20070907final_order_no_30415.pdf

Office of the Secretary
Service Date
September 7 2007
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-
ORDER NO. 30415
On February 6, 2007, Idaho Power Company (Idaho Power; Company) filed a
Petition with the Idaho Public Utilities Commission (Commission) requesting authority to revise
its published avoided cost rates for qualifying facilities (QFs) under Sections 201 and 210 ofthe
Public Utility Regulatory Policies Act of 1978 (PURP A) to reflect Idaho Power s daily load
shape and recognize the difference in value between energy delivered by QFs during heavy load
hours (HLH) and energy delivered during light load hours (LLH). As explained in the
Company s Petition, this revision would not change the computation of avoided cost but it could
change the total revenues received by QFs depending on when during the day they deliver
energy.
The Company in its Petition also seeks to clarify the rules governing the entitlement
to published rates so that QF projects capable of delivering more than 10 aMW per month may
not artificially restructure into multiple smaller projects in order to qualify for the published
avoided cost rates.
The Commission in this Order approves a modified daily load shape adjustment and
denies the Company s requested rule change regarding published rate eligibility.
Daily Load Shape Adjustment
Idaho Power reports that since the early 1980s, when PURP A was first implemented
in Idaho, the Commission shaped Idaho Power s QF purchase rates to address the difference in
energy values between the various seasons of the year. Seasonal avoided cost rates recognize
that energy delivered by QFs has different values based on when it is delivered.
ORDER NO. 30415
Similarly, Idaho Power contends that energy provided by QFs has different values
based on the hour of day it is delivered. This difference in value between heavy load hours and
light load hours, the Company states, was the basis for the daily shape adjustment that was
approved for Avista Corporation in Commission Order No. 30111 issued in Case No. A VU-
06-04. The Company s proposed changes to its published rates reflect a daily shape adjustment.
Disaggregation of Large QFs Into Smaller Projects
Idaho Power is concerned that QF projects capable of generating more than 10 aMW
per month will choose to create multiple legal entities to reconfigure themselves into multiple
smaller projects. Smaller projects qualify for published avoided cost rates that historically have
been higher than rates calculated under the Integrated Resource Plan (IRP) methodology used for
projects greater than 10 aMW. Idaho Power proposes to clarify its rules for published rate
eligibility to preclude this reconfiguration, also known as disaggregation.
Idaho Power states that the disaggregation issue was recently addressed in the
PURP A avoided cost rate proceedings before the Public Utility Commission of Oregon (Docket
No. UM-1129). The parties to that proceeding, the Company states, settled the disaggregation
issue by negotiating a stipulation that was approved by the parties and presented to the Oregon
PUC for approval. The stipulation was signed by all of the utilities, the Oregon Department of
Energy, the Staff of the Oregon Public Utility Commission, Sherman County and the J.R.
Simplot Company. No party to that case, the Company states, opposed the stipulation. In Order
No. 06-538 and Order No. 06-586 , the Oregon PUC approved the settlement stipulation that
defined those small cogeneration facilities or small power production facilities eligible to receive
Oregon "standard rates." Idaho Power proposes a rule with language similar to that approved in
Oregon.
On February 16, 2007, the Commission issued a Notice of Petition and Modified
Procedure to consider these proposals. The deadline for filing written comments was March 23
2007. Comments were filed by PacifiCorp dba Rocky Mountain Power, U.S. Geothermal, Inc.
and Commission Staff. On April 9, 2007, Idaho Power filed reply comments. The comments
can be summarized as follows:
ORDER NO. 30415
Rocky Mountain Power
Rocky Mountain Power (RMP) supports Idaho Power s Petition and notes its
intention to seek approval of similar changes. RMP requests that the Commission acknowledge
in its Order that the type of changes proposed by Idaho Power are applicable to all Commission-
regulated electric utilities. RMP agrees with Idaho Power that energy has a different value based
on seasonal and time of day deliveries. Failing to recognize this difference, it states, could result
in either under- or over-payment for the value ofthe power.
Although agreeing with Idaho Power s method of calculating the on-peak/off-peak
differential, RMP notes that due to geographic differences among utilities it may be appropriate
to use different market hubs or combination of market hubs for other utilities.
u.s. Geothermal
The comments of U.S. Geothermal (USG) address the complexities, costs and
unintended adverse outcomes of the proposed changes. The remedies proposed by Idaho Power
for what the Company perceives to be inadequacies in the existing QF program, USG states, are
contrary to existing law, clumsy, unnecessarily broad, mistargeted, likely to result in significant
and unintended outcomes, and are wholly inappropriate. The risks inherent in the Company
proposal, it contends, are likely to produce outcomes exactly opposite of the intended results.
Many of the potential outcomes would result in costs and inefficiencies, without corresponding
benefits, contrary to the interest of the state and its electrical customers.
USG makes the following recommendations to address Idaho Power stated
concerns, without creating costs and outcomes that would not serve the public interest:
1. Standard form power sales agreements for QF projects meeting the
Commission s requirements shall include a representation and covenant
by the QF that "the project is a base load facility and will be continuously
operated as a base load facility throughout the term of the contract." If
the Company feels that a QF is operated in a manner inconsistent with the
representation, it could declare a breach and seek appropriate contractual
and legal remedies.
2. The Company should be directed to pursue remedies for what it believes
are QF rate inequities through appropriate rate filings.
S. Geothermal notes that the Idaho Legislature with its recent adoption of the 2007
Idaho Energy Plan (Plan) specifically cites the importance of developing in-state renewable
energy projects to provide a "secure, reliable energy system by reducing dependence on remote
ORDER NO. 30415
resources " and to "provide fuel diversity, reducing Idaho s exposure to high and fluctuating
natural gas, oil and coal prices.In addition, the Plan recognizes that "in-state renewable
resources contribute to economic growth by creating jobs and tax revenue in Idaho, frequently in
rural areas that are most in need of economic stimulus." USG contends that the changes
proposed by Idaho Power will increase the complexity and cost of QF projects, and will apply an
arbitrary, restrictive limit on the location of QF projects, contrary to the 2007 Idaho Energy Plan
and the expressed will of the Legislature.
Finally, USG notes that the changes resulting from the Oregon case cited by Idaho
Power were accomplished only through the acquiescence of all parties. U.S. Geothermal
strongly disagrees with the Company s proposed changes and recommends that the Commission
dismiss them in their entirety.
Daily Load Shape Adjustment
USG contends that the costs required to meet Idaho Power s daily load shape
adjustment proposal, as well as the risks created, will not be offset by any resulting benefits
unless a facility under the current rules was intentionally operated in other than a base load
manner, with its output weighted to light load hours. It is just as likely, perhaps more likely,
USG contends, that an inaccurate valuation of period prices will result in higher costs to
electrical customers than a QF program based on compliance with base load operations. Adverse
behavior aimed at maximizing revenues, USG contends, is actually more likely to occur under
Idaho Power s proposal than it is under the current rate structure. In addition, USG contends that
the proposal will most adversely impact the smaller qualifying facilities, QFs that are of the least
concern to the Company and who could least afford the administrative burdens and direct costs.
USG contends that a more direct approach would appear to be a contractual
representation by the QF "that it is a base load facility and will be continuously operated during
the terms of the contract as a base load facility.
(A) Setting Heavy Load and Light Load Values:
Idaho Power in its proposal has utilized the average Mid Columbia heavy load and
light load transactions for the period January 1 , 2003 through January 20, 2007.The
appropriateness of that period in establishing values, USG contends, is unsubstantiated and many
questions are left unanswered.
ORDER NO. 30415
USG contends that the broad and diverse nature of the QFs within Idaho Power s QF
program has in the past and will in the future average out any daily period production variances
as long as facilities are not allowed to intentionally operate in a non-base load manner. The
Company s proposal, USG contends, is a complex solution, subject to unintended outcomes, and
targeted at a very narrow issue that can be more effectively addressed through contractual terms
and conditions.
(B) Costs of the Proposal:
USG contends that the Company s proposal will reqUIre additional metering,
recording, payment processing and administrative management for implementation. USG notes
that Idaho Power has provided no cost-benefit analysis information. USG recommends that
Idaho Power be required to provide the Commission with an implementation plan, including
costs for both the utility and the QF, prior to any approval and implementation of the proposal so
that a rational analysis of costs and benefits can be obtained.
Disaggregation of Large QFs Into Smaller Projects
USG characterizes Idaho Power s disaggregation proposed rule as the imposition of
arbitrary ownership restrictions on projects located within a "five-mile radius." U.S. Geothermal
contends that such a rule would conflict with federal law and have significant impacts on the re-
contracting of existing projects, the future development of new projects and on overall industry
efficiencies. USG notes that federal regulations provide that adjacent facilities shall be
considered a single facility only if they are located within one mile of each other. Reference
R. ~ 292.204(a)(2).
S. Geothermal cites three examples (all hydro projects) and contends that the
Company s proposal will also preclude the re-contracting of existing QF projects located within
five miles of each other and having common ownership. The rules proposed by Idaho Power
USG contends, may also significantly impact the development of new QF projects.
USG further notes that ownership interest over the life of QF facilities may change
for a number of reasons: Consolidation, foreclosures, corporate market entry or exit, and
residual contractual or leasehold rights to mention a few. None of these potential changes, USG
notes, has anything to do with the Company s stated purpose in establishing the proposed rule.
The ownership transfers may further be in direct response to the efficiencies that the market will
require in order for the industry to be viable on an ongoing basis. The indirect impacts of the
ORDER NO. 30415
Company s proposed rule on the efficiency of the industry could be substantial , and in any case
wasteful, USG contends, without producing any material benefits for either the QF or the
electrical customers.
Commission Staff
Daily Load Shape Adjustment
Staff supports a daily shape adjustment but believes that the amount of the proposed
adjustment is too high. Idaho Power s proposed amount of $11.63 per MWh as the daily shape
adjustment is based on the weighted difference in value between on-peak and off-peak prices
(the "spread"). To calculate this value, Idaho Power accumulated historical daily volumes and
prices for all Mid-Columbia firm heavy load hour (HLH) and light load hour (LLH) transactions
for January 1 , 2003 through January 20, 2007 provided by Dow Jones. First, Staff does not
believe that it is appropriate to compute a weighted spread based on daily trading volumes
because daily prices are completely independent of daily volumes. If a non-weighted average
spread were computed instead, the adjustment would be $8.90 per MWh. Second, an
examination of the daily price data shows that the daily spreads exceed the $11.63 proposed by
Idaho Power only 23% of the time. This is because the average of the daily spreads is affected
by a few days during the year when the difference between heavy and light load hour prices is
extreme.
Staff proposes that the daily shape adjustment amount be computed as the median of
the historic values since January 1 , 2003. The median of the historic values is $7.28. Staff
believes that the median value better represents the difference in value between heavy and light
load hours because, by definition, exactly half the time the spread is greater and half the time the
spread is less. Furthermore, because the spreads are not symmetric, Staff believes the median is
a better representation of the expected spread than either the weighted or the non-weighted
average spread.
Another reason for adopting an adjustment lower than the amount proposed by Idaho
Power, Staff contends, is to avoid an extremely wide range of prices that would occur when
combined with the seasonal adjustment already being applied. For example, for a 20-year
levelized contract, the minimum price would be $41.11 during light load hours in the spring and
the maximum price would be $81.08 in heavy load hours during the summer. This is nearly a
ORDER NO. 30415
two-fold difference in price. Staff believes that the daily shape adjustment, at least initially,
should be somewhat conservative.
Staff notes moreover, that the daily shape adjustment recently approved for A vista in
Case No. A VU-06-04 was only $5 per MWh. By Staffs and Avista s own admissions, this
value was conservative; nevertheless, it is less than half of Idaho Power s proposed adjustment
amount.
Although the Staff continues to have the concerns it expressed in the A vista case that
a daily shape adjustment could introduce greater uncertainty in the monthly payments wind
generators would receive, would require hourly metering capability at all future projects and
introduces additional complexity into an already fairly complex system of avoided cost rates, it
still believes the advantages of a daily shape adjustment outweigh the disadvantages.
Disaggregation of Large QFs Into Smaller Projects
Staff recommends denial of the Company s proposal to clarify its rules for published
rate eligibility to preclude disaggregation. Staff believes that project developers will devise ways
to circumvent the proposed rules, making them ineffective in accomplishing their intended
objective. In a production request, Staff inquired of Idaho Power about the likely effect on
existing projects if the definition had been in place, since many wind projects are clustered in the
same area. The Company responded that it ". . . cannot not say for certain that some existing
wind developments might have been precluded from obtaining contracts under the proposed
definition.Idaho Power also went on to say, "Of course, if the definition had been in place
before the 18 wind Firm Energy Sales Agreements were signed, Idaho Power expects that the
wind QFs could have been restructured to avoid any problem with the definition." Staff believes
it would be bad policy to adopt a new rule if there are serious doubts from the beginning about
whether it will actually achieve its intended objective.
Idaho Power Reply Comments
Daily Load Shape Adjustment
In response to comments filed regarding the Company s proposed daily load shape
adjustment Idaho Power accepted Staffs recommended method for computing the heavy load
hour/light load hour price differential.
Idaho Power contends that U.S. Geothermal does not understand the rationale
underlying the Company s daily load shape adjustment proposal. The Company s intent in
ORDER NO. 30415
proposing a HLH/LLH rate differential is not to encourage or discourage base load operation by
QFs. The Company s primary purpose instead is to more accurately value the energy being
delivered. It is difficult for the Company to understand how U.S. Geothermal's alternative
proposal, with its remedy for breach of the provision being litigation, presents a less complicated
approach. Idaho Power believes that its approach is self-executing and does not require litigation
to provide the intended result.
Regarding U.S. Geothermal's express concern that the rate differential proposed by
Idaho Power will give incentives to QFs 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 QFs will generate all the energy
they can all the time.
Regarding U.S. Geothermal's concern that heavy load hour/light load hour periods
identified today may not reflect the value of energy in future years, Idaho Power concurs that it
would be prudent to periodically review the price differential between and if necessary, adjust
the rate differentials to reflect changes in "the spread.
S. Geothermal argues that Idaho Power s proposal will require additional metering,
recording, payment processing and administrative management for implementation and, as a
result, QF program costs will increase. Idaho Power contends that U.S. Geothermal is incorrect.
The metering and telemetry equipment installed on all QF projects larger than 1 MW is capable
of recording the times when deliveries of generation occur. Meters with data storage capability
that will track when energy is generated and delivered can be installed on smaller QF projects.
These data storage meters cost approximately $500 more than regular meters. The computation
of payments to QFs based on the different times of delivery will require a one-time change in the
relatively simple spreadsheet program the Company uses to compute payments to QFs. The
Company contends that the incremental cost of implementing and administering the Company
HLH/LLH proposal is negligible.
Disaggregation of Large QFs Into Smaller Projects
Regarding the Company s proposal to limit QFs with common ownership from being
located closer than five miles of each other, Idaho Power contends that U.S. Geothermal'
assumption that the Company s proposal is impermissible under federal law is incorrect. Idaho
Power states that it is not proposing to change the test for QF status. PURPA's one-mile-radius
ORDER NO. 30415
standard would still apply for the determination of QF status. However, under PURP A, it is the
Idaho Commission, not FERC, Idaho Power contends, that determines which projects are entitled
to the published rates. The five-mile-radius test Idaho Power proposes, the Company contends
deals solely with entitlement to published rates and is no way, it states, contrary to federal law.
Idaho Power believes that its proposed five-mile-radius rule is consistent with the
Commission s policy of published rates for small QFs and IRPs for larger projects by requiring
each small QF to demonstrate a separation of ownership and control. Idaho Power does not
believe that the current policy of setting avoided cost rates based on the size of the QF project is
inequitable or inappropriate.
Idaho Power contends that the public good is served by having the avoided cost rates
for large QF projects determined using the more sophisticated and precise IRP methodology.
Idaho Power anticipates that when the hydroelectric project contracts mentioned by USG expire
regardless of what methodology is used to compute avoided costs, the owners of the projects will
shop the generation from the projects to the highest bidder. Speculation as to what will happen
with these contracts far in the future, Idaho Power contends, is not particularly productive.
Idaho Power maintains that its proposal is prospective and potential QF developers
will have ample notice and opportunity to develop their projects in a way that complies with the
rule.
Commission Findings
The Commission has reviewed and considered the filings of record in Case No. IPC-
O7-, including the comments and recommendations of PacifiCorp, U.S. Geothermal
Commission Staff and a supporter of renewable energy, and the reply comments ofldaho Power.
We have also reviewed our Order No. 30111 in Case No. A VU-06-04 wherein we approved a
daily shape adjustment for Avista Corporation. Based on our review, we continue to find it
reasonable to process this case and the issues presented pursuant to Modified Procedure, i., by
written submission rather than by hearing. IDAPA 31.01.01.204. We note that we
administratively deferred our deliberation in this case to permit the filing and processing of
similar cases by PacifiCorp (Case Nos. PAC-07-07 - Disaggregation and PAC-07-13 -
Monthly Price Multipliers) and Avista Corporation (Case No. A VU-07-02 - Disaggregation).
ORDER NO. 30415
The Commission finds that there is a difference in value between energy delivered by
QFs during heavy load hours (HLH) and energy delivered during light load hours (LLH). We
recognized this difference in 2006 when we approved a daily shape adjustment for A vista
Corporation in Order No. 30111.
While the Commission appreciates the comments of U.S. Geothermal regarding the
Company proposed daily load shape adjustment it appears that U.S. Geothermal
misunderstands the rationale underlying the Company s proposal. The purpose of the daily load
shape adjustment is to more precisely value the energy being delivered and not to encourage or
discourage base load operation.
We find Staffs median value methodology for calculating the daily shape adjustment
to be superior to the Company s weighted spread method. As calculated by Staff the daily shape
adjustment amount computed as the median of the historic value since January 1 2003 is $7.
per MWh.
The proposed daily load shape adjustment is in addition to the seasonal adjustment
that is already applied. While we recognize that this introduces additional complexity, we are
persuaded that the end result is a rate that more closely matches the true value of power at the
time of delivery. We find the greater accuracy in matching price to value outweighs the
attendant uncertainty that wind generators will confront in estimating monthly revenue. We
expect the HLH/LLH rate differential to be monitored and reviewed by the Company and would
expect the Company to request a change should the resultant differential no longer reflect the
value of energy delivered. We also accept the Company s contention in its reply comments that
the incremental cost of implementing and administering the daily shape adjustment is negligible.
Idaho Power has failed to persuade the Commission that there is a need to modify its
rules for published rate eligibility to preclude disaggregation. Petition Attachment 2. The stated
purpose of the rule change is to deny published rate eligibility to large QFs (QFs capable of
generating more than 10 aMW per month) who reconfigure or artificially restructure themselves
into multiple smaller projects and multiple legal entities in order to qualify for published rates.
Purchase rates for projects greater than 10 aMW are individually negotiated using an IRP based
methodology. The Company states "avoided costs determined by use of the more sophisticated
IRP methodology have been slightly lower than the published rates." Idaho Power Petition, p. 4.
The Company offered no evidence that this relationship still exists. Indeed, the Company states
ORDER NO. 30415
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." Idaho Power Reply Comments, p. 10.
The Company, we find, has not convincingly demonstrated that this calculated type of project
reconfiguration is occurring in Idaho or that the present requirements for published rate
eligibility are now being or will be abused by wind and geothermal or other PURP A qualifying
technologies.
Idaho Power contends that the Commission has the authority to be more restrictive in
fashioning rules for the availability of published avoided cost rates than FERC's one-mile-radius
standard for determining QF eligibility status. 18 C.R. ~ 292.204(a)(2). The Company asks
the Commission to impose an ownership restriction on projects located within what we find to be
an arbitrary "five-mile radius." This would be in addition to the geographic separation required
by FERC for QF status. While it may be that it is "not Idaho Power s intent that its proposed
five mile radius rule place undue burdens on the development of new QF generation projects
we cannot find that without change abuse will occur and the public interest will not be served.
Petition, p. 5. It is a change that we find would encourage and might actually promote
gamesmanship. On the basis of the established record we find no reason to change the eligibility
criteria for published rates to require a standard different than FERC QF status requirements.
CONCLUSIONS OF LAW
The Commission has jurisdiction over Idaho Power Company, an electric utility, and
the issues presented in Case No. IPC-07-04 pursuant to the authority and power granted it
under Title 61 of the Idaho Code and the Public Utility Regulatory Policies Act of 1978
(PURPA).
The Commission has authority under PURP A and the implementing regulations of
the Federal Energy Regulatory Commission (FERC) to set avoided costs, to order electric
utilities to enter into fixed-term obligations for the purchase of energy from qualified facilities
(QFs) and to implement FERC rules.
ORDER
In consideration of the foregoing, IT IS HEREBY ORDERED and the Commission
does hereby approve a daily load shape adjustment to published avoided cost rates for Idaho
Power Company calculated using a median value methodology with a resultant adjustment of
$7.28 per MWh.
ORDER NO. 30415
IT IS FURTHER ORDERED and the Commission does hereby deny the Company
proposal to clarify rules regarding published rate eligibility and disaggregation.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code ~ 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 7+'"
day of September 2007.
ARSHA H. SMITH, COMMISSIONER
ATTEST:
#~ir~
Commission Secretary
bls/O:lPC-07-04 sw
ORDER NO. 30415