20100318Comments.pdf

NEIL PRICE
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-03 1 4
ISB NO. 6864
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Street Address for Express Mail:
472 W WASHINGTON
BOISE ID 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 ) CASE NO. IPC-E-IO-2
OF ITS FIRM ENERGY SALES AGREEMENT )
WITH CARGILL INCORPORATED. )
) COMMENTS OF THE
) COMMISSION STAFF
)
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
Attorney of record, Neil Price, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No.3 1014 on Februar 25, 2010,
submits the following comments.
BACKGROUND
On January 29, 2010, Idaho Power Company ("Idaho Power" or "Company") fied an
Application with the Commission seeking approval, in accordance with Idaho Code § 61-503,
RP 52 and the applicable provisions of the Public Utilty Regulatory Policies Act of 1978, of its
Firm Energy Sales Agreement ("Agreement") with Cargil Incorporated ("Cargil") under which
Cargil would sell and Idaho Power would purchase electric energy generated by the Bettencourt
Dry Creek Biofactory ("Facilty") located near Hansen, Idaho. The nameplate rating of this
Facilty is 2.25 MW.
STAFF COMMENTS 1 MARCH 18,2010
Cargil is currently sellng energy from this Facilty to Idaho Power on a non-firm basis
under a Schedule 86 uniform agreement dated July 28, 2008, which was approved in
Commission Order No. 30631, dated August 27, 2008. The Firm Energy Sales Agreement
specifies that the existing Schedule 86 agreement shall be terminated at the time the Facilty
achieves its Operation Date in accordance with the Firm Energy Sales Agreement. The Facilty
began actual energy deliveries to Idaho Power under the Schedule 86 agreement on August 28,
2008.
The Firm Energy Sales Agreement
The parties entered into the Firm Energy Sales Agreement on Januay 22, 2010, pursuant
to the terms and conditions of the varous Commission Orders applicable to this PURP A
agreement. See Order Nos. 30415, 30488, 30738, and 30744. The Agreement is for a 10-year
term and utilzes the non-Ievelized published avoided cost rates as curently established by the
Commission for energy deliveries of less than lO average megawatts ("aMW").
The scheduled operation date for the Agreement is 30 days after the approval of the
Agreement by the Commission. The Agreement includes a formula for the assessment and
calculation of Delay Liquidated Damages and associated Delay Security provisions if Cargil
fails to achieve the scheduled operation date. The Agreement states that it is effective once the
Commission has approved all of the Agreement's terms and conditions and declared that all
payments Idaho Power makes to Cargil for purchases of energy wil be allowed as prudently
incurred expenses for ratemaking purposes. Idaho Power states in its Application that if the
Commission approves the Agreement the effective date ofthe Agreement wil be Januar 22,
2010.
Interconnections with the Facility and applicable charges have been completed in
accordance with the paries' existing Schedule 86 Agreement transacted in 2008. All applicable
interconnection charges and monthly operation and maintenance charges under Schedule 72 have
already been assessed and collected from Cargil in association with the existing Schedule 86
agreement.
STAFF ANALYSIS
Staff has carefully reviewed the Agreement and finds that the rates contained therein are
consistent with the currently-approved non-Ievelized published avoided cost rates for projects
smaller than 10 aMW. With only one exception, all of the other terms and conditions included in
STAFF COMMENTS 2 MARCH 18,2010
the Agreement are identical to those contained in recent PURP A contracts approved by the
Commission.
The only unique feature of this Agreement is the amount of Delay Security required in
~ 5.7.1. This Agreement requires an amount of Delay Security equal to the greater of $45 per
kW or the sum of three months' estimated revenue. Consequently, for this Facilty, the total
Delay Security amount wil be approximately $101,250.
The purpose of Delay Security is to insure that liquid funds wil be available in the event
Delay Liquidated Damages are assessed. Delay Liquidated Damages would be assessed if the
Facility failed to come online within 90 days following the Scheduled Operation Date.
Prior to December 2006, Idaho Power's Firm Energy Sales Agreements for PURP A
projects did not include a Delay Liquidated Damages penalty. However, due to the failure of
some PURP A projects to achieve their scheduled operation date, Idaho Power began including
the penalty in recent contracts. The Company had been requiring Delay Security in an amount of
$25 per k W prior to this Agreement.
Idaho Power increased the amount of Delay Security from $25 per kW in prior
agreements to $45 per k W in this Agreement because it did not believe that the lower amount
was sufficient to cover actual Delay Liquidated Damages should they be incured. In addition,
the Company believed that the lower amount did not provide sufficient motivation for project
owners to complete their projects on time. In adopting the $45 per kW amount, Idaho Power
reviewed the security levels required by ten other electric utilities throughout the U.S. in their
renewable energy procurements and contracts. Only one requires security less than $25 per kW,
while the remainder require security of at least $50 per kW.
Staff believes that the $45 amount is reasonable. Staff believes that the amount should be
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.
Ironically, the Bettencourt Dry Creek project is already online and sellng to Idaho Power
under a Schedule 86 agreement; consequently, delay damages and the amount of required delay
security are not even issues for this Facilty. However, Idaho Power intends to begin including
the higher delay security amount in this and all future contracts. While Staff never views
approval of one PURP A contract as setting a precedent for other future contracts, Staff does
STAFF COMMENTS 3 MARCH 18,2010
believe that Idaho Power is seeking endorsement of the higher security requirement in this
Agreement with the intent of including it in future contracts.
RECOMMENDATIONS
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 Cargil for
purchases of energy wil be allowed as prudently incured expenses for ratemaking purposes.
Respectfully submitted this \~~ day of March 2010.
Technical Staff: Rick Sterling
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STAFF COMMENTS 4 MARCH 18,2010
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 18TH DAY OF MARCH 2010,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-E-1O-2, 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: dwalkerCiidahopower.com
bklineCiidahopower .com
RANDY C ALLPHIN
CONTRACT ADMINISTRATOR
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: rallphinCiidahopower.com
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SECRETARY
CERTIFICATE OF SERVICE