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Peter J. Richardson
ISB No. 3195
Richardson & O'leary
99 East State Street, Suite 200
O. Box 1849
Eagle, Idaho 83616
Telephone: (208) 938-7900
Fax: (208) 938-7904
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"JUL.
UTiLt'rlES COf"'ij'o-j!SSION
Attorney for Bob Lewandowski and Mark Schroeder
BEFORE THE
IDAHO PUBLIC UTiliTIES COMMISSION
BOB LEWANDOWSKI AND MARK
SCHROEDER,
S. GEOTHERMAL, INC, AN IDAHO
CORPORATION
Complainants
CASE NO IPC-04-
POST HEARING BRIEF OF BOB
LEWANDOWSKI AND MARK
SCHROEDER
CASE NO. IPC-04-
vs.
IDAHO POWER COMPANY, an Idaho
corporation
Respondent.
COMES NOW Robert Lewandowski and Mark Schroeder
Complainants ) by and through their attorney of record and hereby lodges their
post hearing brief in the above captioned matter.
BACKGROUND
At the conclusion of the hearing in this matter the Commission directed the
parties to file post hearing briefs addressing the issue of firm vs. non-firm
purchases under PURPA.1 In addition, Commissioner Kjellander requested that
the parties brief the issue of "intermittent power." These "issues" surfaced in
Idaho Power and Staff's testimonies in support of the concept of a production
band or bracket for production under a OF2 contract. The concept being
promoted by Staff and Idaho Power is that when a OF's production falls outside
of the bracket, penalties are assessed against the OF. The penalties take the
form of reduced rates (in the case production exceeds the bracket) or payments
to the utility by the OF (in the case of production shortfalls). Witnesses for both
the Staff and Idaho power use the word "non-firm" to describe projects whose
production falls outside of the proposed bracket.
The case was initiated by the Complainants (and U.S. Geothermal) to
seek guidance from the Commission relative to the unreasonable and illegal
nature of the bracket. Idaho Power claims that this bracketing is necessary
because of operational considerations in the future and historical performance of
the CSPPs and to protect the ratepayers. However, Idaho Power has failed to
provide any quantitative evidence that the CSPPs as a whole are not "firm , as
Idaho Power alone chooses to define that term, in spite of the evidence in their
own 2002 and 2004 ntegrated Resource Plans, which show very detailed
monthly projections of CSPP "firmness . Idaho Power has failed to provide any
1 Public Utilities Regulatory Policy Act of 1978 16 U.C. ~ 824a-
Lewandowski/Schroeder Post Hearing Brief -
quantitative or qualitative evidence that the ratepayer has ever been harmed by
the supposed lack of firmness of the company s 70-plus OF contracts. Idaho
Power has failed to provide any evidence that they have ever requested greater
or more frequent updates on power plant output from individual CSPP operators
other than on the day each CSPP contract was signed. Idaho Power has failed
to demonstrate how these penalties will "encourage" the CSPPs to be more
reliable in their predictions. Idaho Power has failed to demonstrate how there is
any parity between the penalties Idaho Power wishes to impose on CSPPs and
the costs to the Idaho Power shareholders when Idaho Power s own power
plants fail to generate at expected levels. Idaho Power has failed to demonstrate
how the value (and cost) of such brackets is in any way included in the SAR
basis of the avoided cost rates. Idaho Power has failed to obtain Commission
approval prior to unilaterally invoking what is effectively a change in the rates
available under the IPUC-approved PURPA rates. The evidence is
overwhelming that Idaho Power has failed to justify their unilateral imposition of
these brackets , which are effectively a rate change. But, this brief will not re-visit
all Idaho Power s failure to demonstrate the necessity for the brackets. As will be
shown below, the legal case against brackets in OF contracts is even more
compelling than the factual case against them.
The concepts of firm , non-firm, and intermittent are interchangeable in the
legal context of determining what type of contract a OF is entitled to. They are
also irrelevant. It is possible that, from an operations standpoint, a utility
2 Qualifying Facility (QF). Under PURPA electric utilities are required to purchase electricity from
QFs.
Lewandowski/Schroeder Post Hearing Brief-
resource manager may find value in the use of these terms. However, from an
avoided cost standpoint, the use of these terms only confuses the real issue
which is when are a utility s avoided cost rates determined for purposes of
entering into a power sales agreement.
BRACKETS ARE ILLEGAL IN A LONG -TERM OF CONTRACT
All electric utilities - both regulated and self-regulated - are required by
federal law and FERC regulations to purchase OF power at the purchasing
utility s full avoided cost. The OF - not the purchasing utility - has the option
choose which FERC specified methodology is to be used in determining avoided
costs. 18 C.R. 9292.304(d).
Some OFs may wish to avoid incurring contractual delivery obligations
choosing instead simply to make energy deliveries only "as available . For this
subgroup of OFs , avoided cost is to be "calculated at the time of delivery." 18
R. 9 292.304(D)(1).
On the other hand , OFs willing to assume delivery obligations pursuant to
contract have their choice of either short-term pricing, described above, or long-
term pricing established by contract "at the time the obligation is incurred." 18
R. ~ 292.304(d)(2). That is, the OF may demand that its long-term price be
established at the time of contract execution. This long-term pricing option is the
type being sought by both the Complainants and U.S. Geothermal.
The OF has the option to determine whether it will receive payments
based on "as available" sales or based on a long-term price pursuant to a legally
enforceable obligation. Understanding this concept is critical if we are to clear
Lewandowski/Schroeder Post Hearing Brief -
the fog generated by the "intermittent, firm, and non-firm" discussion. Fortunately
this is a concept clearly established in federal law. 40 C.R. ~ 292.304(d)
provides:
Each qualifying facility shall have the option either:
(1 )
(2)
To provide energy as the qualifying facility determines
such energy to be available for such purchases , in which
case the rates for such purchases shall be based on the
purchasing utility s avoided costs calculated at the time
of delivery; or
(i)
To provide energy or capacity pursuant to a legally
enforceable obligation for the delivery of energy or
capacity over a specified term, in which case the rates
for such purchases shall, at the option of the
qualifying facility exercised prior to the beginning of
the specified term , be based on either:
The avoided costs calculated at the time of delivery;
The avoided costs calculated at the time the
obligation is incurred.
(ii)
It is a simple and easily understood concept. A OF may, at its option,
decide to sell power at rates set either at the time of delivery (as available) or at
rates set at the time the obligation is incurred (long-term contract). Pursuant to
Federal law, it is the OF that gets to make this call - not the utility and not the
Commission s staff. There is nothing in PURPA, its implementing regulations or
this Commission s orders making any other distinction relative to how the
obligation to purchase is both initiated and implemented. The concept of firm
and non-firm power deliveries is a legal mYth that has absolutely no bearing on
what type of contract a OF is legally entitled to demand from the utility.
3 Emphasis provided.
Lewandowski/Schroeder Post Hearing Brief -
An informal way to describe the first option , that is setting avoided cost
rates at the time of delivery, would be to call it non-firm power. Similarly one
might describe the second option as "firm" power. But the concept of firmness
does not exist for purposes of determining when the OF exercises its option
relative to what type of a contract it is entitled to demand from the utility.
Idaho Power s witness and the Staff witness agreed, during cross-
examination, that the bracket has the effect of changing the rate the OF is paid
over the life of the contract. Of course, it is clear just looking at the bracket that
its very purpose is to change the rate paid to the OF whenever production is
either above or below the bracket. However at the option of the QF the
developer may choose to receive the avoided costs calculated at the time of
delivery or at the time the contract is signed. Complainants have chosen to take
Idaho Power s avoided cost rates that are calculated at the time the contract is
signed - not at the time of delivery. The bracket illegally forces them to accept
avoided cost rates determined at the time of delivery whenever production is
outside of the bracket and not at the time the contract is signed.
BRACKETS VIOLATE THE LEGAL BARRIER AGAINST RETROACTIVE
CHANGES TO CONTRACT PRICE
As noted above, the very purpose of the brackets is to change the
rate paid to the OF whenever its production exceeds or falls below a
predetermined level. However, once a OF has selected its choice of avoided
cost methodologies, it may be denied its full avoided cost rate only if FERC later
revokes its qualified status under PURPA. See American Paper Institute v.
Lewandowski/Schroeder Post Hearing Brief -
American Electric Power Service CorQ:.461 U.S. 402, 412-18 (1983).
Decertification is a determination strictly reserved to FERC.
No provision of the FERC regulations authorizes state commissions or
regulated utilities to change contract prices based on a redetermination of
avoided cost. The preamble to FERC's PURPA regulations clearly states
otherwise:
The Commission (FERC) does not believe that the reference in the
statute to incremental cost of alternative energy was intended to require a
minute-by-minute evaluation of costs which would be checked against
rates established in long-term contracts between qualifying facilities and
electric utilities. .The import of this section is to ensure that a qualifyinQ
facility which has obtained the certainty of an arranqement is not deprived
of the benefits of its commitment as a result of chanqed circumstances.
45 Fed Reg. at 12 224. This stands to reason. Redetermination of long-term
contract prices would nullify the second pricing option granted to those OFs
willing to assume delivery obligations. See 18 C.R. 9 292.304(d)(2), described
above. If contract prices were subjected to later redetermination, all OF pricing
would collapse into the first pricing option: calculation of prices at the time of
delivery. 18 C.R. ~ 292.304(d)(1).
FERC specifically anticipated the type of attack against OF rates being
launched by Idaho Power in this case. Its regulations address the possibility that
rates set by contract might differ from a purchasing utility avoided cost
sometime during the life of that contract:
In the case in which the rates for purchases are based upon estimates of
avoided costs over the specific term of the contract or other legally
enforceable obligation, the rates for such purchases do not violate this
subpart if the rates for such purchases differ from avoided cost at the time
of delivery. (18 C.R. ~ 292.304(b)(4).
Lewandowski/Schroeder Post Hearing Brief -
Quite frankly, we have been down this road before. The Idaho Supreme
Court explicitly rejected an early attempt by Idaho Power to insist on a contract
clause that allowed the avoided cost rates in long-term QF contracts to be
changed.The Idaho Supreme Court was clear - once a long-term contract is
signed , the rates are fixed for the term of the agreement:
Thus we reject Idaho Power s argument that the Commission does
not have any authority to establish an avoided cost rate which is fixed for
the duration of the contract and which is not subject to the Commission
continuing jurisdiction. It is clear that both Congress and FERC , through
its implementing regulations , intended that CSPPs (QFs) should not be
subjected to the pervasive utility-type regulation, which would result if the
contract language4 proposed by Idaho Power were approved by the
Commission.
Afton Enerqy, Inc. v. Idaho Power Co.107 Idaho 781 788.
Other states, when faced with similar attacks on PURPA have responded
much like our own Supreme Court. In all such cases, the state commission
authorized to establish avoided cost rates were held to lack authority to tamper
with rates included in long term contracts.
In Smith Coqeneration Manaqement v. Corporation Commission 863 P.
1227 (Okla. 1993), the Oklahoma Supreme Court rejected similar language that
the Oklahoma Commission was insisting be inserted into QF contracts. The
clause at issue in Smith would have allowed the Commission to recalculate the
estimated avoided costs during the life of the contract. The court found this
provision unlawful as a violation of PURPA:
Such a requirement makes it impossible to comply with PURPA and
FERC regulations requiring established rate certainty for the duration
4 Idaho Power s proposed language provide that: "The rates, terms and conditions set forth in this
agreement are subject to the continuing jurisdiction of the Idaho Public Utilities Commission.
at 786.
Lewandowski/Schroeder Post Hearing Brief-
of long-term contracts for qualifying facilities that have incurred an
obligation to deliver power
. .
Once avoided costs are set, the
Corporation Commission cannot later review the contract to reconsider the
avoided costs.
!Q. at 1240-, emphasis provided. Note the legal significance of "rate certainty
for QFs, like Mr. Lewandowski and Mr. Schroeder.PURPA and FERC
regulations seek to prevent reconsideration of long term contracts once
estimated avoided costs are aqreed 1ft. at 1242 (emphasis provided).
State commission rules requiring such clauses were pre-empted by federal law.
This finding of federal pre-emption was based on the preamble to FERC'
regulations implementing PURPA, quoted above. The court left no doubt that it
was preserving a QF'right to hold the purchasing utility to the estimated
avoided costs specified by the contract:
(T) he Corporation Commission is required to set avoided costs for the
duration of the proposed contract - even if the avoided costs are
estimated. Once avoided costs are set, the Corporation Commission
cannot later review the contract to reconsider the avoided costs. rid.
1241).
Similarly, the Texas Supreme Court has ruled
, "
the federal (PURPA)
regulations do not authorize the (Texas Public Utility) Commission to alter the
terms of a purchased power contract between a utility and a QF.Public Utility
Commission v. Gulf States Utilities, 809 S.2d 201 , 208 (Tex. 1991).
Thus, regardless of one s view of "firmness , this Commission cannot
order Complainants to sign a long-term contract with a provision allowing Idaho
Power to change the rates after the agreement has been executed. FERC
regulations and state case law clearly demonstrate that the Commission has no
Lewandowski/Schroeder Post Hearing Brief -
legal authority to order such a clause be inserted into long term avoided cost
contracts.
THE IDAHO COMMISSION HAS ALREADY RESOLVED THE ISSUE OF
FIRMNESS" IN ITS INAUGRUAL PURPA ORDER
This Commission settled the issue of firmness of rates early on in Idaho.
In Order No. 15746 the Commission declared that:
This Commission endorses the policy of havinq each utility pay its
full avoided cost when purchasinq from coqenerators and small
power producers Such a price will bring about the equilibrium
solution typical of a competitive market where the marginal cost of
all firms producing a like product is equal. AnYthing less will fail to
bring about the condition of a free, competitive market and will
leave the utility, as the sole buyer, in a position to dictate price as it
sees fit.
Case No. P-300-, June 13,1980 at p 5, emphasis provided.
Specifically addressing the issue of the firm versus non-firm power
deliveries, the Commission cited the relevant portions of 18 C.R. ~ 292.304
discussed extensively above:
Section 292.304(d) of the FERC rules provides that qualifying
facilities have the option of selling power to the utility either on an
as available" basis or pursuant to a "legally enforceable obligation
to deliver. This terminoloqy corresponds to the familiar distinction
between non-firm power sales and firm power sales. In non-firm
power sales ("as available ) it is the seller, not the buyer, who
decides whether or not the power is to be made available
. at p. 14, emphasis provided. It seems that in the time that has lapsed since
the Commission issued its inaugural PURPA order, that Idaho Power has lost
sight of the structure and purpose of PURPA. It is the seller and not the buyer
who decides if a project will be sold either as non-firm ("as available ) or firm
(pursuant to a "legally enforceable obligation
).
Idaho Power s proposed bracket
Lewandowski/Schroeder Post Hearing Brief -
that adjusts rates during the life of the legally enforceable obligation turns
PURPA on its head. It is unequivocally prohibited by PURPA and this
Commission s prior orders.
Respectfully submitted this 17th day of September 2004.
Peter Ric ardson , Counsel for
Robert Lewandowski and Mark Schroeder
Lewandowski/Schroeder Post Hearing Brief -
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 17th day of September, 2004, I caused a true
and correct copy of the foregoing POST HEARING BRIEF ON BEHALF OF MARK
SCHROEDER AND BOB LEWANDOWSKI to be served by the method indicated below, and
addressed to the following:
Jean Jewell
Idaho Public Utilities Commission
472 West Washington Street
Post Office Box 83720
Boise, Idaho 83720-0074
Monica B. Moen, Attorney II
Barton L. Kline, Senior Attorney
Idaho Power Company
PO Box 70
Boise, ID 83707-0070
bkline~idahopower. com
mmoen~idahopower. com
( ) U.S. Mail, Postage Prepaid
(X) Hand Delivered
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Randy C. Allphin, Contract Admin.
Power Supply Planning
Idaho Power Company
Post Office Box 70
Boise, Idaho 83707-0070
rallphin~idahopower. com
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John Prescott
Vice-President - Power Supply
Idaho Power Company
Post Office Box 70
Boise, Idaho 83707-0070
iprescott~idahopower. com
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Conley E. Ward
Givens Pursley LLP
601 West Bannock
Po Box 2720
Boise, Idaho 83701-2720
cew~givenspursley.com
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IPC-O4-10 & IPC-O4-
CERTIFICATE OF SERVICE -
Doug Glaspey
S. Geothermal
1509 TYrell Lane
Boise, Idaho 83706
dglaspey~us geothermal. com
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Signe
~~,
Peter Richardson
IPC-O4-10 & IPC-O4-
CERTIFICATE OF SERVICE - 2
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