20060710Reply comments.pdf

McDevitt & Miller LLP
Lawyers
[phone]
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Via Hand Delivery
Jean Jewell, Secretary
Idaho Public Utilities Commission
472 W. Washington St.
Boise, Idaho 83720
Re: Case No. IPC-05-
Dear Ms. Jewell:
420 W. Bannock Street
O. Box 2564-83701
Boise, Idaho 83702
July 10, 2006
RECEIVED
100G JUL \ 0 PM 3: \ 6
1~s, F. McDevitt
IDA ~'?l1 ihrl\(D\'tiie) Miller
UTILlT\ .- rAMi~"
Enclosed for filing in the above matter please find the original and seven (7) copies of
Reply Comments of Magic Wind, LLc.
An additional copy of the document and this letter is included for return to me with your
file stamp thereon.
DJM/hh
Enc!.
Very Truly Yours
\\CD~tt & MIller LLP
ORIGINAL
Dean J. Miller ISB #1968
McDEVITT & MILLER LLP
420 West Bannock Street
O. Box 2564-83701
Boise, ID 83702
Tel: [phone]
Fax: [phone]
ioe~mcdevitt -miller .com
RECE\VED
lOnG JUL \ 0 PM 3: \ 6
\D'lHO PUBLlC N
UTILITIES COMMISSIO
Attorneys for Magic Wind LLC
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION OF
MAGIC WIND LLC TO DETERMINE
EXEMPTION STATUS
(Corrected Caption)
Case No. IPC-O5-
REPLY COMMENTS OF MAGIC
WIND
COMES NOW Magic Wind LLC ("Magic Wind") and, pursuant to the
Commission s Amended Notice of Scheduling dated June 28 2006, submits the
following Reply Comments.
Introduction and Back2round
In these Reply Comments, Magic Wind uses a number of terms or phrases that
have defined meanings, which for the convenience of the Commission, are summarized
as follows:
90-110 performance band" is the mechanism adopted in Case No. IPC-04-
, Order No. 29632, that defines the minimum degree of predictability required for
published rate eligibility.
Surplus Energy" is energy provided by the QF that falls outside the
performance band.
REPLY COMMENTS OF MAGIC WIND-
Market Method" is the method currently employed by Idaho Power for the
pricing of Surplus Energy and is roughly equal to 85% of the Mid-C market price index
for each month.
PacifiCorp Method" is an alternative method for pricing Surplus Energy
approved by the Commission in Case No. P AC-05-, which computes a schedule of
fixed rates to be paid for Surplus Energy as an alternative to market based rates.
Modified PacifiCorp Method" is the method proposed by Magic Wind in this
case which corrects a technical flaw in the PacifiCorp Method and adapts it to Idaho
Power s seasonalized avoided cost rate structure.
Staff Modified PacifiCorp Method" incorporates a technical change to the
method relating to application of seasonalzation factors.
In response to the Commission s Notice of Petition dated June 21 2006
Comments were filed by Magic Wind, the Commission Staff ("Staff"), and Idaho Power
Company ("Idaho Power
, "
IPCo ). Informal letter Comments were also submitted by
the Renewable Northwest Project and NW Energy Coalition (together
, "
RNP"
Association and Energy Vision LLC. With the exception of Idaho Power, all
commenting parties support Magic Wind's request that the Modified PacifiCorp Method
be available as an alternative to the Market Method.
Idaho Power misapprehends Ma2ic Wind's reQuest.
Throughout its Initial Comments, Idaho Power characterizes Magic Wind'
Motion as a request to mandate that the Modified PacifiCorp Method replace the Market
Method for computing prices for Surplus Energy. That is not Magic Wind's request.
1 As noted above and more fully discussed below, Staff suggests a slight change to the Modified PacifiCorp
Method as initially proposed by Magic Wind with respect to seasonalization factors. Magic Wind concurs
in this adjustment.
REPLY COMMENTS OF MAGIC WIND-
Rather, Magic Wind asks only that the Modified PacifiCorp Method be available as an
option when a QF developer believes the Modified PacifiCorp Method is better suited to
its project. Under Magic Wind's proposal, utilities and willing QF', if desired, would
still be free to negotiate contracts using the Market Method. (It is conceivable that a QF
might prefer the Market Method because while it carries greater uncertainty risk, there is
the possibility, under some circumstances it will produce higher prices for Surplus
Energy than would the Modified PacifiCorp Method).
When Magic Wind's proposal is correctly understood, many of the concerns
expressed by Idaho Power in its Initial Comments disappear. Magic Wind's proposal
does not require the Commission to now reject the remedy it established in Us.
Geothermal (Idaho Power Initial Comments, pg. 6). It would not lead to a return to
mandatory standard form contracts applicable to all utilities (Idaho Power Initial
Comments, pg. 10). It would not have any so-called "chilling effect" on contract
negotiations (Idaho Power Initial Comments, pg 10). It would not undermine, but would
in fact promote a "freedom to contract" (Idaho Power Initial Comments, pg. 11).
In fact, denial of Magic Wind's Motion would have many ofthe consequences
Idaho Power purports to think troublesome. A denial would discourage innovation and
flexibility in devising solutions that meet Commission objectives. A denial would, in
effect, mandate the one-size-fits-all approach that Idaho Power purports to believe is
inadvisable. (Idaho Power Initial Comments
, pg.
l 0).
Idaho Power s concern about developer s "cherry picking" terms of power sales
contracts (Idaho Power Initial Comments, pg. 9) is also misplaced in this case. It
proposed only minimum changes to the Idaho Power template Firm Energy Sales
REPLY COMMENTS OF MAGIC WIND-
Agreement and the price for Surplus Energy issue does not interact with any other
contract terms or change their risk allocations (See Magic Wind's Motion for Declaratory
Order, Attachment A).
Ma2ic Wind is not reQuired to prove the current scheme is ille2al.
Idaho Power asserts in its Initial Comments that Magic Wind must show that the
Market Method of computing Surplus Energy is illegal under PURP A before being
entitled to an alternative method (Idaho Power Initial Comments, pgs. 3-5). Idaho
Power cites no authority for this breathtaking proposition, because, no doubt, none exists.
In crafting implementation policies and practices the Commission has the
authority and discretion to authorize any contract terms, so long as they are not
inconsistent with PURP A. There is no serious contention in this case that the Modified
PacifiCorp Method is inconsistent with PURP A. The Commission is free to authorize
use of the Modified PacifiCorp Method as an alternative to the Market Method without
first finding that the Market Method is illegal.
The Modified PacifiCorp Method does not shift risks to ratepayers.
Idaho Power s substantive objection to the Modified PacifiCorp Method is a
claim that it shifts risks to ratepayers by not taking into account market prices when
computing prices for Surplus Energy (Idaho Power Initial Comments pgs. 5-7). Idaho
Power advanced the same argument in the Schwindiman case. Several parties, including
Staff and PacifiCorp debunked this argument then (See Comments of Magic Wind dated
June 26, 2006 for a summary of Staff and PacifiCorp rebuttal in Schwendiman).
See however Letter Comments ofRNP dated June 26, 2006, pg. 3 that raises doubts about the consistency
of the 90-110 Band with PURPA. Because, from a business point of view, the Modified PacifiCorp
Method provides a feasible alternative, Magic Wind does not believe it necessary to discuss or try the
legality issue in this case.
REPLY COMMENTS OF MAGIC WIND-
In Comments filed in this case Staff makes a similar point:
Staff does not believe customers will face any greater risk under the fixed Surplus
Energy Prices contained in the Amended Agreement than under the 85% of Mid-
C pricing mechanism. Staff believes that the Surplus Energy Prices are a
reasonable proxy for Mid-C market prices and represent a fair price to be paid for
energy that cannot be delivered predictably. In addition, unlike market prices
they offer a fixed, known set of prices that will be paid over the life of the
contract for energy delivered outside the 90/110 percent performance band.
Staff continues to believe that the pricing method used in the Schwendiman
contract is reasonable. Because the approach creates certainty in rates for energy
outside of the 90/110 percent band, and because the rates are a reasonable proxy
for market-based rates, Staff recommends that the pricing method be permitted as
an alternative to project developers seeking contracts with any of the electric
utilities regulated by the Commission (Comments of Commission Staff, dated
June 26, 2006, pgs 4 & 5).
RNP makes a similar observation:
The best that can be said for Idaho Power s terms is that they might sometimes
result in payments for deliveries outside the band that are less costly than
payments under the published rates. Ratepayers should value the certainty created
by the PacifiCorp method, which ensures that all out-of-band deliveries are
purchased at a price that is lower than the published rate (Letter Comments of
RNP dated June 26, 2006, pg. 2).
Moreover, the Modified PacifiCorp Method will likely incent QF projects to
provide accurate forecasts of projected deliveries by eliminating the excessive economic
distortion caused by market price volatility.
A hearin2 is not reQuired to examine rates for Surplus Ener2Y computed under the
Modified PacifiCorp Method.
Idaho Power suggests that a hearing is necessary to examine the final rates
produced by the Modified PacifiCorp Method (Idaho Power Initial Comments
, pg.
12-
13).
See a/so Letter Comments of Energy Vision dated June 25, 2005, containing a mathematical analysis
showing that the PacifiCorp Method is superior to the Market Method from a ratepayer perspective.
REPLY COMMENTS OF MAGIC WIND-
As noted by Staff, however, calculation of Surplus Energy prices using the
PacifiCorp Method is a straightforward exercise. The method uses the same avoided cost
spreadsheet that is used to compute published avoided cost rates, and the source for the
capital and O&M costs is Idaho Power s approved 2004 Integrated Resource Plan
(Comments of Commission Staffpg. 3). Using a well-settled methodology and inputs
Staff is able to easily calculate Surplus Energy prices as displayed on Attachment B to
the Staff Comments. In short, there are no issues requiring hearing with respect to the
calculation of rates.
Staff correctly endorses the Modified PacifiCorp Method.
In its initial Comments in this case Magic Wind pointed out a technical flaw in
the PacifiCorp method with respect to the treatment of variable O&M expense and
proposed a change to the method to correctly treat variable O&M expense (Comments of
Magic Wind dated June 26, 2006, pg. 4). Commission Staff, after reviewing the
proposed change, agrees. "Staff has reviewed Dr. Reading s suggested 'correction' to the
calculation of variable operation and maintenance expense, and agrees that his
recommendation is appropriate." (Comments of the Commission Staff dated June 26
2006, pg. 4).5 Accordingly, the Commission should adopt the Modified PacifiCorp
Method.
4 Idaho Power s suggestion that the parties await filing of the 2006 IRP which allegedly is in the "final
stages of preparation" is farfetched (Idaho Power Initial Comments pg. 12).
See a/so Letter Comments of Energy Vision LLC dated June 25, 2006 further demonstrating that variable
O&M is an avoided energy cost.6 In its Initial Comments, Idaho Power does not appear to express an opinion on which of the two
PacifiCorp methods is preferable, focusing its efforts on opposing any change to the current method.
REPLY COMMENTS OF MAGIC WIND-
Staff's treatment of seasonalization factors is appropriate.
In its initial Comments, Magic Wind presented a set of rates for Surplus Energy
that adapted the PacifiCorp Method to Idaho Power s seasonalized avoided cost rate
structure. (PacifiCorp has never used seasonalized avoided cost rates). The Commission
technical staff reviewed Magic Wind's proposal and, Staff in its Comments, propose a
slightly different application of seasonalization factors and proposed rates shown on
Attachment B to the Comments (Comments of Commission Staff dated June 26, 2006).
Magic Wind has reviewed Staffs proposed application of seasonalization factors
and the resulting rates and concurs in the Staff methodology, which for convenience
Magic Wind now refers to as the Staff Modified PacifiCorp Method.
Conclusion
For the reasons and authorities cited herein. Magic Wind respectfully requests that
the Commission enter its Order determining and declaring that Magic Wind is entitled to
receive from Idaho Power a Firm Energy Sales Agreement that establishes prices for
Surplus Energy using the Staff Modified PacifiCorp Method.
DATED this day of July, 2006.
McDEVITT & MILLER LLP
UM~
Dean J. Miller
McDevitt & Miller LLP
420 W. Bannock
Boise, ID 83702
Phone: [phone]
Fax: [phone]
Attorneys for Magic Wind LLC
7 In its Initial Comments, Idaho power does not appear to express an opinion on this issue.
REPLY COMMENTS OF MAGIC WIND-
CERTIFICATE OF SERVICE
I hereby certify that on the J!t. day of July, 2006, I caused to be served, via the
methodes) indicated below, true and correct copies ofthe foregoing document, upon:
Barton L. Kline
Idaho Power Company
1221 West Idaho Street
O. Box 70
Boise, ID 83707
BKline~idahopower.com
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REPLY COMMENTS OF MAGIC WIND-