20070410Reply comments.pdf

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IDAHO~POWER~
An IDACORP Company
Barton L. Kline
Senior Attorney
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April 9,2007
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
P. O. Box 83720
Boise , Idaho 83720-0074
Re:Case No. IPC-07-
In the Matter of Idaho Power Company s Petition to Revise the
Published Avoided Cost Rates to Include a daily Load Shape; and
To Clarify the Rules governing Entitlement to Published Avoided
Cost Rates
Dear Ms. Jewell:
Please find enclosed for filing an original and seven (7) copies of Idaho Power
Company s Reply Comments for the above-referenced matter.
I would appreciate it if you would return a stamped copy of this transmittal letter
the enclosed self-addressed , stamped envelope.
Very truly yours
BLK:sh
Enclosures
O. Box 70 (83707)
1221 W. Idaho St.
Boise, 10 83702
BARTON L. KLINE, ISB # 1526
MONICA B. MOEN , ISB # 5734
Idaho Power Company
1221 West Idaho Street
P. O. Box 70
Boise, Idaho 83707
Telephone: [phone]
FAX Telephone: [phone]
bkline (g) idahopower.com
mmoen
(g)
idahopower.com
Attorneys for Idaho Power Company
Express Mail Address
1221 West Idaho Street
Boise, Idaho 83702
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S PETITION TO REVISE THE
PUBLISHED AVOIDED COST RATES TO
INCLUDE A DAILY LOAD SHAPE; AND
TO CLARIFY THE RULES GOVERNING
ENTITLEMENT TO PUBLISHED AVOIDED
COST RATES
CASE NO. IPC-07-
REPLY COMMENTS
COMES NOW, Idaho Power Company ("Idaho Power" or the "Company ), and in
response to the Comments filed by the Staff of the Idaho Public Utilities Commission
Staff") and U.S. Geothermal Inc. ("S. Geothermal") submits the following
comments:
BACKGROUND
On February 6, 2007 , Idaho Power filed a Petition with the Commission
requesting authority to revise the published avoided cost rates for qualifying facilities
QFs ) under sections 201 and 210 of the Public Utility Regulatory Policies Act of 1978
REPLY COMMENTS , Page
PURPA") to recognize the difference in value of energy delivered by OFs during heavy
load hours and energy delivered during light load hours. These revised rates would
only be applicable to new OF contracts approved by the Commission following the
issuance of a final order in this case.
In its Petition, the Company also proposed that the Commission adopt new rules
to more particularly define OF projects that are entitled to the published avoided cost
rates. Staff and U.S. Geothermal each filed comments concerning Idaho Power
Petition.
RESPONSE
Heavy Load Hour/Light Load Hour Price Differential
In its Petition , Idaho Power requested that the Commission allow Idaho Power to
revise its published avoided cost rates to reflect the difference in value between energy
delivered by OFs during those periods when Idaho Power s loads are greatest, heavy
load hours ("HLH"), and energy delivered during periods when loads are reduced , light
load hours ("LLH"). The proposed HLH/LLH differential would only be applicable to new
OF contracts and would not otherwise change the computation of avoided costs.
With the addition of a HLH/LLH differential to the published rates, a OF delivering
energy on a uniform around-the-clock basis would see no change in the total revenue it
received each month as a result of the implementation of the HLH/LLH rates proposed
by the Company. However , the heavy load hours/light load hours pricing differential will
reward those OFs that deliver a greater percentage of their total energy output during
the times when the Company s loads are greatest - heavy load hours - as compared to
REPLY COMMENTS, Page 2
those OFs that deliver a greater percentage of their total energy output during light load
hours. The Company s proposed HLH/LLH price differential more accurately reflects
the costs the Company can avoid by purchasing energy from OFs.
s. Geothermal Comments
S. Geothermal's Comments demonstrate that it does not understand the
rationale underlying the Company s heavy load hour/light load hour rate differential
proposal. U.S. Geothermal's misunderstanding is evidenced by its recommendation
that instead of implementing a rate differential that reflects the value of energy
delivered , the Commission order Idaho Power to include a representation in OF
contracts that
, .
the (OF) project is a base load facility and will be continuously operated
as a base load facility throughout the term of the contract" U.S. Geothermal goes on to
recommend that "If the Company feels that if a OF is operating in a manner that is
inconsistent with the representation , it could declare a breach and seek appropriate
contractual and legal remedies." (U.S. Geothermal Comments p. 6).
Idaho Power s intent in proposing a HLH/LLH rate differential is not to encourage
or discourage base load operation by OFs. In fact, it is physically impossible for many
OFs, such as wind or solar powered OFs , to operate as base load resources even if
they expressed an intention to do so in their contracts with Idaho Power.The
Company s primary purpose for proposing different prices for energy deliveries during
heavy load hours versus energy deliveries during light load hours is to more accurately
value the energy being delivered. Simply stated , energy delivered to Idaho Power
during heavy load hours is more valuable because it is delivered at the times when
Idaho Power usually needs additional energy to serve its customers' loads. If OFs
REPLY COMMENTS, Page 3
deliver more energy to Idaho Power during heavy load hours, Idaho Power may avoid
higher alternative costs. Conversely, energy delivered by OFs during light load hours is
less likely to be needed to serve customer loads. Furthermore, less expensive market
purchase alternatives are usually available during light load hours. Reducing prices
paid during light load hours reduces the likelihood that customers will overpay for OF
energy.
S. Geothermal's recommended contract language seems to be at odds with its
expressed concerns that the Company s proposed HLH/LLH differential is complicated
and overly broad. It is difficult for Idaho Power to understand how U.S. Geothermal'
alternative proposal , with its remedy for breach of the provision being litigation , presents
a less complicated approach. Idaho Power s approach is self-executing and does not
require litigation to provide the intended result
S. Geothermal also expresses concern that the rate differential proposed by
Idaho Power will give incentives to OFs to modify the way they operate their projects
and skew their deliveries to heavy load periods. Idaho Power does not see that as a
bad result However, Idaho Power s experience over the past 20 years has been that
OFs will generate all the energy they can all the time. With the exception of fueled
generation plants, the OF's fuel is free and there is no economic advantage to not
generate. As a result , it is unlikely that the Company s proposal will provide a material
incentive for most OFs to generate at any particular time. The Company s proposal is
more in the nature of a fine-tuning of the avoided cost rates to recognize the difference
in value to the utility and its customers of energy delivered during heavy load hours as
compared to light load hours.
REPLY COMMENTS, Page 4
S. Geothermal next raises a concern that heavy load hour and light load hour
periods identified today may not reflect the value of heavy load and light load hour
energy in future years. Idaho Power concurs that it would be prudent to periodically
review the price differential between heavy load hour/light load hour market prices and
if necessary, adjust the rate differentials to reflect changes in "the spread" between
heavy load hour market values and light load hour market values.
Finally, U.S. Geothermal argues that the Company proposal will require
additional metering, recording, payment processing and administrative management for
implementation and, as a result, OF program costs will increase. U.S. Geothermal is
incorrect. Idaho Power Company currently installs metering and telemetry equipment
on all OF projects larger than 1 MW that is capable of recording the times when
deliveries of generation occur. Meters with data storage capability can be installed on
smaller OF projects that will track when energy is generated and delivered. These data
storage meters cost approximately $500 more than regular meters. The computation of
payments to OFs based on the different times of delivery will require a one-time change
in the relatively simple spread sheet program the Company uses to compute payments
to OFs.In reality, the incremental cost of implementing and administering the
Company s HLH/LLH proposal is negligible.
Staff's Comments
Staff's Comments recommend adoption of the heavy load hour/light load hour
price differential but recommend a different method for computing the differential. While
Idaho Power believes that the method it proposed is reasonable , Idaho Power also
believes that the Staff's recommendation represents a reasonable approach. In light of
REPLY COMMENTS, Page 5
the fact that the Company is currently proposing other rate changes to reflect integration
costs for wind OFs , Staff's more conservative approach to the transition to time-
differentiated OF rates is probably better.
II.
RULES TO PREVENT LARGE QFs FROM RECONFIGURING INTO SMALL
PROJECTS TO QUALIFY FOR THE PUBLISHED RATES
This Commission began implementing PURPA in the state of Idaho in the early
1980's. From the beginning, in setting avoided cost rates, for PURPA projects, the
Commission has drawn a clear distinction between large OF projects and small OF
projects.Recognizing that developers of small OFs are less likely to be large
sophisticated organizations and to minimize contract negotiation expenses , avoided
cost rates for small OFs have been set in a generic manner utilizing a Surrogate
Avoided Resource or "SAR" to produce avoided cost rates. These generic avoided cost
rates are commonly referred to as the "published rates
For projects larger than 1 0 average megawatts (aMW), the Commission has
established a different process for setting avoided costs. Contracts for OF projects
larger than 10 aMW are individually negotiated and the avoided cost rates to be
included in those contracts are computed utilizing each utility s system planning model.
In Idaho Power s case, the system planning model used is the AURORA model and the
methodology used to determine avoided costs for large OFs is commonly referred to as
the "IRP methodology." Use of the IRP methodology recognizes that large OF projects
can have a greater impact on the Company s resource planning and are generally
developed by larger entities with a greater understanding of the contract negotiation
REPLY COMMENTS, Page 6
process. Historically, avoided costs determined by use of the more sophisticated IRP
methodology have been lower than the published rates.
The advent of large wind farms has focused a spotlight on the historic difference
in the Commission s approach to setting avoided costs for large and small OF projects.
As Staff noted in its Comments:
Wind projects are unique from other generation technologies
because they normally consist of multiple turbines, each with
its own generator, often scattered over large areas.
Because of this characteristic , wind projects capable of
generating more than 10 aMW per month can choose to
create multiple legal entities to reconfigure themselves into
smaller projects in order to qualify for the historically higher
published avoided cost rates. To address this concern
Idaho Power proposes to clarify its rules for published rate
eligibility to preclude disaggregation.
The proposed rule effectively would limit OFs with common
ownership from being located closer than five miles of each
other. (Staff Comments pp. 4-5).
At this point it is important to address U.S. Geothermal's assumption that the
proposed five mile spacing Idaho Power recommends is impermissible under Federal
law PURPA.S. Geothermal's assertion that "The Company s proposal
contrary to federal law" (U.S. Geothermal Comments p. 3) is simply incorrect. Idaho
Power is not proposing to change the test for OF status. PURPA's one mile radius
standard would still apply for the determination of OF status. However, under PURPA
this Commission , not FERC , determines which OF projects are entitled to the published
rates. The five mile radius test Idaho Power proposes deals with solely entitlement to
published rates and is in no way contrary to Federal law.
REPLY COMMENTS, Page 7
In its Comments, Staff argues that the five mile radius approach proposed by
Idaho Power is desirable in principal but should be rejected because OF project
developers will always find ways to circumvent Commission-imposed rules , thereby
making them ineffective in accomplishing their intended objective.
In support of that position Staff cites a response to a production request Staff
directed to Idaho Power. (Staff Comments p. 5). Idaho Power believes that Staff has
misinterpreted Idaho Power s response to the production request. In the production
request , Staff inquired about the likely effect on existing projects if Idaho Power
proposed 5 mile radius definition had been in place earlier. The Company responded
that because it is not privy to ownership information concerning OF projects, it "cannot
say for certain that some existing wind developments might have been precluded from
obtaining contracts under the proposed definition.Idaho Power went on to say "
course, if the definition had been in place before the 18 wind FESA's (Firm Energy
Sales Agreements) were signed , Idaho Power expects that the wind OFs could have
been restructured to avoid any problem with the definition.In its Comments Staff
interprets Idaho Power s response to the production request as supporting its argument
that OF wind developers will likely find a way to circumvent the intent of the rule and
therefore, no rule should be adopted. Obviously Idaho Power should have been more
clear in its response. Idaho Power s response was only intended to indicate that if OF
developers know what the rules are ahead of time , they can comply with them.
It is not Idaho Power s intent that its proposed five mile radius rule place undue
burdens on the development of new OF generation projects. At the same time, Idaho
Power believes that it is important for the Commission to honor its longstanding policy
REPLY COMMENTS, Page 8
that it is in the public interest for small OFs to receive the published rates and large OFs
to have their avoided costs determined using the IRP methodology. This policy protects
customers by helping to insure that avoided costs are set as accurately as possible.
Idaho Power s proposed five mile radius rule is consistent with the Commission s policy
by requiring each small OF to demonstrate a separation of ownership and control
consistent with the Commission s longstanding policy.
S. Geothermal argues that rather than tightening the rules covering the
entitlement to published rates , the Company should file to modify the published avoided
cost rates applicable to wind generation projects. "If the Company believes there are
inequities in the existing OF program rates, it should pursue changes in the SAR
avoided costs , address the perceived intermittent value of certain resources , or address
other factors it believes should be considered in OF rate setting." (U.S. Geothermal
Comments p. 4).
Idaho Power does not believe that the current policy of setting avoided cost rates
based on the size of the OF project is inequitable or inappropriate. As the Commission
is well aware , in Case No. IPC-07-, the Company is currently pursuing changes to
published avoided costs to address integration costs for intermittent wind projects. But
the Company is not seeking changes to the published rates in that case because it
believes that the SAR methodology is flawed. In the IPC-07-03 case , Idaho Power is
only interested in maintaining accurate avoided costs for wind OFs receiving the
published rates.
In its Comments U.S. Geothermal addresses the potential future application of
the five mile radius rule proposed by the Company to several existing OF hydroelectric
REPLY COMMENTS, Page 9
projects. U.S. Geothermal cites three instances where pairs of relatively large OF
hydroelectric projects are located in close proximity to each other. U.S. Geothermal
apparently has knowledge of the ownership interests of each of these hydroelectric
projects and expresses concern that, when the existing contracts for these hydro
projects expire in the next ten to fifteen years, application of Idaho Power s proposed 5
mile radius rule might require the application of the IRP methodology to set their
avoided costs for a contract renewal. U.S. Geothermal inquires as to the public good
that will be served by requiring a single owner of these hydroelectric projects to have its
avoided costs determined by the IRP methodology? In answering this question it is
important to remember that in the future , the IRP methodology may produce avoided
costs that are either higher or lower than the published rates. Regardless of whether
the IRP methodology produces avoided costs that are higher or lower than the
published rates , the public good is served by having the avoided cost rates for these
large OF projects be determined using the more sophisticated and precise IRP
methodology. The public interest will be served because customers will not be paying
avoided cost rates that are either higher or lower than they otherwise would be. The
public policy served is the longstanding policy of this Commission (and the legal
requirement expressed by PURPA) to determine avoided cost rates in a way that leaves
customers indifferent as to whether a utility purchases power from OFs or generates the
energy itself.Electric customers should not subsidize OF development by simply
ignoring the fact that large OF projects have been broken into multiple small projects in
order to obtain higher rates to which they would not otherwise be entitled.
REPLY COMMENTS , Page 10
Finally, U.S. Geothermal raises the specter that when the contracts between
Idaho Power and the OF hydro projects identified in U.S. Geothermal's Comments
expire in ten to fifteen years, application of the IRP methodology to set avoided cost
rates for those projects could cause those projects to seek to sell their energy to out-of-
state purchasers. Idaho Power anticipates that when these contracts expire, regardless
of what methodology is used to compute avoided costs, the owners of these projects
will shop the generation from the projects to the highest bidder. Idaho Power is likely to
have some price advantage based on transmission expense. Frankly, so much can
change in ten or fifteen years, speculation as to what will happen with these contracts
far in the future is not particularly productive. Idaho Power s proposal is aligned with the
longstanding Commission policy position that to protect customers, small OF projects
are entitled to receive the published rates and larger projects should have their avoided
cost rates determined by individual negotiation using the IRP methodology. What may
or mayor may not happen ten to fifteen years from now should not dictate a change in
that rational policy.
III.
CONCLUSION
Idaho Power proposals in its Petition do not appear to be particularly
controversial. Only one OF developer, U.S. Geothermal , filed comments. Idaho Power
expects that some OFs, such as wind OFs , may very well benefit from the Company
HLH/LLH proposal. Regardless of whether a particular generation technology benefits
or not , the HLH/LLH rate differential proposed by the Company will more closely align
the prices paid to OFs with Idaho Power s avoided costs.
REPLY COMMENTS, Page 11
Idaho Power believes that its five mile radius proposal will not place an onerous
burden on OF developers to comply with the rules. Idaho Power s purpose in making its
five mile radius proposal was to maintain the Commission s longstanding policy of
differentiating between large OFs and small OFs. The Company is concerned that
without a change to the current policy it is likely that developers of some large OF
projects principally windfarm projects will simply create a multitude of shell
corporations or LLCs in order to transform their large OF projects into multiple small
ones. Under current published rates, such disaggregation will likely result in customers
paying higher prices for energy from OFs than they would if the requirements for
entitlement to published rates are tightened.
Idaho Power s proposal is prospective and potential OF developers will have
ample notice and opportunity to develop their projects in a way that complies with the
rule.
Respectfully submitted this day of April 2007.
BART
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Attorney for Idaho Power Company
REPLY COMMENTS, Page 12
CERTIFICATE OF SERVICE
,t.
I HEREBY CERTIFY that on this day of April 2007 , I served a true and
correct copy of the within and foregoing upon the following named parties by the
method indicated below, and addressed to the following:
Scott Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington Street
Post Office Box 83720
Boise , Idaho 83720-0074
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(X) Hand Delivered
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(X) Email scott.woodburv(g)puc.idaho.Qov
Exergy Development Group of Idaho , LLC
c/o Peter J. Richardson
Richardson & O'Leary, PLLC
515 N. 2ih Street
O. Box 7218
Boise , Idaho 83702
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Dr. Don Reading
6070 Hill Road
Boise , Idaho 83703
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Dean Brockbank
Brian Dickman
Rocky Mountain Power
201 South Main Street, Suite 2300
Salt Lake City, Utah , 84111
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Dean.Brockbank(g) PacifiCorp.com
Brian.Dickman (g) PacifiCorp.com
Douglas J. Glaspey
S. Geothermal
1509 Tyrell Lane , Suite B
Boise, Idaho 83706
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Barton L. Kline
REPLY COMMENTS, Page 13