20080730final_order_no_30608.pdf

Office of the Secretary
Service Date
July 30, 2008
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
APPROVAL OF A FIRM ENERGY SALES
AGREEMENT WITH DF -AP #1 LLC ORDER NO. 30608
CASE NO. IPC-08-
On April 28, 2008, Idaho Power Company ("Idaho Power" or "Company ) filed an
Application with the Commission seeking approval of its Firm Energy Sales Agreement with
DF-AP #1 LLC ("DF-AP") dated April 21 , 2008. On June 6, 2008, the Commission issued a
Notice of Application and Modified Procedure and allowed 21 days for interested parties to
submit their comments to the Commission regarding Idaho Power s Application. See Order No.
30570. Thereafter, the Commission received written comments from the Commission Staff
Idaho Conservation League and an individual Idaho resident.
THE APPLICATION
The Agreement entered into between Idaho Power and DF-AP dictates that DF-
would sell and Idaho Power would purchase a specified amount of electric energy generated by
the Big Sky West Dairy Digester Generation Facility ("Big Sky ) near Gooding, Idaho.
Application at 1.
DF-AP "proposes to design, construct, install, own, operate and maintain
anaerobic digester adjacent to the Big Sky Dairy near Gooding, Idaho. . . .Id. This facility
qualifies as a "small power production facility under the applicable provisions of the Public
Utilities Regulatory Policy Act of 1978 ("PURP A")" and will provide a total of 1.5 MW of
nameplate generation. Id. at 1-
The parties entered into the aforementioned Energy Sales Agreement on April 21
2008. The Application states that the Agreement was entered into pursuant to the terms and
conditions of prior Commission Orders; will have a 20-year term of effectiveness; utilizes the
Non-Levelized Published Avoided Cost Rates established by the Commission for energy
deliveries of less than 1 0 average MW"; and will not become effective until all of its terms and
conditions have been approved by the Commission as "allowable expenses for ratemaking
purposes.Id. at 2. The Agreement also contains terms and conditions similar to other PURPA
ORDER NO. 30608
agreements previously approved by the Commission - "including provisions for delay damages
and delay security in the event the facility does not achieve its Scheduled Operation Date.Id.
DF -AP will begin delivering energy to Idaho Power s system on November 21 , 2008
and has set apart February 14, 2009 as its Scheduled Operation Date. Id. DF-AP must meet
certain requirements and preconditions under the Agreement prior to any energy deliveries to
Idaho Power s system. Id. Idaho Power states that it will monitor for compliance with these
terms throughout the term of the Agreement. Id. at 2-3. Finally, the Application states that the
Agreement dictates that "all applicable interconnection charges and monthly operation and
maintenance charges under Schedule 72 will be assessed to DF-AP and administered by Idaho
Power s delivery business unit." Id. at 3.
COMMENTS
Idaho Resident
On June 23 , 2008 , the Commission received an e-mail from a resident of Shoshone
Idaho. The individual expressed a generalized level of support and approval for utilizing "our
natural resources to help the environment."
Idaho Conservation League
Idaho Conservation League ("ICL") is an Idaho-based conservation organization
representing over 9 500 members. ICL's organizational activities include "citizen action, public
education and public advocacy." ICL Comments at 1.
On June 26, 2008 , the Commission received a letter from ICL supporting the
Agreement. Specifically, ICL expressly supported the conversion, through anaerobic digestion
of dairy waste into "clean energy" as a means of increasing "clean power production and
reducing greenhouse gas emissions.Jd. ICL stated that it was "excited to see Idaho use the
Public Utilities Regulatory Policy Act (PURP A) to further support the use of renewable energy
sources.Jd.
Staff
Staff noted that the Agreement contains a clause that reqUIres DF-AP to pay a
stipulated amount if the project comes online after February 14, 2009. Staff believes that this
provision is reasonable in light of the recent history of at least six separate qualifying facilities
QFs ) projects that have failed to meet their contractual online dates. A failure to meet the
contractual online target date can adversely affect Idaho Power s power supply costs given
ORDER NO. 30608
recent high market prices for replacement power. The Agreement requires DF-AP to post what
is referred to as "delay security" that can be drawn upon ifDF-AP does not meet its February 14
2009 Scheduled Operation Date. Staff opined that this "liquid security" is reasonable to ensure
the availability of assets and/or funds should the delay damages provision be triggered. Id.
The Agreement also contains provisions reflecting the Commission s approval of
adjustments to the published avoided cost rates to reflect Idaho Power s daily load shape and to
recognize the difference in value between energy delivered by QFs during heavy load hours and
energy delivered during light load hours.Id. at 3; see also Order No. 30415. According
Staff, this is noteworthy because it is the first energy sales agreement submitted for Commission
approval that includes provisions delineating separate heavy load and light load hour rates. Id.
Staff reviewed Idaho Power s Application and recommended that the Commission
approve all of the Agreement's terms and conditions.Id. Staff believes that all payments
Idaho Power makes to DF-AP pursuant to this Agreement for purchases of firm energy should be
deemed "prudently incurred expenses for ratemaking purposes.Id.
COMMISSION DECISION AND FINDINGS
The Commission has reviewed and considered the filings in Case No. IPC-08-
including the underlying Agreement submitted for approval and filed comments. Idaho Power
has presented a Firm Energy Sales Agreement with DF-AP for the Commission s consideration.
The Agreement stipulates that DF-AP will provide, and Idaho Power will purchase, 10 aMW or
less of electric energy on a montWy basis. Specifically, the Commission notes that the
Agreement includes a provision that requires DF-AP to provide "delay security" in an amount to
be calculated by Idaho Power according to a "good faith forecast" of future energy prices and not
to exceed $200 000. See Application, Attachment No.1 at 8-
The Commission generally agrees with Staffs assertion that the "delay security"
provision is reasonable and necessary in order to protect an electric utility against any potential
default or failure by a PURP A supplier in meeting its scheduled operation date. However, the
Commission is concerned that such provisions will have a potentially deleterious effect upon
future PURP A projects. Quite often, operators of qualified small power production facilities do
not have ready access to the necessary amount of security or capital delineated in this
Agreement.
ORDER NO. 30608
Therefore, the Commission finds that such prOVISIOns calling for delay security
should not be punitive in nature. Rather, the amount of delay security ultimately provided in this
case, as well as future energy sales agreements with other PURP A suppliers, should constitute a
fair and reasonable offset of a regulated utility s estimated increase in power supply costs
attributable to the PURP A supplier s failure to meet its contractually scheduled operation date.
Accordingly, we find that the project is qualified to receive the published avoided
cost rates and that the Agreement contains acceptable contract terms and includes the non-
levelized published rates previously approved by the Commission. See Order No. 30480.
Additionally, we find it reasonable to allow payments made pursuant to the terms of the
Agreement to be deemed prudently incurred expenses for ratemaking purposes.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Idaho Power, an electric
utility, and the issues raised in this matter 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 QFs and to implement
FERC rules.
ORDER
IT IS HEREBY ORDERED that the Commission does hereby approve Idaho Power
Company s Firm Energy Sales Agreement with DF-AP #1 LLC dated April 21 , 2008.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) may petition for reconsideration within twenty-one (21) days of the
service date of this Order with regard to any matter decided in this Order. Within seven (7) days
after any person has petitioned for reconsideration any other person may cross-petition for
reconsideration. See Idaho Code 9 61-626.
ORDER NO. 30608
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ~ OH--
day of July 2008.
ENT
~4L lr~
MARSHA H. SMITH , COMMISSIONER
/.
JIM D. KEMPTON: CO ISSIONER
ATTEST:
JeanD
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Commission Secretary
O:IPC-08-np2
ORDER NO. 30608