise requiring additional studies, it is anticipated that the Unifonn 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, 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. That study will further identify transmission upgrades and
associated costs necessary in order for Idaho Power to provide finn 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. In any case, no interconnection
STAFF COMMENTS FEBRUARY 9, 2007
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 this project 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 finn transmission may not be available to accommodate the project without additional
investment by the Company or consideration or non- finn 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 finn transmission would be available to deliver a project's output without additional
Company investment. Consequently, Staff believes that finn transmission capacity is a prerequisite
in order for the project's output to be deliverable on a finn basis. As long as Idaho Winds requests
finn transmission and agrees to appropriate tenns subsequently established for making the required
transmission upgrades, the Finn Energy Sales Agreement can stand unaffected. However, ifIdaho
Winds requests non-finn transmission, Staff submits that the power product that it delivers must
also be considered non- finn.Staff cannot support payment of the full published avoided cost rates
contained in the Agreement unless Idaho Winds acquires finn transmission. Conversely, Staff
suggests that some downward adjustment to the contract rates could be warranted ifnon-finn
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 detennined by both the tenns 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
finn or non-finn transmission are not unique, however, to these three projects. Staff has similar
concerns for wind projects with previously signed contracts that are located in areas with
transmission constraints.
STAFF COMMENTS FEBRUARY 9, 2007
RECOMMENDATION
Staff recommends 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 finn energy from
the Facility will be allowed as prudently incurred expenses for ratemaking purposes. However
Staff further recommends that Commission approval of the Finn Energy Sales Agreement be
contingent upon Idaho Winds requesting finn transmission service for the Facility and agreeing to
participate in funding any necessary transmission upgrades. Should Idaho Winds request non-finn
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 day of February 2007.
Cecelia . assner
Deputy Attorney General
Technical Staff: Rick Sterling
i: u mise: eommen tslipeeO6. 3 6egrps
STAFF COMMENTS FEBRUARY 9, 2007
CERTIFICA TE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 9TH DAY OF FEBRUARY 2007
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
RIC GALE
VP - PRICING & REGULATORY
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
SECRETARY
CERTIFICATE OF SERVICE