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HomeMy WebLinkAbout20051128Comments.pdfd1and clean energy from wind November 28 , 2005 Commission Secretary Idaho Public Utilities Commission PO Box 83720 Boise, ill 83720-0074 . l '- r C\~_\\' LL , , t., , . ""? 2\3 f i\L\.~'1-.) , ,- ., ,')\ IC . ,. \ . lj U ,- i"';"i\SS\Oii\\i\\\\~,:;lJc j\' :i ' Please consider these comments as applicable to each of the following four open cases: IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY FOR APPROVAL OF A FIRM ENERGY SALES AGREEMENT FOR THE SALE AND PURCHASE OF ELECTRIC ENERGY BETWEEN IDAHO POWER COMPANY AND MILNER DAM WIND PARK, LLC AND LAVA BEDS WIND PARK, LLC AND NOTCH BUTTE WIND PARK, LLC AND SALMON FALLS WIND PARK, LLC Dear Commissioners: CASE NO. IPC-O5- CASE NO. IPC-O5- CASE NO. IPC-O5- CASE NO. IPC-O5- The existing PURP A contract terms, developed over the last two decades, are inadequate to address the risks to Idaho ratepayers associated with the four referenced cases. If approved the Milner Dam, Lava Beds, Notch Butte and Salmon Falls wind parks would bring to 147MW the total size of proposed but not yet built Exergy Development Group QF wind parks. The presence of "signed but not yet built" wind PURPA contracts limits Idaho Power Company options to procure other wind energy resources. Ifthese four projects are approved but not built on schedule there is a significant financial risk to Idaho ratepayers. Windland is not suggesting that these four additional wind parks not be approved. Rather we request that the Commission examine the totality of facts associated with these four contracts and only approve them if their common developer provides adequate assurances that the projects will be timely built. Federal Production Tax Credits dramatically effect wind energy pricing Idaho Power Company seeks some, but not too much, wind powered electric energy. The company s 2004 Integrated Resource Plan established the need for wind energy in IPC' generation mix and in January of this year the company released an RFP for 200MWs of wind generation. Before reaching any resolution of that RFP process, IPC petitioned the Commission WINDLAND INCORPORATED 208-377-7777 7669 W. RIVER~DE DR SUITE 102 BOISE, IDAHO 83714 FAX 208-375-2894 on June 1 ih to temporarily suspend its obligation to procure energy from intermittent wind powered QFs lest the company be forced to acquire wind energy that was "too much, too soon A workshop based review by parties effected by case IPC-05-22 and a wind integration study are underway to determine how much wind generation would be "too much" for the Idaho Power system. What has not been as clearly addressed is how variations in federal tax law effect the calculation of when is "too soon" for IPC to acquire wind energy resources. The cost structure of a commercial wind generation facility in the United States varies enormously with the absence or availability of a federal Production Tax Credit or PTC. As consequence, so does the price that market forces require be paid for the electric energy the facility produces. At 1.9~ offederal income tax credit for each kilowatt-hour of electricity the facility generates during the first ten years of its operation, access to the PTC can lower a wind project's break-even power price by 20-25%. When the PTC is available the ratepayers do not have to pay almost 2~/kWh that the federal government effectively pays. The effect of variations in PTC availability can be seen in the chart below. During years when the PTC expired (see 1998 2000 2002 & 2004 below) wind projects stop being cost effective. When the tax credits were available (1999, 2001 and 2003), large amounts of wind generation were brought on-line. Eligibility under the PTC was re-extended in August of 2005 for projects that will be in commercial operation before December 31 , 2007. As the chart shows, recordlevels of wind project development are expected to continue through the end of2007. Part of the reason for this expected record build out rate is the widespread belief that current federal fiscal realities will preclude the FTC being extended beyond December 2007. r--- Wind MW installed in US by year 3500 3000 ~ 2500 ::0. 2000 ... c.. 1500 1000 500 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 , -~-'----'---_.,~-~---~_._~------... Chart #1 - FTC availability dramatically effects wind project economics FTC not available: 1998, 2000, 2002 & 2004 FTC available 1999 2001 2003 2005 2006 & 2007 The terms of the current "wind" PURr A contracts are not sufficient to effectivelycompel a QF company to actually build wind generation Over the last twenty-two years Idaho Power Company has entered into more than 50 separate contracts with Hydro powered QFs and 10 more contracts with Thermal Co-generation QFs. The current backlog of 11 Exergy Development Group QF's wind contracts (including these four cases pending PUC approval) signed by IPC but not yet built represent more annual energy production than all the hydro or all the co-gen QFs signed to date (see list in Attachment #1). If a utility relies on an independent power producer to supply needed power and the power producer fails to supply the power as promised, the utility and its ratepayers may be injured. Consequently, large-scale commercial contracts between utilities and independent power producers almost always contain terms requiring the power producer to pay damages if the producer is late in delivering power from the project. Damage clauses in the commercial power purchase agreements protect the utility and its ratepayers against this form of non-performance. Section 22 of the standard PURP A wind contract imposes requirements on the QF company to perform after the project is built but not before. If Exergy s eleven QF projects are developed their LLCs will become active ownership vehicles containing substantial assets. But before each wind park is built the project company is an empty corporate shell with no significant assets. While IPC theoretically has the ability to sue a QF company that does not deliver wind energy on schedule, before the construction process starts the QF company is an empty LLC shell and as such is judgment proof. The presence of "signed but not yet built" wind PURr A contracts limits IPC options to procure additional or alternative wind energy sources IPC, as it prudently should, refrains from signing contracts to procure more wind generation than it needs and can reliably integrate to its system. However, ifIPC does not receive contracted wind energy before the PTC expires IPC ratepayers will be harmed. Historically IPC has purchased power from many small QF developers. QF facilities weredeveloped by multiple parties, in relatively small increments and came on-line over a period of decades. The contract terms that were developed for these small projects do not adequately protect ratepayers from the risk of non-performance presented by a single large developer. Never before have the quantity ofQF contracts been large enough to displace one of IPC' planned generation procurement activities. Now, the Exergy QF contracts have contributed to IPC scaling back its planned competitive procurement of wind energy from 200MWs to 100MWs. A mere potential that a QF project will be developed should not allow displacement ofIPC's opportunity to procure wind power during the current PTC window. The economic reality is that Exergy Development Group has cleverly used a dozen separate QF companies to encompass a 157.5MW wind farm development. The Commission should look through the veil of a dozen separate QF LLC agreements and recognize that the current cases need not be viewed as four small power producers. Unless the Commission addresses the risk of Exergy not timely constructing the projects envisioned in the four cases referenced above, Idaho Power s petition (case no. IPC-05-22)decrying the possibility the company may be forced to acquire an amount of intermittent wind generated electric energy that was . . . too much, too soon.. ." may ironically result in Idaho ratepayers getting wind generation too late to benefit from the FTC. Exergy Development Group has been late meeting target dates for all three projects to date Exergy s QF projects have been late meeting scheduled milestones. As is detailed in Attachment , the United Materials project is now almost a year late in meeting its scheduled on-line date.The Fossil Gulch project is on-line but did not achieve that status by its January 1 S\ 2005milestone target. The Burley Butte project did not meet its Oct 30t\ 2005 first energy delivery. We do not expect the Thousand Springs, Pilgrim Stage, Oregon Trail and Tuana Gulch projects to all meet their December 31 , 2005 scheduled operations date. The four current cases (Milner Dam, Lava Beds, Notch Butte and Salmon Falls) are not scheduled to be in full operations until May 2007. If Exergy fails to bring those wind parks on line by that time it will be too late for IPC to procure alternate wind resources from another source before the FTC expires at the end of 2007. The Commission should not approve these four PURr A contracts, or any other intermittent wind PURr A project, without adding terms to incentivize project completion The Commission can view IPC-05-30 through 33 as four separate cases and narrowly review whether each of the four meet the requirements for grandfathering. Alternatively the Commission might pierce through these four and the related eight LLC entities and see behind them a single controlling developer in Exergy Development Group. IPC has effectively taken this broader perspective (see Attachment # 3 where information requests for the four proj ects areall directed to Exergy Development Group). Exergy has used a clever form of corporate engineering creating multiple subordinate limited liability companies to meet the legal requirements of multiple "small power producers . Inreality the twelve projects aggregate to more than 150MW and will likely cost more than $200 million. Unlike the conditions that may have prevailed in earlier QF negotiations, Exergy andIPC negotiations are not a case where a "little guy" needs to be protected from the superior bargaining power ofthe "big utility . For that matter, any QF project of20MW nameplate capacity will cost more than $25 million to build. Modern wind projects are not financed and built like the small power producers of the past. With these four cases, the IPC ratepayers need to be protected from the possible non- performance of the QF companies and their parent. The current PURP A contract terms do not impose a strong financial incentive for the developer to actually complete timely building of the project. The contracts never had to in the past for they did not displace other opportunities for the utility to acquire similar generation resources. These four PURP A contracts do displace other wind resource acquisition. My company has been headquartered in Idaho for more than a decade. We have invested very large amounts of money developing wind resources in this state. We ve done that with our eyes open and we recognize that those funds have been spent "at risk". If IPC were to acquire wind energy supplies from a Windland project or another wind project under the IPC wind RFP the power purchase agreement would contain clauses to protect Idaho ratepayers from the project developer s non-performance. These four wind PURPA projects are large enough resourcecommitments that their developer should provide similar protections. History shows Exergy has missed milestones in the past. If Exergy fails to timely build and operate the four project currently presented for Commission approval the IPC ratepayers will be harmed. Windland requests that as a condition to approving these, or any future PURP A wind contracts, the Commission require adequate financial assurances that the proj ects will be available to produce energy on their scheduled completion dates. While not an exhaustive list cash performance bonds tied to project completion, enhanced monitoring and penalties for not meeting project development/construction milestones, and/or liquidated damages from a solvent parent entity are possible additional terms. ... President Windland Incorporated Cc:provided in pdf format via email to:mmoen(~)j dahopower. com bkline~idahopower.com rallphin~idahopower .com ATTACHMENT # 1 Exergy s eleven proposed, but not yet built, Wind QF projects will produce more annual energy than all the existing Hydro or Thermal QFs developed over the last 20 years combined. (147MW ~ 30% capacity factor = 44.1 average annual MW) . Project dro Pro ects Barber Dam Birch Creek BlftGk CanyCin #3 Blind Canyon Box Canyon Briggs Creek Bypass Canyon Springs Cedar Draw Clt:ar Springs Trout Cry5tal Springs Cutry Cattle: Company Dietrich Drop Elk Creek FaIJ5 River Faulkner Ranch Fisheries Dev. Gco-Bon #2 Hailey Cspp Hazelton A Hazelton B Horseshoe Bend Jim Knight Kasel & Witherspoon Koyle Small Hydro Later!l1# 10 Lemoyne Little WQod RvrRes LittlewoodIArkoosh Idaho Power Company Qualifying Facilities Cogeneration and Small Power Production Projects Contract On-linc ContractDate End Date Project Apr.1989 Apr-2024 Nov-1984 Oct~20J9 Apr-1984 Apr-2019 Feb-1995 Fcb-20t5 Feb~ 1984 Fcb-2019 Oct-1985 Oct-2020 Jun-1988 Jun-2023 Oct- I 984 Sep-2004 lul1-1984 May-2019 Nov.1983 Nay-20t8 Apr-1986 Mar-2021 Jon-1983 Jun-2018 AiIg~1988 Aug-2023 May-1986 May-2021 Aug-1993 Aog-2028 Aug-1987 Aug-2022 Non Firm Now1986 Nav-lO21 lun-1985 lun-2020 Jun-1990 Jun-20lO MaY-1993 May~2028 Scp-1995 SeJ)'-2030 Jun.1985 Jun-2020 Mar-1984 Mar-2019 Apr-1984 Apr-20 19 May-1985 May-2020 Jun-1985 lun-2020 Feb.t985 Peb-202U Aug-1986 A~g-2021 Low Line Canal Lowline#2 Magic Reservoir MalacfRlvi' Marco Ranches Mile 28 Mitchell Bulle Mud CreeklS & S Mud CreekIWhite Owyhee Dam Cspp Pigepn Cpve Pristine Springs Pri5tine Spring$ #3 Reynolds Irrigation Rim View Rock Creek #1 Rock Creek #2 SlIge.prush Schaffncr Shingle Creek Shosh()fie #1- Shoshone Cspp Snake River Pottery Snedigar Sunshine Power # 2 Tiber Dam Tr()ut~Co Tunncl#l Whit.eWater Ranch Wilson Lake Hydro Total Hydro Average Annual Mw Thermal Pro ects Emmett Facility Magic Valley Magic West Pocatdlo Waste Simplot Pocatello 41.78 Jun~200S Nov. 1996 Dec-1996 Dec-1985 Fe.b-1991 Estimated Nov-20l6 Dec-2016 Dcc-2020 Dee-20m TamarackCspp , Tasco - Nampa Tasca - Twin FaIls Vaagen Brothers West Boise Wa.stc Total Thermal Average AnnualMw 41. Contract On-line ContractDate End Date May-1985 May-2020 Apr-198$ Apr-2023 lun-1989 May-2024 May-1984 Apr-2019 Aug-1985 Jul-2020 Jun-1994 May-2029 May-1989 Dee-2023 Mar-1982 Mar-2017 Jan-1986 J3n-2021 Apr-1984 Apr-2014 OcI.1984 Oet-20 J 9 Mar-1995 Mar-ZOO5 I Non Finn May-1986 May-202! Non Firm Sep-1983 Jan-2018 Apr-!989 Apr-2024 ! Sep-1985 Aug-2020 Aog-1986 Aug-2021 Aug-1983 Jut-2018 May~1996 Apr~2b31 Jun-1982 lun-2017 Nov-J984 Nov-2019 Jan-1985 Dee-2019 Non Firm Jun-2004 Jun-2024 Dec-1986 Nov-2021 Jun-1993 Dee-20D Aug-1985 Jul-2020 May-1993 May-2028 Jun-1933 May-201i~ Oct-1998 Sep-2003 Aug-200l Jul-2006 Sep-I9Y5 Sep-2010 !Jet,""'2006 Attachment #2 Of the twelve Exergy QF contracts signed with IPC, only Fossil Gulch (project #2 in the table below) is currently operating and it was late coming on-line. Windland believes projects I , 3, 46 & 7 are now or will be late meeting their scheduled operation dates / first energy dates of Dec 2004, Dec 2005 and Jan 2006 as shown on the schedule below. Proj QF party entering contract Capacity First energy Scheduled Casewith IPC (MW)date Operation number dateUnited Materials of Great Falls, Inc.9MW not specified Dec 31, 2004 04-Fossil Gulch Wind Park, LLC.10.5MW Dec 15 2004 Jan 1 , 2005 04-Burlev Butte Wind Park, LLC.10.5MW Oct 30, 2005 Dec 1 2005 05-Thousand Springs Wind Park, LLC 1O.5MW Jan 15, 2006 (sic)Dec 31, 2005 05-Pilgrim Stage Wind Park, LLC.1O.5MW Jan 15, 2006 (sic)Dec 31, 2005 05-Oregon Trail Wind Park, LLc.10.5MW Jan 15 2006 (sic)Dec 31, 2005 05-Tuana Gulch Wind Park, LLc.10.5MW Jan 15, 2006 (sic)Dec31 2005 05-Golden Valley Wind Park, LLc.1O.5MW APT 31 , 2006 (sic)JUll 1, 2006 05-Total Approved 82.5MW Milner Dam Wind Park, LLc.18MW Nov 2006 Mav , 2007 05-Lava Beds Wind Park, LLC.18MW Nov 2006 May 2007 05-Notch Butte Wind Park, LLC.l8MW Nov 2006 Mav , 2007 05-Salmon Falls Wind Park, LLC.21MW Nov 2006 May , 2007 05-Total pendine: PUC approval 75MW Total Exere:v QF contracts157.5 MW 157.5MW ..... co:I co:I I/)bJICII :: 0 "'" C:: co:I Q.,co:I 0(oJ '" (oJCII .., 100 ATTACHMENT #3 Idaho Power looks through the QF companies when requesting additional PURP A application information for Milner Dam Wind Park, Lava Beds Wind Park, NotchButte Wind Park and Salmon Falls Wind Park. The requests were not sent to the individual project LLCs, rather they were all forwarded to the common controlling entity, Exergy Development Group, LLC. The complete letters, from which these salutations are excerpts, are included under Attachment 1 to the application for contract approval for each ofthe four cases. IDAHO POWER An IDACORP Company An IDACORP Company Randy C. ADplUn CooIract Administnlllr Randy C. AllplUn ConInodAdmiDistnitor August 8, 2005 August 8, 2005 James Carlmli. Excrgy DevelopmentUro.p. LLC POBox5212 Helena. MT .59601 E-mail Copy: mtli~in-tcb.com Original: US Mail James Corkulis Excrgy Development Group, LLC POBox5212 Helena. MT 59601 !!-mail Copy: mtli~in-tch- Original: US Mail RE: bvaBeds Wind Park Request fOt" a PURPA conlnlct for a proposul Wind Generation Facility. RE:Milner Dam Wind Park ~uest for a PURPA contnlCt for a proposed Wind Generation Facility. Art IDACORP CorriPany ~18& An IDAOORPCompany Randy Co AI1pbia Controct AdmJnimIor Randy C. Allphin Contract Administrator August 8. 2005 August 8, 2005 James Ctukulis Exorgy Development Group, LLC POBox 5212 Hela... MT 59601 Jame, Corkulia ExerllY J;Jevelopmoinl GroUp, LLC POBox 5212 Helena. MT 59601 E-mail Copy: mtli(g)in.tcb.com E-mail Copy: mtlil1!Jin-tcb.com Original: US MailOriginal: US Mail RE:Notch Butte Wind Park Requ,ost fora PURPA con_t for a proposed Wind Generation FIICility. RE:Salmon Falis Wind Park ~uest for a PURPA conl,"cl for a proposed Wind G.nerstion Facility.