20070213Decision memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:FEBRUARY 12,2007
SUBJECT:CASE NO. IPC-07-03 (Idaho Power)
PETITION TO RAISE PUBLISHED RATE ELIGIBILITY CAP FOR
WIND QFS; PETITION TO ELIMINATE 90/110 PERFORMANCE BAND
REQUIREMENT FOR WIND QFS
On February 6, 2007, Idaho Power Company (Idaho Power; Company) filed a
Petition with the Idaho Public Utilities Commission (Commission) requesting a Commission
order
1. Raising the cap on entitlement to published avoided cost rates for intermittent
wind powered small power production facilities that are qualifying facilities (QFs) under
Sections 201 and 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA) from the
current level of 100 kW to 10 000 aMW per month; and
2. Authorizing Idaho Power to purchase state of the art wind forecasting services
that will provide the Company with forecasts of wind conditions in those geographic areas where
the Company s wind generation resources are located. It is Idaho Power s proposal that the
order should further provide that wind powered QFs will reimburse the Company for their share
of the cost of the wind forecasting service; and
3. Authorizing Idaho Power to require the inclusion of a Mechanical Availability
Guarantee (MAG) in all new contracts to purchase energy from wind powered QFs; and
4. In conjunction with the Commission s approval of paragraphs 1 , 2 and 3 above
the Company proposes to eliminate the requirement that the 90%/110% performance band be
included in new contracts for energy purchases from intermittent wind powered QFs.
DECISION MEMORANDUM
Background
On August 4, 2005, the Commission entered interlocutory Order No. 29839 in Case
No. IPC-05-22 reducing the published rate eligibility cap for intermittent QF wind projects
from 10 aMW/month to 100 kW and required individual contract negotiations for wind QFs
larger than 100 kW. Order No. 29839 also established grandfathering criteria for QF wind
projects that were in various stages of negotiation with Idaho Power at the time Order No. 29839
was issued. The Commission s Order was subsequently designated a final Order for purposes of
reconsideration and appeal. No appeals were filed.
In interlocutory Order No. 29839 (final Order No. 29851), the Commission found
that wind generation presents operational integration costs to a utility different from other
PURP A qualified resources. The Commission also found that the unique supply characteristics
of wind generation and the related integration costs provided a basis for adjustment of the
published avoided cost rates, a calculated figure that may be different for each utility. In the
IPC-05-22 case, Idaho Power advised the Commission that it intended to perform a study to
quantify the additional costs it would incur directly related to purchasing a significant amount of
wind generation (the Wind Integration Study; the Study). The Company further advised the
Commission that upon completion of the Study, the Company would provide it to the
Commission for its consideration.
Wind Integration Study - Integration Cost $10.72/MWh
Idaho Power presents in this case its Wind Integration Study. To assist the Company
in preparing its Study, the Company retained the services of EnerNex Corporation. EnerNex
retained WindLogics, Inc. to assist by developing the historical wind speed data set for the
Study. Both consultants, the Company contends, are acknowledge as experts in their respective
fields, analysis and preparation of wind integration studies (EnerNex) and atmospheric modeling
and analysis (WindLogics). Idaho Power distributed a peer review draft of the Study to a
number of entities that are considering similar wind integration issues on a regional basis. These
entities were given the opportunity to provide the Company with a review of the methodology
used in the peer review draft of the Study. The peer review participants were Avista, BPA, Grant
County PUD, National Renewable Energy Laboratory, Northwestern Energy, Oakridge National
Laboratory, PacifiCorp, Puget Sound Energy, Renewable Northwest Project, Seattle City Light
and two independent consultants. Based on comments received from the peer review group and
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with further refinements performed by the Company, the methodology was finalized and the
final Study prepared. A copy of the final Study is enclosed as Attachment 1 to the Petition.
Wind Integration Study
The Wind Integration Study submitted in this case quantifies some of the additional
costs of including variable intermittent wind resources in Idaho Power s resource portfolio.
These additional costs, the Company contends, reduce the savings that the published rates
assume the Company can obtain by purchasing QF resources rather than generating the same
amount of power from the Surrogate Avoided Resource (SAR) used to set Idaho Power
avoided cost. For this reason, the Company contends that the published QF rates do not reflect
the actual costs Idaho Power can avoided by purchasing energy from intermittent QF wind
resources and are therefore in violation of PURP A requirements. The Study, the Company
states, confirms that avoided cost rates paid to intermittent wind powered QF resources must be
reduced to be in compliance with PURP
Idaho Power expresses its concern that the Study, which generally will be referred to
as Idaho Power s "Wind Integration Study" might leave the incorrect impression that the Study
covers all costs of integrating wind generation. In fact, the Company contends a number of
potentially significant costs associated with the integration of wind resources are not addressed
in the Wind Integration Study. The Study only addresses the additional costs the Company will
incur in providing the additional up and down regulating reserves necessary to integrate or
firm" the wind integration without a reduction in reliability. The Company assumes that the
Company s Hells Canyon Complex is used as the primary resource to provide the "firming" role.
The Study also describes the role that market prices play in determining the additional costs the
Company will incur as a result of making additional market purchases during heavy load hours
and additional sales during light load hours. The Company states that the additional purchases
and sales are necessary because of the changes in Hells Canyon Complex operations required to
provide the additional up and down regulated reserves required to integrate various amounts of
wind energy.
The submitted Study does not consider or attempt to quantify other critical wind
integration cost issues such as how the firming requirements of wind will affect operations and
maintenance costs of the Company s low cost hydro system.To a significant degree, the
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Company contends that those wind integration impacts cannot be analyzed and quantified
without a reasonable period or experience with actual operations after wind resources are added.
In addition, the Study does not consider the impacts of the integration of substantial
wind generating resources on the Company transmission system either internal or
interconnecting to other utilities or regions or the infrastructure investment levels necessary to
support the growth in wind generation demands on the system. Furthermore, the Study does not
consider the fact that, once the number of developed wind projects reaches a certain level, the
firming availability of the Company s hydroelectric resources will have been exhausted and the
firming requirements for additional resources of any kind will have to come from new, and much
more expensive back up sources such as coal and gas-fired plants.
Based on the modeling described in the Study, Idaho Power has computed the
additional costs it estimates it will incur as a result of incorporating varying amounts of energy
produced by intermittent wind generators. Based on the average costs ($$/MWh) Idaho Power
has computed the amounts that it believes should be deducted from the published avoided cost
rates so that the published rates will more accurately reflect Idaho Power s avoided costs. The
Company currently has signed contracts or commitments to develop 384 MW (nameplate
capacity) of wind generation. Idaho Power proposes that the prospective cost reduction be set at
$10.72 per MWh which is the midpoint between the cost associated with the current contract
amount of 384 MW and the additional cost that will be incurred at a 20% penetration level, 600
MW. The cost at this midpoint level (492 MW) is $10.72 per MWh. Idaho Power requests that
in conjunction with an increase in the cap on entitlement to published rates, the Commission
order a reduction in the published avoided cost prices to be paid to intermittent wind energy QFs
in the amount of$10.72/MWh. The deduction is reflected in the published chart amounts set out
in Petition Attachment 2.
As Idaho Power gains experience with integ~ating wind generation into its resource
portfolio, it states that it will update the Study and present the results of the update to the
Commission. Idaho Power anticipates that an update will be completed on or before the time the
Company expects to have 600 MW of intermittent wind in its energy portfolio.
Elimination of 90%/100% Performance Band Requirement
Idaho Power believes that inclusion of the 90%/1 00% performance band provisions
in QF contracts (reference Order No. 29632) has been effective in (1) promoting more accurate
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estimates of monthly energy deliveries and (2) more closely aligning the value of QF generation
with the published avoided cost rates. That being said, Idaho Power is prepared to recommend
that the Commission eliminate the requirement that the 90/110 performance band be included in
energy purchase contracts involving intermittent wind powered QFs, provided that the following
three criteria are met.
1. Wind QFs Will Fund Their Share of Wind Forecasting Services
Idaho Power proposes that it be authorized to purchase state-of-the-art wind
forecasting services that will deliver to Idaho Power forecasts of wind conditions in those
specific geographic areas where the Company s wind resources are located.Idaho Power
believes that it is appropriate that the cost of the wind forecasting service be shared among all
purchased and owned wind generation resources included in Idaho Power s resource portfolio.
Idaho Power is confident that the mechanics of cost sharing can be mutually agreed upon by the
parties in settlement discussions.
2. Wind QFs Will Provide a Mechanical Availability Guarantee
Idaho Power is aware that the concept of substituting a Mechanical Availability
Guarantee (MAG) for the 90/110 performance band has been considered and rejected by the
Commission. (Reference Order No. 29880.Idaho Power is not proposing that a MAG be
considered a one- for-one replacement for the 90/110 performance band. Instead, Idaho Power is
proposing that the MAG be only one of three criteria to be satisfied as a condition precedent
elimination of the 90/110 performance band. Idaho Power proposes that the MAG require wind
QFs to demonstrate each month that, except for scheduled maintenance and force majeur events
the wind project is physically capable of generating at full output during 85% of the hours in the
month. Failure to comply with the Mechanical Availability Guarantee would result in the
payment of liquidated damages.
3. Intermittent Wind QFs Will Be Paid Lower Rates
The third condition for the elimination of the 90/110 performance band for wind QFs
is the adoption by the Commission of reduced published QF rates that recognize the additional
costs Idaho Power will incur as it acquires increasingly large amounts of wind generation (i.
wind integration adjustment - $10.72/MWh). Idaho Power s proposed changes to the published
rates for the first 600 MW of new wind powered QFs are set out in Petition Attachment 2.
DECISION MEMORANDUM
COMMISSION DECISION
Idaho Power states that it has posted its pleading and two attachments on its website.
It has sent e-mails to all of the parties that participated in Case No. IPC-05-22 and the entities
that participated in the workshops that followed the issuance of Order No. 29839 advising them
of the filing and providing a link to its website. With the Commission s concurrence, Idaho
Power proposes to expeditiously schedule and conduct at least one workshop in which this
Petition and the two attachments can be discussed with the parties that participated in the prior
proceedings and workshops. Such a Commission sanctioned workshop process, it contends
could facilitate settlement discussions.
Staff recommends that the Company s Petition in Case No. IPC-07-03 be noticed
and that the Commission authorize the Company proposed workshop(s). Following the initial
workshop, Staff will file a status report with the Commission and/or a recommendation for
further procedure. Does the Commission agree with Staff and Company proposed procedure in
Case No. IPC-07-03?
Scott D. Woodbury
bls/M:IPC-O7-03 sw
DECISION MEMORANDUM