20100503Comments.pdf

WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283
R.l: f
iuw thU\l -3 PI'l 2= II
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)
AN AGREEMENT TO PURCHASE CAPACITY )
AND ENERGY FROM USG OREGON, LLC AND )
AUTHORIZE RECOVERY IN THE COMPANY'S )
POWER COST ADJUSTMENT. )
)
CASE NO. IPC-E-09-34
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission, by and through its Attorney of
Record, Weldon B. Stutzman, Deputy Attorney General, submits the following comments in
response to Order No. 31026 issued on March 17, 2010.
BACKGROUND
On December 11,2009, Idaho Power Company (Idaho Power; Company) and USG
Oregon, LLC entered into a Power Purchase Agreement (Agreement) providing for the
Company's purchase of energy from the Neal Hot Springs Unit NO.1 geothermal generation
facility. USG Oregon, LLC is a subsidiary of U.S. Geothermal, a Boise based geothermal
project developer. The Neal Hot Springs project is located approximately 12 miles west
northwest of Vale, Oregon. The project is expected to produce approximately 22 MW of power
with an estimated online date late in 2012.
STAFF COMMENTS 1 MAY 3, 2010
The Purchase Agreement provides an initial term of 25 years with an option for Idaho
Power to extend the term of the Agreement. The Agreement provides that Idaho Power wil
receive the rights to all environmental attributes and renewable energy credits now available or
created during the term of the Agreement. The Agreement grants Idaho Power the first right of
offer to participate in any future U.S. Geothermal resource development at the site or in close
proximity to the site.
On December 28,2009, Idaho Power filed an Application requesting approval of the
Agreement and an accounting Order authorizing the Company to recover the costs of the
associated purchases in its anual Power Cost Adjustment (PCA).
STAFF ANALYSIS
Idaho Power Planning for Geothermal Resources
The Preferred Portfolio in Idaho Power's 2004 Integrated Resource Plan (lRP) included
100 MW of geothermal generation to be online in 2008. In accordance with the Plan, the
Company issued a request for proposal (RFP) in 2006 to acquire geothermal resources. Idaho
Power received several proposals in response to the RFP. The Company ultimately selected a
proposal from U.S. Geothermal, Inc. to develop two 13 MW phases at the Raft River site near
Malta, Idaho and two phases at Neal Hot Springs near Vale, Oregon.
In its bid, U.S. Geothermal proposed a total of 45.5 MW of geothermal energy to Idaho
Power and to have those facilities online between October 2007 and January 2011. Based on its
winning bid from the 2006 RFP, Idaho Power entered into a Power Purchase Agreement (PPA)
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. On January 9, 2008, Idaho Power received an accounting
order authorizing the inclusion of all power supply expenses associated with the purchase of 13
MW of energy from Raft River Energy I LLC in the Company's Power Cost Adjustment (PCA)
mechanism. In its Order, the Commission noted that the PP A price was less than the existing
PURP A contract price thereby providing an associated benefit to the Company and its
ratepayers. Reference Order No. 30485.
Upon Commission approval of the power sales Agreement and the requested accounting
treatment, the paries rescinded an existing Firm Energy Sales Agreement for 10 aMW at the
same Raft River site. Reference IPC-E-05-01, Order No. 29692. No other contracts emerged at
the time to fulfill the remainder of U.S. Geothermal's bid to develop 45.5 MW between the Raft
STAFF COMMENTS 2 MAY 3, 2010
River and Neal Hot Springs sites. Effectively, Staff believes that Idaho Power received little
from its 2006 RFP because the 13 MW contract with Raft River simply replaced the existing 10
MW PURP A contract at nearly the same contract rates.
In Idaho Power's 2006 IRP, the Preferred Portfolio included 150 MW of geothermal
resources. Reference 2006 IRP at p. 78. At the time the 2006 IRP was completed, Idaho Power
was stil evaluating bids from its 2006 RFP and had yet to select U.S. Geothermal as the winning
bidder. The Company's expectation, however, was that it would likely be able to acquire
approximately 50 MW of geothermal generation to be online in 2009, and possibly more
depending on the bids received. The 2006 IRP planed for an additional 100 MW of geothermal
generation in 2021-2022. Reference 2006 IRP at pp. 96-97.
2008 Request for Proposals
Idaho Power issued a new RFP in January 2008 to acquire additional geothermal
resources. The RFP requested bids for up to 100 MW, with a preferred online date of June 2011.
However, the RFP also stated that the Company was "wiling to allow some flexibilty and
possible delay in the project online date."
This section of Staff's comments contains confidential information subject to
protective agreement.
STAFF COMMENTS 3 MAY 3, 2010
This section of Staff's comments contains confidential information subject to protective
agreement.
With two proposals being withdrawn by the bidders and the third being rejected, Idaho
Power was left with no viable proposals. Based on its experience, Idaho Power concluded that
"the competitive RFP process is not the optimal means to acquire geothermal resources."
Application, pp. 3-4. Because of the lack of success with the RFP process, the Company decided
to pursue direct discussions with developers of five different potential geothermal sites,
including those offered in the both the 2006 and 2008 RFPs, as well as some offered as
unsolicited proposals. One of those sites, the Neal Hot Springs site, was offered as par of U.S.
Geothermal's winning bid in the 2006 RFP.
u. S. Geothermal's Neal Hot Springs Proposal
As explained previously, U. S. Geothermal's original bid to Idaho Power in the 2006 RFP
was to develop a total of 45.5 MW, split between sites at Raft River and Neal Hot Springs. The
proposed online dates for each phase of development were as follows:
Raft River I October, 2007
Raft River III June, 2009
Neal Hot Springs I November, 2010
Neal Hot Springs II Januar, 2011
STAFF COMMENTS 4 MAY 3, 2010
The first phase at Raft River has been developed, and although it has encountered some
problems, it has been operational since mid-2008. The proposal to Idaho Power for a third phase
of development at Raft River appears to have been withdrawn by U.S. Geothermal, although
Idaho Power has no written documentation indicating formal withdrawal of the offer. i Staff
believes that U.S. Geothermal is unable or unwiling to commit to additional phases of
development at Raft River until it has fully resolved operational problems experienced with the
first phase of the project and has confirmed the ability of the geothermal resource to support
additional development at the site.
Negotiations for output from generation at the Neal Hot Springs site began in April 2008.
Following an initial meeting between the parties, Idaho Power, in a letter to U.S. Geothermal
(included as Attachment 1) raised questions and concerns about U.S. Geothermal's apparent
request to increase the prices contained in its original proposal. Idaho Power indicated that it
was wiling to work with U.S. Geothermal to find a solution acceptable to both companies, but
wared that it was critical that a contract be negotiated quickly. U.S. Geothermal's response (see
Attachment 2) explained that a price update for the Raft River Unit 3 project could not be
provided and that reservoir management issues with Unit 1 had to be solved before U.S.
Geothermal could safely project the viabilty of future units at Raft River. For the Neal Hot
Springs projects, U.S. Geothermal cited increased development costs since its 2006 proposal, and
asserted that the proposed increased prices were the minimum required to make a viable project
at Neal Hot Springs.
Negotiations for development at the Neal Hot Springs site continued throughout the
summer of 2008. Electronic mail exchanges between the parties indicate an effort by Idaho
Power to keep contract rates as low as possible. Idaho Power inquired as to the value to U.S.
Geothermal of Oregon's Business Energy Tax Credits, the federal production tax credits, and
U.S. Geothermal's profit margins. Idaho Power stated that it believed it would be appropriate for
U.S. Geothermal to adjust its expected profit margins for the project to temper the financial
impact of proposed contract rates that were much higher than were included in U.S.
Geothermal's RFP bid. Despite Idaho Power's pressure, U.S Geothermal maintained that the
i The output from a second phase of development at the Raft River site was committed to another Northwest utilty
not located in Idaho. Phase II at Raft River has also not been developed.
STAFF COMMENTS 5 MAY 3, 2010
increased prices it proposed were necessary to achieve a minimum rate of return and enable it to
attract investment capitaL. (See Attachment 3).
Staff prepared a graph to compare the prices in U.S. Geothermal's original bid to the rates
that were ultimately included in the Neal Hot Springs Power Sales Agreement. (See Attachment
4). As is readily apparent from the graph, the prices included in the Agreement are substantially
higher than the prices that U.S. Geothermal offered in its original bid for the Neal Hot Springs
site. By Staffs calculation, the contract rates are approximately 47 percent higher on a levelized
basis than the rates included in the original bid.
Staff's Concerns about the Negotiation Process
Staff has two primary concerns with the negotiation process between Idaho Power and
U.S. GeothermaL. First, prices in the Agreement submitted for Commission approval bear little
resemblance to the prices contained in U.S. Geothermal's RFP bid. Without a doubt, U.S.
Geothermal did experience delays in developing the Raft River I project that prevented it from
progressing with plans and a contract for the Neal Hot Springs site. As the delays continued,
material and equipment costs invariably increased. Some of the cost increases were likely
beyond U.S. Geothermal's control; however, at the same time, there is no evidence that U.S.
Geothermal made an effort to honor any of the commitments it made in its original proposal.
Staffs second concern about the negotiations between the parties is that the scheduled
operation date for the Neal Hot Springs project far exceeds the late 2010 online date originally
proposed by U.S. Geothermal and the June 2011 date requested by Idaho Power in the 2006
RFP. Although the paries now estimate an online date of late 2012, under the terms of the
Agreement, the project's scheduled operation date could be as late as December 31, 2017 before
a delay penalty would be incurred.2 As discussed previously, two of the three bids submitted in
response to the 2006 RFP were withdrawn by the bidders, and the third bid was rejected by Idaho
Power because the project seemed too speculative. Unkown is whether all three bids could
have remained viable had the bidders known how flexible Idaho Power would be in negotiating
2 Idaho Power's Application incorrectly states that the Agreement requires an online date no later than the end of
2016.
STAFF COMMENTS 6 MAY 3, 2010
bid prices and expected online dates. Just as with U.S. Geothermal's original bid, the prices
included in all three of the rejected bids were lower than the prices ultimately included in the
Neal Hot Springs contract.
In its Application, Idaho Power states that it believes the Neal Hot Springs development
is advantageous for several reasons, including (l) substantial prior geotechnical exploration at
the site, (2) its location in Idaho Power's service area and proximity to Treasure Valley load
centers, (3) available transmission capacity, and (4) favorable energy pricing in comparison to
other proposals. Staff agrees that there has been substantial exploration at the site, that the
location is advantageous, and that the availabilty of transmission near the project site is
beneficiaL. However, Staff finds it difficult to confirm that the pricing is favorable in comparison
to other proposals because the other proposals were withdrawn or rejected long before serious
negotiations began with U.S. Geothermal over the Neal Hot Springs site. There is no evidence to
determine whether other bidders could have offered competitive bids if given the same latitude to
propose revised prices and online dates as was given to U.S. GeothermaL. The Neal Hot Springs
proposal could have stil been judged best under any circumstances, but in the end, because the
process lacked competitiveness, there can be no assurance that Idaho Power obtained the best
deal for ratepayers.
The Neal Hot Springs Unit No.1 Agreement
Price
The energy prices contained in the Agreement are ilustrated in Attachment 4. Beginning
in 2012, the flat energy price is $96/MWh. The price escalates anually by less than four percent
in the initial years, by about 1.5 to 2.3 percent in the middle l2 years of the Agreement and by
approximately one percent in the last ten years.3 The 25-year levelized contract price is
$117.55/MWh. The energy price stated in the Agreement wil be seasonally adjusted consistent
with seasonality factors currently used in Idaho Power's PURP A agreements. Seasonal price
adjustments increase contract rates during those months of the year when the value of the energy
3 Idaho Power stated incorrectly in its Application that the price escalates annually by 6% in the initial years and by
1.33% in the later years of the Agreement
STAFF COMMENTS 7 MAY 3, 2010
to the Company is highest, and decrease contract rates during those months of the year when the
value of the energy is less.
As discussed previously, prices in the Agreement were arived at through negotiation
between the parties. They were not based on the original bid prices made by U.S. Geothermal,
nor were they based on market price analysis by Idaho Power. In order to judge the
reasonableness of the contract prices, Staff believes that there are three comparisons that can be
made. First, the published levelized price for a 25-year PURP A contract signed at the same time
as the Neal Hot Springs Agreement would have been $98.93/MWh, approximately 16 percent
less than the rates contained in the Agreement.4 The published PURP A rates, however, are only
available to facilities that generate less than 10 aMW on a monthly basis, and contracts are
limited to terms of 20 years. Attachment 5 compares the rates in the Agreement to 2004, 2009
and 2010 PURPA rates, as well as to U.S. Geothermal's bid prices for Neal Hot Springs in the
2006 RFP.
A second comparison that can be made is to compare the rates in the Agreement to rates
that might be offered if the project was a PURPA facility larger than 10 aMW. Pricing for large
PURP A facilties is to be based on AURORA analysis of expected future market prices over the
term of the Agreement. 5 At Staffs request, Idaho Power used the Aurora model to generate a
series of expected market prices using assumptions consistent with those the Company is
currently using for long-term planning purposes. AURORA generated prices in the $50 to
$80/MWh range over the first 18 years of the contract term. By comparison, these prices are
much lower than the prices negotiated in the Agreement. However, AURORA prices generally
reflect the costs of energy only, with no premium included for the value of capacity. Because the
Neal Hot Springs project is expected to have a capacity factor of more than 90 percent, it wil
provide a substantial amount of capacity to Idaho Power. Therefore, AURORA prices probably
significantly underestimate the full value of power from the Project, and may not be a very fair
comparison to the prices contained in the Agreement.
Another way to evaluate the reasonableness of the cost of power from the Neal Hot
Springs project is to compare it to the cost of power that wil be provided by the Langley Gulch
4 The 20-year levelized rate would have been $95.56/MWh at the time the Neal Hot Springs contract was signed.
However, if25-year PURPA contracts were available, the 25-year levelized rate would have been $98.93.MWh.5 Aurora is a proprietar power supply model used by Idaho Power for a variety of purposes, including power supply
cost determinations in general rate cases, long-term analysis for integrated resource plans, and evaluations for
resource acquisition decisions.
STAFF COMMENTS 8 MAY 3, 2010
project. Both projects wil be capable of operating at very high capacity factors; therefore both
could be considered baseload plants. Neal Hot Springs' expected capacity factor wil be 90
percent or more, and the expected capacity factor of Langley Gulch wil likely be in the range of
65 percent. Moreover, both plants have similar expected online dates. Idaho Power's analysis of
the Langley Gulch project produced a levelized cost of $111.13/MWh assuming a 65 percent
capacity factor and using reasonable assumptions for the plant's operating characteristics, fuel
costs, and adjusting for a five-year longer project life for Langley Gulch. On a levelized basis,
rates in the Neal Hot Springs agreement are $6.42/MWh higher than estimated Langley Gulch
costs. If Langley Gulch's capacity factor is higher, its costs per MWh wil be lower, and the
price difference compared to Neal Hot Springs wil increase.
Renewable Energy Credits
Under the Agreement, Idaho Power wil be granted ownership of all of the Environmental
Attributes associated with the Facilty. Reference i¡7.1. This is one key difference between the
Neal Hot Springs project and the Langley Gulch project. It is difficult to estimate the future
value of RECs, especially since there is currently no state or federal requirement for Idaho
utilties to possess them. Nevertheless, Staff believes it is likely that there wil be a REC
ownership requirement at some point in the future, and that a levelized value in the range of
$6/MWh-the approximate difference in cost between Neal Hot Springs and Langley Gulch
discussed above-is plausible.
Project Schedule and Development Milestones
The Agreement establishes the following four development milestones for the project:
1. Exploration Schedule
Within 30 days of Commission approval of the Agreement, USG Oregon must submit a
report of the additional exploration activities required to establish an estimated MW
rating of a potential generation facility at this site.
2. Additional Well Development
USG Oregon must have commenced the driling of an additional geothermal fluid
production or injection well in addition to the single existing well by June 30, 2011.
STAFF COMMENTS 9 MAY 3, 2010
3. Exploration Completion and Resource Feasibility Report
By December 31,2013, USG Oregon must have completed adequate exploration and
study of the proposed site to enable USG Oregon to establish the estimated electrical
generation capabilty of the geothermal resource.
4. Executed EPC Agreement and NTP
No later than December 31, 2014, USG Oregon shall have executed an engineering,
procurement and construction (EPC) contract with the primar power plant contractor
for construction of the Facility and a notice-to-proceed (NTP) shall have been issued.
The scheduled operation date for the project could be as late as December 31, 2017.
Reference i¡i.55 and i¡i.57. The Agreement requires USG Oregon to provide quarerly progress
reports to Idaho Power. Reference i¡5.2. Because the online date of the project could potentially
be so many years in the future, and because of the significant milestones that must be achieved
before the project can meet its scheduled operation date, Staff recommends that Idaho Power
provide to Staff copies of the same quarerly progress reports that it receives from U. S.
GeothermaL.
Performance Assurances
The Agreement requires performance assurances under the following four circumstances:
'15.2.1 Exploration - requires a $100,000 performance assurance in the event USG
Oregon fails to satisfy the second or third project milestones, which require an
exploration schedule and additional well development respectively.
'l5.2.2 Development - requires a $250,000 performance assurance ifUSG Oregon fails
to satisfy the fourth project milestone, which requires an executed EPC contract
for construction of the facility.
'15.2.3 Delay - requires a $250,000 performance assurance ifUSG Oregon fails to
achieve the First Energy Date within 90 days of when it is scheduled.
'15.2.4 Operational - requires a $250,000 performance assurance if the project fails to
provide at least 70 percent of its Annual Guaranteed Output.
Under each performance assurance, if USG Oregon fails to meet certain development and
operational requirements, it must post liquid funds that wil be forfeited to Idaho Power if the
Agreement is ultimately terminated, or refunded if the performance assurance is cured. These
STAFF COMMENTS 10 MAY 3, 2010
performance assurances and their associated amounts were determined through mutual
negotiation of the paries. Staff believes they are reasonable.
Delay Liquidated Damages
If the project fails to meet its scheduled online date, delay liquidated damages wil be
assessed. Under the terms of the Agreement, the project must be able to provide at least 3 MW
of capacity within 31 days of the scheduled online date. Liquidated damages wil be equal to 3
MW less any portion of the facility that has met the operation date requirements, multiplied by a
delay price of 85 percent of market prices for the month. Delay liquidated damages are limited
to a period of not more than 60 days. Reference i¡i.12. The calculation and payment of delay
damages is limited to $690,000. Reference i¡25.4
Staff believes that the requirement for delay liquidated damages is appropriate, but
believes that the limitations on the amount of the damages are rather low. For example, the
project's capacity is expected to be 22 MW, yet only 3 MW must be online by the scheduled
operation date. Similarly, the limit on delay liquidated damages is only $690,000, which would
amount to less than half of one month's payment by Idaho Power if the full 22 MW was
delivered at the 2012 contract energy rate.
Net Energy Shortfall Price and Annual Cap
The Agreement requires that USG Oregon produce forecasts for the expected anual
output from the project. If the actual output is not at least 90 percent of the forecast, the
Agreement provides for damages to be paid for the amount of the generation shortfall. The
amount of the anual damages is capped at anual amounts that begin at $414,000 in the third
year of the Agreement and increase to $690,000 by the end of the 25-year agreement.
Staff believes that provisions for shortfall damages are necessary and appropriate, but
believes that the amounts of the annual caps are quite low. The anual damage caps amount to
less than half of the value of one month's expected generation from the project. Net Energy
Shortfall damages were also included in U.S. Geothermal's Raft River I contract, but shortfall
damages for the Neal Hot Springs project are only 38 percent higher than for Raft River I, but
the capacity of the Neal Hot Springs project is 69 percent larger.
STAFF COMMENTS 11 MAY 3, 2010
Termination Provisions
IfUSG Oregon is unable to satisfy the fourth project milestone (executed EPC agreement
and issuance of notice to proceed) due to unforeseen facility financing costs or construction
costs, USG Oregon can be released from its contract obligations without owing any damages or
forfeiting any amounts for performance assurances. In other words, it appears USG Oregon can
simply walk away from the Agreement if it encounters unforeseen costs prior to issuing a notice
to proceed to its EPC contractor. The Agreement does not define what constitutes "unforeseen
facility financing costs or construction costs." Reference i¡26.5.2.
Given that the power purchase rates contained in the contract ended up being nearly 1.5
times the rates included in U.S. Geothermal's original bid, presumably due, at least in part, to
increases in construction costs during the past two years, Staff believes that this contract
provision relieves U.S. Geothermal of a tremendous amount of risk. The very generous contract
provisions that allow for an online date as much as seven and one half years from now further
increases the chances that this contract provision might eventually be exercised. Staff concedes
that geothermal project development can be extremely risky, but nevertheless would have
preferred contract terms that impose at least some penalty if USG Oregon is unable to complete
the project.
Energy Curtailment Rights
The Agreement allows Idaho Power to curtail energy deliveries from the Project in an
amount up to 1,620 MWh per contract year at no cost to Idaho Power. This curailment right
wil allow the Company some flexibility to dispatch the Project to benefit customers. At an
expected capacity of22 MW, however, the curtailment rights amount to only about 74 hours per
year. Curtailment, Staff expects, would likely be exercised at times during the year when Idaho
Power can meet load with much less expensive resources, times that most likely far exceed 74
hours per year. Consequently, Staff believes that the value of the Company's curtailment rights
is minimaL.
Right of First Offer to Participate in Future Development
The Agreement grants to Idaho Power a right of first offer to purchase the output if
additional generation capacity is added in the future at the project site or in close proximity to the
site. An amendment to the Agreement, a separately negotiated power purchase agreement, or
STAFF COMMENTS 12 MAY 3, 2010
whole or partial ownership of the Facility or the additional generation facilties are offered as
options. Reference i¡29.7.5. In addition, the Agreement provides Idaho Power the first right to
purchase the facility assets if the owner proposes to sell them during the term of the Agreement.
Reference i¡29. 7 .1.
Staff believes that these contract rights provide some value to Idaho Power, although
limited. Because the project wil be located in Idaho Power's service territory, Idaho Power
would seem to be an obvious potential buyer anyway. Moreover, Idaho Power would have to
compete with other potential buyers and would likely hold an advantage due to having direct
transmission access.
Rights for Extension of the Contract Term
As provided in i¡5.1.2 of the Agreement, Idaho Power has an option to extend the terms
of the Agreement; however, any extension would require re-negotiation of the terms and
conditions. If Idaho Power exercises its option to extend the term of the Agreement, Staff
recommends that the Commission require any new or amended agreement be submitted for
review and approval.
Transmission and Interconnection
Because of the project's location, Idaho Power states that only a relatively minor system
upgrade is necessary in order to make suffcient firm transmission capacity available for the full
output of the project to be delivered to Idaho Power's Treasure Valley load center. The Project
wil advance the cost of the transmission upgrade and receive credit for its advanced funds based
on its capacity and the OA TT rate. In accordance with a completed Large Generation
Interconnection Agreement, the Project wil pay all interconnection costs and the schedule for
completion of installation and construction of all required interconnection equipment is
consistent with the Project's expected energy delivery dates.
General Comments
The Company asserts that, while the price of energy under this Agreement is higher than
energy purchased under PURP A contracts, there are benefits to this Agreement that bring value
to Idaho Power's customers that PURP A contracts do not. The Company identifies these
benefits as (1) the Company's rights to any of the project's renewable energy credits, (2) the
STAFF COMMENTS 13 MAY 3, 2010
limited anility to curtil energy, (3) the right of first offer on ownership of other site
development, (4) exploration, development and construction milestone requirements and
associated damages, and (5) the right to extend the terms of the contract.
Staff has discussed each of these benefits previously and agrees that they do, in fact, add
value to the project, even though the value may be difficult to quantify. Nevertheless, Staff
believes that the terms of the Agreement are quite generous to USG Oregon. Prices in the
contract are significantly higher than PURP A rates, the project's online date might not occur for
more than seven years from now, the delay and shortfall damages and associated caps seem low,
and USG Oregon can terminate the Agreement without penalty if project costs are higher than it
expects. Furhermore, the Agreement was negotiated outside of a competitive acquisition
process.
Although Staff would have preferred more rigorous contract terms, Staff recognizes that
geothermal project development is high risk. Without some concessions by Idaho Power, it may
have otherwise had to forego the contract. Staff believes that other Western states, particularly
those with RPS requirements, would be very wiling to pay a premium to acquire geothermal
generation. Despite some tradeoffs, this Agreement preserves a native geothermal resource for
Idaho Power's ratepayers. That in itself has some value in Staffs opinion.
Accounting Treatment
Idaho Power intends to include the expenses associated with the purchases from the
Project in FERC Account 555. Because the Agreement is not a PURPA contract, the Company
proposes that the cost of power purchased under the Agreement be recovered in its annual PCA
in a manner similar to other non-QF power purchase expenses, with 95 percent of the variations
captured through the Company's PCA mechanism until the next general rate case, at which time
the Company wil be allowed to include the costs of the Agreement in base rates.
Staff believes the accounting treatment proposed by Idaho Power is appropriate.
ST AFF RECOMMENDATIONS
Despite certain concerns expressed in these comments, Staff recommends that the
Commission approve all of the Agreement's terms and conditions as submitted, and declare that
all payments Idaho Power makes to USG Oregon, LLC for purchases of energy from the Neal
Hot Springs Unit #1 generation facility wil be allowed as prudently incurred expenses for
STAFF COMMENTS 14 MAY 3, 2010
ratemaking purposes. Staff further recommends that the cost of power purchased under the
Agreement be recovered in Idaho Power's anual PCA, with 95 percent of the variations
captured through the Company's PCA mechanism until the next general rate case, at which time
the Company wil be allowed to include the costs of the Agreement in base rates.
Staff also recommends that Idaho Power be ordered to provide to Commission Staff
copies of the progress reports that must be prepared by USG and submitted to Idaho Power as
provided in i¡5.2 of the Agreement.
Further, ifIdaho Power exercises its option to extend the term of the Agreement as
provided in i¡5 .1.2, or if the contract is amended for any other reason, Staff recommends that the
Commission require any new or amended agreement be submitted for review and approvaL. In
addition, Staff recommends that any amendment to the Agreement or separate agreements for
additional development at the same site as discussed in i¡3 .1.1 (c) be submitted for Commission
approvaL.
Respectfully submitted this ~ ~ day of May 2010.
Weldon B. Stutzman
Deputy Attorney General
Technical Staff: Rick Sterling
i:umisc/comments/ipce09.34wsrps comments non confidential
STAFF COMMENTS 15 MAY 3, 2010
This attachment to Staff's comments contains confidential information subject to
protective agreement.
Confidential Attachment 1
Comments
Case No. IPC-E-09-34
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This attachment to Staff's comments contains confidential information subject to
protective agreement.
Confidential Attachment 1
Comments
Case No. IPC-E-09-34
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This attachment to Staffs comments contains confidential information subject to
protective agreement.
Confidential Attachment 2
Comments
Case No. IPC-E-09-34
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This attachment to Staffs comments contains confidential information subject to
protective agreement.
Confidential Attachment 2
Comments
Case No. IPC-E-09-34
5/03/10 Page 2 of 2
This attachment to Staffs comments contains confidential information subject to
protective agreement.
Confidential Attachment 3
Comments
Case No. IPC-E-09-34
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This attachment to Staff's comments contains confidential information subject to
protective agreement.
Confidential Attachment 3
Comments
Case No. IPC-E-09-34
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This attachment to Staffs comments contains confidential information subject to
protective agreement.
Confidential Attachment 3
Comments
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Attachment 4
Comments
Case No. IPC-E-09-34
5/03/10
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Attachment 5
Comments
Case No. IPC-E-09-34
5/03/10
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 3RD DAY OF MAY 2010,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-E-09-34, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
BARTON L KLINE
DONOV AN E WALKER
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: bklineCiidahopower.com
dwalkerCiidahopower .com
RANDY C ALLPHIN
CONTRACT ADMINISTRATOR
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: rallphinCiidahopower.com
CERTIFICATE OF SERVICE