HomeMy WebLinkAbout20040917Avista Post Hearing Brief.pdfR. Blair Strong
PAINE, HAMBLEN, COFFIN, BROOKE & MILLER LLP
717 WEST SPRAGUE AVENUE, SUITE 1200
SOPOKANE, WASHINGTON 99201-3505
TELEPHONE: (509) 455-6000
FACSIMILE: (509) 838-0007
ATTORNEYS FOR A VISTA CORPORATION
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
S. GEOTHERMAL, INC., an Idaho
corporation
IDAHO POWER COMP ANY, an Idaho
corporation
Complainant
vs.
Respondent.
BOB LEW ANDOWSI AND BOB
SCHROEDER
Complainants,
vs.
IDAHO POWER COMPANY, an Idaho
corporati on
Respondent.
CASE NO. IPC-04-
CASE NO. IPC-04-
VISTA CORPORATION'S BRIEF
RESPECTING APPLICABILITY OF
FIRM AND NONFIRM RATES TO
WIND POWER PROJECTS
Avista Corporation ("Avista ) respectfully submits the foregoing comments in
response to Commission s request at the evidentiary hearing on September 3 , 2004 that
parties submit briefs on the issue of the qualification of wind power projects for firm and
nonfirm published avoided cost rates.A vista explains herein why it understands
nonfirm" and "intermittent" to refer to the inability or unwillingness of a qualifying
facility ("QF") to deliver a significant measure of capacity.
VISTA CORPORATION'S BRIEF -
INTRODUCTION
This is a case of first impression for this Commission, because no prior contested
case or decision of the Commission has expressly addressed the unique generating
characteristic of wind power, namely the fact that the quantity of power to be generated
from wind projects cannot be predicted with assurance of accuracy from day to day,
much less from moment to moment.In this connection A vista, and apparently
PacifiCorp, have received no offers to sell power from wind powered projects at Idaho
published avoided cost rates, and Idaho Power Company has executed only one purchase
contract with a wind project at its Idaho published avoided cost. This one Idaho Power
contract contained the 90%-110% bandwidth requirement recommended by Idaho Power
in this proceeding.
Because there are no express prior decisions on point, the Commission will not
this proceeding be changing prior Commission policy respecting the entitlement of wind
projects for firm or nonfirm avoided cost rates, as implied by Complainants at the
evidentiary hearing. Moreover, there is no need for the Commission to be constrained by
additional formal notice requirements, as contended by Complainants at the evidentiary
hearing, from resolving this issue in this case. A vista intervened in this case because of
the potential precedent that could be established, and other parties, had they been
interested, also could have intervened. As it has in the past in contested cases, the
Commission will be providing clarity to guide utilities and developers in the future by its
decision.
AVISTA CORPORATION'S BRIEF - 2
A vista believes that wind power development should be encouraged and A vista
has actively pursued appropriately priced wind power resources. In fact, A vista recently
purchased 35 MW of wind power for a ten-year period beginning in April, 2004.
However, the Public Utility Regulatory Policies Act of 1978 mandates that customers not
be adversely affected by purchases from QF projects at avoided cost rates. The record in
this proceeding supports an order that recognizes that utilities cannot be required to pay
firm avoided cost rates for wind projects that are unable to provide capacity to utilities
similar to the capacity provided by the Surrogate Avoided Resource ("SARli). QF's that
are unable to provide a significant measure of capacity similar to that provided by the
SAR are selling "nonfirm" or "intermittent" power in Avista s view.
In the context of qualification for avoided cost rates, the record in this proceeding
supports three possible options, or a combination of the three: (1) to clarify that wind
powered projects are entitled only to nonfirm avoided cost rates, as contended by Mr.
Sterling, (2) to allow utilities to negotiate a capacity discount applicable to non firm
resources, as recommended by Mr. Kalich; and/or (3) to allow utilities to require a
contract performance band of90%-110% as recommended by Mr. Gale or 80%-120% as
recommended by Mr. Sterling.As indicated below, there is good reason for the
Commission, if it is so inclined, to agree with Mr. Sterling that wind resources are
automatically entitled only to nonfirm avoided cost rates.
ISCUSSI
The underlying legal mandate that should govern the Commission s decision in
this case is the Public Utility Regulatory Policies Act of 1978 , which requires that rates
for purchases from qualifying facilities shall not exceed the "incremental cost to the
VISTA CORPORATION'S BRIEF - 3
electric utility of alternative electric energy , which is defined as
, ". . .
the cost to the
electric utility of the electric energy which, but for the purchase from such cogenerator or
small power producer, such utility would generate or purchase form another source." 16
C. 9 824a-3(d). The SARs selected by this Commission have always had inherent to
them an assumed capacity factor. For example, most recently the SAR has been a
combined cycle combustion turbine. Therefore, inherent in the avoided cost rate is the
assumption that qualifying facilities will also provide a significant measure of capacity to
the purchasing utility. If a utility pays a rate to a qualifying facility based in part on
capacity that would be produced by the SAR, but the utility receives no or virtually no
capacity from the qualifying facility, then the utility will, in effect, be required to acquire
capacity from another source in addition to the power from the qualifying facility. This
result, in effect, violates the mandate of Congress, because the utility ends up paying
more for power than had the utility actually constructed the SAR. This result will be
avoided if the Commission recognizes that wind projects generally provide little or no
capacity to a utility, and therefore are not automatically entitled to rates for firm power.
Mr. Kalich points out in his filed testimony that a utility is generally concerned
with two types of capacity: (1) capacity reserves to serve customer loads in the event of
adverse weather and/or hydroelectric conditions; and (2) generation following, sometimes
referred to as integration costs, associated with the utility's obligation to respond to hour-
to-hour and intra-hour changes in customer demand. Kalich, Direct p.7. Capacity is an
instantaneous or near-instantaneous product. Kalich, Direct p.
The fact that wind projects lack the capability to provide capacity has been
recognized generally, as indicated by Mr. Sterling. Also, the Commission s very early
VISTA CORPORATION'S BRIEF - 4
orders implementing PURP A, recognized that there were capacity differences between
types of qualifying facility generation. The Commission stated:
Commission Order No. 15746 (38 PUR4th 352) did not attempt to determine the
proper capacity value to utilities on a technology-by-technology basis. We did
not have before us at that time sufficient evidence to determine the reliability of
such diverse technologies as wind power, biomass combustion, and hydroelectric
generation. Consequently, we instructed the utilities to provide a dual option: (a)
those who commit themselves to proving firm power are to receive capacity and
energy payments based on the unit the utility may avoid or defer thereby; (b)
those who because of the unreliability of their technology, commit themselves
only to providing nonfirm energy are to receive energy payments based on the
system s avoided energy costs. Nonetheless, we recognized that such nonfirm
energy has some capacity value to the utility. We therefore ordered the utilities to
offer some minimal payment for nonfirm energy. Washington Water Power has
offered to pay three mills in addition to system avoided energy costs computed on
the basis on one year s incremental peaking capacity on the system. We find this
payment just and reasonable. . .
Re Rule-making Proceeding for Consideration of Cogeneration and Small Power
Production, 40 P.RAth 563 (1980) (Case No. P-300-, Order Nos. 16025 and 16048).
In this order, the Commission recognized that some resources were simply incapable of
providing significant capacity value. Irrespective of whether today one would describe
such power produced by such resources as "nonfirm" or "intermittent", the Commission
recognized in 1980 that a resource may be unreliable for reasons inherent in the
technology and assumed that a resource developer whose project is unreliable would be
only able to offer nonfirm energy to the utility, and would be entitled only to a minimal
payment for capacity. While the Commission stated that non firm energy has "some
capacity value " and therefore ordered payment of "some minimal payment for nonfirm
energy," three mills represented a small value in that era, or the present.
At the evidentiary hearing in this case, Complainants argued that the qualification
for firm or nonfirm rates depended exclusively on the volition or intention of the project
AVISTA CORPORATION'S BRIEF - 5
developer, so that if a wind power developer intended to ,deliver all of his generation to a
utility, when such power was available, he would be entitled to firm rates. However, it is
clear that even in 1980 the Commission recognized that qualifying facilities had different
inherent reliability characteristics, apart from the desire or intention of the developer
which the Commission assumed would be taken into account when selecting applicable
rates.
The Commission was contemplating a different surrogate avoided resource
SAR") in 1980 from that adopted later by the Commission, and the rate schedules in
1980 were structured somewhat differently from those currently in effect. However, all
the SAR methodologies and avoided cost rate schedules subsequently adopted by the
Commission have assumed that the hypothetical SAR would provide capacity as well as
energy to an acquiring utility.Indeed the regulations of the Federal Regulatory
Commission ("FERC") require that capacity be taken into account when determining
avoided cost rates. Section 292.304(a) of the FERC's regulations states that
, "
a rate for
purchases satisfies the requirements. . . if the rate equals the avoided costs determined
after consideration" of such factors as reliability, dispatchability, contribution to peak
load, length of contractual guarantee, etc. Also, although the Commission has considered
different rate methodologies for calculating avoided costs, all avoided cost rate schedules
have included both firm and nonfirm rates. Therefore, the importance of capacity to a
utility has been recognized both in the determination of avoided cost with respect to the
determination of the SAR and in the structure of the avoided cost rate schedules.
Therefore, there is a logical and historical connection between the theoretical SAR and
AVISTA CORPORATION'S BRIEF - 6
the avoided cost rates applicable to qualifying facility projects that are not able to deliver
more than minimal amounts of capacity to a utility.
Moreover, irrespective of past determinations, the Commission has before it the
issue of what it should require of future contracts, given current conditions. As Mr.
Gale s testimony indicated, Idaho Power now is experiencing a capacity shortfall. This
indicates a shift in utility requirements from those experienced years ago. Additionally,
as illustrated by this case, the significance of wind development, and other alternative
technologies to our region is increasing. The Commission should afford utilities the
flexibility to deal contractually with the lack of firmness associated with wind and other
technologies as these technologies assume more importance.
It is reasonable for utilities to negotiate for the purchase of power from qualifying
facilities on the basis that, absent force majeure events, power will be delivered to the
utility and its customers, on some predictable seasonal, daily and instantaneous basis.
Alternatively utilities and QF developers should be able to negotiate provisions that
compensate for delivery of power that cannot be reliably delivered. Absent contract
provisions that require predictability in power deliveries, or otherwise compensate for the
absence of predictability, a contract to purchase power from an intermittent generator
amounts at "firm" energy rates amounts to little more than an exclusive option
arrangement under which a developer promises to sell the output of its generators, when
they are working, to the purchasing utility at a guaranteed rate, but makes no meaningful
promise that the power will be available when it is needed.
Reliability" and "firmness" as used by the Commission in its past decisions
clearly relate to the idea that that power will be available when needed. Complainants in
AVISTACORPORATION'S BRIEF - 7
this proceeding now attempt to strip from the meaning of the word
, "
firm " any
relationship to the concept of reliability or capacity. Their interpretation would restrict
the right of utilities to require contract provisions that would encourage or require
qualifying facilities to deliver power to utilities with enough reliability so that the utility
can plan on its delivery. This Commission should not adopt a definition of "firm
nonfirm" and "reliability" devoid of any meaning to the purchaser, other than the
developer s promise to deliver all of his output to a single purchaser.
In this proceeding the Commission heard three ways in which utilities might
contractually accommodate wind power projects, or otherwise encourage wind projects to
deliver capacity. Mr. Gale and Mr. Sterling propose a "band" to apply to all contracts.
Mr. Sterling also proposes that wind projects automatically qualify only for the nonfirm
rate.(Presumably, exceptional wind power projects that are able to guarantee a
significant degree of capacity could still request firm rates from a utility.) Mr. Kalich
stated Avista s recommendation that unreliable projects be paid a fixed rate set by
schedule, but reduced by a capacity discount that takes into account the absence of
capacity .All of the recommendations represent a reasonable effort to accommodate
wind power and similar projects that may be incapable of delivering power on a
predictable basis.
The Commission should affirm each utility's right to negotiate specific contract
provisions for "firming" power deliveries from otherwise unpredictable resources, or
negotiating adjustments to firm rates that compensate for the unpredictability. Absent
these negotiated provisions, a resource that has little predictable capacity value on a
VISTA CORPORATION'S BRIEF - 8
seasonal, daily, and instantaneous basis should be entitled only to nonfirm rates, as
proposed by Mr. Sterling.
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By:
R. Blair Strong,
Attorneys for A vista Corporation
717 West Sprague Ave., Suite 1200
Spokane, W A 99201-03505
Phone: 509-455-6000
CERTIFICATE OF SERVICE
+- ,,-.
I HEREBY CERTIFY that on the day of September, 2004, I caused to be
served a true and correct copy of A VISTA CORPORATION'S BRIEF by the method
indicated below, and addressed to the following:
Ms. Jean Jewell
Commission Secretary
472 W. Washington
Boise, 10 83702-5983
S. Mail
Hand Delivery
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Conley E. Ward
Givens Pursley LLP
PO Box 2720
Boise, 10 83701-2720
v- S. Mail
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Daniel Kunz, President
S. Geothermal, Inc.
1509 Tyrell Lane, Suite B
Boise, 10 83706
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/ U.S. Mail
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Peter J. Richardson
Richardson & O'Leary PLLC
PO Box 1849
Eagle, 10 83616
S. Mail
Hand Delivery
Facsimile
Overnight Mail
VISTA CORPORATION'S BRIEF - 9
Don Reading
Ben Johnson Associates
6070 Hill Road
Boise, 10 83703
Scott Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
PO Box 83720
Boise, 10 83720-0074
Barton L. Kline
Monica B. Moen
Idaho Power Company
PO Box 70
Boise, 10 83707-0070
John P. Prescott
Vice President - Power Supply
Idaho Power Company
PO Box 70
Boise 1083707-0070
James F. Fell
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, OR 97204
Bob Lively
Pacifi Corp
One Utah Center, 23rd Floor
201 S. Main Street
Salt lake City, UT 84140
00206545
AVISTA CORPORATION'S BRIEF - 10
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R. BLAIR STRONG