20050715Legal memo.pdf

David J. Meyer
Vice President, Chief Counsel For Regulatory
and Governmental Affairs
A vista Corporation
O. Box 3727
1411 East Mission Avenue, MSC-
Spokane, Washington 99220-3727
Telephone: [phone]
Facsimile: [phone]
R. Blair Strong
PAINE, HAMBLEN, COFFIN, BROOKE
& MILLER, LLP
717 West Sprague Avenue, Suite 1200
Spokane, W A 99201-3505
Telephone: [phone]
Facsimile: 509-838-0007
Mail: blair.strongcmpainehamblen.com
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10 fID PUBLIC
UTiLITIES COr'1f1ISSION
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION
OF IDAHO POWER COMPANY FOR
AN ORDER TEMPORARILY
SUSPENDING IDAHO POWER'
PURP A OBLIGATION TO ENTER INTO
CONTRACTS TO PURCHASE ENERGY
GENERATED BY WIND-POWERED
SMALL POWER PRODUCTION FACILITIES
CASE NO. IPC-05-
LEGAL MEMORANDUM OF A VISTA
CORPORATION REGARDING
TEMPORAR Y SUSPENSION OF PURP
MANDATORY PURCHASE OBLIGATIONS
FOR NEW WIND QF PROJECTS
Pursuant to the Commission s Notice of July 1 2005, Avista Corporation ("A vista
submits this legal memorandum regarding the Commission s authority to temporarily suspend
utility obligations under the Public Utility Regulatory Policies Act of 1978 ("PURPA") to enter
into contracts to purchase energy generated by wind-powered small production facilities. A vista
concurs with the suspension request of Idaho Power Company. However, for the reasons set
forth in the Direct Testimony of Robert J. Lafferty, A vista submits that any suspension of
obligations to purchase wind generation should be suspended with respect to A vista, as well as
LEGAL MEMORANDUM OF
A VIST A CORPORATION -
Idaho Power Company ("Idaho Power ). A suspension will serve, in part, to prevent an
unintended situation where wind developers will reconfigure their projects so they fall below the
ten megawatt threshold in order to qualify for Commission approved published rates.
suspension should also apply to A vista, as a petitioning utility, in order to avoid creating an
incentive for wind resource developers, who are currently making their proposals to Idaho
Power, to shift their proposals to A vista. The issues raised by Idaho Power regarding the impact
and cost of integration of wind resources has broader application to other utilities in this
jurisdiction.
The Commission has general responsibility for implementation of PURP A
Idaho.
The Commission has regulatory authority over A vista and Idaho Power pursuant to the
Idaho Public Utilities Law and the Public Utility Regulatory Policies Act of 1978 ("PURPA"
See LC. 9 61-501-540 (1994); PURPA, 99 3(16), (17); 16 U.A. 9 796(15), (21) (1985). The
Commission s authority under PURP A and implementing regulations of the Federal Energy
Regulatory Commission ("FERC") is to set avoided costs, to order electric utilities to purchase
power from small power producers, and to implement FERC rules. PURP A 99 210, 210(a), and
210(f); 16 U.A. 9 824a-3(a), (f) (West 1985 & Supp. 1995); See also, Afton Energy, Inc.
Idaho Power Co.107 Idaho 781 , 693 P.2d 427 (1984); Rosebud Entr. v. Idaho Pub. Uti!.
Com 128 Idaho 609, 613, 917 P.2d 766 (1996). Consistent with this authority, it is within the
Commission s discretion to determine whether changed, new, or previously unrecognized
conditions warrant investigation, and whether during the investigation the obligation to purchase
wind power should be suspended.
LEGAL MEMORANDUM OF
VISTA CORPORATION - 2
The Commission must suspend the utility purchase obligation, or revise
avoided cost rates when it appears that avoided costs rates may exceed the
utility avoided cost.
Section 210(f) of PURP A requires the states to establish avoided cost rates as provided
by the rules of the FERC 16 U.C. 9 824a-3(f)(1). Rates paid for the purchase of power under
PURPA must be just, reasonable and in the public interest. 18 C.R. 9292.304(a)(1)(i).
A voided costs are those costs which a public utility would otherwise incur for electric energy
and/or capacity, either by purchasing from another source or through its own production.
R. 9292.101(b)(6). However, the legislative history of PURPA indicates that the avoided
cost limit
, "
is meant to act as an upper limit on the price at which utilities can be required under
this section to purchase electric energy." 1978 U.S. Code Congo & Ad. News 7797, 7832. In
fact, the FERC has expressly held that any state authority to require the purchase of power at
rates in excess of avoided cost is preempted by PURP A. See Orange and Rockland Utilities, Inc.
43 FERC Cj( 61 067 (1988).
The upper limit on the price that utilities can be required to purchase electric energy
protects the consuming public against paying unwarranted subsidies to project developers though
the PURP A process and protects the public from being exposed to costs in excess of those that
would be incurred were utilities to acquire power from non-PURP A sources. This upper limit
may be violated if unrestricted and unlimited sales of wind power occur under existing
Commission PURP A tariffs and policies while the Commission considers revising PURP A
policies applicable to wind power projects.
The Direct Testimony of Mr. Lafferty of A vista and Mr. Gale of Idaho Power indicate
that, in practice, there are costs associated with integrating intermittent wind-powered resources
that are not reflected in the published avoided cost rates approved by the Commission.
LEGAL MEMORANDUM OF
VISTA CORPORATION - 3
Therefore , the rates presently being offered to wind projects under Idaho approved avoided cost
tariffs exceed the costs to acquire the wind generated power from non-PURPA sources. The
witnesses also point out the recent significant magnitude and speed of wind resource
development being made available to Idaho utilities. The recently renewed federal production
tax credit is a significant factor in encouraging wind resource development. Additionally,
developers have flexibility in configuring the size of their wind power projects to take advantage
of published avoided cost rates. All these factors point to the need for an investigation and a
suspension during the investigation.
Under these circumstances, it is incumbent upon the Commission to determine whether
the costs of wind-power purchases under existing PURP A policies and rates in Idaho are
reasonable or will result in acquisition costs that exceed utility avoided costs in violation of
PURP A. During its consideration of these issues, it is also reasonable and permissible that the
Commission suspend mandatory purchase offers to wind power developers under PURP
Developers have no legally vested rights to receive contracts with utilities for
the sale of power pending a possible change in Commission approved
PURP A terms and conditions.
Wind power developers may oppose a suspension on the theory that they have a legal
right or entitlement to receive a contract at existing avoided cost rates until new rates are
established. However, the Commission has held that developers have no rights to be "locked-
to an entitlement to preexisting avoided cost rates after the Commission has found that it is likely
that those rates no longer reflect the utility s changed avoided costs. See A. W. Brown Co., Inc.
Idaho Power Co.Order No. 23271 , Case No. IPC-88-9 (1990); affd 121 Idaho 812, 828 P.
841 (1992). A developer has to have a substantially mature project and have been ready, willing
and able to sign a contract with a particular utility before the avoided cost rate is superseded in
LEGAL MEMORANDUM OF
VISTA CORPORATION - 4
order to be locked into to a right to receive the superseded rate. Id.; also see Empire Lumber
Washington Water Power Company, 114 Idaho 191, 755 P.2d 1229 (1987).
Similar logic applies to the suspension of an avoided cost terms, conditions and purchase
rates as to their supersession. The Commission may find that it is likely that existing avoided
cost terms , conditions and purchase rates are no longer just, reasonable, or in the public interest.
Alternatively, the Commission may find that the public interest will be adversely affected if the
existing avoided cost terms, conditions or purchase rates remain in effect during an investigation.
In either event, the Commission should suspend the mandatory avoided cost rates while it
completes its investigation. PURP A developers have no legal right under PURP A or Idaho law
to prevent such a suspension.
Utilities and their customers will be prejudiced if utilities are compelled to
offer to purchase at avoided cost rates that fail to take into account
additional costs imposed on utilities as a result of the unique nature of large
volumes of wind-generated power.
In Order No. 29029, Case No. GNR-02-, the Commission reinstituted a policy of
twenty-year standard offers for the purchase of power from PURP A projects. However, it also
reiterated the Commission s long-standing policy that
, "
ratepayers should be indifferent to
whether a resource serving them was constructed by a utility or by an independent contractor.
This principle will be violated if the Commission fails to suspend the obligation to acquire wind-
generated power at Commission adopted purchase rates, but ultimately determines that
acquisition of wind power under PURP A actually increases costs to utilities when compared to
acquisitions from non-PURP A sources, or that the avoided cost rates applicable to wind power
exceed the cost of comparable non-PURPA wind generated power. Absent a suspension
developers will have a significant incentive to submit a barrage of requests to Idaho utilities in
LEGAL MEMORANDUM OF
VISTA CORPORATION - 5
order to take advantage of a guaranteed twenty-year contract before the Commission completes
its deliberations that may change the policies in the future.
The Commission has previously exercised its authority to suspend purchase
obligations under PURP
In order to avoid prejudice to utility customers in the past, the Commission has
suspended the purchase obligation of utilities while it considered changes to its policies for
implementing PURP A. In Order No. 21249, Case No. U-1500-170, the Commission instituted
its own investigation regarding the implementation of PURP A in Idaho. The Commission noted
Prior experience of the Commission teaches us that whenever potential qualifying facilities
sense a pending change in the Commission s policy with respect to price, there is a flood of
applications seeking to obtain contracts at the existing rates.The public interest will not be
served in this case if the conduct of an investigation as requested by Idaho Power and A vista
immediately prompts a flood of applications from wind-powered projects for twenty-year
contracts. This will be particularly true if the Commission ultimately determines that terms
offered to wind-powered projects should be less favorable than current terms.
Although more limited in effect, Order No. 19483 in Case No. U-1500-156 is another
example of the Commission ordering a suspension of the obligation to purchase power from
PURP A projects In this case the Commission was concerned that Bonneville Power
Administration, and its wholesale requirements customers over whom the Commission had no
jurisdiction, were inadequately implementing PURP A, resulting in only Idaho jurisdictional
utilities being required to purchase power from projects located in the Bonneville service area.
The Commission, therefore, suspended for a year the obligation of Idaho utilities under its
jurisdiction to purchase power from projects located in the service territories of Bonneville and
its requirements customers.
LEGAL MEMORANDUM OF
VISTA CORPORATION - 6
Although Idaho Power instituted this proceeding with a petition, and in the proceedings
discussed above, the Commission instituted the proceedings on its own motion, that procedural
distinction is immaterial. In this case, as in the cases where the Commission initiated
proceedings , serious policy issues respecting the implementation of PURP A are before the
Commission. In order to avoid potential prejudice to utility customers while it considers these
issues, the Commission should order a suspension of the mandatory purchase obligation from
wind generators.
Prejudice will result to utility customers of A vista if only the obligation of
Idaho Power Company to purchase wind power at avoided cost rates is
suspended.
In the prior cases, discussed above, the Commission has suspended the obligation of all
Idaho jurisdictional utilities. The Commission has cause to investigate the cost and impacts of
integration of wind generation upon utilities. However, it clearly is not in the public interest if a
suspension of the obligation to purchase during that investigation applies only to Idaho Power.
As Mr. Lafferty points out in his prepared testimony, a suspension applicable only to Idaho
Power Company could have the effect of encouraging wind power project developers to offer
their power to sale to A vista. A disparate treatment of the customers of Idaho Power and A vista
in this respect is clearly not warranted under PURP A and not is in the public interest.
For the foregoing reasons, the Commission should suspend the obligation of Idaho Power
Company and A vista Corporation to purchase power generated by wind-powered QF facilities.
During the suspension period, an investigation should take place that includes an
assessment of the total amount of intermittent wind resource that A vista s system can reasonably
absorb, without affecting reliability, and the level of costs associated with different amounts of
LEGAL MEMORANDUM OF
VISTA CORPORATION - 7
wind resource acquisition. The investigation should consider appropriate application of those
costs to the published avoided costs applicable to intermittent wind-powered resources
flt-
RESPECTFULLY SUBMITTED this day of July, 2005.
PAINE, HAMBLEN, COFFIN, BROOKE
& MILLER LLP
R. Blair Strong
Attorneys for A vista Corporation
LEGAL MEMORANDUM OF
VISTA CORPORATION - 8
CERTIFICA TE OF SERVICE
tLt-
I HEREBY CERTIFY that I have caused to be served on this
,-..
day of July, a copy of
the attached LEGAL MEMORANDUM OF A VISTA CORPORATION REGARDING
TEMPORARY SUSPENSION OF PURPA MANDATORY PURCHASE OBLIGATIONS FOR
NEW WIND QF PROJECTS and DIRECT TESTIMONY OF ROBERT J. LAFFERTY in Case
No. IPC-05-, by mailing a copy thereof, property addressed with postage prepaid to:
Barton L. Kline
Idaho Power Company
1221 West Idaho Street
O. Box 70
Boise, ID 83707
(XJ Via Federal Express
First Class Mail
Hand Deli very
Facsimile
Via Federal Express
First Class Mail
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Facsimile
Certified Mail
(X'J First Class Mail
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Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 W. Washington Street
Boise, ID .83720-5983
Scott Woodbury
Idaho Public Utilities Commission
424 W. Washington Street
Boise, ID 83702
John R. Gale
Idaho Power Company
P. O. Box 70
Boise, ID 83707-0070
Peter J. Richardson
Richardson & O'Leary, PLLC
99 East State Street
O. Box 1849
Eagle, ID 83616
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Monica Moen
Idaho Power Company
P. O. Box 70
Boise, ID 83707-0070
Mr. James T. Carkulis
Richardson & O'Leary, PLLC
99 East State Street
O. Box 1849
Eagle, ID 83616
Certified Mail
First Class Mail
Hand Deli very
Facsimile
LEGAL MEMORANDUM OF
A VIST A CORPORATION - 9
William J. Batt Certified Mail
John R. Hammond, Jr.rxJ First Class Mail
Batt & Fisher, LLP Hand Deli very
101 S. Capitol Blvd., Suite 500 Facsimile
O. Box 1308
Boise, ID 83701
Michael Heckler Certified Mail
Director of Marketing and Development First Class Mail
W indland Incorporated Hand Deli very
7669 West Riverside Drive, Suite 102 Facsimile
Boise, ID 83714
R. Blair Strong
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LEGAL MEMORANDUM OF
A VIST A CORPORATION - 10