20100401final_order_no_31034.pdf

Office of the Secretary
Service Date
April 1 2010
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
APPROVAL OF ITS FIRM ENERGY SALES
AGREEMENT WITH CARGILL
INCORPORATED
ORDER NO. 31034
CASE NO. IPC-10-
On January 29 2010, Idaho Power Company ("Idaho Power" or "Company ) filed an
Application with the Commission seeking approval, in accordance with Idaho Code 9 61-503
RP 52 and the applicable provisions of the Public Utility Regulatory Policies Act of 1978 , of its
Firm Energy Sales Agreement with Cargill Incorporated ("Cargill") under which Cargill would
sell and Idaho Power would purchase electric energy generated by the Bettencourt Dry Creek
Biofactory ("Facility ) located near Hansen, Idaho. Application at 1.
On February 25, 2010, the Commission issued a Notice of Application and Modified
Procedure with a 21-day comment period. See Order No. 31014. Commission Staff was the
only party to submit comments within the established comment period.
THE APPLICATION
On January 22, 2010, Idaho Power and Cargill entered into a Firm Energy Sales
Agreement ("Agreement"
). . . .
Id. at 2, Attachment No. 1. The Agreement is for a 10-year
term and utilizes "the Non Levelized Published Avoided Cost Rates as currently established by
the Commission for energy deliveries ofless than 10 average megawatts ("MW"Id. at 3
Idaho Power states that Cargill is an existing Schedule 86 partner providing energy to
the Company and that it will utilize the "compliance data (i., nameplate capacity rating,
engineering certification, insurance certificates, etc.) previously provided under the Schedule 86
requirements" to review and use for compliance with this Agreement if applicable. Id.
The nameplate rating of this Facility is 2.25 MW.Id. Cargill will be required to
provide data on the Facility that Idaho Power will use to confirm that under normal and/or
average conditions the Facility will not exceed 10 average MW on a monthly basis.Id. Any
energy that exceeds 10 aMW per month, and that does not exceed the Maximum Capacity
Amount, will be accepted but not purchased or paid for by Idaho Power. Id.
The Scheduled Operation Date for the Agreement is 30 days after the approval of the
Agreement by the Commission. Id. The Agreement includes a formula for the assessment and
ORDER NO. 31034
calculation of Delay Liquidated Damages and associated Delay Security provisions if Cargill
fails to achieve the targeted Operation Date. Id.; see also Article V of the Agreement. The
Agreement states that it is effective once "the Commission has approved all of the Agreement'
terms and conditions and declared that all payments Idaho Power makes to Cargill for purchases
of energy will be allowed as prudently incurred expenses for ratemaking purposes.Id. at 4.
The Agreement places various conditions and requirements in order for Idaho Power
to accept energy from Cargill. Id. Idaho Power states that if the Commission approves the
Agreement the effective date of the Agreement will be January 22, 2010. Id.
The Agreement includes non-levelized published avoided cost rates consistent with
past applicable IPUC Orders. Id. Interconnections with the Facility and applicable charges have
been completed in accordance with the parties' existing Schedule 86 agreement transacted in
2008. Id.
ST AFF COMMENTS AND RECOMMENDATION
Staff reviewed the Agreement and found "that the rates contained therein are
consistent with the currently-approved non-levelized published avoided cost rates for projects
smaller than 10 aMW." Staff Comments at 2. Staff noted that, with one exception, the essential
terms and conditions "included in the Agreement are identical to those contained in recent
PURPA contracts approved by the Commission.Id. at 2-
Staff remarked that the amount of Delay Security required under the contract was the
one unique feature that distinguished this Agreement from other similar types of agreements
presented by Idaho Power to the Commission for approval. Id. at 3. The amount of Delay
Security in this Agreement is "equal to the greater of $45 per kW or the sum of three months
estimated revenue.Id. The total Delay Security is estimated to be approximately $101 250. Id.
In previous contracts, the Company required Delay Security in the amount of $25 per kW. Id.
Delay Liquidated Damages would be assessed if the Facility failed to come online within 90
days following the Scheduled Operation Date.Id.
Staff commented that Idaho Power s Firm Energy Sales Agreements for PURPA
projects did not include a Delay Liquidated Damages penalty until around 2006. Id. Idaho
Power has included the penalty as the result of several PURP A projects failing to achieve their
scheduled operation date. Id.
ORDER NO. 31034
The increase in the amount of Delay Security arose from Idaho Power s estimation
that $25 per kW did not provide adequate damages for delay or a sufficient incentive for project
owners to actually meet the scheduled operation date. Id. Idaho Power settled upon the $45 per
kW after researching "the security levels required by ten other electric utilities throughout the
S. in their renewable energy procurements and contracts.Id. Only one of the utilities
sampled required security less than $25 per kW, while the other nine utilities required security of
at least $50 per kW. Id. Staff believes that the $45 per kW amount is reasonable because it is
high enough to cover possible damages and to motivate owners to complete projects on time
yet not so high as to make it too difficult for owners and developers to post the security and
obtain project financing.Id.
Staff also noted that delay security and damages for the Bettencourt Dry Creek
project will not be an issue because the Facility is "already online and selling to Idaho Power
under a Schedule 86 agreement. . . .Id. Nevertheless, Staff commented on the deviation from
prior agreements because Staff believes that "Idaho Power is seeking endorsement of the higher
security requirement in this Agreement with the intent of including it in future contracts.Id.
Staff recommended that the Commission approve Idaho Power s Firm Energy Sales
Agreement with Cargill and declare that all payments Idaho Power makes to Cargill for
purchases of energy 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-10-
including the underlying Agreement submitted for approval and Staff comments. Idaho Power
has presented a Firm Energy Sales Agreement with Cargill for the Commission s consideration.
The Agreement stipulates that Cargill will continue to provide and Idaho Power will continue to
purchase 10 aMW or less of electric energy on a monthly basis.
The Commission acknowledges Staff s comments regarding the relative increase in
the amount of delay security and liquidated damages contemplated in this Agreement. The
Commission finds that the increase in the Delay Security included in this Agreement is
reasonable and necessary. Adequate Delay Security acts not only as an incentive for PURP A
project owners to complete their projects on time, but it can also mitigate any additional costs
which might arise when a utility is forced to purchase substitute power on the open market.
ORDER NO. 31034
However, the Commission reiterates its prior admonition that "such provisions calling for delay
security should not be punitive" and "should constitute a fair and reasonable offset of a regulated
utility s estimated increase in power supply costs attributable to the PURPA supplier s failure to
meet its contractually scheduled operation date." Order No. 30608.
Accordingly, the Commission finds that Idaho Power s Agreement to purchase
electric energy from Cargill's Bettencourt Dry Creek Biofactory contains acceptable contract
terms, including the non-Ievelized published rates previously approved by the Commission. See
Order No. 30480. The Commission also finds that payments made by Idaho Power pursuant to
the terms of the Agreement are 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 Idaho Power Company s Firm Energy Sales
Agreement with Cargill Incorporated is approved.
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. 31034
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of April 2010.
Qd. JI . KEMPTO~, P IDENT
MARSHA H. SMITH, COMMISSIONER
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MACK'A . REDFO~COMMIS SIONER
ATTEST:
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ORDER NO. 31034