20100319Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KEMPTON
COMMISSIONER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: NEIL PRICE
DEPUTY ATTORNEY GENERAL

DATE: MARCH 19, 2010

SUBJECT: FIRM ENERGY SALES AGREEMENT BETWEEN IDAHO POWER
COMPANY AND CARGILL INCORPORATED, CASE NO. IPC-E-10-02

On January 29, 2010, Idaho Power Company (“Idaho Power” or “Company”) filed an
Application with the Commission seeking approval, in accordance with Idaho Code § 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 AGREEMENT
“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 of less 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.e., 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.
DECISION MEMORANDUM 2
“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
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’s 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.
STAFF 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 2-3.
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
DECISION MEMORANDUM 3
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 PURPA projects failing to achieve their scheduled
operation date. Id.
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 U.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. at 4.
Staff recommends 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
Does the Commission wish to approve Idaho Power’s Application for approval of its
Firm Energy Sales Agreement with Cargill Incorporated?

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