20071221Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 1895
LJ
2: 3D
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
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-E-07-17
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Application, Notice of Modified Procedure and Notice of Comment/Protest Deadline issued on
October 31, 2007, submits the following comments.
BACKGROUND
On October 5, 2007, Idaho Power Company (Idaho Power; Company) fied an
Application requesting an accounting order authorizing the inclusion of all power supply
expenses associated with the purchase of energy from Raft River Energy I LLC (Raft River I) in
the Company's Power Cost Adjustment (PCA) mechanism. The underlying Power Purchase
Agreement (PP A) for 13 MW is an outcome of a June 2, 2006 Request for Proposal (RFP) for
100 MW of geothermal resources.
STAFF COMMENTS 1 DECEMBER 21,2007
U.S. Geothermal, Inc., was selected as the successful bidder in the RFP process. U.S.
Geothermal is a Boise company with geothermal resources in Cassia County, Idaho and Malheur
County, Oregon. In its bid under the RFP, U.S. Geothermal proposed a total of 45.5 MW of
geothermal energy to be produced from four facilties-two at Raft River in Idaho and two at
Neal Hot Springs in Oregon. Those facilties are scheduled to come online between December
2007 and January 2011. The paries have negotiated and executed a PPA 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., for its facilty known as Raft River Geothermal
Power Plant Unit No.1, located approximately 15 miles southeast of Malta, Idaho. Agreements
for the remaining 32.5 MW of power will be submitted to the Commission separately from this
filing.
STAFF ANALYSIS
Rescission of Existing PURP A Agreement
Curently, a Commission-approved Firm Energy Sales Agreement (Agreement) is in
place between Raft River Energy I LLC and Idaho Power for a 10 aMW facility at this identical
location (Case No. IPC-E-05-1, Order No. 29692). The approved project is a Qualifying Facilty
(QF) under the applicable provisions of the Public Utility Regulatory Policies Act of 1978
(PURPA). If the Commission approves the PPA and authorizes inclusion of the power supply
expenses associated with the energy from the Raft River Geothermal Power Plant Unit No. 1 in
the Company's PCA, Idaho Power proposes that the Company's December 29, 2004 Agreement
with Raft River Energy I LLC be rescinded upon satisfaction by Raft River Energy I LLC of all
requirements to attain a first energy date as specified within the PP A.
Staff is not opposed to rescinding the existing PURP A Agreement and effectively
replacing it with the new PP A. Under the PURP A Agreement, Raft River I is limited to
producing no more than 10 aMW per month; however, under the new PPA, Raft River I wil
produce approximately 13 aMW per month. Because of the modular size of the generation
equipment that wil be used and the resource characteristics of the site, generation of 13 aMW
wil permit maximum production from the equipment and wil more effectively utilize the
geothermal resource. Moreover, as wil be discussed in more detail later, the price for energy
under the new PP A wil be slightly less than the price that would have been paid under the
existing PURP A Agreement.
STAFF COMMENTS 2 DECEMBER 21,2007
Need for Geothermal Power
Idaho Power first identified a need for geothermal power in its 2004 Integrated Resource
Plan (IRP). Specifically, the 2004 IRP called for 100 MW of geothermal energy in 2008. It was
on the basis of that plan that Idaho Power issued its Geothermal RFP. However, shortly after
issuing the RFP, the 2006 IRP was completed. It showed the need for 50 MW of geothermal
energy in 2009,50 MW in 2021 and 50 MW in 2022. U.S. Geothermal's bid of 43.5 MW in
four increments between now and 2011 is consistent with the needs identified in either Idaho
Power's 2004 or its 2006 IRP. In the 2006 IRP, geothermal is a significant par of the new 20-
year resource portfolio that also includes 250 MW of wind generation, 500 MW of coal-fired
generation i, 150 MW of combined heat and power at customer facilities, 285 MW of
transmission upgrades to enable market purchases, 250 MW of nuclear, and 187 MW of demand
response and energy effciency programs.
Based on responses to the geothermal RFP, Idaho Power believes that additional
geothermal resources may be available at reasonable prices. In addition, because geothermal
resources are baseload (as compared to intermittent) renewable resources, and because
geothermal resources minimize the Company's and customers' exposure to future carbon
regulations, Idaho Power has decided to issue another geothermal RFP. This second RFP wil
seek to acquire 50 to 100 MW of geothermal generation with a target online date of 20 11. If
geothermal resources are available prior to 2011, they wil be considered to meet projected
deficits in 2009 and 2010. The RFP is targeted to be released in early 2008.
Request For Proposals/Overview of Process
Prior to the issuance ofthe RFP, Idaho Power assembled an evaluation team consisting of
four Company employees. Three other employees acted as advisors. Two independent
consultants were also hired to assist in the process. GeothermEx, Inc. provided expertise in
evaluating the quality of the geothermal resources included in each proposal, and also provided
some guidance in preparing the RFP and the proposal evaluation manuaL. Power Engineers Inc.
conducted transmission studies for each of the proposed sites and provided cost estimates for
transmission interconnection and upgrades.
i Idaho Power recently announced that it wil not pursue development of 250 MW of coal-fired generation scheduled
for 2012, and wil instead seek to develop a 250 MW gas-fired combined cycle project.
STAFF COMMENTS 3 DECEMBER 21,2007
The evaluation team began by identifying specific attributes the Company would require
to meet the needs specified in the IRP. Those attributes were documented in the RFP. Based on
those attributes, an evaluation manual was prepared and a scoring system developed for the
purposes of evaluating proposals, prior to issuance of the RFP.
On June 2, 2006, Idaho Power issued the RFP to purchase energy from geothermal-
powered generation resources to be delivered to the Idaho Power service territory (2006
Geothermal RFP). The RFP sought approximately 100 MW of nameplate generation, preferably
to be delivered by June 2009. Bidders were allowed to propose power purchase agreements with
a minimum term of 20 years, or alternatively to offer options under which Idaho Power would
own the project.
Bids
This section of Staff's comments contains confidential information subject to
protective agreement.
Initial Bid Evaluation
This section of Staff's comments contains confidential information subject to
protective agreement.
STAFF COMMENTS 4 DECEMBER 21,2007
Short List Bid Evaluation
This section of Staff's comments contains confidential information subject to
protective agreement.
.
Short List Bid Evaluation Results
This section of Staff's comments contains confidential information subject to
protective agreement.
STAFF COMMENTS 5 DECEMBER 21,2007
Facilties and Contracts Under the U.S. Geothermal Bid
Under the U.S. Geothermal bid accepted by Idaho Power, there would be a total of four
geothermal generation facilities delivering power to Idaho Power-two at Raft River and two at
Neal Hot Springs-with a combined output of 45.5 aMW. Output from the first Raft River
facility is already being provided to Idaho Power as par of its start-up testing under its existing
PURP A agreement. With its Application in this case, Idaho Power is seeking approval of a PP A
for approximately 13 MW of the 45.5 MW of geothermal power from Raft River Energy I LLC,
an affiiate of U.S. Geothermal, Inc. Agreements for the remaining 32.5 MW of power wil be
STAFF COMMENTS 6 DECEMBER 21, 2007
submitted to the Commission separately from this filing. The remaining three facilities would be
brought online between June 2009 and Januar 2011.
Raft River I Project Description
The Raft River I project wil have a maximum installed capacity of 15.8 MW. The
project's scheduled operation date is February 1,2008 or 60 days after Commission approval of
the PP A, whichever is later. The project is physically connected to the Raft River Rural Electric
Cooperative (RRC) electrical system and wil wheel its energy across the RRC and
Bonnevile Power Administration (BPA) transmission systems to deliver its energy to Idaho
Power at the Minidoka substation. Because this Project is physically located off of the Idaho
Power electrical system it was necessary for this Project to acquire firm transmission across
RRC and BP A's system for the term of the PP A.
Contract Terms and Conditions
Raft River Energy I LLC initially guarantees an anual output of 108,186 MWh and a 90
percent capacity factor beginning with the third contract year. This anual guarantee may be
adjusted periodically based upon an independent engineer's assessment of the status of the
geothermal reservoir. The term of the PPA is 25 years beginning with the operation date
(February 1,2008). Idaho Power has an option to extend the term of the agreement for an
additional period mutually agreeable to both paries. Should U.S. Geothermal choose to sell its
facilty, the PPA provides that U.S. Geothermal first offer to sell its facilty to Idaho Power.
The price for energy wil start at an anual base rate of $52.50/MWh, escalating annually
at a rate of2.l percent through 2020. For the remaining term, the price for energy wil escalate
annually at a rate of 0.6 percent with the resulting energy price in 2032 being $73.92/MWh. In
addition to the energy price, a transmission cost of approximately $1.7 5/MWh wil be added to
determine the total delivered price per MWh. The rate wil also be subject to the same seasonal
adjustment factors as are applied to PURP A contracts-generation in the springtime months of
March, April and May is priced at 73.5 percent of the contract rate, generation in the summer
months of July and August and the winter months of November and December is priced at 120
percent of the contract rate, and generation in all other months is priced at 100 percent of the
contract rate. Based on the expected generation of the project over the 25-year contract term, the
STAFF COMMENTS 7 DECEMBER 21,2007
PP A has a present value of approximately $86.3 millon. No payment is required by the
Company for energy deliveries that exceed the maximum contract amounts.
Relationship Between PP A and Existing PURP A Agreement
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 PPA is
the same equipment that is being constructed under the current PURP A Agreement. As par of
the negotiations for this PP A, upon approval of this PP A by the Commission, Idaho Power has
agreed to retroactively pay for Inadvertent Energy delivered under the PURP A Agreement. The
price for the Inadvertent Energy wil be the lesser of either 85 percent of the weighted average of
Mid-C, non-firm on and off peak prices or the monthly PPA price for the applicable months
when the Inadvertent Energy was delivered to Idaho Power. If this PPA is not approveçl by the
Commission, the existing PURP A Agreement terms and conditions wil remain in effect which
include no payments for Inadvertent Energy.
Price Assessment
As previously stated, the purchase price in the Agreement begins at $52.50/MWh in 2007
and escalates at 2.1 percent through 2020 and at 0.6 percent thereafter. When levelized over the
25-year contract term and including estimated transmission costs, the contract rate is $63.26
(year 2007 dollars). Under the terms of the Agreement, Idaho Power is not required to pay for
anything else other than the energy delivered by the project. Furthermore, Idaho Power is only
required to pay for energy it actually receives, i.e., there are no "take or pay" requirements in the
contract.
Because the PP A would replace an existing PURP A contract, the most logical
comparison is between the rates contained in the existing 10 aMW PURP A Agreement and the
13 aMW PP A. Although the PP A has a 25-year term while the PURP A Agreement has only a
20-year term, a precise comparison of prices is not possible. However, if the same methodology
were used to derive a 25-year levelized PURP A rate for a 2008 online date, it would be
approximately $65.95. Therefore, on a levelized cost basis, the rates in the PPA are
approximately 4.3 percent below PURP A rates.
STAFF COMMENTS 8 DECEMBER 21,2007
While it is reassuring that the purchase prices in the PP A are below PURP A avoided cost
rates, Staff believes it is very important to recognize that price alone should not be the only
factor considered. The PP A includes other provisions not contained in a PURP A agreement
including but not limited to the receipt of renewable energy credits, forecasting and security
provisions, and performance assurances. Staff firmly believes that all of the PPA's terms and
conditions, including price, must be considered as a package in any comparison to other
alternatives.
Another way to judge the reasonableness of the price of a geothermal PP A is to compare
it to the price assumptions used in the utility's IRP for similar resources. The IRP process
compares the assumed costs of various resources, and then subjects those resource alternatives to
rigorous risk analysis including fuel price uncertainty. The cost of geothermal resources
assumed in Idaho Power's 2006 IRP is $56.15 per MWh, about 11 percent lower than the price
of the Raft River I PPA. However, while IRP cost assumptions should be expected to be
reasonably accurate, they are stil only estimates. The fact that the geothermal cost assumptions
in the IRP are less than the Raft River I PP A prices is not surrising since very little geothermal
development has taken place so far in the region. In any case, Staff is comfortble with Idaho
Power purchasing geothermal resources at the prices in the Raft River I PP A.
Transmission
The project is physically connected to the Raft River Rural Electric Cooperative (RRC)
electrical system and wil wheel its energy across the RRC and Bonnevile Power
Administration (BP A) transmission systems to deliver its energy to Idaho Power at the Minidoka
Substation. U.S. Geothermal wil pay the transmission wheeling charges to RRC and to BPA,
but wil be reimbursed by Idaho Power for the exact costs. Because Idaho Power provides
transmission services for BPA in the vicinity, the PPA allows and Idaho Power contemplates in
the future working with BPA to reduce the BPA transmission costs for this project.
Generation Forecasting/90-110 Performance Band
The PPA requires that Raft River Energy I LLC deliver detailed hourly, daily and weekly
forecasting of net energy deliveries to Idaho Power. If the project fails to provide timely, reliable
and useful forecasts, the PP A contains provisions similar to the 90%/110% delivery provisions
contained in the Company's curent PURP A agreements that wil become effective and replace
STAFF COMMENTS 9 DECEMBER 21,2007
the anual performance requirements within this PP A. Geothermal resources typically provide
an extremely consistent source of energy for power generation. Electrical energy production
varies mostly based on ambient air conditions, which is a function of weather. Because
generation by the facilty is highly predictable, Staff does not believe that the PP A requirement
for forecasting wil be much of a burden for U.S. GeothermaL.
Delay Damages
Under the terms of the PPA, Raft River I will be subject to delay damages if the project
does not become operational within 30 days of the scheduled operation date. The scheduled
operation date is Februar 1,2008 or 60 days after Commission approval of the PPA, whichever
is later. This delay damage provision is capped at $500,000. Delay damages are calculated as
the difference in cost, if any, between replacement energy that would have to be purchased from
the market and energy that would have been delivered under the PPA.
Staff believes that this damage provision is reasonable as long as the actual damages do
not reach the $500,000 cap. Actual delay damages could theoretically exceed the cap fairly
easily if market prices are high. However, Staff believes it is unlikely because construction of
the project was completed in October, and the project has been in a testing phase since that time.
In addition, market energy prices in the coming few months are not expected to be abnormally
high.
Delivery Obligation Shortfall Damages
Raft River Energy I LLC initially guarantees an annual output of 108,186 MWh and a 90
percent capacity factor; however, the guarantee does not begin until the third contract year. Prior
to the third contract year, there is no output guarantee. This anual guarantee may be adjusted
periodically based upon an independent engineer's assessment of the status of the geothermal
reservoir.
The PPA includes damage provisions if the project fails to deliver its guaanteed anual
output. If production falls short, Raft River can first try to make up the shortfall in a subsequent
12-month period. However, if the project is stil unable to make up its delivery obligations to the
Company, the project wil pay Idaho Power an amount equal to the difference between the
contract rate and the average market energy price for the year, subject to a cap of $300,000/year
for the delivery obligation shortfall. The cap of the project's liabilty for energy delivery
STAFF COMMENTS 10 DECEMBER 21, 2007
shortfalls wil be escalated at three percent per year up to a maximum of $500,000 in the 21 st
contract year. In addition, for purposes of computing the shortfall price, the market energy price
is capped at 150 percent of the contract rates. This cap fuher limits Raft River's liabilty.
Staff believes that the delivery obligation shortfall contract provisions provide some
protection to Idaho Power, but do not provide complete protection. Ifproduction shortfalls were
to occur during a year when market energy prices were high, Idaho Power could be unable to
fully recover costs incured by having to purchase replacement power from the market. Market
energy prices have been high enough in the past for such a scenario to occur, and Staff believes
the likelihood of such high prices is even greater in the future.
Penormance Assurances
As discussed above, the PP A contains provisions designed to protect Idaho Power in the
event Raft River I is unable to perform in accordance with requirements of the PPA. The PPA
furher requires the project to post a $750,000 security deposit by the end of the third contract
year and wil 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 and must be replenished if any withdrawals occur during the term of the PP A.
Because the security deposit is not required until the end of the third contract year, it
provides no security for delay damages. It does, however, provide adequate security for shortfall
damages since the amount of required security exceeds the cap for net energy shortfall damages
by $250,000. Security must be provided in the form of a guaranty, escrow account, letter of
credit or a cash deposit.
Raft River l s total liability for any and all damages during the term of the PP A is limited
to a maximum of $500,000 for delay damages and $500,000 for net energy shortfall damages in
any contract year. Under the terms of the PPA, Idaho Power is also granted a security interest
and lien on all cash collateral held by Raft River, but is not granted a lien on the physical assets
of the project. Damages due to willful breach of the PP A by Raft River I are not limited by the
PPA, and would likely be determined through whatever legal remedies available to Idaho Power.
The amounts of the performance assurances were negotiated between the paries. There
is no precise way of measuring whether the amounts and caps are sufficient because there is no
way to know in advance the degree to which Idaho Power would be damaged if Raft River I fails
to perform as required by the PP A. The amount of actual damages Idaho Power might incur
STAFF COMMENTS 11 DECEMBER 21, 2007
would depend in most cases on the cost and time to acquire replacement power or a different
resource. The present value of the PP A over its lifetime is approximately $86.3 milion, which
far exceeds the damage limits in the PP A. Nevertheless, Staff believes that the damage amounts
are high enough to provide strong incentive for Raft River I to perform as required by the PP A.
Renewable Energy Credits
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 wil receive 51 percent of the
RECs associated with 13 MW of geothermal generation. RECs associated with the first 10 MW
of project capacity during the first 10 years were sold to an out-of-state entity prior to negotiation
of this PP A, thus they were not available to Idaho Power. The decision for Idaho Power to retain
51 percent of the RECs in the last 15 years of the PP A was based solely on negotiation between
the paries.
In its 2006 IRP, the Idaho Power stated that it recognizes that the acquisition and
retention of RECs is necessar to accurately fulfill the renewable energy component of Idaho
Power's resource portfolio. The Company believes that RECs are necessar in order to assure
customers that it has acquired the energy from renewable resources. By retaining the RECs from
the Raft River I project, Idaho Power would be better positioned to meet any futue federal or
state renewable energy requirements. Curently, however, there is no requirement in Idaho for
utilties to possess RECs.
Staff maintains that once a renewable energy project is built and operating, the
environmental benefits created by the facilty are realized by customers and nearby residents
whether RECs are sold or not. The sale of RECs from an operating project creates no more
environmental benefit than would otherwise exist if no tags were sold. Staff sees the proper role
of RECs as increasing the revenue generation potential of a project to such an extent that it
causes the project to be built when it otherwise would not be buil. Until there is a requirement
for utilities in Idaho to possess RECs, Staff believes that utilties should not pay a premium to
acquire them. If the utilties do acquire them now however, Staff believes the utilties should sell
them in the short term and flow the sales revenues back to customers. By selling the RECs,
customers enjoy both the environmental benefits of the project and the REC sales proceeds.
STAFF COMMENTS 12 DECEMBER 21, 2007
Because Idaho does not yet have a requirement for RECs, Staff is not too concerned that
Idaho Power wil only be receiving a minimal amount of RECs for the first 10 years of the PP A.
However, recognizing that Idaho Power might be required to possess RECs at some time in the
future, Staff believes it is appropriate in this case for Idaho Power to acquire now the majority of
RECs for the last 15 years of the PP A. In its analysis of bids under the RFP, Idaho Power
assigned a value to the RECs included in U.S. Geothermal's bid. Staff expects Idaho Power to
eventually realize at least that value in the future, either through the sale of the RECs if they are
not needed or by retaining them if they are required by law. Unfortunately, because the future
value of RECs is unown, it is impossible to judge whether Idaho Power should acquire them
now in advance of need. Nonetheless, U.S. Geothermal's bid would have been judged best in the
RFP even if Idaho Power had assigned no value to RECs in its analysis. For this reason, Staff
believes that the PP A's terms regarding REC ownership are reasonable. Staff believes it is
important to evaluate the costs and benefits of all speculative transactions to determine if they
are reasonable. Purchase of RECs in advance of need is clearly one of these transactions. Staff
wil continue to assess the merits of such REC purchases whenever they occur.
Ratemaking Treatment
Idaho Power requests full cost recovery of expenses under the PP A through its Power
Cost Adjustment (PCA) mechanism. Idaho Power notes that under the Company's current PCA
mechanism, the Company recovers only 90 percent of changes from base level net power supply
costs through the PCA for non-PURP A projects with the remaining 10 percent acting as an
incentive for efficiency. The Commission found at the time the sharing percentage was
established that it was "appropriate to exclude any future non-CSPP (cogeneration, small power
production 1 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
PURPA Agreement currently in place between Raft River I and Idaho Power at the same facilty.
Under the new PP A, Idaho Power will continue to purchase the same electrons but at a lower
cost to customers.
STAFF COMMENTS 13 DECEMBER 21,2007
The Company's request that 100 percent of the purchased power cost of this agreement
be passed through the PCA would be unusual treatment. At the present time only PURP A
Qualifying Facilty costs are passed through the PCA at 100 percent. The proposed contract is
not a PURP A contract.
A brief review of the PCA is necessary to understand the reasons for different levels of
sharing. All of the normal costs of power supply are included in base rates in a rate case and
recovered from all customers. The PCA is designed to capture power supply cost variations
from normal that occur between rate cases and to adjust rates for those variations. It does this
by calculating the difference between normal costs approved in a rate case and the actual power
supply costs incurred by the Company. Power supply costs are generator fuel costs and non-firm
purchased power costs netted against secondar sales revenues. Variations from normal in these
accounts are driven by actual water conditions and actual market prices and other power supply
changes. In this case the change is the addition of a new generating resource, the Raft River
geothermal project. As a new project begins operation the PCA immediately begins to capture
reduced fuel costs, reduced non-firm purchased power costs and/or increased secondar sales
revenue. Any combination of these reduce actual PCA costs and produce a PCA benefit that, as
a result of PCA sharing, flow through the PCA and go 90 percent to customers and 10 percent to
Company shareholders. If the Company makes no fiing to recover the cost of the purchased
power agreement (PP A), the situation that exists between rate cases is that customers receive 90
percent of the benefit, shareholders receive 10 percent of the benefit and shareholders pay 100
percent of the PP A cost. This is not a fair situation so the Company files to include the cost of
the PP A in the PCA. This is that filing.
There are two levels of cost recovery between rate cases curently included in the PCA,
100 percent recovery or 90 percent recovery. The Company has fied for 100 percent recovery
of PP A costs. Staff believes it is normally inappropriate to allow 100 percent recovery for non-
PURP A projects because it is unfair to customers. As previously discussed, if resource benefits
are not included in base rates, customers receive 90 percent of the power supply benefits of the
resource addition through the PCA and the Company's shareholders receive the other 10 percent.
Conversely, once the contract is approved costs of the resource also flow through the PCA with
the same 90/10 sharng to assure that the Company and customers are both treated fairly.
STAFF COMMENTS 14 DECEMBER 21, 2007
However, the Company already has an approved PURPA contract for 10 MW of this
resource. The normal anual cost of which it proposes to include in base rates in the Company's
current general rate case, Case No. IPC-E-07-08. Therefore, because the cost to purchase 10
Mws of this resource wil likely be included in base rates at 100%, the only remaining costs at
issue in this case are those that exceed the 10 Mw purchase amount. Consequently, Staff
recommends that monthly PP A costs incured by the Company under this contract, that exceed
the PURP A amount approved in the Company's curent general rate case be included in the PCA
as non-PURPA costs shared 90/10 with customers. This allows the Company to recover 100
percent of the costs associated with 10 Mws ofPPA output due to the existing PURPA contract
included in base rates and requires balanced cost and benefit sharing between the Company and
its customers of all additional costs and benefits incurred under the PP A. This treatment wil
continue until all costs and benefits of the PP A are included in base rates in a future case. Staff
does not anticipate or recommend this treatment for other non-PURPA contracts. The Horizon
wind project, a non-PURPA PPA, is curently approved for 90 percent PCA cost recovery until
normalized generation costs are incorporated in base rates.
The new contract also includes a provision for back payment of all generation under the
old PURP A contract that exceeds the 10 MW payment cap. Staff expects these costs to be
relatively smalL. Staff recommends that these costs be passed through the PCA at the 100
percent recovery leveL. Staff recommends thatthe Company keep track ofPPA costs using
separate line items in the PCA until PP A costs are included in base rates.
Staff's Overall Assessment of the Agreement
Many of the principal provisions of the PP A are similar to provisions contained in Raft
River's existing PURPA contract. The price in the PPA, for example, is only slightly below
PURP A avoided cost rates.
There are several key differences, however, between the PPA and the existing PURPA
contract. First, although the PURP A contract contains some performance requirements, they are
not nearly as stringent as those contained in this PP A. The PP A contains online delay damages,
guaranteed anual output requirements, and delivery obligation shortfall penalties. Second, the
PPA has a $750,000 performance guarantee. Finally, at least some RECs are provided to Idaho
Power under the PP A, whereas under the PURP A Agreement Idaho Power allowed Raft River to
retain all of them.
STAFF COMMENTS 15 DECEMBER 21,2007
Staff believes that judgment as to the reasonableness of the PP A must be based on the
PPA in its entirety. While Staff wishes that the penalties and performance security provisions in
the PPA would have been stronger, we recognize that all provisions are negotiated as par of a
package. More stringent penalties and higher security requirements would have provided Idaho
Power and its customers more protection in the event of performance failures or default, but
more protection would have come at a higher cost. On the whole, Staff believes that the PPA is
more attractive for both Idaho Power and U.S. Geothermal than the existing PURPA Agreement.
If approved, Staff believes that the Raft River I PP A and the other PP As yet to come will become
valuable piece of the Company's resource portfolio.
STAFF RECOMMENDATION
Staff believes that the geothermal RFP conducted by Idaho Power was fair and that the
selection of the bid by U.S. Geothermal of four projects-two at Raft River and two at Neal Hot
Springs-was reasonable. Staff recognizes that the Raft River I PP A is the first contract to
emerge from the RFP process, and we anticipate three additional contracts with rates and terms
consistent with those bid by U.S. GeothermaL. Staff recommends that the Commission issue an
order finding that the Power Purchase Agreement with Raft River Energy I LLC is prudent and
approving inclusion of the prudently incurred power purchase expenses associated with the Raft
River I PPA in the Company's Power Cost Adjustment (PCA) mechanism as described
previously in these comments.
Respectfully submitted this 5f
0- / day of December 2007..~~
Scott WoodburDeuty Attome~
Technical Staff: Rick Sterling
Keith Hessing
i:/umisc/comments/ipce07.17swrps non confidential comments
STAFF COMMENTS 16 DECEMBER 21,2007
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 21sT DAY OF DECEMBER 2007,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-E-07-17, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
LISA D NORDSTROM
BARTON L KLINE
IDAHO POWER COMPANY
POBOX 70
BOISE ID 83707-0070
E-MAIL: lnordstrom(fidahopower.com
bklineCiidahopower .com
RIC GALE
VP - PRICING AND REGULATORY
IDAHO POWER COMPANY
POBOX 70
BOISE ID 83707-0070
E-MAIL: rgaleCiidahopower.com
~~SECRETAR
CERTIFICATE OF SERVICE