20080109final_order_no_30485.pdf

Office of the Secretary
Service Date
January 9 2008
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR AN
ACCOUNTING ORDER AUTHORIZING
THE INCLUSION OF POWER SUPPLY
EXPENSES ASSOCIATED WITH THE
PURCHASE OF ENERGY FROM RAFT
RIVER ENERGY I LLC IN THE
COMPANY'S POWER COST ADJUSTMENT
CASE NO. IPC-07-
ORDER NO. 30485
On October 5, 2007, Idaho Power Company (Idaho Power; Company) filed an
Application requesting an accounting order authorizing the inclusion of all power supply
expenses associated with the purchase of energy (13 MW) from Raft River Energy I LLC in the
Company s Power Cost Adjustment (PCA) mechanism. The underlying Power Purchase
Agreement (PP A) for 13 MW is pursuant to a Company Request for Proposal (RFP) for
geothermal resources and is the initial agreement with u.s. Geothermal, Inc. of what will total
45.5 MW of geothermal energy. If the PP A is approved, the Company proposes to rescind an
existing Firm Energy Sales Agreement with u.s. Geothermal for 10 aMW (IPC-05-, Order
No. 29692) at the same site.
Background
Pursuant to an identified need for geothermal resources first identified in the
Company s 2004 Integrated Resource Plan (IRP), Idaho Power issued a Request for Proposal
(RFP) on June 2, 2006, for 100 MW of geothermal resource. In February 2007, the Company
chose to negotiate power purchase contracts with U.S. Geothermal, Inc., a Boise company with
geothermal resources in Cassia County, Idaho.
In its bid, U.S. Geothermal, Inc. proposes to offer a total of 45.5 MW of geothermal
energy to Idaho Power and to have those facilities online between October 2007 and January
2011. The parties have negotiated and executed a Power Purchase Agreement (PP A) dated
September 24 2007, for approximately 13 MW of the 45.5 MW of geothermal power from Raft
River Energy I LLC, an affiliate of u.s. Geothermal, Inc. The generating facility, known as Raft
River Geothermal Power Plant Unit No., is located approximately 15 miles southeast of Malta
ORDER NO. 30485
in Cassia County, Idaho. Agreements for the remaining 32.5 MW of power will be submitted to
the Commission separately from this filing.
Currently, a Commission-approved Firm Energy Sales Agreement (Agreement) is in
place between U.S. Geothermal and Idaho Power for a 10 aMW facility at this identical location
(Case No. IPC-05-, Order No. 29692). The approved project is a qualifying facility (QF)
under the applicable provisions of the Public Utility Regulatory Policies Act of 1978 (PURP A).
If the Commission approves the PP A and authorizes inclusion of the power supply expenses
associated with the energy from the Raft River Geothermal Power Plant Unit No. I in the Idaho
Power PCA, the Company proposes to rescind its December 29, 2004, Agreement with u.S.
Geothermal. The proposal is subject to satisfaction by Raft River Energy I LLC of all
requirements to attain a first energy date as specified within the PP
Power Purchase Agreement Idaho Power/Raft River Energy I LLC
Raft River Energy I LLC initially guarantees an annual output of 108 186 000 kWh
and a 90% capacity factor beginning with the third contract year. The term of the PP A is 25
contract years from the operation date (February I , 2008). Idaho Power has an option to extend
the term of the PP A for an additional period mutually agreeable to both parties. Should Raft
River Energy I LLC choose to sell its facility, the PP A provides that Raft River first offer to sell
its facility to Idaho Power.
Under the existing PURP A Agreement for this site, the project is restricted to
providing 10 aMW of energy to Idaho Power. Energy over 10 aMW (Inadvertent Energy) may
be delivered to Idaho Power under the existing PURP A Agreement but no payment is required
for this Inadvertent Energy. The actual geothermal equipment and generation unit under this
PP A are identical to the equipment being constructed under the current PURP A Agreement. As
part of the negotiations for this PP A, and contingent upon Commission approval of this PP A
Idaho Power has agreed to retroactively pay for Inadvertent Energy delivered under the PURP
Agreement. The price for the Inadvertent Energy will be the lesser of either 85% of the weighted
average of Mid-, non-firm on and off peak prices or the monthly PP A price for the applicable
months when the Inadvertent Energy was delivered to Idaho Power. If this PPA is not approved
by the Commission, the existing PURP A Agreement terms and conditions will remain in effect
which include no payments for Inadvertent Energy.
ORDER NO. 30485
The project is physically connected to the Raft River Rural Electric Cooperative
(RREC) electrical system and will wheel its energy across the RREC and Bonneville Power
Administration (BP A) transmission systems to deliver its energy to Idaho Power at the Minidoka
Substation. The PP A allows and Idaho Power contemplates in the future working with BP A to
reduce the BP A transmission costs for this project.
Prices under the PP A will be seasonally adjusted consistent with the seasonality
factors currently being used in Idaho Power s PURP A agreements, with the highest rates being
paid during the Company s peak energy usage months. The price for energy will start at an
annual base rate of $52.50/MWh, escalating annually at a rate of 2.1 % through 2020. For the
remaining term, the price for energy will escalate annually at a rate of 0.6% with the resulting
energy price in 2032 being $73.92/MWh. In addition to the energy price, a transmission cost of
approximately $1.75/MWh will be added to determine the total delivered price per MWh.
Idaho Power contends that the energy prices within this PP A compare favorably
against the prices contained within the PURP A Agreement for this same location. Because the
PP A has a 25-year term while the PURP A Agreement has only a 20-year term, a direct
comparison of prices under this PP A to PURP A published avoided costs, the Company states, is
not available. However, the current non-Ievelized PURP A published avoided cost for calendar
year 2007 is $52.69 and if the 20th contract year non-Ievelized PURPA published avoided cost is
escalated at the same rate as previous years, an approximate PURP A price for calendar year 2032
would be $93.14. In addition to this cost savings, Idaho Power states the PPA includes other
provisions that are superior to a PURP A agreement including but not limited to the receipt of
renewable energy credits, forecasting and security provisions, and performance assurances.
No payment is required by Idaho Power for energy deliveries over maximum
contract amounts. The price paid for all energy delivered includes the value of renewable
attributes (green tags or RECs) associated with 3 MW of geothermal generation for the first 10
years of the Agreement. For the remaining 15 years of the PPA, Idaho Power will receive 51%
of the green tags associated with 13 MW of geothermal generation.
The PP A requires that Raft River Energy I LLC deliver detailed hourly, daily and
weekly forecasting of net energy deliveries to Idaho Power Company. If the project fails to
provide timely, reliable and useful forecasts to Idaho Power as detailed and required by this PP
the PP A contains provisions similar to the 90%/110% delivery provisions contained in the
ORDER NO. 30485
Company s current PURP A agreements that will become effective and replace the annual
performance requirements within this PP
The PP A further requires the project to post a $750 000 security deposit by the end of
the third contract year, which will be available for Idaho Power to draw upon in the event
damages are assessed against the project. The $750 000 security deposit is required to be
maintained for the full term of the Agreement, which includes replenishment if any withdrawals
occur during the term of the PP A.
Cost Recovery
Idaho Power requests full cost recovery of expenses under the PP A through its PCA
mechanism. Idaho Power notes that under the Company s current PCA mechanism, the
Company recovers only 90% of changes from base level net power supply costs through the
PCA for non-PURPA projects with the remaining 10% acting as an incentive for efficiency. The
Commission found at that time that it was "appropriate to exclude any future non-CSPP
(cogeneration, small power production) firm purchases from the PCA unless the Company has
first obtained Commission approval to include them." Order No. 24806 at 23. Unlike typical
wholesale power supply transactions done in day-ahead or real-time markets, Idaho Power states
that it has gone through an extensive RFP process to identify the geothermal PP A that will
provide the best value to its customers. Full recovery of power supply expenses associated with
10 MW of the 13 MW encompassed in this PP A, the Company notes, are already subject to the
Commission-approved PURP A Agreement currently in place between Raft River Energy I LLC
and Idaho Power at the same facility. Under the new PP A, Idaho Power will continue to
purchase the same amount of energy but at a lower cost to customers.
On October 31 , 2007, the Commission issued a Notice of Application and Modified
Procedure in Case No. IPC-07-17. The deadline for filing written comments was December
2007. Comments were filed by Commission Staff and a supporter of geothermal power.
Staff in its analysis discusses the rescission of the existing PURP A agreement (Case
No. IPC-05-, Order No. 29692), the Company-identified need for geothermal power and the
RFP and bidding evaluation process that resulted in the proposed Power Purchase Agreement.
Staff reviews the contract terms and conditions and compares the existing PURP A contract with
the proposed Power Purchase Agreement.
ORDER NO. 30485
On a levelized cost basis, Staff calculates that the rates in the PP A are approximately
3% below PURP A rates. In assessing the reasonableness of the price, Staff compares the price
also to the cost of geothermal resources in the Company s 2006 Integrated Resource Plan (IRP)-
$56.15/MWh or about II % lower than the price of the Raft River I PP A. While IRP cost
assumptions should be expected to be reasonably accurate, Staff acknowledges that they are still
only estimates. Very little geothermal development has taken place so far in the region. Staff
believes the prices in the Raft River I PP A are reasonable.
Staff notes that the PP includes other provisions not contained in the PURP A
contract including but not limited to the receipt of renewable energy credits, forecasting and
security provisions and performance assurances. Penalties and performance security provisions
in the PP A could have been stronger, but staff recognizes that all provisions are negotiated as
part of a package.
Staff reviewed the PP A contract terms regarding transmission generation
forecasting, 90/110 performance band, delayed damages, delivery obligation, shortfall damages
performance assurances and renewable energy credits and finds them all to be reasonable. Many
of the principal provisions of the PP A, Staff notes, are similar to provisions contained in Raft
River s existing PURPA contract. On the whole, Staff believes the PPA is more attractive for
both Idaho Power and U.S. Geothermal than the existing PURP A contract.
Regarding the Company-proposed ratemaking treatment, Staff recaps the history of
the PCA and recommends that PCA PURPA treatment (i., recovery of 100% ofPURPA-related
costs) be accorded to only the first 10 aMW of generation, i., the generation cap in the existing
PURP A contract, and that remaining power costs be split 90/1 0, the PCA treatment accorded
non-PURP A projects. Staff recommends that the Company keep track of PP A costs using
separate line items in the PCA until PP A costs are included in base rates.
Commission Findings
The Commission has reviewed and considered the filings of record in Case No. IPC-
07 -17 including the proposed September 24, 2007 Power Purchase Agreement between Idaho
Power and Raft River Energy I LLC and the related comments and recommendations of
Commission Staff. We have also reviewed the existing Firm Energy Sales Agreement with u.s.
Geothermal that the proposed PP A would replace. Based on our review of the record we
ORDER NO. 30485
continue to find it reasonable to process this case pursuant to Modified Procedure. IDAP
31.01.01.204.
Idaho Power proposes replacing its existing 20-year 10 aMW PURP A contract with a
25-year 13 aMW Power Purchase Agreement. The Company requests full recovery of all PP
costs in its annual Power Cost Adjustment (PCA) mechanism. Staff recommends that the
Company be allowed recovery of only 10 aMW at 100% of the PCA expense recovery
authorized for PURP A projects. The remaining 3 aMW would be recovered at the 90/1 0 split for
non-PURP A power expense.
The Commission finds that the Company s proposal to replace its existing Firm
Energy Sales Agreement with U.S. Geothermal, Inc. with the proposed Power Purchase
Agreement with Raft River Energy I LLC is reasonable and in the public interest. The PP A is an
RFP-related purchase of geothermal energy based on the need for geothermal resources
identified in the Company s 2006 Integrated Resource Plan. The proposed Raft River facility
site for the existing and proposed contract is the same and negotiated PP A contract terms are
reasonable. The PP A price is less than the existing PURP A contract price thereby providing an
associated benefit to the Company and its ratepayers.
The Commission finds the Company s proposal to recover 100% of the Power
Purchase Agreement-related costs through its Power Cost Adjustment mechanism to be
acceptable only for the first 10 aMW of PP A generation. We acknowledge that the PP A is a
replacement for an existing PURP A contract for geothermal energy at the same location and with
the same equipment. However, the remaining PP A generation is subject to the PCA treatment
accorded non-PURP A projects. We direct the Company to keep track of its Power Purchase
Agreement costs using separate line items in the PCA until PP A costs are included in base rates.
CONCLUSIONS OF LAW
The Commission has jurisdiction over Idaho Power Company, an electric utility,
pursuant to the authority and power granted it under Title 61 of the Idaho Code and the Public
Utility Regulatory Policies Act of 1978 (PURP A).
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 NO. 30485
ORDER
In consideration of the foregoing and as more particularly described and qualified
above, IT IS HEREBY ORDERED and the Commission does hereby approve the September 24
2007 Power Purchase Agreement between Idaho Power and Raft River Energy I LLC and
termination of the existing Firm Energy Sales Agreement with U.S. Geothermal (Reference Case
No. IPC-05-, Order No. 29692).
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 ofthe Idaho Public Utilities Commission at Boise, Idaho this
day of January 2008.
MARSHA H. SMITH, COMMISSIONER
ATTEST:
~LDje D. Jewell
Commission Secretary
bls/O:IPC-07-17 _
ORDER NO. 30485