20090922Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 1895
RECE\VED
Lnn, SEP 22 M" lO: 25
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 APPROVAL ) CASE NO. IPC-E-09-18
OF A FIRM ENERGY SALES AGREEMENT )
FOR THE SALE AND PURCHASE OF )
ELECTRIC ENERGY BETWEEN IDAHO ) COMMENTS OF THE
POWER COMPANY AND CAMP REED WIND ) COMMISSION STAFFPARKLLC. )
)
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
Attorney of record, Scott Woodbur, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued on August 4,2009, submits the following
comments.
BACKGROUND
On July 17,2009, Idaho Power Company (Idaho Power; Company) fied an Application
with the Idaho Public Utilties Commission (Commission) requesting approval of a 20-year Firm
Energy Sales Agreement between Idaho Power and Camp Reed Wind Park LLC (Camp Reed)
dated July 9, 2009 (Agreement).
Camp Reed proposes to design, constrct, install, own, operate and maintain a 22.5
megawatt (MW) wind generating facilty. The Camp Reed facility will be located approximately
STAFF COMMENTS 1 SEPTEMBER 22, 2009
8 miles west of Hagerman, Idaho. Camp Reed has selected September 30, 2010, as both the
scheduled First Energy Date and the Scheduled Operation Date. Appendix B-3.
Agreement ~ 21 provides that the Agreement wil not become effective until the
Commission has approved all of the Agreement's terms and conditions and declares that all
payments Idaho Power makes to Camp Reed for purchases of energy wil be allowed as prudently
incured expenses for ratemaking puroses.
STAFF ANALYSIS
Qualifying Facilty Status
Camp Reed warants the facilty wil be a qualified small power production facilty (QF)
under the applicable provisions of the Public Utilty Regulatory Policies Act of 1978 (PURPA).
Agreement ~ 3.2. Staff confirmed that a QF self-certification application for the project was fied
at the Federal Energy Regulatory Commission on October 19, 2007 in Docket No. QF08-25-000.
Purchase Rates
The Agreement contains levelized published avoided cost rates as curently established by
the Commission for energy deliveries of less than 10 aMW. Agreement Article VII. Staff
confirms that the rates in the Agreement comport with those contained in Order No. 30744. Rates
in the Agreement are adjusted seasonally, and a daily load shape adjustment is made in
accordance with Order No. 30415. In addition, a wind integration adjustment has been applied in
accordance with Order No. 30488.
Security for Levelized Rates
The rates contained in the Agreement are levelized rates. Levelized rates have become
rare in recent years due to the requirements for security; consequently, Staff reviewed the security
requirements carefully.
The Commission in its implementation of PURP A and the related rules and regulations of
the Federal Energy Regulatory Commission (FERC) has utilzed levelized rates as an incentive to
the development of the cogeneration and small power production industry. Levelization provides
the project developer with a price for supplied power at the front-end of the contract in excess of
the power's actual energy value, thus enabling the project to better service its debt and meet start-
STAFF COMMENTS 2 SEPTEMBER 22, 2009
up costs. In later years the cumulative overpayment is recouped because the payments at
levelized rates are projected to be less than the value of the power. At the end of the contract, the
cumulative sum of overpayments and underpayments theoretically will be zero.
In the event of a default, some project owners may be unable to refud this overpayment
unless they maintain some form of liquid security to provide the fuds. The Commission requires
that liquid security be made available to the utilty (and thus its ratepayers) in an amount equal to
the computed overpayment liabilty, adjusted for risk reduction. The need for security for the
amount of overpayment attendant to the front-end loading is commensurate with the perceived
risk of economic walk away by the project owner and the consequential or ensuing loss to the
utilty's ratepayers. The Commission has determined previously that the required liquid
security for overpayment liabilty can be reduced by 1) having adequate insurance, 2) obtaining
engineering certification of the project's design and construction adequacy, 3) obtaining
engineering certification of the project's ongoing operations and maintenance policies,
4) establishing a maintenance and debt service escrow, and 5) granting the utilty second lien
rights. Reference Order No. 21690.
This Agreement includes the various security requirements required by Commission Order
No. 21690 for levelized agreements (i.e., debt service reserve account (~ 19.3.2), maintenance
reserve account (~4.19), second lien requirements (~4.1.10), and an expanded list of required
insurances (~13.2). Although all other security requirements contained in the Agreement are
standard and in compliance with prior Commission Orders, the minimum balance requirement for
the maintenance reserve account is specific to this paricular project. The Agreement requires that
a minimum of $2 milion be retained in a maintenance reserve account. This amount is estimated
to be the approximate cost to completely replace one wind tubine should failure occur. The
amount would be adjusted upward or downward every three years to reflect curent replacement
costs. Staff believes this minimum balance amount is reasonable for wind projects of this size.
New Wind Contract Provisions
As reflected in the Application, this is one of the first PURP A wind agreements executed
since the issuance of Commission Order No. 30488, which requires the inclusion of the
Mechanical Availability Guarantee (MAG) (~6.4), wind integration cost reduction (~7.1), and
wind forecasting cost sharing (Appendix E). The Commission approved these provisions for
future wind contracts as an acceptable substitute for the "90/110" requirements in earlier
STAFF COMMENTS 3 SEPTEMBER 22, 2009
contracts. The "90/110" provisions required facilties to predict future monthly generation with a
fairly high degree of certainty within a 90/110 band in order to justify payment of "firm" energy
rates. For resource technologies with intermittent generation (like wind), the "90/110"
requirements were difficult to meet.
Under the MAG provisions in this Agreement, the project is required to achieve a
minimum monthly mechanical availabilty of 85 percent. In other words, the project must be able
to operate at least 85 percent of the hours in the month, not counting hours when wind speeds are
too low or too high, force majeure events, forced outages, and scheduled maintenance periods.
Failure to achieve an 85 percent mechanical availabilty results in damages being assessed equal
to the difference in the per kWh price between the contract rates and corresponding market energy
prices, subject to a minimum price penalty of 15 mils per kWh. The 15 mils per kWh minimum
price penalty is intended to recognize that Idaho Power will incur transaction and administrative
costs to acquire replacement power even if market prices are less than contract rates.
Staff believes that the MAG provisions in the Agreement are reasonable, but recognizes
that this will be one of Idaho Power's first contracts to include them. Consequently, Staff
recommends that the MAG provisions be approved, but that they not be viewed as precedential
should they later need to be modified or prove to be unworkable.
As specified in Order No. 30488, Idaho Power shall make use of a wind energy production
forecasting model to forecast the energy production from this facilty and other QF wind
generation resources. Idaho Power will share the cost of wind energy production forecasting
equally with the project owner. The facilty's share of wind energy production forecasting will be
prorated based on its generation in relation to all other QF wind projects providing energy to
Idaho Power. The project's share will not be greater than 0.1 percent of the total energy payments
made to the project by Idaho Power during the previous contract year.
Delay Liquidated Damages and Security Provisions
The Agreement contains provisions for delay liquidated damages (~ 5.3) and associated
delay security (~5.7) to secure the established scheduled operation date of September 30, 2010.
Delay liquidated damages have been included in contracts since July 2007; however, this will be
one of the first contracts to require delay security.
STAFF COMMENTS 4 SEPTEMBER 22, 2009
Under the terms of the Agreement, for online delays of up to 90 days, liquidated damages
are assessed if Idaho Power must pay more to acquire replacement power than it would have
otherwse paid to purchase power under the contract. If a delay in the project's online date
extends beyond 90 days, liquidated damages of $20 per kW will be assessed ($450,000 based on a
capacity of 22.5 MW). In addition, Idaho Power can choose to terminate the Agreement if the
delay in meeting the scheduled operation date extends beyond 90 days. In order to insure that the
project will be able to pay delay liquidated damages should they be incured, the project is
required to post liquid security in an amount equal to $20 per kW of project capacity.
Staff believes that these provisions are necessary and reasonable. Many PURP A projects
in the past with existing contracts have experienced delays in meeting their scheduled online
dates, some due to transmission constraints, some due to equipment availabilty and some for
other reasons. When new contracts are signed, Idaho Power plans accordingly. But when
projects are delayed, Idaho Power must sometimes incur higher costs to acquire replacement
power. Staff believes that these provisions will help to protect Idaho Power and its ratepayers if
higher costs are incured due to project delays.
Generator Interconnection and Transmission
The Camp Reed, Yahoo Creek and Payne's Ferr projects are proposed to be located in an
area west of Hagerman, in close proximity to each other and to several other proposed and
existing projects. Projects in this vicinity were studied as a cluster in connection with Case No.
IPC-E-06-21 ("Cassia Case"). One outcome of that case was a Settlement Stipulation that
determined the transmission system improvements necessary in order to accommodate all of the
proposed projects in the cluster, and devised a method for allocating costs amongst Idaho Power
and each of the projects. The Camp Reed, Yahoo Creek and Payne's Ferr projects were included
in the Settlement Stipulation.
In addition to the Power Sales Agreement, it will be necessar for a Generator
Interconnection Agreement to be signed before the project can proceed. The terms and costs to be
included in the Generator Interconnection Agreement will be in accordance with the "Cassia
Formula" as included in the Stipulation in Case No. IPC-E-06-21. Moreover, the transmission
interconnection costs to be assigned to the thee projects will be based on "redispatch" as
described in the Stipulation in the Cassia Case.
STAFF COMMENTS 5 SEPTEMBER 22, 2009
Although a Generation Interconnection Agreement has yet to be negotiated, "Facilty
Studies" - the last in the series of three transmission studies - are complete for the three projects.
Exergy, the developer of the Camp Reed, Yahoo Creek and Payne's Ferr projects, has until
September 23,2009, to respond with comments on the Facility Study Report. The Generation
Interconnection Agreement will be drafted from the Facilty Study Report and be sent to Exergy
within 30 calendar days of Exergy's comments on the Facilty Study Report. Based on the
interconnection studies to date and the discussions with Exergy, Idaho Power has concluded that,
assuming Exergy continues to provide necessar technical information and pay for long lead time
materials in a timely manner, the Company wil have sufficient time and available resources to
construct the interconnection facilties in time to allow the expansion facilties to meet the
scheduled operation date.
Staff would prefer that a signed Generator Interconnection Agreement be presented at the
same time as Idaho Power seeks Commission approval of the Power Sales Agreement. Scheduled
operation dates for other projects (many of which are being developed by Exergy) have
sometimes not been achieved due to delays in completing interconnection studies, delays in
completing a Generator Interconnection Agreement, delays in procuring interconnection or
substation equipment, or delays in completing construction of transmission interconnection or
substation facilities. Staff stated its preference for concurent submittl of Power Sales
Agreements and Generator Interconnection Agreements in the Commission's approval of two of
Idaho Power's most recent PURPA wind contracts (Hot Springs - IPC-E-08-34 and Bennett Creek
- IPC-E-08-35). While stopping short of agreeing to require a signed GIA before signing a power
sales agreement, Idaho Power stated in reply comments in those cases that it would be the
Company's policy in the future not to sign any power sales agreements until the QF project
developer can demonstrate that it has completed its interconnection application to the extent that
the scheduled operation date is unlikely to be modified due to delays in the interconnection study
and transmission construction process. Reference Order No. 30398 at p. 3. Idaho Power appears
satisfied in this case that transmission and generator interconnection issues are unlikely to cause a
delay in the project's scheduled operation date.
STAFF COMMENTS 6 SEPTEMBER 22, 2009
RECOMMENDATIONS
Staff recommends that the Commission approve all of the Agreement's terms and
conditions and declare that all payments Idaho Power makes to Camp Reed for purchases of
energy will be allowed as prudently incurred expenses for ratemaking puroses.
Respectfully submitted this dJ ~ 4\day of September 2009.
~~Scott Wooäbur '0
Deputy Attorney General
Technical Staff: Rick Sterling
i:umisc:commentsipce09.i 8swrps comments
STAFF COMMENTS 7 SEPTEMBER 22, 2009
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 22nd DA Y OF SEPTEMBER 2009,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-E-09-18, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
DONOV AN E WALKER
BARTON L KLINE
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: dwalkerliidahopower.com
bklineliidahopower.com
RANDY C ALLPHIN
CONTRACT ADMINISTRATOR
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: rallphinliidahopower.com
JAMES T CARKULIS
CAMP REED WIND PARK LLC
802 W. BANOCK STREET
12TH FLOOR
BOISE, ID 83702
~;::K
SEC TARY
CERTIFICATE OF SERVICE