20060426Motion for Declaratory Order.pdf

McDevitt & Miller LLP
Lawyers
[phone]
[phone] (Fax)
420 W. Bannock Street
O. Box 2564-83701
Boise, Idaho 83702 Chas. F. McDevitt
Dean 1. (Joe) Miller
April 26, 2006
Via Hand Delivery
Jean Jewell, Secretary
Idaho Public Utilities Commission
472 W. Washington 8t.
Boise, Idaho 83720
' ,
Re: Case No. IPC-05-
Dear Ms. Jewell:
Enclosed for filing in the above matter please find the original and seven (7) copies of a
Motion For Declaratory Order.
An additional copy of the document and this letter is included for return to me with your
file stamp thereon.
Very Truly Yours
~~vi
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,~
Miller
DJM/hh
ORIGINAL
Dean J. Miller ISB #1968
McDEVITT & MILLER LLP
420 West Bannock Street
O. Box 2564-83701
Boise, ill 83702
Tel: [phone]
Fax: [phone]
i oe(tVJ11cdevitt -miller .com
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Attorneys for Magic Wind LLC
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA ITER OF THE PETITION OF
MAGIC WIND LLC TO DETERMINE
EXEMPTION STATUS
(Corrected Caption)
Case No. IPC-O5-
MOTION FOR
DECLARATORY ORDER
COMES NOW, Magic Wind LLC ("Magic Wind") and pursuant to IPUCRP 101
Et. Seq. moves the Commission for a Declaratory Order, and in support thereof, respectfully
shows as follows:
On or about October 20, 2005 , Magic Wind filed a Motion with the Commission to
determine that Magic Wind was exempt from the rate eligibility cap as established by Order No.
29838.
II.
Thereafter Magic Wind supplied to Idaho Power Company ("Idaho Power ) various
information and documentation establishing Magic Wind's entitlement to an exemption.
III.
Upon review of the information and documentation provided, Idaho Power agreed that
Magic Wind was exempt from the rate eligibility cap of Order No. 29838.
MOTION FOR DECLARATORY ORDER - 1
IV.
Thereafter, Magic Wind and Idaho Power commenced negotiations regarding the terms
of a Purchase Power Agreement.
On or about March 31 , 2006, the Commission issued Order No. 30000 in Case No. P AC-
05-(In the Matter of the Application of Pacificorp for Approval of a Power Purchase
Agreement with Schwendiman Wind LLC). In general, the effect of Order No. 30000 was to
approve an alternative mechanism for pricing energy deliveries that are outside the "90/110
performance band" established by Order No. 29632 ("PacifiCorp Method"
VI.
On or about April 5, 2006 Magic Wind transmitted to Idaho Power a proposed draft
Purchase Power Agreement ("Proposed Agreement") that incorporated (with a modification
noted below) the PacifiCorp Method approved by the Commission in Order No. 30000. The
Proposed Agreement is attached hereto as Exhibit A. Magic Wind requested that Idaho Power
negotiate with Magic Wind to finalize a Purchase Power Agreement consistent with the
Proposed Agreement.
VII.
The Proposed Agreement modified the PacifiCorp Method so as to correct the calculation
of variable operation and maintenance expense as was suggested by the Idaho Farm Energy
Association in Case No. P AC-05-06 ("Modified PacificCorp Method"). Exhibit B, attached
hereto, is the explanation for the corrected treatment of variable O&M filed by the Idaho Farm
Energy Association in Case No. P AC-05-06. Exhibit C, attached hereto, is a spreadsheet that
MOTION FOR DECLARATORY ORDER - 2
calculates prices for surplus energy for Idaho Power Company using the Modified PacifiCorp
Method. An electronic copy with formulas intact will be provided upon request.
VIII.
On April 25 , 2006, Idaho Power responded to the proposal of Magic Wind by
correspondence from Randy Allphin, Idaho Power Company Contract Administrator, to Magic
Wind, a copy of which is attached hereto as Exhibit D.
WHEREFORE, Magic Wind respectfully requests that the Commission determine and
declare that Magic Wind is entitled to receive from Idaho Power Company a Purchase Power
Agreement that establishes prices for surplus energy using the Modified PacifiCorp Method.
DATED this 1JLday of April, 2006.
Respectfully submitted
McDEVITT & MILLER LLP
LlOL-
Dean J. Miller
McDevitt & Miller LLP
420 W. Bannock
Boise, ID 83702
Phone: [phone]Fax: [phone]
Attorneys for Magic Wind LLC
MOTION FOR DECLARATORY ORDER - 3
CERTIFICATE OF SERVICE
I hereby certify that on the 16fday of April, 2006, I caused to be served, via the
methodes) indicated below, true and correct copies of the foregoing document, upon:
Barton L. Kline
Idaho Power Company
1221 West Idaho Street
O. Box 70
Boise, ID 83707
BKlineCipidahopow er. com
Hand Delivered
S. Mail
Fax
Fed. Express
Email
McDEVITT & MILLER LLP
MOTION FOR DECLARATORY ORDER - 4
Article
DRAFT SUBMITTED BY MAGIC WIND
FIRM ENERGY SALES AGREEMENT
BETWEEN
IDAHO POWER COMPANY
AND
MAGIC WIND PARK LLC
TABLE OF CONTENTS
TITLE
Definitions
No Reliance on Idaho Power
Warranties
Conditions to Acceptance of Energy
Term and Operation Date
Purchase and Sale of Net Energy
Purchase Price and Method of Payment
Environmental Attributes
Facility and Interconnection
Disconnection Equipment
Metering and Telemetry
Records
Protection
Operations
Indemnification and Insurance
Force Majeure
Land Rights
Liability; Dedication
Several Obligations
Waiver
Choice of Laws and Venue
Disputes and Default
Governmental Authorization
Commission Order
Successors and Assigns
Modification
Taxes
Notices
Additional Terms and Conditions
Severability
Counterparts
Entire Agreement Signatures
Appendix A
Appendix B
Appendix C
4/25/2006
Exhibit A
Page 1 of 13
FIRM ENERGY SALES AGREEMENT
(10 aMW or Less)
MAGIC WIND PARK LLC
Project Number: 31315500
THIS AGREEMENT, entered into on this day of 2005 between
MAGIC WIND, LLC, an Idaho limited liability company (Seller), and IDAHO POWER COMPANY, an
Idaho corporation (Idaho Power), hereinafter sometimes referred to collectively as "Parties" or
individually as "Party.
WITNESSETH:
WHEREAS, Seller will design, construct, own, maintain and operate an electric generation
facility; and
WHEREAS, Seller wishes to sell, and Idaho Power is willing to purchase, fmn electric energy
produced by the Seller s Facility.
THEREFORE, In consideration of the mutual covenants and agreements hereinafter set forth, the
Parties agree as follows:
ARTICLE I: DEFINITIONS
As used in this Agreement and the appendices attached hereto, the following terms
shall have the following meanings:
1.1 Commission" - The Idaho Public Utilities Commission.
1.2 Contract Year" - The period commencing each calendar year on the same calendar date as the
Operation Date and ending 364 days thereafter.
1.3 Designated Dispatch Facility - Idaho Power s Systems Operations Group, or any subsequent
group designated by Idaho Power.
1.4 Disconnection Equipment"- All equipment specified in Schedule 72 and the Generation
Interconnection Process and any additional equipment specified in Appendix B.
1.5 Facilitv" - That electric generation facility described in Appendix B of this Agreement.
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4/25/2006
Exhibit A
Page 2 of 13
1.6
1.7
1.8
1.9
1.10
1.11
1.12
1.12
First Energy Date" - The day commencing at 0001 hours, Mountain Time, following the day that
Seller has satisfied the requirements of Article IV and the Seller begins delivering energy to
Idaho Power s system at the Point of Delivery.
Generation Interconnection Process" - Idaho Power s generation interconnection application
and engineering review process developed to ensure a safe and reliable generation
interconnection in compliance with all applicable regulatory requirements, Prudent Electrical
Practices and national safety standards.
Inadvertent Energy" - Electric energy Seller does not intend to generate. Inadvertent energy is
more particularly described in paragraph 7.3 of this Agreement.
Interconnection Facilities - All equipment specified in Schedule 72 and the Generation
Interconnection Process and any additional equipment specified in Appendix B.
Initial Capacity Determination - The process by which Idaho Power confmns that under
normal or average design conditions the Facility will generate at no more than 10 average MW
per month and is therefore eligible to be paid the published rates in accordance with Commission
Order No. 29632.
Losses - The loss of electrical energy expressed in kilowatt hours (kWh) occurring as a result
of the transformation and transmission of energy between the point where the Facility s energy is
metered and the point the Facility s energy is delivered to the Idaho Power electrical system. The
loss calculation formula will be as specified in Appendix B of this Agreement.
M8i"ket ERercv Cost" Eighty five pereent (85%) of the weighted average of the daily OR peak
and off peak Dow Joaes Mid Columbia Index (Do':! Jones Mid C mdeJ() priees for ROB firm
eHergy. If the Do','; JOReS Mid Columbia fudex priee is diseontiooed by the reporting ageney, both
Parties v/ill mutually agree upoa a replaeemem ind6K, whieh is similar to tbe Dow J01'l:6S Mid
Colwnbia fud6JL The seleeted replaeemeflt index 'tvill be eonsistem witb other similar agreemeats
and a eomrnonly used indeK by tbe eleetrieal inoostry.
Intentionally left blank.
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4/25/2006
Exhibit A
Page 3 of 13
1.13
1.14
1.15
1.16
1.17
1.18
1.19
1.20
1.21
1.22
1.23
Material Breach" - A Default (paragraph 22.1) subject to paragraph 22.
Maximum Capacity Amount" - The maximum capacity (MW) of the Facility will be as
specified in Appendix B of this Agreement.
Metering Equipment"- All equipment specified in Schedule 72, the Generation Interconnection
Process, this Agreement and any additional equipment specified in Appendix B required to
measure, record and telemeter power flows between the Seller s electric generation plant and
Idaho Power s system.
Net Energy" - All of the electric energy produced by the Facility, less Station Use, less Losses
expressed in kilowatt hours (kWh). Seller commits to deliver all Net Energy to Idaho Power at
the Point of Delivery for the full term of the Agreement. Net Energy does not include Inadvertent
Energy.
Operation Date" - The day commencing at 0001 hours, Mountain Time, following the day that
all requirements of paragraph 5.2 have been completed.
Point of Deliverv" - The location specified in Appendix B, where Idaho Power s and the
Seller s electrical facilities are interconnected.
Prudent Electrical Practices - Those practices, methods and equipment that are commonly and
ordinarily used in electrical engineering and operations to operate electric equipment lawfully,
safely, dependably, efficiently and economically.
Scheduled Operation Date" - The date specified in Appendix B when Seller anticipates
achieving the Operation Date.
Schedule 72"- Idaho Power s Tariff No 101 , Schedule 72 or its successor schedules as
approved by the Commission.
Season" - The three periods identified in paragraph 6.2.1 ofthis Agreement.
Special Facilities - Additions or alterations of transmission and/or distribution lines and
transformers as described in Appendix B, Schedule 72 or the Generation Interconnection Process
required to safely interconnect the Seller s Facility to the Idaho Power system.
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4/25/2006
Exhibit A
Page 4 of 13
1.24
1.25
1.26
Station Use" - Electric energy that is used to operate equipment that is auxiliary or otherwise
related to the production of electricity by the Facility.
Surplus Energy" - (1) Net Energy produced by the Seller s Facility and delivered to the Idaho
Power electrical system during the month which exceeds 110% of the monthly Net Energy
Amount for the corresponding month specified in paragraph 6.2. or (2) Ifthe Net Energy
produced by the Seller s Facility and delivered to the Idaho Power electrical system during the
month is less than 90% of the monthly Net Energy Amount for the corresponding month
specified in paragraph 6., then all Net Energy delivered by the Facility to the Idaho Power
electrical system for that given month or (3) All Net Energy produced by the Seller s Facility and
delivered by the Facility to the Idaho Power electrical system prior to the Operation Date.
Total Cost of the Facility" - The total cost of structures, equipment and appurtenances.
ARTICLE II: NO RELIANCE ON IDAHO POWER
Seller Independent Investigation - Seller warrants and represents to Idaho Power that in entering
into this Agreement and the undertaking by Seller of the obligations set forth herein, Seller has
investigated and determined that it is capable of performing hereunder and has not relied upon
the advice, experience or expertise of Idaho Power in connection with the transactions
contemplated by this Agreement.
Seller Independent Experts - All professionals or experts including, but not limited to, engineers
attorneys or accountants, that Seller may have consulted or relied on in undertaking the
transactions contemplated by this Agreement have been solely those of Seller.
ARTICLE III: WARRANTIES
No Warranty bv Idaho Power - Any review, acceptance or failure to review Seller s design,
specifications, equipment or facilities shall not be an endorsement or a confmnation by Idaho
Power and Idaho Power makes no warranties, expressed or implied, regarding any aspect of
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4/25/2006
Exhibit A
Page 5 of 13
Seller s design, specifications, equipment or facilities, including, but not limited to, safety,
durability, reliability, strength, capacity, adequacy or economic feasibility.
Qualifying Facility Status - Seller warrants that the Facility is a "Qualifying Facility," as that term
is used and defined in 18 CFR ~292.207. After initial qualification, Seller will take such steps as
may be required to maintain the Facility s Qualifying Facility status during the term of this
Agreement and Seller s failure to maintain Qualifying Facility status will be a Material Breach of
this Agreement. Idaho Power reserves the right to review the Seller s Qualifying Facility status
and associated support and compliance documents at anytime during the term of this Agreement.
ARTICLE IV: CONDITIONS TO ACCEPTANCE OF ENERGY
Prior to the First Energy Date and as a condition of Idaho Power s acceptance of deliveries of
energy from the Seller, Seller shall:
1.1 Submit proof to Idaho Power that all licenses, permits or approvals necessary for Seller
operations have been obtained from applicable federal, state or local authorities
including, but not limited to, evidence of compliance with Subpart B, 18 CFR 292.207.
1.2 Opinion of Counsel - Submit to Idaho Power an Opinion Letter signed by an attorney
admitted to practice and in good standing in the State of Idaho providing an
opinion that Seller s licenses, permits and approvals as set forth in paragraph 4.
above are legally and validly issued, are held in the name of the Seller and, based on
a reasonable independent review, counsel is of the opinion that Seller is in substantial
compliance with said permits as of the date of the Opinion Letter. The Opinion Letter
will be in a form acceptable to Idaho Power and will acknowledge that the attorney
rendering the opinion understands that Idaho Power is relying on said opinion. Idaho
Power s acceptance of the form will not be unreasonably withheld. The Opinion Letter
will be governed by and shall be interpreted in accordance with the legal opinion accord
ofthe American Bar Association Section of Business Law (1991).
:"".J-
4/25/2006
Exhibit A
Page 6 of 13
5.1
1.4
1.5
1.6
1.7
Initial Capacity Determination - Submit to Idaho Power such data as Idaho Power may
reasonably require to perform the Initial Capacity Determination. Such data will include
but not be limited to, equipment specifications, prime mover data, resource
characteristics, normal and/or average operating design conditions and Station Use data.
Upon receipt of this information, Idaho Power will review the provided data and if
necessary, request additional data to complete the Initial Capacity Determination within a
reasonable time.
Engineer s Certifications - Submit an executed Engineer s Certification of Design &
Construction Adequacy and an Engineer s Certification of Operations and Maintenance
(O&M) Policy as described in Commission Order No. 21690. These certificates will be
in the form specified in Appendix C but may be modified to the extent necessary to
recognize the different engineering disciplines providing the certificates.
Insurance - Submit written proof to Idaho Power of all insurance required in Article XV.
Interconnection - Provide written proof to Idaho Power that all Schedule 72 and
Generation Interconnection Process requirements have been completed.
Written Acceptance - Request and obtain written conflilllation from Idaho Power that all
conditions to acceptance of energy have been fulfilled. Such written confirmation shall be
provided within a commercially reasonable time following the Seller s request and will
not be unreasonably withheld by Idaho Power.
ARTICLE V: TERM AND OPERATION DATE
Term - Subject to the provisions of paragraph 5.2 below, this Agreement shall become effective
on the date first written and shall continue in full force and effect for a period of twenty (20)
Contract Years from the Operation Date.
Operation Date - The Operation Date may occur only after the Facility has achieved all of the
following:
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4/25/2006
Exhibit A
Page 7 of 13
a) Achieved the First Energy Date.
b) Commission approval of this Agreement in a form acceptable to Idaho Power has
been received.
c) Seller has demonstrated to Idaho Power s satisfaction that the Facility is complete and
able to provide energy in a consistent, reliable and safe manner and has requested an
Operation Date in written form.
d) Seller has requested an Operation Date from Idaho Power in a written format.
e) Seller has received written confmnation from Idaho Power of the Operation Date.
This confirmation will not be unreasonably withheld by Idaho Power.
Seller s failure to achieve the Operation Date within ten (10) months of the Scheduled Operation
Date will be an event of default.
ARTICLE VI: PURCHASE AND SALE OF NET ENERGY
Delivery and Acceptance of Net Energy - Except when either Party s performance is excused as
provided herein, Idaho Power will purchase and Seller will sell all of the Net Energy to Idaho
Power at the Point of Delivery. All Inadvertent Energy produced by the Facility will also
delivered by the Seller to Idaho Power at the Point of Delivery. At no time will the total amount
of Net Energy and/or Inadvertent Energy produced by the Facility and delivered by the Seller to
the Point of Delivery exceed the Maximum Capacity Amount.
Net Energy Amounts - Seller intends to produce and deliver Net Energy in the following monthly
amounts:
Initial Year Monthly Net Energy Amounts:
Month kWh
Season 1
March
April
May
395 947
370 833
105 320
I July 3,401 877
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4/25/2006
Exhibit A
Page 8 of 13
2.2
6.2.
August 791 276
Season 2 November 394 931
December 206 030
June 962 172
September 272 864
Season 3 October 102 945
January 580 098
February 720,491
Ongoing MontWy Net Energy Amounts - Seller shall initially provide Idaho Power with
one year of montWy generation estimates (Initial Year MontWy Net Energy Amounts)
and beginning at the end of month nine and every three months thereafter provide Idaho
Power with an additional three months of forward generation estimates. This information
will be provided to Idaho Power by written notice in accordance with paragraph 28., no
later than 5:00 PM of the 5th day following the end of the previous month. If the Seller
does not provide the Ongoing MontWy Net Energy amounts in a timely manner, Idaho
Power will use the most recent 3 months of the Initial Year MontWy Net Energy
Amounts specified in paragraph 6.2.1 for the next 3 months of montWy Net Energy
amounts.
Seller s Adiustment of Net Energy Amount
1 No later than the Operation Date, by written notice given to Idaho Power in
accordance with paragraph 28.1 , the Seller may revise all of the previously
provided Initial Year MontWy Net Energy Amounts.
2 Beginning with the end of the 3rd month after the Operation Date and at the end
of every third month thereafter: (1) the Seller may not revise the immediate next
three months of previously provided Net Energy Amounts, (2) but by written
notice given to Idaho Power in accordance with paragraph 28.1 , no later than
5:00 PM of the 5th day following the end of the previous month, the Seller may
revise all other previously provided Net Energy Amounts. Failure to provide
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4/25/2006
Exhibit A
Page 9 of 13
6.2.4
timely written notice of changed amounts will be deemed to be an election of no
change.
Idaho Power Adiustment of Net Energy Amount - If Idaho Power is excused from
accepting the Seller s Net Energy as specified in paragraph 14.2.1 or if the Seller declares
a Suspension of Energy Deliveries as specified in paragraph 14.3.1 and the Seller
declared Suspension of Energy Deliveries is accepted by Idaho Power, the Net Energy
Amount as specified in paragraph 6.2 for the specific month in which the reduction or
suspension under paragraph 14.2.1 or 14.3.1 occurs will be reduced in accordance with
the following:
Where:
NEA = Current Month's Net Energy Amount (Paragraph 6.
SGU =) IfIdaho Power is excused from accepting the Seller s Net
Energy as specified in paragraph 14.1 this value will be
equal to the percentage of curtailment as specified by
Idaho Power multiplied by the TGU as derIDed below.
) If the Seller declares a Suspension of Energy Deliveries as
specified in paragraph 14.3.1 this value will be the sum of
the individual generation units size ratings as specified in
Appendix B that are impacted by the circumstances
causing the Seller to declare a Suspension of Energy
Deliveries.
TGU = Sum of all of the individual generator ratings of the generation
units at this Facility as specified in Appendix B ofthis
agreement.
RSH = Actual hours the Facility s Net Energy deliveries were either
reduced or suspended under paragraph 14.1 or 14.3.1
Actual total hours in the current month
Resulting formula being:
Adjusted SGU NEA RSHNet Energy = NEA -Amount TGU
) )
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4/25/2006
Exhibit A
Page 10 of 13
This Adjusted Net Energy Amount will be used in applicable Surplus Energy calculations for
only the specific month in which Idaho Power was excused from accepting the Seller s Net
Energy or the Seller declared a Suspension of Energy.
6.3 Unless excused by an event of Force Majeure, Seller s failure to deliver Net Energy in any
Contract Year in an amount equal to at least ten percent (10%) of the sum of the Initial Year Net
Energy Amounts as specified in paragraph 6.2 shall constitute an event of default.
ARTICLE VII: PURCHASE PRICE AND METHOD OF PAYMENT
Net Ener Purchase Price - For all Net Energy, Idaho Power will pay the non-levelized energy
price ill accordance with Commission Order 29646 with seasonalization factors applied:
Season 1 - (73.50 %)Season 2 - (120.00 %)Season 3 - (100.00 %)
Year Mills/kWh Mills/kWh Mills/kWh
2006 37.61.51.
2007 38.63.52.
2008 39.64.53.
2009 40.66.55.
2010 41.46 67.56.41
2011 42.42 69.57.
2012 43.70.59.
2013 44.72.48 60.40
2014 45.42 74.61.
2015 46.47 75.63.
2016 47.77.64.
2017 48.79.40 66.
2018 49.81.67.
2019 50.83.69.
2020 52.85.70.
2021 53.86.72.49
2022 54.88.74.
2023 55.91.75.
2024 57.93.77.
2025 58.95.79.41
2026 59.97.81.
2027 61.99.83.
Surplus Energy Price - For all Surplus Energy, Idaho Power shall pay to the Seller the eurrent
momh's Market BFlergy Cost or the Net Baerg)' P1::lreflaSe Priee speeified ia paragraf)fl 7.1
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4/25/2006
Exhibit A
Page 11 of 13
wbiehe'ler is lower. followin
g p
rice durin each applicable Season and ear:
Season 1 Season 2 Season 3
Year Mills/kWh Mills/kWh Mills/kWh
2006 37.47.47.
2007 38.48.48.
2008 39.49.49.
2009 40.50.50.
2010 41.46 51.51.
2011 42.42 53.53.
2012 43.54.54.
2013 44.55.55.
2014 45.42 56.56.
2015 46.47 58.58.
2016 47.59.59.
2017 48.60.60.
2018 49.62.62.
2019 50.63.63.
2020 52.65.65.
2021 53.66.66.
2022 54.68.68.
2023 55.69.69.
2024 57.71.71.
2025 58.73.73.
2026 59.74.74.
2027 61.76.76.
Inadvertent Energy -
3.1 Inadvertent Energy is electric energy produced by the Facility, expressed in kWh, which
the Seller delivers to Idaho Power at the Point of Delivery that exceeds 10 000 kW
multiplied by the hours in the specific month in which the energy was delivered. (For
example January contains 744 hours. 744 hours times 10 000 kW = 7,440 000 kWh.
Energy delivered in January in excess of 7 440, 000 kWh in this example would be
Inadvertent Energy.
Although Seller intends to design and operate the Facility to generate no more than 10
average MW and therefore does not intend to generate Inadvertent Energy, Idaho Power
will accept Inadvertent Energy that does not exceed the Maximum Capacity Amount but
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4/25/2006
Exhibit A
Page 12 of 13
REMAINING PAGES OF AGREEMENT ARE NOT ATTACHED
BECAUSE THERE IS NO PROPOSED DEVIATION FROM THE IPCo
TEMPLATE AGREEMENT.
Exhibit A
Page 13 of 13
' ~-- - ,- -~--
\IDAHO FARM ENERGY ASSOCIATION
!ft.
March 8, 2006
Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
472 W. Wasbington St.
Boise, ill 83702-5983
Re: Comments on PAC-05-
)ARD MEMBERS
Iri~~::. J,i\ck$.ci
Dear Ms. Jewell: .
J~hn Steiner
The Idaho Fann Energy Association provides the following comments on
the Amended Agreement filed with the Commission on January 27, 2006
in the above-referenced matter. The Idaho Farm Energy Association is a
nonprofit corporation formed in January 2006 to promote rural economic
development through on-farm renewable energy projects in the State of
Idaho. On-farm. renewable energy plojects can shelter consumers from
rising fuel prices, contribute to local economies, provide direct income for
farmers and ranchers, increase diversity of fuel supply, and reduce our
dependence on foreign fuels.
rmand Eckert
We support approval of the Schwendiman Amended Agreement and view
it~ modified 90/110 banding mechanism as a significant improvement over
the prior version of the band. However, the methodology used to separate
the capacity and energy price components in this Amended Agreement
contains an important error which must be corrected if these new contract
terms are to be applied to other projects. In addition, we believe that the
90/110 performance band remains an unjustified reduction from full
. avoided cost prices. We also object to the failure of the methodology to
recognize that deliveries below the 90% band still have capacity vaJue.
. Rather than persisting with the 90/110 banding requirement, we believe all
parties would be better served by requiring that wind proj ects provide
forecasts from pre-;approved advanced forecasting services. This is the
best way to minimize the cost of integrating wind energy.
1. Non-Conforming Energy Price Calculation is Erroneous
15:t-i..27th St.
oise; ID 83702
The "non-conforming energy" price is too low because it fails to include
the full value of variable operations and maintenance costs. for the
surrogate avoided resource. A portion of variable O&M costs were
included in the capacity component of the published rates, which has the
208-859-1882
208-495-1555
Exhibit B
Page 1 of 10
- ------- -----------~- -- ---_on_--
Ms. Jean Jewell
March 8
, .
2006
Page 2
. effect of reducing the energy component (and 'thus the non.conforming energy price).
SpeCifically, all of the variable O&M up' to the capacity factor of the peaking resource
has been allocated to capacity. Therefore, the equivalent amount of energy from the SAR
combined cycle would have no variable O&M in its avoided energy .costs. This cannot
be correct. If this energy is displaced by wind deliveries, every kWh delivered would
save variable O&M atthe SAR. Variable O&M is defined as O&M costs which vary
with the number of kWh generated.
It is important to note that all of the variaple O&M' of the peaking' resource is assigned to
capacity, not just the difference in variable O&M.between the peaking resource and the
SAR. In fact, since the variable O&M of the peaking resource is higher than the SAR
this has an even greater impact on the number of kWh with no associated variable O&M.
The attached report of Dr. Don Reading is incorporated by reference to these comments
and provides.a more detailed explanation of this error.
In essence, only the fixed costs of a peaking resource should be included in the capacity
component. All variable costs should be allocated to the energy component. Obviously
variable O&M costs, by definition, are not fixed costs. Simply put, variabie O&M costs
are more akin to fuel costs than capital costs.
The'significance of this error is directly related to the assumed capacity factor of the
peaking resource. In the case ofPacificorp, the' assumed capacity factor is 18%. While
this error has a modest impact on the non-conforming energy price under the Amended
Agreement, it would have a much more significant impact if applied to Idaho Power
which assumes a 59% capacity factor, as noted in Dr Reading s letter.
Dr. Reading confirmed that Pacificorp included a portion of variable O&M in capacity in
its avoided cost filings in Oregon and Utah. However in both cases, this was not an
important issue. In those jurisdictions, the division between capacity and energy is only
used to allocate the total avoided costs to different time of delivery periods. Thus, in
those other states, the error was hannless because it did not reduce total average price.
However m the Amended Agreement, this erroneous allocation has a very real impact on
- the actual price paid for non-confonning energy. Any variable costs allocated to capacity
prices unfairly reduces the non-confonning energy price. Unlike in Oregon and Utah,
this issue has significant relevance to total average price.
The Amended Agreement is signed, final, and should be approved. However; the
Commission should make specific findings that the exclusion of variable O&M costs
from the energy-only value of the published rates is inappropriate and should not be
repeated for future contracts.
Exhibit B
Page 2 of 10
-__
_no_nom --- --------------_u
Ms. Jean Jewell
March 8, 2006
Page 3
, 2. Deliveries Below 90% Deserve Some Capacity Credit
Even if~ wind project delivers less than 90% of its projected output, its deliveries still
improve system reliability. That is, it still has capacity value. By way of example, if a
utility-owned "resource suffers a major forced outage ,;,- or there is a lack of hydi-o
resource -- those resources are not removed from ratebase. The uqJ.ity will still receive
full compensation for building the project even though it has failed to meet its projected,
performance. Unlike a utility owned resource, the wind,project is only paid for what it
delivers; however, failing to meet the 90% standard does not mean that deliveries below
90% should not receive some capacitY credit.
3. The Amended Agreement Is An Improvement, but the 90/110 Performance
Band Continues To Be AD Inappropriate Policy
The modified form of the 90/110 band reflected in the Amended Agreement is an
improvement over the market-based non-conforming energy price set in prior standard
PURP A contracts approved by the Commission. Future PURP A projects in each
utilities' service territory shquld have the option of choosing the terms of the Amended
Agreement (with the variable O&M correction discussed above).
However, we believe the Commission should more strongly encourage, and provide
guidance to utilities and wind projects to develop contract terms that are "similarly
rigorous" to the' 90/110 band. Order 29880. '
The Commissiol) has heard the criticisms of the 90/110 band. The simple fact is that no
wind forecasting technology exists to provide a forecast of monthly production within
10% accuracy a quarter in advance. Nor is such information val~ble to operating the
utility system. The 90/110 mechanism simply serves to reduce prices from full avoided
costs. We b~lieve this is forbidden byPURPA, and that better alternatives can be found.
Wind forecasts, like hydro forecasts, are exponentially more accurate in the near term.
the t4ne horizons actually used by utilities for operational planning (such as real time and
day ahead markets), high quality wind forecasts are available. Utilities are far better
- served by near term forecasts with higher accuracy than speculative forecasts three
months in advance. Moreover, the 90/110 band drives wind projects to provide
artificially"low forecasts to utilities, undercutting the very purpose of its existence.
In Order 29880 (at page 3), the Commission stated t;hat the 90/110 band serves as an
incentive for the QF to make the most reliable estimates possible.~' In fact, the band
serves as an incentive for the project to submit artificially low forecasts. At higher
penetrations of wind energy on the grid, this could create a situation where utilities are
secming power on the market or allocating resources unnecessarily - a poor outcome for
ratepayers.
Exhibit B
Page 3 of 10
u _d__- -
---
Ms. Jean Jewell
March 8, 2006
Page 4
We believe that p.ew non price te:Cms can be developed to the advantage of utilities and
wind developers. We suggest the Commission favorably recommend that utilities and
developers carefully explore replacing the 90/110 band with a combination of the new
high resolution short-term forecasting services which have become available and the
mechanical availability guarantee ("MAG"). Using these third party forecasting services
has become increasingly common in the industry. This will provide utilities with the
most accurate forecast of wind production for use in operational planning and resource
dispatch. This was the Commission s pririlary goal in using the 90/110 band.
If desirable, longer term forecasts can still be provided for a utility's strategic planning
process, but without the pricing terms that have created an incentive for wind projects to
submit artificially low forecasts. Also, including the MAG provision ensures that a
project's operator is focused on doing the best possible job with those things that can becontrolled.
We submit that professional, independent forecasts" and the MAG, taken together, are
similarly rigorous" compared to the 90/11 a "band. In fact, they should provide far more
useful information for operational planners. Short term forecasts from experienced firms"
have a high degree of accuracy, and long tenn forecasts, if needed, will not be skewed
downward due to the wind projects' natural tendency to hedge against the 90/11"0 band.
The MAG provision will ensure a high degree of project availability and maximum
energy deliveries.
Thank you for your consideration of these comments.
Sincerely,
Brian Jackson
President, Idaho Fann Energy Association
Exhibit B
Page 4 of 10
Ms. Jean Jewell.
March 8, 2006
Page 5
Cc:
Lisa Nordstrom
Dean Brockbank
PacifiCorp
825 NE Multnomah, Suite 180(
Portland, OR 97232
Bruce GriswoldPacifiCorp
825 NE Multnomah, Suite 180(
Portland, OR 97232
Dean J. Miller
McDevitt & Miller LLP
O. Box 2564
Boise. ill 83701
Exhibit B
Page 5 of 10
PRJNClPAl OFFICES:
2252 KlLLEARN CENTER BLVD.TAlLAHASSEE FLORIDA 32309
B50-893-8600
FAX [phone]
March 8. 2006
ECONOMIC RESEARCH
AND ANALYSIS Ben .Johnson ~ASSOCiates,lnc
Brian Jackson
President
Idaho Farm Energy Association
515 N. 27'" St.
Boise, 10 83702
Dear Mr. Jackson:
Your Association has asked me to review the calculations related to the
price for Non-Conforming Energy in the Schwendiman wind energy
contract and the implications
of the modified 90/110 Performance Bandmechanism. The following analysis
indicates that the new mechanism isa major improvement over the existing mechanism. However
PacifiCorp s. method of calculation of the Non-Conforming Energy Pricecontains a significant theoretical flaw that needs be corrected before the
mechanism is generally applied in future avoided cost calculations.
Modified 90/110 Performance Band
The Modified Band is Superior to the current methodology because it
eliminates market price risk from the contract
The forecast of revenuesfor the wind projects will be far less volatile because they are no longer
exposed to natural gas prices. For the ratepayers
, there will now be aneconomic incentive for accurate forecasting at all times.
. Under thecurrent mechanism , there is no forecasting incentive when 85% of theprices at Mid-C exceed the contract price. This situation has occurred in
the past.
The basis of fIXed price contracts is to eliminate market price risks for
both parties. The avoided costs represent a
common view as to the longterm cost of producing electricity. One problem
with the current 90/110mechanism is that it violated this basic compact
Rather than using theagreed upon prices
, it uses market prices onl~.if they are lower. Theone.,sided nature of this mechanism is unfairly biased against wind
projects and artificially reduces supply. This in turn increases costs to
ratepayers in the long run, since they will then buy more energy fromless economic sources. The Modified Band '
returns to the common viewof forecasted energy prices.
6070 H/ll ROAD
BOISE. IDAHO B3703208-342-1700
FAX [phone] J
VISIT OUR WEBS/TES:benjohnsonassociates. com
utilityregu/arion. com
ELECTRONIC MAil:sea ff(g)beruohnsonassocja re s. com
Exhibit B
Page 6 of 10
Non-Confonning Energy Price
PacifiCorp has used a common approach to dividing the total avoided
cost, calculated with the SAR method, between capacity and energy. Injurisdictions which use time differentiated avoided costs, the value of .reliabiJity is separated from the value of energy. If the fIXed cost of acombined cycle is used to price capacity, a competitive market could add
an infinite number of simple cycle combustion turbines (SCCT) and the
owners of those turbines would reap above market retums.
Hence, it is generally recognized that the fixed cost of owning the least
cost peaking resource, such as an SCCT, is the appropriate proxy forpricing capacity, regardless of what type of power plant is used as the
SAR.
With this approach all other costs of the SAR, including the balance ofthe capital costs, are allocated to energy. Essentially, any additionalfIXed costs of the SAR compared to the peaking resource is justified on
the basis of operating cost savings.
If the additional capital costs of the combined cycle SAR are not
allocated to the energy price, then only resources operating at or belowthe heat rate of the SAR would be economic. However, there areobviously times when peaking resources, such as Bennett Mountain, willoperate even though their operating costs are higher. This can occur for
a variety of reasons such as load balancing, mitigating transmission
constraints, replacement of outages of other units, etc.. Adding the extracapital costs of the SAR to energy has the effect of increasing the
energy price to account for periods when more expensive resources are
operating.
PacifiCorp Methodology Error
There is a theoretical flaw in PacifiCorp s avoided cost calculationmethodology. The Company includes variable O&M in the SCCT's fIXedCosts. While this is consistent with the way PacifiCorp calculates
avoided capacity prices in Utah and Oregon, it is simply incorrect. Ineconomic terms, the task here is to determine the change in cost due to
a change in demand (kW). Operating costs (kWh) are not part of thiscalculation. The change in variable O&M due to a change in kW is zero.There is no justification for treating variable O&M costs differently thanvariable fuel costs.
In both Oregon and Utah, the avoided capacity price is simply used to
anocate total avoided costs between time periods. Therefore
PacifiCorp s methodology does not reduce total avoided costs. It onlyshifts a minor amount of avoided costs between on-peak and off-peakperiods. In the Schwendiman case, this flawed methodology reducesthe price of Non-Conforming. Energy. Therefore, it causes an unfair lossto the projects that will be subject to this approach.
Exhibit B
Page 7 of 10
-----
Applying the Methodology to Idaho Power
The size of the PacifiCorp error is determined by the capacity factor
assumed for the SCCT. PacifiCorp uses an 18% capacity factor basedon their 2004 IRP Update. If this error isn t corrected, it Will have a farlarger impact if the method is applied to Idaho Power. Idaho Power
assumes an SCCT capacity factor of 59% in their 2004 IRP. For 2006
the PacifiCorp calculation reduces the Non-Conforming Energy Price by86 $/MWh. If applied to Idaho Power, the error Will equal 2.80 $/MWh.
Attached is a calculation of Non-Conforming Energy Prices for IdahoPower using its 2004 IRP assumptions and eliminating variable O&M
from capacity prices. To adjust for seasonal prices, I assumed that noavoided capacity costs be allocated to the three off peak months and
that the Non-Conforming Energy Prices be assigned in the other two
seasons. The result is that most of the difference in seasonal prices isassigned to capacity prices, which is logical.
It should be noted that there is a small rounding error when applying
Idaho Power's normal seasonality factor to the March-May period.
Theactual factor is 73.33%. which has been rounded to 73.5% in the currentSAR model.
Recommendation
The a theoretical flaw in PacifiCorp s avoided cost calculationmethodology needs to be corrected for the reasons stated above.
Variable O&M should not be included in fixed costs. In future contracts
PacifiCorp needs to fix this error and the methodology should not be
extended to Idaho Power, or any other utility without correction.
~ ~
(0.~
Don C. Reading, PhD
Consulting Economist, VP
Exhibit B
Page 8 of 10
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Page 9 of 10
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9

A
M
An IDACORP Company
Randy C. Allphin
Contract Administrator
Magic Wind
Armand M. Eckert
716-R East 4900 North
Buhl. IL) 83316
April 25, 2006
E-mail Copy:Armand Eckert
Joe Miller
A nnand((ysa fel ink. net
joe((~mcdev itt-m i Iler.com
Original: US Mail
RE:Magic Wind Park
Dear Mr. Eckert:
We have received and reviewed your proposed Firm Energy Sales Agreement and letter from Mr.
Miller, dated April 5 2006.
Your proposal appears to reflect the pricing mechanisms contained in the recently approved
PacifiCorp-Schwendiman agreement - with revisions that increase the prices based on changes proposed
by Dr. Don Reading in his comments in the PacifiCorp-Schwendiman proceeding.
Idaho Power believes that the draft contract you have presented rails to acknowledge the role that
market prices play in determining the costs Idaho Power is likely to incur ifyollr project fails to perform
in accordance with the terms of the agreement. As a result, Idaho Power proposes to uti I ize the template
contract it has signed with numerous OF's similarly situated to your project.
Page I lIC2
IckplHl"c ,lOX) 1XX-ll').j ,,\ (lOX) 111-)11,1 1(;1111'11"1'(1'1",,1")1")\\"01,"'1\
Exhibit D
Page 1 of 2
The Lurrent template Firm Energy Sales agreement that we have previously offered to your
project has been accepted by the Idaho Public Utilities Commission ((rUC) as LOntaining terms and
conditions that are in complianLe with Irue orders regarding these agreements. This same form of
agreement has been recently approved by the Iruc for numerous QF developments, including wind
projects.
In previous conversations and e-mails we had Lol1lpleted the details to be contained within a QF
agreement for the Magic Wind Park and supplied you with a copy for your review. Attached is an
additional copy for your review. Iryou desire to move your project forward to meet thc timelincs you
have identified , please let me know and I will expeditiously prepare the enclosed agreement for
signatures by both parties"
If you have any questions please contact me at yoU!" convenience.
Very trll Iy yours
hf"
Randy C. Allphin
Idaho Power Company
ContraLt Administrator
('c(c-mail)BartKlinc(II'C"
Karl Bokcnkalllj1 (IPC"
SCO\! Vv oodhury (11'\1(')
Rick Sterling. (11'1 j(')
---------- --------- ------ ------------------- -------- -----------------~------------------- ----.---- ------------~------------------------
a~c 2 ,,(2
Idepll""e I ,II~ I ,X~-,I, II hl\ ,cOX,-!"-i!i,Rallphll1',rlda""I1I\\\cr ""111
Exhibit D
Page 2 of 2