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Home My WebLink About20040817Runyan Rebuttal.pdfRECE!\/ED IT) Conley E. Ward (ISB No. 1683) GIVENS PURSLEY LLP 601 W. Bannock Street O. Box 2720 Boise, ID 83701-2720 Telephone: (208) 388-1200 Fax: (208) 388-1300 cew~gi venspursley .com FILE!J 4')nml .1! t I'" ~-;. 3..~Ji,nhvl., , .. li);;:O PUULIC UTILjIIES CO;~'II'.'1iSSiON Attorneys for U. S. Geothermal, Inc. S:\CLIENTS\6667\I\Runyan Rebuttal FINAL. doc BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION S. GEOTHERMAL, INC., an Idaho corporation Case No. IPC-04- Complainant vs. IDAHO POWER COMPANY, an Idaho corporation Respondent. BOB LEWANDOWSKI Md MARK SCHROEDER Case No. IPC-04- Complainants vs. IDAHO POWER COMPANY, an Idaho corporation Respondent. REBUTT AL TESTIMONY OF KIP W. RUNYAN ON BEHALF OF U.S. GEOTHERMAL, INC. August 19,2004 ORIGINAL PLEASE STATE YOUR NAME AND ADDRESS FOR THE RECORD. My name is Kip W. Runyan. My business address is 2233 Spring Mountain Drive Boise, Idaho. ARE YOU THE SAME KIP W. RUNYAN WHO PREVIOUSLY SUBMITTED DIRECT TESTIMONY IN THIS PROCEEDING? Yes. WHAT IS THE PURPOSE OF YOUR REBUTTAL TESTIMONY? The purpose of my rebuttal testimony is to respond to a number of comments and concepts put forward in the testimony of Idaho Power witness Gale, A vista witness Kalich, PacifiCorp witness Hale, and Staff witness Sterling (together referred to as the The Other Witnesses DO YOU HAVE A GENERAL COMMENT ABOUT THE NATURE AND CONTENT OF THE TESTIMONY PROVIDED BY THOSE WITNESSES? Yes. A common theme running through all of the utility witnesses' testimony is their insistence that PURP A resources should receive something less than full avoided cost rates because they don t provide capacity benefits and are less reliable or riskier than utility owned resources. Later on in my testimony, I will submit evidence that proves these contentions are demonstrably wrong, but as a preliminary matter I would like to point out that" these issues were fully litigated when the Commission established avoided cost rates. None of the pleadings in this case place the level or reasonableness of avoided cost rates at issue, and the utilities' arguments about the value ofPURPA resources are therefore irrelevant and a prohibited collateral attack on the Commission s prior orders. REBUTTAL TESTIMONY OF KIP W. RUNYAN - IPUC Case Nos. IPC-O4-08 and IPC-O4- S:\CLIENTS\6667\I\Runyan Rebuttal FINAL.doc DO YOU HAVE ANY OTHER GENERAL OBSERVATIONS ABOUT THE UTILITIES' TESTIMONY? Yes. All three utility witnesses conjure up a parade of hypothetical PURP A abuses that might be possible in certain "scenarios." Some of these hypotheticals are ludicrous on their face, such as Mr. Gale s assertion at page 29 that a developer might build a 100 megawatt plant and then generate only 876 hours in order to qualify for a posted rate based on 10 average megawatts. Moreover, none of the witnesses submit any evidence whatsoever that any PURP A generator has ever perpetrated, or even attempted, any of the practices the utilities allegedly fear, and they further ignore the fact that many of the envisioned scenarios are prohibited by existing Commission orders or already barred by provisions in the draft contract U.S. Geothermal tendered to Idaho Power. In short, the utilities devote much of their testimony to beating up a strawman of their own invention. None of this has anYthing to do with the real issues in this case. WHAT ARE THE REAL ISSUES BEFORE THE COMMISSION IN THIS COMPLAINT? S. Geothermal's complaint raises three discrete issues: (1)What is the definition of the 10 megawatt size limit for entitlement to the Commission s Published Rates? (2)Should Idaho Power be allowed to include contractual provisions that impose financial penalties if a PURP A generator s energy deliveries vary by more than 10 percent from its forecasted performance? REBUTTAL TESTIMONY OF KIP W. RUNYAN - IPUC Case Nos. IPC-O4-08 and IPC-O4- S:\CLIENTS\6667\1\Runyan Rebuttal FINAL. doc (3)Should Idaho Power be allowed to include a contract clause that allows Idaho Power to unilaterally terminate PURP A contracts if certain regulatory actions occur in the State of Idaho? Subsequent to the filing of the complaint, an additional issue has arisen as a result of the Renewable Energy of Idaho Project Order (Order No. 29487) and the response to that Order by Idaho Power. The new issue CM be summarized as follows: (4)Can a project larger than 10 MW generate more than the contract firm energy amounts and sell that excess either to Idaho Power at market based rates or to a third party and nevertheless remain eligible for the published rates for the first 10 megawatts of generation, consistent with the terms and conditions of the contracts approved by the Commission for the Tiber Montana Project (Order No. 29232) and the Renewable Energy of Idaho Project (Order No. 29487)? Additionally, if the Commission changes its policy, should U.S. Geothermal be "grandfathered" because of the extensive negotiations it conducted with Idaho Power based on Idaho Power s contracting guidelines and the previous Commission approvals? THE OTHER WITNESSES ALL AGREE THAT THE "TEN MW PROJECT CAP ACITY" CRITERIA FOR PUBLISHED RATE ELGIBILITY SHOULD BE INTERPRETED TO MEAN THAT THE ACTUAL ENERGY DELIVERED IN ANY HOUR DOES NOT EXCEED 10 000 KWH'S. WOULD YOU LIKE TO COMMENT ON THAT CONCLUSION? Yes, with a little background first. I believe Idaho Power witness Gale provides an accurate summary of the current situation by concluding, on line 8 of page 25 of his testimony, that "we still have no definitive Commission ruling as to the test to be applied REBUTTAL TESTIMONY OF KIP W. RUNYAN - 4 IPUC Case Nos. IPC-O4-08 and IPC-O4- S:\CLIENTS\6667\1\Runyan Rebuttal FINAL.doc to determine the capacity of a QF and its entitlement to the published rates." Earlier in his testimony, beginning at line 30 of page 24, Mr. Gale points out that in 2002, Idaho Power requested that "name plate capacity" be used to establish published rate entitlement, but that the Commission declined to address this issue. I am not familiar with A vista or PacifiCorp s practices, so I can t speak to their situation. But in the case of Idaho Power, the utility has taken the position that it would buy the first 10 megawatts through the meter on M hourly basis at published rates without regard to the project's theoretical or actual capacity. Deliveries in excess of 10 megawatts were labeled "Optional Energy," which Idaho Power would purchase at the lesser of 85% of Mid-C market prices or the published rates. I believe the contracting parties have the capabilities to reach a logical and fair determination of project capacity, if they are so inclined, and that it is reasonable for the Commission to expect the parties to do so. I believe that U.S. Geothermal's proposed definition is a reasonable resolution based on sound engineering principles. The utilities proposed definition is not inherently unreasonable, but the Commission should understand that it will have the effect of reducing the maximum size of many PURP projects, specifically geothermal projects, well below the supposed 10 megawatt limit. THE OTHER WITNESSES CHARACTERIZE THE U.S. GEOTHERMAL APPROACH TO DEFINING PROJECT CAPACITY AS AN APPROACH BASED ON AVERAGE ANNUAL ENERGY.DO YOU AGREE WITH THEIR CONCLUSION? No I do not. When analyzing the U.S. Geothermal approach, I think it is important for the Commission to focus solely on the 10 MW capacity definition that is actually in the contract, rather than the utilities' hypothesized definition. U.S. Geothermal is not REBUTTAL TESTIMONY OF KIP W. RUNYAN - IPUC Case Nos. IPC-O4-08 and IPC-O4- S:\CLIENTS\6667\I\Runyan Rebuttal FINAL. doc proposing an "average annual energy" basis for the calculation of the Project's capacity. Instead, it is proposing that the facility s capacity be determined just as Staff witness Sterling describes for the Idaho Power Danskin Project. Staff witness Sterling states at line 17 page 11 , " Idaho Power s Danskin project is normally referred to as a 90 MW plant because it has the capability to generate at 90 MW under normal conditions." (emphasis added). As explained in my direct testimony, well as the extensive discussion in U.S. Geothermal witness Kitz s testimony, the U. Geothermal Project is capable of generating only 10 MW under normal conditions. The fact that both of the above facilities will actually generate at more than the stated capacities under favorable ambient conditions and less than stated capacities at unfavorable conditions does not change the fact that they are respectively a 90 MW and 10 MW thermal project. As discussed in the Runyan and Kitz testimony, to conclude otherwise is to impose a bias against thermal proj ects in general, and specifically a bias against the development of geothermal resources. THE OTHER WITNESSES DISCUSS ABUSES THAT MAY OCCUR IF THE COMMISSION WERE TO ALLOW A PROJECT TO UTILIZE A SO CALLED AVERAGE ENERGY APPROACH". DO YOU BELIEVE THEIR CONCERNS ARE VALID? If one disregards the provisions of the U.S. Geothermal contract and assumes that the Commission would actually approve published rates for a contract with a 100 MW capacity, they might have a legitimate concern. But the facts in this case are substantially different than the doomsday scenarios they described. The fact is that the contract before the Commission limits deliveries to specified "Maximum Monthly Energy" amounts, and REBUTT AL TESTIMONY OF KIP W. RUNYAN - 6 IPUC Case Nos. IPC-O4-08 and IPC-O4- S:\CLIENTS\6667\I\Runyan Rebuttal FINAL.doc it further limits hourly deliveries to the "Maximum Capacity Amount " which in this case is set at 12.7 MW. Article 14.2 goes on to state that "Seller s failure to limit deliveries by the Transmitting Entity pursuant to this contract to the Maximum Capacity Amount will be a Material Breach of this Agreement." The Project simply cannot do what The Other Witnesses are forecasting without breaching the terms of the contract. THE OTHER WITNESSES ALSO BRING UP THE POSSIBILITY OF OTHER MANIPULATIONS THAT MIGHT OCCUR, PRIMARILY SHIFTING DELIVERIES BETWEEEN PEAK AND OFF PEAK PERIODS TO F ACILIT A TE ADDITIONAL PROFITS AT THE EXPENSE OF IDAHO POWERS CUSTOMERS. DO YOU AGREE WITH THEIR CONCERN? Later in this rebuttal testimony I will address those concerns since they relate to a project that sells its output to multiple purchasers. This discussion, however, is about how capacity eligibility for published rates is determined, and that determination has nothing to do with any of the conjectured abuses. DOES THE 10 MW FACILITY CAPACITY DEFINITION PROPOSED BY U. GEOTHERMAL CREATE ANY RISK FOR THE COMMISSION OR THE CUSTOMERS OF IDAHO POWER? Absolutely not. The result of calculating the capacity of the thermal facility at normal conditions is to adopt a rating standard that is consistent with standard utility and engineering practices. Any strained interpretation or misrepresentation of this methodology by contracting parties is easily dealt with in the existing contracting and approval process. It is a matter of common sense, and Idaho Power and potential sellers REBUTT AL TESTIMONY OF KIP W. RUNYAN - 7 IPUC Case Nos. IPC-O4-08 and IPC-O4- S:\CLIENTS\6667\1\Runyan Rebuttal FINAL.doc should be expected to conduct the determination in a professional manner, supported by solid engineering principles. IF THE COMMISSION FEELS THAT SOME EXPOSURE IS CREATED BY THE ADOPTION OF THE NORMAL CONDITIONS STANDARD FOR THERMAL PROJECTS, ARE THERE WAYS TO ALLEVIATE THAT CONCERN? Absolutely. Contracts could simply expand the definition of the Maximum Capacity Amount to include an appropriate capacity amount for each month, determined by utilizing accepted engineering principles. That provision, along with the Maximum Monthly Energy Amounts previously specified by U.S. Geothermal in the Contract would eliminate any risk of such an abuse. U.S. Geothermal witness Kitz presents extensive testimony explaining how the U.S. Geothermal capacity definition is consistent with the actual operating characteristics of a geothermal resource. U.S. Geothermal is not attempting any slight-of-hand, it simply would like its geothermal resource analyzed like a geothermal facility. IDAHO POWER WITNESS GALE STATES AT LINE 17 OF PAGE 2, THAT IDAHO POWER IS PROPOSING ADDITIONAL CONTRACT PENALTIES TO ENCOURAGE GREATER FIRMNESS.DO YOU BELIEVE THESE CHANGES ARE WARRANTED? , I do not. Idaho Power is proposing finMcial penalties for CSPPs whose monthly production deviates more than 10 percent from estimates required to be submitted two years in advance. Idaho Power has presented no evidence to support this proposal, other than the vague assertion that it will benefit Idaho Power and its customers. That may be REBUTT AL TESTIMONY OF KIP W. RUNYAN - 8 IPUC Case Nos. IPC-O4-08 and IPC-O4- S:\CLIENTS\6667\1\Runyan Rebuttal FINAL.doc true in the sense that it will effectively reduce CSPP rates, but the issue is whether the proposal is fair and reasonable to all stakeholders. DID YOU INVESTIGATE THE RELIABILITY OF THE CSPP INDUSTRY IN COMPARISON TO IDAHO POWER'S FACILITIES? Following a review of the testimony by witness Gale, I researched the past performance of both the CSPP projects and Idaho Power s own facilities over the period 1997 through 2003 in order to compare the "firmness" of the two types of resources. I selected that specific period because it required only minor modification of the raw data to be consistent for the facilities operating throughout the period. Data for the CSPP projects was taken from the annual "Report of Cogeneration / Small Power Production for Idaho Power" submitted by Idaho Power to the Commission. The data for Idaho Power facilities was taken from the FERC Form 1 reports filed annually by Idaho Power. The results of the analysis are attached to this testimony as Exhibit No. As the Exhibit indicates, over the last seven years the CSPP projects have been more consistent in their output, and therefore more predictable, than Idaho Power s own resources. Actual production over the period for all Idaho Power resources varied from 116% (1998) to 84% (2003) of their seven year average production. On the other hand CSPP production varied from 1150/0 (1997) to 85% (2003) of their average. The figures for Idaho Power are admittedly not directly comparable to CSPPs as a whole because Idaho Power s thermal facilities are idled when market conditions allow more economic purchases. But in reviewing only CSPP thermal projects, the deviation over the seven year period was from 93 % to 106% of the seven year average, a very reliable and predictable performance by any definition. Furthermore, comparing only Idaho Power REBUTT AL TESTIMONY OF KIP W. RUNYAN - 9 IPUC Case Nos. IPC-O4-08 and IPC-O4- S:\CLIENTS\6667\I\Runyan Rebuttal FINAL. doc hydroelectric projects with CSPP hydroelectric projects, the results clearly indicate that the CSPP projects are more predictable and reliable. Idaho Power s hydro facilities varied from 138% (1997) to 71 % (2002) of average over the period, while the CSPP projects varied from 125% (1997) to 76% (2001). WHAT CONCLUSIONS CAN BE DRAWN FROM THE CSPP HISTORIC PERFORMANCE DATA? This data refutes the utilities' repeated assertions that CSPP facilities provide only energy and not capacity. In terms of reliability and predictability, the CSPP facilities have operated as well as, and arguably better than, utility resources. A utility trying to balance loads and resources knows it can count on the CSPP portfolio to produce base load capacity and energy in much the same manner as the utility s own base load resources. While it is true that the Commission has decided to limit payments to PURP A projects for only energy delivered, that policy decision does not mean that CSPP projects are not delivering both capacity and energy. ARE THERE ANY OTHER CONCLUSIONS WE CAN DRAW FROM THE CSPP PERFORMANCE DATA? Yes. There is simply no evidence that the performance penalties Idaho Power is requesting are justified. Mr. Gale would have the Commission believe that the 90/110 performance band is necessary to limit CSPP producers "discretion" over the operation of their facilities. But the fact is that Idaho QF projects receive payment only for energy delivered. This is the ultimate motivation for reliable and continuous production. Considering the record, I find no justification for Idaho Power to make a radical change in the pricing terms and conditions that have provided such a positive result. In light of REBUTTAL TESTIMONY OF KIP W. RUNYAN - IPUC Case Nos. IPC-04-08 and IPC-04- S:\CLIENTS\6667\1\Runyan Rebuttal FINAL. doc Idaho Power s stated desire to achieve "simplicity of contract administration " the inclusion of the complex performance banding requirements, and the contract disputes they will inevitably cause, is counter productive and unnecessary. DO THE SAME OBJECTIONS APPLY TO THE 80%/1200/0 PERFORMANCE BAND PRESENTED BY STAFF WITNESS STERLING? Yes. Like Mr. Gale, Mr. Sterling has not presented any analysis or documentation to justify or support the bandwidth he proposes. As discussed above, Idaho Power s own aggregated hydroelectric facilities, which represent a group of assets that any utility or state would love to include in its generation portfolio, vary from 71 % to 138% of average production over the last seven year period. It makes no sense that new resource additions should be expected to operate at levels substantially superior to Idaho Power s admittedly top- flight generation system. As the record indicates, even though certain assets, for a variety of reasons , may operate at less than expected levels during certain periods, the aggregate group of assets operates in a very satisfactory manner. This is not surprising because a CSPP facility that does not operate at its maximum capability is already penalized by the loss of revenue for the energy it could have delivered. Given the fact that CSPPs already have a powerful motive to maximize production, and considering that, in the aggregate, they are performing as well as the utility s own resources, there is no justification for performance penalties of any type. The fact that Mr. Sterling s proposal may be less onerous than Idaho Power s doesn make it any less arbitrary. Mr. Gale s or Mr. Sterling s desire to see additional resource firming," does not change the fact that the proposed treatment is completely opposite of what is required by this Commission of Idaho Power s own resources (including the REBUTTAL TESTIMONY OF KIP W. RUNYAN - 11 IPUC Case Nos. IPC-04-08 and IPC-04- S:\CLIENTS\6667\1\Runyan Rebuttal FINAL.doc Surrogate Avoided Resource). In fact, the imposition of potential penalties on Idaho Power makes far more sense than it does for CSPPs because, as our direct testimony pointed out, the PCA eliminates for Idaho Power 90% of the penalty a CSPP faces under the payment for delivered energy contracts now in place. WHAT IS YOUR RESPONSE TO STAFF WITNESS STERLING' RECOMMENDATION THAT MORE FREQUENT UPDATING OF MONTHLY GENERATION ESTIMATES IS APPROPRIATE? As I have just explained, the existing CSPP projects are just as predictable as utility assets for planning purposes, and I therefore rej ect the notion that performance penalties are appropriate. This unfairness is exacerbated by the fact that the two-year lead time for generation estimates that Idaho Power has proposed is clearly arbitrary. As anyone familiar with the weather in the Northwest knows, forecasting weather and stream flows 2 years in advance is a recipe for disaster. If the forecast of monthly generation estimates is meant to be informative and useful, and not punitive, then the proposal by Staff witness Sterling to shorten the intervals for updating generation estimates from 2 years to 6 months is superior to Idaho Power s proposal. I would suggest, however, that even a six months forecast is too long. For example , who in their right mind would place any credence in a November forecast of May stream flows? If the Commission deems such forecasts necessary, a month ahead forecast will result in much more accurate information, while minimizing the punitive nature of any penalties Idaho Power may be allowed to impose. REBUTT AL TESTIMONY OF KIP W. RUNYAN - 12 IPUC Case Nos. IPC-04-08 and IPC-04- S:\CLIENTS\6667\1\Runyan Rebuttal FINAL. doc STAFF WITNESS STERLING REFERS TO IDAHO POWER'S PROPOSED CONTRACT LANGUAGE ABOUT FORCED OUTAGES AND PROPOSES SOME CHANGES. DO YOU AGREE WITH THE PROPOSED CHANGES? The contract section referred to by Staff Witness Sterling is, in my view, unwarranted for the reasons I've already discussed , as well as completely confusing as to the section intent and purpose. In the first place, the contract does not allow for a 72 hour grace period for forced outages as witness Sterling states. The section provides instead that any delivery suspension will be for a minimum of 72 hours. It further states that any suspension has to be for "all" deliveries, despite the representation by Idaho Power witness Gale on page 9 of his testimony that "the net energy commitment amount can be temporarily reduced." Neither of these provisions makes sense to me. For example, if the facility has 3 generating units, why must "all" deliveries be suspended? Why not just the damaged unit, or if the unit is capable of operating at ,some reduced level , why must all" deliveries be suspended? If the equipment can be repaired in 24 hours, what public good is served by the requirement to suspend deliveries a minimum of 72 hours? simply don t understand the reason for the clause and its punitive nature. EARLIER IN THE REBUTTAL YOU DISCUSSED THE 10 MEGAWATT LIMIT ISSUE AS IT WAS FRAMED IN THE PLEADINGS IN THIS CASE. HAS ANYTHING HAPPENED SINCE THE COMPLAINT WAS FILED THAT COMPLICATES THIS ISSUE? Yes. Throughout the negotiations, one of the primary sticking points between Idaho Power and U.S. Geothermal was how to define the Commission s reference to a 10 megawatt limit. But both parties assumed that the 10 megawatt standard applied only to REBUTT AL TESTIMONY OF KIP W. RUNYAN - IPUC Case Nos. IPC-04-08 and IPC-04- S:\CLIENTS\6667\I\Runyan Rebuttal FINAL. doc the amount of power that must be purchased at published rates, and that it did not limit a seller to a nameplate or peak capacity of 10 megawatts in order to be eligible for the published rates. That is why Idaho Power s draft contracts provided for the purchase of Optional Energy above 10 megawatts at a market based price. This view seemed to be supported by the Commission s Order No. 29232 in the Tiber case, issued on April 28 , 2003 , which authorized the payment of published rates notwithstanding the fact that the project might ultimately exceed 10 megawatts of capacity. But on May 4, 2004, approximately 6 weeks after U.S. Geothermal filed its complaint in this case, the Commission issued Order No. 29487 approving the Renewable Energy of Idaho contract. That contract contained the "Optional Energy" concepts to facilitate a 17.5 MW biomass facility. In the body of the Order, the Staff and Commission admonished Idaho Power regarding its contracting methodology for projects with a capacity in excess of 10 MW, and indicated that Idaho Power should determine the price for such projects in accordance with the Aurora model IRP methodology. Consequently, Idaho Power changed its position and now argues for the first time that U.S. Geothermal is not entitled to published rates for 10 megawatts or less of production, however defined, but instead is entitled only to the unknown rate that the Aurora model will ultimately produce for the entirety of its output. Staff witness Sterling now endorses this approach in his testimony. IF THE COMMISSION DETERMINES THAT PROJECTS LARGER THAN 10 MEGAWATTS ARE NOT ELIGIBLE FOR PUBLISHED RATES, DO YOU FEEL S. GEOTHERMAL SHOULD BE SUBJECTED TO THE AURORA MODEL IRP METHODOLOGY? REBUTTAL TESTIMONY OF KIP W. RUNYAN - IPUC Case Nos. IPC-04-08 and IPC-04- S:\CLlENTS\6667\I\Runyan Rebuttal FINAL.doc No. I believe U.S. Geothermal should receive a "grandfather" exemption from the IRP requirement for the same reason that the Commission exempted Renewable Energy. The Commission stated in its Findings, at page 10 , " What is persuasive in this case is the unfairness of holding the QF project hostage for the failure of the utility to follow the Commission-approved avoided cost methodology. The project's viability, as configured is dependent on the timely approval of the submitted Agreement." DO THOSE SAME CONSIDERATIONS APPLY TO THIS CASE? Yes. Following is a brief summary of the facts surrounding the effort by U. Geothermal to obtain a PURP A contract at published rates: (1)As presented in my direct testimony, early in 2003 Idaho Power sent several standard form PURPA agreements to U.S. Geothermal. These agreements included terms and conditions for the delivery of and payment for "Optional Energy. " " Optional Energy" is defined as "The electric energy produced by the Facility, less Station Use, and less Losses, scheduled and delivered by the Transmission Entity to Idaho Power at the Point of Delivery that exceeds 10 000 Kwh in any single hour." Article VI of the agreement goes on to state that "Idaho Power will purchase all of the Net Energy and Optional Energy produced by the Sellers Facility (2)On April 28 , 2003 , the Commission issued Order No. 29232. The Order approved the Tiber Montana Contract. That contract included the same provisions that are discussed above. The Order provided a substantial discussion of the "Optional Energy" concept and the likelihood that the Tiber project mayor may not someday have a capacity greater than 10 MW. REBUTT AL TESTIMONY OF KIP W. RUNYAN - 15 IPUC Case Nos. IPC-04-08 and IPC-04- S:\CLIENTS\6667\I\Runyan Rebuttal FINAL. doc (3)Extensive contract negotiations between Idaho Power and U.S. Geothermal were conducted during the period from October of2003 to the filing of this Complaint. The specifics of those negotiations are more completely discussed in my direct testimony at pages 4 & 5 and pages 9 through 11. During the entire period of negotiation the availability of published rates for the first 10 MW of output was never in dispute (4) (5) On March 25 2004, U.S. Geothermal filed its Complaint with the Commission. On May 4 2004, some 6 weeks after the filing of the U.S. Geothermal Complaint the Commission issued Order No. 29487. . (6)On May 21 , 2004, two months after U.S. Geothermal filed its Complaint, Idaho Power sent a letter to U.S. Geothermal that, for the first time in the negotiation, denied entitlement to the published rates for the U.S. Geothermal project. (7)The hearing dates for this Complaint are scheduled for September 2nd and 3rd 2004. An Order addressing the complaint is expected sometime thereafter, over one and one-half years after the contract negotiations were initiated. THE OTHER WITNESSES RAISE A NUMBER OF CONCERNS ABOUT THE POTENTIAL FOR ABUSE IF A PROJECT THAT IS LARGER THAN 10 MW (SAY 20 MW) SELLS THE OUTPUT OF THE PROJECT TO MULTIPLE PARTIES. YOU AGREE WITH THEIR CONCERNS? No. The stated concerns primarily center around two issues. The first is that a project in this situation could force multiple 10 MW PURP A contracts on various utilities at the published rates in the State of Idaho. The second is that the project would basically shop its output to the most favorable purchaser at the most favorable periods of time. The REBUTTAL TESTIMONY OF KIP W. RUNYAN - IPUC Case Nos. IPC-04-08 and IPC-04- S:\CLIENTS\6667\1\Runyan Rebuttal FINAL. doc Commission has already addressed the first of these concerns, and the second can be addressed by contract terms and conditions that make such abuses impossible. PLEASE EXPLAIN YOUR THOUGHTS ON THE CONCERN THAT MULTIPLE QF CONTRACTS COULD BE OBTAINED. This issue was fully discussed in the Staff Comments contained in the Tiber Montana Case (Order No. 29232). On page 4 of that Order, Staff is quoted as stating, "In Order No. 26772, the Commission equated the term 'project' as used in rate orders and schedules with 'qualifying facility,' as that term is defined by FERC. Thus each qualifying facility is only entitled to one PURP A contract." U.S. Geothermal agrees with the Staff interpretation and is willing to stipulate that the Project, except for this contract is not entitled to utilize the required purchase provisions of PURP A to contract with any other utility doing business in State of Idaho. TURNING TO THE SECOND ISSUE, CAN U.S. GEOTHERMAL GAME THE SYSTEM BY SHIFTING DELIVERIES BETWEEN MULTIPLE PARTIES IN ORDER TO MAXIMIZE ITS PROFITS? If the intent of the contracting parties is clearly understood in the contract, I don t believe such "gaming" can occur. If such practices were to occur, the purchaser under the contract would have legal rights to claim a breach of performance and pursue appropriate legal and financial remedies. It should be clearly understood that U.S. Geothermal has no intent to, or any interest in, employing any of the activities referred to by The Other Witnesses. If Idaho Power, or this Commission, has any concerns in that regard, U. Geothermal is more than willing to include provisions in the contract that provide adequate protection to all parties. U.S Geothermal intends to deliver Idaho Power its pro- REBUTT AL TESTIMONY OF KIP W. RUNYAN - 17 IPUC Case Nos. IPC-04-08 and IPC-04- S:\CLIENTS\6667\1\Runyan Rebuttal FINAL. doc rata share of the project output during all hours of each day of the contract period. Any reasonable contract provision to assure this performance is acceptable to U.S Geothermal. The contract provisions could be quite simple, and easily monitored through the right to audit on demand all of the project production records. The problem I have with the utilities' presentation is that having stated the concerns, the only solution offered is to disallow any and all sales of additional output to any third party, rather than proposing contract language that protects their interests. cannot identify any public policy issue or concern that would lead to forbidding a sale of excess energy to a third party. Again, reasonable parties attempting to provide adequate and fair contract protections should have no problem agreeing on appropriate contract terms and conditions. STAFF WITNESS STERLING BELIEVES U.S. GEOTHERMAL SHOULD NOT BE ENTITLED TO THE SAME "GRAND FATHERING" TREATMENT AS RENEWABLE ENERGY OF IDAHO. DO YOU AGREE WITH HIS CONCLUSIONS? No. In Staff Witness Sterling s testimony on page 23 , he states that the Commission reluctantly approved the Renewable Energy contract , " in part because it did not wish to delay Renewable Energy s progress on completing the project and in part because it did not wish to penalize Renewable Energy for mistakes not of its creation." I see no reason why the Commission should treat U.S. Geothermal any differently than Renewable Energy, simply because it has exercised its rights to challenge what it believes are unfair contract terms in a six month complaint process before this Commission. REBUTTAL TESTIMONY OF KIP W. RUNYAN - 18 IPUC Case Nos. IPC-04-08 and IPC-04- S:\CLIENTS\6667\1\Runyan Rebuttal FINAL. doc STAFF WITNESS STERLING ALSO STATES THAT THIS CASE IS DIFFERENT BECAUSE HE REMEMBERS "TELLING U.S. GEOTHERMAL ON ONE OR MORE OCCASIONS THAT IF IT WANTED TO PURSUE A PROJECT 10 MW OR LARGER, IT MUST REQUEST THAT IDAHO POWER COMPUTE A RATE USING THE IRP-BASED METHODOLOGY.DO YOU AGREE WITH HIS CONCLUSIONS? No. PURP A developers do not follow the PUC's proceedings and orders with anYthing like the utilities' intensity or expertise , and they should be entitled to rely on the presumption that a utility s contractual approach is consistent with Commission orders and policies. The QF developer has a significant number of development and contracting issues it must manage. To further burden it with the responsibility to ensure that Idaho Power s negotiation positions are entirely consistent with the Commissions intent is simply unreasonable and unworkable. STAFF WITNESS STERLING INDICATES, AT PAGE 22, THAT U. GEOTHERMAL REQUESTS "GRANDF A THERING" FOR THE A AILABILITY OF PUBLISHED RATES CONSISTENT WITH THE RENEWABLE ENERGY OF IDAHO TERMS. IS THIS AN ACCURATE REPRESENT A TIION? Not entirely. U.S. Geothermal is asking the Commission to "grandfather' U. Geothermal for eligibility for published rates for the first 10 MW of project output, as that is defined in the contract, with the right to sell any excess to other third parties. discussed earlier in this rebuttal testimony, as well as in my direct testimony, U. Geothermal is more than willing to include contract provisions that protect Idaho Power REBUTT AL TESTIMONY OF KIP W. RUNYAN - IPUC Case Nos. IPC-04-08 and IPC-04- S:\CLIENTS\6667\I\Runyan Rebuttal FINAL. doc and its customers from any potential abuses it feels it is not now contractually protected from. IF THE COMMISSION DECIDES THAT U.S. GEOTHRMAL IS ENTITLED TO TERMS CONSISTENT WITH THE RENEWABLE ENERGY OF IDAHO CONTRACT, BUT IS NOT COMFORTABLE WITH ALLOWING THE SALE OF EXCESS PRODUCTION TO A THIRD PARTY, WHAT EFFECT WILL THIS HAVE ON THE VIABILITY OF THE U.S. GEOTHERMAL PROJECT? The financial feasibility of the project under the described scenario is really outside the scope of the services I am providing U. S. Geothermal. I would, in such a case, ask the Commission to review the fairness of the provision Idaho Power has included in its Market Based Pricing for Optional Energy. "Market Energy Cost" is defined as "eighty- five percent (85%) of the weighted average of the daily on-peak and off-peak Dow Jones Mid-Columbia Index (Dow Jones Mid-C Index) prices for non-firm energy. " " Optional Energy," that is energy in excess of 10 000 Kwh in any single hour, is paid the current month's Market Energy Cost or the published rates, whichever is lower. Idaho Power enjoys the benefit if the Market Energy Cost is below the published rates, but denies the seller the benefit of a Market Energy Cost that is above the published rates by limiting the payments to the lesser of the published rates or Market Energy Costs. "Optional Energy is treated as non-firm. Staff witness Sterling describes the terms under which "non firm energy sales are made on page 4 of his testimony. "Non-firm energy projects less than MW in size are paid 85% of Mid-C market prices." Idaho Powers inclusion of the "lesser of' provision in the Optional Energy pricing is inconsistent with the pricing criteria the Commission has established. The "lesser of' provision is unfair and inconsistent with REBUTT AL TESTIMONY OF KIP W. RUNYAN - 20 IPUC Case Nos. IPC-04-08 and IPC-04- S:\CLIENTS\6667\1\Runyan Rebuttal FINAL. doc Commission pricing criteria and Idaho Power should be instructed to remove that provision from the contract. DOES THAT COMPLETE YOUR REBUTTAL TESTIMONY? Yes. REBUTT AL TESTIMONY OF KIP W. RUNYAN - 21 IPUC Case Nos. IPC-04-08 and IPC-04- S:\CLIENTS\6667\1\Runyan Rebuttal FINAL. doc EX H I B I T 1 - CO M P A R I S O N O F C S P P & I D A H O P O W E R G E N E R A T I O N R E C O R D An n u a l o u t p u t a s a P e r c e n t o f P e r i o d A v e r a ( e Th e r m a l P r o j e c t s Hy d r o P r o j e c t s To t a l P r o j e c t s Ye a r IP C o . CS P P IP C o , CS P P IP C o . CS P P 19 9 7 77 % 10 1 % 13 8 % 12 5 % 11 1 % 11 5 % 19 9 8 99 % 10 1 % 13 0 % 11 4 % 11 6 % 10 9 % 19 9 9 10 4 % 10 0 % 12 4 % 12 0 % 11 5 % 11 2 % 20 0 0 11 0 % 96 % 99 % 10 6 % 10 4 % 10 2 % 20 0 1 10 9 % 10 6 % 66 % 76 % 85 % 88 % 20 0 2 10 3 % 10 4 % 71 % 80 % 85 % 90 % 20 0 3 98 % 93 % 72 % 79 % 84 % 85 % ". ~ o m ' D ) (Q :: : a tn :: T tn = Z - . .. " ' C . . "' D ) ~ = ~ 0 Nc : ~ ~ C. O ' C( I ) I ". . m Ci) I CD C 0 ~ .. C :: T c o CD D ) 3 = D) Q . .. . EXHIBIT 4.2 - CSpp GENERATION RECORD Annual CSPP Production - Gi~ awatt hours Total 58 Hydro.7 Thermal Year 65-Projects Projects Projects (see below) 1997 856 557 299 1998 807 509 298 1999 831 535 296 2000 757 472 285 2001 653 339 314 2002 665 358 307 2003 628 353 275 Average 742 446 296 Notes: (1) The "7 Thermal Projects" include West Boise Waste , Pocatello City Waste, Glenns Ferry Cogen, JR Simplot Thermal , Rupert Cogen, Tamarack Wood Wate and the Tasco Thermal Projects, (2) The "Total 65 Projects" do not include the Boise Cascade Emmett Wood Waste and Vaagen Lumber Wood Waste Projects because they were not in service the entire study period. Annual CSPP Production - % of Average Total 58 Hydro,7 Thermal Year 65-Projects Projects Projects (see below) 1997 115%125%101% 1998 109%114%101% 1999 112%120%100% 2000 102%106%96% 2001 88%76%106% 2002 90%80%104% 2003 85%79%93% Exhibit No. 4. Case Nos. IPC-E-O4-08 and IPC-E-O4- K. Runyan, U.S. Geothermal August 19, 2004 EXHIBIT 4.3 - IDAHO POWER GENERATION RECORD Annual Idaho Power Production - Gigawatt hours 1997 1998 1999 2000 2001 2002 2003 Average THERMAL: Bridger 327 183 309 5,400 365 945 820 050 Boardman 142 322 349 354 444 353 424 341 Valmy 925 420 608 945 788 945 628 608 Danskin Salmon Diesel Total Thermal 394 925 266 702 619 286 915 015 Total w/o Danskin 394 925 266 702 601 243 873 001 HYDRO: American Falls 733 596 579 386 230 210 206 420 Bliss 568 492 465 406 315 299 294 406 Brownlee 341 318 084 508 633 839 943 524 Cascade Oxbow 421 370 171 088 707 823 838 060 Hells Canyon 951 794 786 172 385 621 630 191 Malad 167 186 187 182 170 165 159 174 C J Strike 636 631 643 493 377 364 351 499 Swan Falls 179 139 104 124 119 113 110 127 Twin Falls 399 349 339 185 201 Upper Salmon 269 262 285 278 218 193 179 241 Shoshone Falls 114 102 117 111 100 Lower Salmon 453 408 403 285 213 194 194 307 Milner 441 354 350 170 198 Clear Lakes Thousand Springs Total Hydro 806 11 ,135 652 497 638 038 148 559 Total Both - w/o 200 060 918 199 239 281 021 560 Danskin Annual Idaho Power Production - % of Average 1997 1998 1999 2000 2001 2002 2003 Average Thermal 77%99%104%110%109%103%98% Hydro 138%1300/0 124%99%66%71%72% Total 111%116%115%104%85%85%84% Exhibit No. 4. Case Nos. IPC-O4-O8 and IPC-E-O4- K. Runyan, U.S. Geothermal August 19, 2004 CERTIFICATE OF SERVICE I HEREBY CERTIFY that on this 16th day of August 2004, I caused to be served a true and correct copy of the foregoing document by the method indicated below and addressed to the following: Jean Jewell Idaho Public Utilities Secretary 472 W, Washington Street O, Box 83720 Boise, ID 83720-0074 S, Mail Hand Delivered Overnight Mail Facsimile Scott Woodbury Deputy Attorney General Idaho Public Utilities Commission 472 W, Washington Street O, Box 83720 Boise, ID 83720-0074 S, Mail Hand Delivered Overnight Mail Facsimile Barton L, Kline Monica B, Moen Idaho Power Company 1221 W, Idaho Street O, Box 70 Boise, ID 83707-0070 S, Mail Hand Delivered Overnight Mail Facsimile John p, Prescott Vice President - Power Supply Idaho Power Company O, Box 70 Boise, ID 83707-0070 S, Mail Hand Delivered Overnight Mail Facsimile Peter 1. Richardson Richardson & O'Leary 99 E, State Street, Ste, 200 O, Box 1849 Eagle, ID 83616 S, Mail Hand Delivered Overnight Mail Facsimile Don Reading Ben Johnson Associates 6070 Hill Road Boise, ID 83703 S, Mail Hand Delivered Overnight Mail Facsimile REBUTTAL TESTIMONY OF KIP W. RUNYAN - 22 IPUC Case Nos. IPC-04-08 and IPC-04- S:\CLIENTS\6667\1\Runyan Rebuttal FINAL.doc Dan Kunz, President S, Geothermal, Inc, 1509 Tyrell Lane, Ste, B Boise, ID 83706 James F, Fell Stoel Rives LLP 900 S,W, Fifth Avenue, Ste, 2600 Portland, OR 97204 Bob Lively PacifiCorp One Utah Center, 23 rd Floor 201 S, Main Street Salt Lake City, UT 84140 R, Blair Strong Paine, Hamblen, Coffin, Brooke & Miller LLP 717 W, Sprague Avenue, Ste, 1200 Spokane, WA 99201-3505 Clint Kalich, Manager of Resource Planning and Analysis A vista Corporation MSC- 7 O, Box 3727 Spokane, W A 99220-3727 REBUTTAL TESTIMONY OF KIP W. RUNYAN - 23 IPUC Case Nos. IPC-04-08 and IPC-04- S:\CLIENTS\6667\I\Runyan Rebuttal FINAL.doc S, Mail Hand Delivered Overnight Mail Facsimile S, Mail Hand Delivered Overnight Mail Facsimile S, Mail Hand Delivered Overnight Mail Facsimile S, Mail Hand Delivered Overnight Mail Facsimile S, Mail Hand Delivered Overnight Mail Facsimile ConI