20091125Comments.pdf

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SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 1895
il'.ori l.fj' ?5.. M" 9t 30UU) "i..1 ....
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
IDAHO POWER COMPANY FOR APPROVAL )
OF A FIRM ENERGY SALES AGREEMENT )
FOR THE SALE AND PURCHASE OF )
ELECTRIC ENERGY BETWEEN IDAHO )
POWER COMPANY AND IDAHO WINDS LLC )
)
)
CASE NO. IPC-E-09-25
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 ofCommentlrotest Deadline issued on
October 28,2009, submits the following comments.
BACKGROUND
On September 10,2009, Idaho Power Company (Idaho Power; Company) fied an
Application with the Idaho Public Utilities Commission (Commission) requesting approval of a
20-year Firm Energy Sales Agreement between Idaho Power and Idaho Winds LLC (Idaho
Winds) dated September 1,2009 (Agreement).
Idaho Winds proposes to design, construct, own, operate and maintain a 21 MW
(nameplate rating) wind generating facility located approximately six miles northwest of Glenns
Ferry in Elmore County, Idaho. The facilty wil be known as the Sawtooth Wind Project. Idaho
STAFF COMMENTS 1 NOVEMBER 25, 2009
Winds warants that the facilty will be a qualified small power production facilty (QF) under
the applicable provisions of the Public Utilty Regulatory Policies Act of 1978 (PURP A).
Under normal and/or average conditions, the facilty's generation wil not exceed 10
aMW on a monthly basis. Should the facility exceed 10 aMW on a monthly basis, Idaho Power
wil accept the energy (Inadvertent Energy) that does not exceed the maximum capacity amount;
however, the Company wil not purchase or pay for this Inadvertent Energy. i! 7.5. Idaho Winds
has selected October 31, 2012, as the first energy date and December 31, 2012 as the Scheduled
Operation Date. Appendix B-3.
ST AFF ANALYSIS
The Agreement contains non-levelized published avoided cost rates as currently
established by the Commission for energy deliveries of less than 10 aMW. All other terms and
conditions of the Agreement are nearly identical to those included in several contracts recently
approved by the Commission. For example, in conformance with Commission Order No. 30488,
the Agreement includes a Mechanical Availabilty Guarantee (MAG) (i! 6.4); wind integration
cost reduction (i! 7.1), and wind forecasting cost sharing (Appendix E). In addition, the
Agreement contains provisions for Delay Liquidated Damages (i! 5.3) and associated Delay
Security (i! 5.7) to secure the established Scheduled Operation Date of December 31, 2012.
Idaho Winds has been advised and understands that delays in the interconnection process do not
constitute excusable delays in achieving the Scheduled Operation Date and if the Scheduled
Operation Date is not achieved, delay damages wil be assessed.
The primary issue with this Agreement is that this is the second firm energy sales
agreement executed by Idaho Power and Idaho Winds LLC for this exact location. The first
power sales agreement for the 18 MW Alkali Wind Project was approved on February 26,2007.
Reference Case No. IPC-E-06-36, Order No. 30253. On May 6, 2008, Idaho Power filed with
the Commission a copy of a letter agreement between Idaho Power and the Alkali Wind Project
terminating the Agreement. The power purchase rates contained in the Alkali agreement were
roughly 30 percent less than the rates in the Sawtooth Agreement for which the paries are now
seeking approvaL. The issue considered by Staff is whether Idaho Winds is entitled to terminate
its original agreement and negotiate a new agreement at considerably higher rates for a project at
exactly the same site.
STAFF COMMENTS 2 NOVEMBER 25, 2009
Although Idaho Winds considers the Alkali and Sawtooth Wind Projects to be different,
the only difference apparent to Staff is that the Sawtooth Project is 3 MW larger. In all other
respects, the proposed Sawtooth Wind Project appears to be substatially the same as the Alkali
Wind Project.
Circumstances of the Alkali Contract Termination
The Alkali Wind Project was proposed to be located near Glenns Ferr, not far from a
cluster of numerous other proposed projects in the Hagerman - Magic Valley area. This dense
cluster of proposed projects necessitated that studies be performed to resolve issues related to
necessar transmission system improvements and fair cost sharing mechanisms amongst all of
the proposed projects. Reference Case No. IPC-E-06-21, Order No. 30414. Although the Alkali
project was not included in the transmission cluster studies, the analysis and design work that
was being performed by Idaho Power's transmission group for the cluster studies impacted the
interconnection and transmission upgrade analysis the Company performed for the Alkali
project. i During the analysis of the "cluster," Idaho Power and the developer of the Alkali
project became aware of previously unown transmission and interconnection issues and
potential costs, and resolution of these issues caused time delays in the interconnection process.
In addition, the interconnection analysis for the Alkali project was delayed by unavoidable
internal problems at Idaho Power involving the need to replace the study engineer in the middle
of the Alkali interconnection study. While it was ultimately determined that the Alkali project
could interconnect to the Company's system, Idaho Power admits that processing the
interconnection request was inordinately delayed. At least some of the delay, the Company
readily concedes, can be attributed to Idaho Power. Commission Order No. 30253 discussed the
uncertainty as~ociated with transmission issues occurring at the time (Order No. 30253, pp. 4-7).
This period of transmission uncertainty occured at a time when the costs of material and
equipment for the Alkali project were rising quickly. As a result, the developer of the Alkali
project advised Idaho Power that he desired to cancel the power sales agreement rather than
continue to develop the project and risk a financial failure. Idaho Power maintains that it made a
diligent effort to work with the developer with the intention of extending the on-line date rather
than terminating the contract. However, in the end, the developer concluded that he could not
proceed and Idaho Power agreed to a mutual termination of the contract. On May 6, 2008, Idaho
STAFF COMMENTS 3 NOVEMBER 25,2009
Power filed a copy of the termination agreement between Idaho Power and the Alkali project
with the Commission.
The power sales agreement for the Alkali project was terminated by mutual agreement of
the paries. By its express terms, the agreement and cover letter specify that "Termination of the
Agreement shall only be effective upon execution of this document by both parties and
acceptance of this termination by the Idaho Public Utilties Commission." (See Attachment).
Although Idaho Power fied the termination letter agreement with the Commission on May 20,
2008, the Commission never took any action to either notice, acknowledge, or accept it. Idaho
Power does not contend that the Company's May 20, 2008, fiing of the termination agreement
between Idaho Power and the Alkali project binds the Commission. Idaho Power made the filing
with the Commission in good faith with the expectation that if the Commission or Staffhad
questions or concerns relating to the cancellation, the filing of the cancellation agreement would
provide a vehicle for the Commission to inquire fuher. Idaho Power acknowledges that the
Commission has not issued an order formally accepting the termination of the Alkali contract.
Both Staff and the Company agree that the Commission is certainly free to reject the Sawtooth
Wind Project Agreement. The Sawtooth Wind Project Agreement explicitly provides that it is
contingent on the Commission issuing its order accepting the agreement and approving it for
ratemaking puroses.
Idaho Power's Justification for Offering a New Contract to Sawtooth Wind
In offering a new contract to the Sawtooth Project, Idaho Power does not believe that the
Sawtooth Wind Project should be bound by the same rates, terms and conditions as were
included in the Alkali contract that preceded it. As justification for its decision to offer the
Sawtooth project a new contract, Idaho Power points out that that at the time of cancellation, the
Commission had neither considered nor ordered a change in the published avoided cost rates.
The curent avoided cost rates were approved in February of2009, approximately one year after
the decision was made to cancel the Alkali contract.
Based on its review of the facts and circumstances in this case, Staff does not believe that
Idaho Winds deliberately terminated its existing agreement for the Alkali project with the
intention of later signing a new contract at much higher rates for essentially the same project. At
1 Staffs recitation of facts is informed by the Company's response to Staffs Production Request Nos. 1-5.
STAFF COMMENTS 4 NOVEMBER 25, 2009
the time the Alkali contract was terminated, Idaho Winds had no knowledge that published
avoided cost rates would increase substantially in the near future. Staff believes that Idaho
Winds terminated its original agreement in good faith, knowing that the escalation in project
costs that occured during transmission study delays made its project uneconomical at the
avoided cost rates contained in the contract.
The eventual outcome of termination of the original Alkali agreement was a new
Agreement for the Sawtooth project at much higher rates. Although ratepayers ultimately lose
out on the benefits of the Alkali contract with its much lower rates, Staff believes that the
unusual circumstances of this case justify a new contract. There is no evidence that either Idaho
Winds or Idaho Power took any actions to deliberately "game" the system to the disadvantage of
ratepayers.
Effect on Other Contracts
Besides the Alkali/Sawtooth project, fifteen other wind projects with signed QF contracts
were either directly involved or indirectly impacted by the Magic Valley QF interconnection and
transmission cluster issue. Four of those projects have been developed and are currently online.
All of the other projects experienced transmission study delays but decided to remain in the
interconnection and transmission queue. They have each continued to progress through the
interconnection study process. They have all retained their power sales agreements but revised
their estimated operation dates to September 30, 2010.
Staff inquired of Idaho Power as to why each of these uncompleted projects could not
also terminate their existing contracts and seek new contracts at higher avoided cost rates in the
same manner in which Idaho Winds LLC has done for the Sawtooth project. Idaho Power
responded that it does not believe any of these uncompleted projects stand on the same footing as
the Alkali project did when Idaho Winds LLC and Idaho Power agreed to terminate the Alkali
contract. Idaho Power points out that it was only after the filing of the multiple interconnection
requests for the numerous wind projects in the "cluster" area that the complexity of the
interconnection and transmission issues in the cluster area became known. This sudden and
large influx of megawatts of interconnection requests required a cluster study be performed.
Upon completion of this cluster study, the results were presented to the impacted projects. The
impacted projects rejected the results of the study and the matter was submitted to the
STAFF COMMENTS 5 NOVEMBER 25,2009
Commission in form of a complaint. This complaint was ultimately resolved by Commission
Order No. 30414.
As stated earlier, this entire process consumed more time than is typically required to
perform interconnection and transmission studies. It was during this same time that the Alkali
project experienced unexpected time delays and uncertainty of costs in the interconnection
process that resulted in the project withdrawing its interconnection request and requesting
termination of the Alkali agreement.
The issues relating to the interconnection process have now been resolved. The affected
uncompleted projects did not seek to cancel their contracts but instead requested to extend the
operation date within their contracts. Because the interconnection studies are now substantially
complete and the magnitude of the interconnection-upgrade costs have been disclosed, Idaho
Power believes that the remaining projects have no basis to claim they do not know the
construction schedule or the general magnitude of costs of interconnection at this time. Contract
cancellation at this point, Idaho Power contends, would simply be an attempt to obtain the new,
liigher rates and would be a clear breach of contract.
Idaho Power believes that dispositive difference between the status of the uncompleted
projects and the Alkali-Sawtooth projects is that the Alkali project decided to cancel its contract
nearly a year before the Commission increased the published avoided cost rates to the curent
leveL. At the time the Company and the Alkali project agreed to voluntarly terminate the power
sales agreement, neither Idaho Power nor the project developer knew that the Commission
would, many months later, increase the published avoided cost rates.
Idaho Power maintains that is not the same situation for the remaining uncompleted
projects. If the remaining projects choose to default now and subsequently request a contract at
rates they now know are higher, the Company believes denial of a new contract would be
reasonable and legally sustainable.
New Contract Provisions to Guard Against Defaulting to Obtain Higher Rates
In most instances, the owner of a QF resource is a limited liabilty company ("LLC") with
little or no assets other than the power sales agreement and the project's equipment and facilties.
In most instances, the project's equipment and facilities are subject to substantial first mortgage
liens, thereby putting Idaho Power behind other creditors in the event of a default or banruptcy.
STAFF COMMENTS 6 NOVEMBER 25, 2009
As a result, under most vintages of power sales agreements, it is unlikely that Idaho Power wil
be able to recover its damages if a QF developer defaults or terminates a contract.
Idaho Power and the Commission Staff have struggled to address the balance between
including terms and conditions in QF contracts that wil adequately protect customers while at
the same time not unduly inhibit the development of QF projects. In the end, the only
mechanism the Company believes is both fair and effective is the posting of liquid security to be
retained for a period of time to ensure QF developers do not cancel or terminate projects in an
effort to "game" the system.
It is Idaho Power's opinion that the only effective way to deter QF developers from
terminating or defaulting on existing contracts in order to negotiate new contracts at higher
avoided cost rates is for the Commission to allow Idaho Power to include reasonable liquidated
damages provisions in QF contracts and to allow the Company to include contract provisions that
require QF developers to provide meaningful amounts of liquid security to be retained by the
utilty in the event of a termination or default. Unless the QF developer has a meaningful
financial incentive not to terminate or default, some QF developers wil continue to look at
power sales agreements as options which they can exercise or ignore without adverse
consequences.
Recent power sales agreements between Idaho Power and QF developers have included
such liquidated damage and security provisions. The Tuana Springs expansion, Camp Reed,
Yahoo Creek, and Payne's Ferry QF contracts recently approved in Commission Order Nos.
30917,30924,30925, and 30926, respectively, all include delay damage contract language and
security in the amount of $20 per kW. The proposed Sawtooth contract includes them as welL.
Now however, Idaho Power believes that the $20 amount is probably too low to be a meaningful
deterrent. The Company believes that an amount of security equal to the greater of three months
anticipated revenues or $45 per kW is more realistic. In comments fied in the pending GNR-E-
09-03 case, Idaho Power and Avista have suggested that $45/kW or approximately three months
of revenue is an appropriate amount of security for new QF contracts going forward.
RECOMMENDATIONS
Although Idaho Winds originally signed a contract for the Alkali project with much
lower rates than are contained in the new proposed Sawtooth contract, Staff believes that the
unusual circumstances of this case justify termination of the Alkali contract and approval of the
STAFF COMMENTS 7 NOVEMBER 25, 2009
new Sawtooth contract. There is no evidence that either Idaho Winds or Idaho Power took any
actions to deliberately "game" the system to the disadvantage of ratepayers. Staff recommends
that the Commission acknowledge termination of the Alkali agreement. Staff recommends that
the Commission approve all of the Sawtooth Agreement's terms and conditions and declare that
all payments Idaho Power makes to Idaho Winds for purchases of energy from the Sawtooth
Wind Project wil be allowed as prudently incurred expenses for ratemaking purposes.
'1
Respectfully submitted this d5 day of November 2009.
Scott Woodbur
Deputy Attorney General
Technical Staff: Rick Sterling
i :umisc: commentsipce09 .25swrps comments
STAFF COMMENTS 8 NOVEMBER 25, 2009
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Jea Jewell
Commssion Seceta
Idao Public Utilities Commssion
POBox 83720
Boise, il 83720-0074
Randy C. Alphi
Senor Plag Admstrtor
Tel: [phone]
ralpiiidaoower.com
i
RE: Idao Winds LLC , Al Wind Project, Case No. IPC-E-06-36
Dear Ms. Jewell:
On Febru 26, 2007 in Order No. 30253, the Idao Public Utilties Commssion approved the Fir
Energy Sales Agrent ("AgÎement") l:een Idao Power Company and Idao Winds £LC.
("Idao Winds") for the sale of etergy to Idao Power Company frm t1e proposed Al Wind
Projec (the "Prject") to be lòcatednea Glen Fer, Idao. As proposed, the 18 MW Prject
would have been consider a Quified Facilty ("QF") under the Public Utilty Reguatory Policies
Act of 1978. The specified Scheduled Opertion Date with ths Agreeent was Decemer 31,
2007.
Due to varous issues, . including the procss of resolvig the QF internnection ises included inIPUC
case IPC-E-06-21, the Project delayed constrtion and did not mee the Decem 31,2007 Scheduled
Opertion Date.
In vaous e-niils, leter and convertions since December 2007, Idaho Power and Idao Winds have
been discussing possible revsions to the Scheduled Opertion Date. At ths time both paries have agree
tht a mutuly agreeable revised Scheduled Opertion Date is not achievable and therefore tertion of
the Agrent is appropriate.
Attached is a tertion leter execed by both Idao Power and Idao Winds sumg the
teration of ths Agreeent.
Ths terti()na~ment specìf~sthtifsli.onlybe effective upn execution
by both pares and
aceptaceof thst9Jtion by the.Idaö Public Utilties. Commssion.
If the Commssion reui any fuer inormtion or action from Idao Power Company prior to
providigIdaò Power accetace of ths tertion, pleae notify me (388-2614) or attorney Bar
Kle (388-2682).
Page 1 of2
POBox 70 Boise, Idao 83707 1221 W Idao St Boise, Idao 83702
Attachment A
Case No. IPC-E-09.25
Staff Comments
11/25/09 Page 1 of 5
l. Ii;,
~
'.
cc:Rick Sterling (IUC)
Scott Woobu (IPUC)
Sincely,
fJ f.,~'~dy C Allphi
. ldaoPower Company
POBox 70 Boise Idao 83707
Page 2 of2
1221 W Idao St. Boise, Idao 83702 ÄttachIent Ã.
Case No. IPC-E-09-25
Staff Comments
1 1/25/09 Page 2 of 5
".
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.."HIDA~POe.-....
An IDACRP comny
May 6, 2008
"'..~ ...
Rick Koebbe
Idao Winds, LLC
5356 N.Cattl Way
Boise, Idao 83714
Randy C. Alphi
Senor Plan Admstrtor
Tel: [phone]
. ralphinlâidaooower.co
Re: Idao Winds 18 MW Al WiId Project
Dear Rick:
As you are awar, we have bee iI discussions the last few months to esablish a rese
Scheduled Opertion Date for the Fir Ener Sales Agrent betee Idao WiIds LLC and Idaho
Power Company dated Decembe 12, 2006 for the Al WiId Fan (Agrent). The Scheded
Opertion Date with the Agrement was origiy established as Deember 31, 2007.
At ths poiIt the pares ar unble to agr upon an acceptable resed Scheduled Opertion Date.
To sume the past discussions
Idao WiIds contends:
./ Afer the Agrement was a completed, issue regar trsmission upgrdes arse in regads to
the iIteronnecon costs an proceses reqred to iIteronnect ths projec to the Idao Power
eleccal system. Some of these issues were' presented to the Idao Public Utilties Commssion
for resolution.
./ Consideble time pased iI the resolution of the vaous iIteronnection issues an durg th
time, the project's constrction costs and tubiIe avalabilty statu expenced signficant
advere chages. As a reult, Idao Winds contends tht the project is no longer viable.
Idao Power contends:
Page ion
POBox 70 Boise, Idao 83707 1221 W Idao St. Boise, Idao 83702
Attachrrént A
Case No. IPC-E-09-25
Staff Comments
1 1/25/09 Page 3 of 5
.
0/ The project has cited tht delays ar due to the interconnecion issues and these interconnecion
issues have now been resolved by Commssion Order. Therfore, Idao Power has suggested tht
a revised Scheduled Opertion Date ca now be established using the curen. interconnection
process and timeline.
0/ Idao Power believes the project did not perorm adequate due dilgence regarg th
interconnecon process pror to commtting to the origil Scheduled Operion Date. However,
Idao Power (power Supply) also reogns tht relution of the interonnection issues did tae
a considerble perod of tie.
Tertion of the Agreeent
0/ As of the date of ths leter, both paries mutuy agÌ tht tertion of the Agreeent
is acceptabte.
.¡ Upon tertion of this Agreeent both paries agre to waive any claim aga the
other based on either negligence or breach of contrct.
.¡ Tertion of this Agreeent shal be effective upn execution of ths document by
both paries and accepance of th tertion by the Idao Public Utiities Commssion
without requients for any materal chages to th document.
Idao Power is providing thre copies of ths tertion docuent. Pleae sign each copy and retu
all three copies to me no later th Friday, May 16, 2008. Idao Power reseres the right to modify
ths docuent if the signed docuents ar not received back by the date spified above.
US Mail:Overght Maiing Addss:
Idao Power Company
Att: Rady Alphin
POBox 70
Boise, il 83707
Idao Power Company
Att: Rady Allphin
1221 WIdao
Boise, il 83702
Upon reeipt of the th signed copies I wil arge for and present the tertion
. documentation to Idao Power Company mageient for thei signtu.
Afer Idao Power Company sign these docents, I will re one colete signed origial
to you for your recrds, prepare and fie one origi with the Idaho Public Utilities Commssion
(!UC) reesting thei acceptace of ths tertion documentation and kee the thd origi for
our rerds.
Page2of3
POBox 70 Boise Idao 83707 1221 W Idao St Boise Idaho 83702
- AftachientÁ
Case No. IPC~E-09-25
Staff Comments
1 1/25/09 Page 4 of 5
UNERSTOOD, AGREED AN ACCEPTED:
Signtu :¡
Name Rick Koebbe
Idao Power Company-vJf6tv~.!I tlfl1fl :5,oKê
t1AIJfrJ ~i?5¡)PPL'1 'RIvJoJ~
5/7/2~8r i
Title President
Date tx $ ~p
cc: Ba Kline (IP)'
Dollvan Wal (IPo)
Mad Stoke (IP)
Sincerly,
~ e ú!'
Rady C. Allphi
POBox 70 Boise, Idao 83707
Page 3 on
1221 W Idao St. Boise, Idao 83702
Attcrnerii À ...
Case No. IPC-E-09-25
Staff Comments
1 1/25/09 Page 5 of 5
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 25TH DAY OF NOVEMBER 2009,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-E-09-25, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
DONOV AN WALKER
BARTON L KLINE
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: dwalkercmidahopower.com
bklinecmidahopower.com
RANDY C ALLPHIN
CONTRACT ADMINISTRATOR
IDAHO POWER COMPANY
POBOX 70
BOISE ID 83707-0070
E-MAIL: rallphincmidahopower.com
TOM FETZER
IDAHO WIND FARMS LLC
4255 S NICKEL CREEK PLACE
MERIDIAN ID 83642
-1~
SECRETAR
CERTIFICATE OF SERVICE