20101001Comments.pdf

KRISTINE A. SASSER
DEPUTY ATTORNY GENERA
IDAHO PUBLIC UTILITIES COMMISSION
POBOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 6618
RECEl\lE~fJ
2010 nCT - l AM 7: 59
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 COMPAN FOR APPROVAL )
OF A FIRM ENERGY SALES AGREEMENT )
WITH YELLOWSTONE POWER, INC. FOR )
THE SALE AND PURCHASE OF ELECTRIC )ENERGY. )
)
CASE NO. IPC-E-IO-22
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff ofthe Idaho Public Utilities Commission, by and through its
Attorney of record, Krstine A. Sasser, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 32065 on September 3,2010, in
Case No. IPC-E-I0-22, submits the following comments.
BACKGROUND
On August 13,2010, Idaho Power Company (Idaho Power) filed an Application with the
Commission requesting approval of a IS-year Firm Energy Sales Agreement between Idaho Power and
Yellowstone Power, Inc. (Yellowstone Power; Yellowstone) dated July 28,2010 (Agreement).
The Application states that the Yellowstone Project (Project) is a biomass-fueled, combined
heat and power project to be co-located in Emmett, Idaho, with the recently commissioned Emerald
Forest Sawmill. Power wil be generated using steam created from the controlled burng ofthe
woody biomass fueL. Waste heat from the Project will be utilized to operate the dry kilns associated
STAFF COMMENTS 1 OCTOBER 1,2010
with the sawmilL. Application at 2. Idaho Power warants that the Agreement comports with the terms
and conditions of the varous Commission Orders applicable to PUR A agreements (Order Nos.
30415,30488,30738, and 30744). Application at 2.
The Agreement is for a term of 15 years and contains the non-Ievelized published avoided cost
rates established by the Commission in Order No. 30744 for energy deliveries ofless than 10 average
megawatts (aMW). The nameplate rating of the generator will be 11.7 MW; however, subtraction of
estimated parasitic loads (energy consumption required to operate the generator) results in the Facility
monthly energy deliveries being less than 10 aMW.
Yellowstone Power selected a Scheduled Operation Date of December 31, 2011, for the
Project. Idaho Power asserts that Yellowstone Power is curent in all of its interconnection study
payments and, so long as it continues to provide requested information in a timely maner and pay
invoices on time, it appears that the interconnection can be completed by the Scheduled Operation
Date.
ST AFF ANALYSIS
All of the terms and conditions in this Agreement are the same as those contained in other
PUR A agreements recently approved by the Commission, including updated delay and liquidated
damages, as well as updated securty provisions. However, the primary issue in this case is whether
the Project and July 28,2010 Agreement should be grandfathered under the published avoided cost
rates of Order No. 30744- rates superseded on March 16,2010 by the lower rates of Order No.
31025.
The Application states that Yellowstone Power and Idaho Power had resolved and agreed to all
material outstanding contract issues prior to March 16,2010. Application at 7. The Application
furher asserts that Yellowstone Power represents that "if (it) had been made aware of any risk ofthe
March 16, 2010, price change occurrg, a wrtten Firm Energy Sales Agreement would have been
requested as all terms and conditions had already been agreed to. . . ." Id. Idaho Power believes that
Yellowstone Power has satisfied the grandfathering criteria enumerated in the Application and should
be entitled to the avoided cost rates established by Order No. 30744. Application at 5.
Grandfathering Criteria
In its Application, Idaho Power states that the Commission has recognized in prior orders that
there are situations when PUR A Qualifying Facility (QF) rates are changed that it is appropriate to
STAFF COMMENTS 2 OCTOBER 1,2010
include a prior vintage of rates in a current PUR A contract.
1 In several cases litigated in the early to
mid-1990s, Idaho Power notes, the Commission determined and the Idaho Supreme Cour affirmed,
certain criteria that a QF developer must satisfy in order to establish an entitlement to sell energy at a
rate other than the curent published avoided cost rate.2 The first criteria that would qualify a
paricular generating facility to receive a superseded rate requires that the developer have executed a
power sales agreement with the utility at the rate in question before a successor rate becomes effective.
If the QF canot meet the first criteria, the second criteria requires that prior to the new rates' effective
date, the QF developer must have fied a meritorious complaint alleging that the project was
suffciently mature and far enough along in the contracting process that but for the conduct of the
utility company, the developer would have been able to sign a contract with the utility containing the
superseded rates. Yellowstone had neither signed a contract with Idaho Power to purchase the Facility
generation on or before March 16,2010, nor had it filed a complaint alleging that Idaho Power acted
uneasonably or in bad faith by not signing an agreement by March 16 when the rates changed.
Idaho Power deemed that the Yellowstone Project was entitled to the Order No. 30744 rates by
satisfying the following criteria:
a. Interconnection and Transmission
1. Filed an interconnection application; and
ii. Received and accepted an interconnection feasibility study report for the
project and paid any requested study deposits (or established credit) for the next
phase of the interconnection process in accordance with Schedule 72; and
iii. Received confirmation from Idaho Power that transmission capacity is
available for the project and/or received and accepted transmission capacity study
results and cost estimates; and
b. Purchase Power Agreement
i. An agreement was materially complete prior to March 16, 2010, and
except for routine Idaho Power final processing, an agreement would have been
executed by both paries prior to March 16,2010.
1 The Idaho Supreme Cour has confired that it is within the Commssion's jursdiction to determne which vintage of QF
rates should apply to a PURA contract. See Empire Lumberv. Washington Water Power, 114 Idaho 191, 755 P.2d 1229
(1988); A. W. Brown Co., Inc., v. Idaho Power Company, 121 Idaho 812,828 P.2d 841 (1992).2A. W. Brown Co., Inc., v. Idaho Power Company, 121 Idaho 812,828 P.2d 841 (1992); Rosebud v. Idaho Power Company,
128 Idaho 624,917 P. 2d 781 (1996).
STAFF COMMENTS 3 OCTOBER 1, 2010
It is undisputed that Yellowstone met all of the interconnection and transmission criteria listed
above. The critical question based on Idaho Power's criteria is whether the power purchase agreement
was materially complete prior to March 16, 2010, except for routine Idaho Power final processing.
Idaho Power - Yellowstone Negotiations Prior to March 16,2010
Clearly, the Agreement in this case was not executed before March 16, 2010, the date on which
the avoided cost rates changed. Moreover, both paries acknowledge that there were not even any draft
power sales agreements prepared and exchanged between the paries prior to March 16,2010. Idaho
Power admits that it did not begin exchanging wrtten draft sales agreements with Yellowstone until
approximately early June 2010.
Idaho Power notes, however, that throughout 2009 and continuing into 2010, Yellowstone was
in contact with Idaho Power in regard to a proposed biomass generation facility. These discussions
included potential siting of the project in Oregon and thorough discussion of Oregon PURA rules,
regulations, and specific discussions of contract details. Also durng 2009 and into the spring of 20 1 0,
Idaho Power reports that Yellowstone expressed interest in siting this facility in Emmett, Idaho,
adjacent to a sawmill the developer was constrcting. In 2009 and early 2010, Yellowstone advised
Idaho Power that it had multiple equipment sizes available, some ofthem greater than 10 MW. The
paries agreed that prior to Idaho Power providing a power purchase agreement there was merit in
evaluating this project as a larger than 10 aMW project. Beginnng in early March 2010 and
continuing through May 2010, Yellowstone provided Idaho Power the data (monthly estimated energy
production) required to enable the development of energy pricing for a larger than 10 aMW facility.
At the request of Yellowstone, Idaho Power prepared and supplied AURORA-based energy pricing for
a project larger than 10 aMW. Durng this time period, Idaho Power maintains that extensive
discussions were conducted between the paries regarding the complete details of a PUR A power
purchase agreement.
Idaho Power - Yellowstone Negotiations after March 16,2010
Promptly following the change in avoided cost rates on March 16, 2010, Idaho Power reports
that it was contacted by Yellowstone, inquiring as to the impact the price change would have upon the
ongoing power sales agreement discussions. Idaho Power states that it informed Yellowstone that it
was continuing to work on the requested pricing for a larger than 10 aMW project. During the months
of April and May 2010, Yellowstone provided additional information at Idaho Power's request and the
STAFF COMMENTS 4 OCTOBER 1,2010
Company implemented the AURORA pricing model to establish an energy price for the project. Idaho
Power relates that after evaluation of the larger equipment specifications and AURORA-based energy
price, Yellowstone determined that the larger facility was not economically feasible.
Durng this same time period, Idaho Power was processing varous grandfathering requests for
other projects that arose surounding the March 2010 change in the published avoided cost rate. In
early June 2010, Yellowstone apparently made a request for grandfathering for a project smaller than
10 aMW. After review, Idaho Power concluded that the Yellowstone project may be eligible for a
grandfathered rate and therefore, the paries began exchanging wrtten draft agreements to that effect.
Idaho Power contends that the only purose for exchanging these draft agreements prior toa final
agreement was to complete the "fill in" information and that no terms or conditions were debated or
negotiated.
Since early June 2010, Idaho Power reports that it has been working through internal contract
drafting and review processes. Any perceived delays from early June 2010 to an execution date of July
28,2010, Idaho Power maintains, were due to change in personnel, internal review processes, and the
efforts being expended on numerous other PUR A contracts and issues.
Staff Assessment
The issue, in a nutshell, is whether Idaho Power and Yellowstone were in substantial agreement
on the terms, conditions, and rates for a new power sales agreement prior to the change in the rates on
March 16,2010. Idaho Power reports that Yellowstone, through a signed Affdavit of Richard Vinson,
one of the principal members of Yellowstone Power, Inc., has represented that if it had been made
aware of any risk of the March 16, 2010, price change occurng, a wrtten Firm Energy Sales
Agreement would have been requested and signed because it had already agreed to all of the terms and
conditions that are contained in the final Agreement. In its Application, Idaho Power agrees that all
terms and conditions identical to the terms and conditions ofthe final Agreement were agreed to with
the Project prior to March 16, 2010. Idaho Power states that in the normal course of business, a wrtten
agreement was to follow. Indeed, by submitting the signed Agreement for Commission approval,
Idaho Power believes that Yellowstone should be entitled to grandfathered rates.
Nevertheless, it is undisputed that there was no signed agreement prior to March 16,2010, nor
had there been any draft agreements exchanged between the paries prior to that date. In fact, there is
nothing in writing to indicate that there was a meeting of the minds prior to March 16,2010. There
was no enforceable obligation to sell or purchase power. The Commission is left with only the word of
STAFF COMMENTS 5 OCTOBER 1, 2010
both paries that there were no outstanding contract issues or disagreements on any terms or conditions
prior to March 16,2010.
This presents some difficulty for the Commission Staff to recommend approval of the
Agreement because it can reasonably be argued that Idaho Power's own criteria for judging
grandfathering eligibility have not been satisfied. More specifically, it is questionable whether an
agreement was materially complete prior to March 16,2010, and whether the agreement only lacked
routine Idaho Power final processing prior to March 16, 2010.
It cannot be overlooked that the Yellowstone Proj ect is intended to be an integral par of the
Emerald Forest Sawmil in Emmett. The sawmil began operating earlier this sumer and is expected
to employ up to 47 workers in Gem County, an economically depressed area. Staff canot be certain
whether the economic viability of the Emerald Forest Sawmil is dependent on the Yellowstone Power
Facility, or if the viability of the Yellowstone Facility hinges on whether the Commission rules that it
is entitled to grandfathered rates. Clearly, securng grandfathered rates wil bolster the economic
viability of the Yellowstone Project.
Unlike intermittent generation projects, the Yellowstone Project is expected to provide steady,
predictable generation around the clock, with an extremely high capacity factor. This high capacity
factor, renewable, cogeneration project would be a valuable addition to help diversify Idaho Power's
resource portfolio. Despite not being convinced that a power sales agreement was materially complete
prior to March 16,2010, Staff believes that this case presents a unique set of facts that permit the
Commission to look beyond the established criteria applied in other recent requests to grandfather the
rates of Order No. 30744 and consider other aspects such as the strong public interest and impact of
allowing a grandfathered rate.
As additional support for approval of the Agreement, Idaho Power states that Yellowstone
represents that, prior to March 16,2010, it already acquired from Boise Cascade, Inc., the property
upon which the Project is to be located. In addition, Yellowstone represents that it completed required
environmental remediation at the Project site, and the Idaho Deparent of Environmental Quality
issued a final acceptance and permit to constrct prior to March 16, 2010. Third, significant power
plant equipment, including boiler, fuel conveyors, strctural steel piping controls, and electrcal
equipment, was purchased prior to March 16,2010 at a cost in excess of$6 milion and is on the site or
in storage ready for deployment.
STAFF COMMENTS 6 OCTOBER 1,2010
Difference in Rates between Order No. 31025 and Order No. 30744
The published avoided cost rates adopted in Order No. 31025 on March 16,2010 are
approximately 13 percent lower than the superseded rates of Order No. 30744. By its terms, Order
No. 31025 applies to new PUR A contracts executed on and after March 16, 2010.
Staff has applied both the rates from Order Nos. 31025 and 30744 to the Yellowstone
Agreement to compare the difference in rates. The value of the Agreement over its IS-year term is
greater by approximately $23.5 milion under the higher rates of Order No. 30744.
Non-Performance Damages from a Prior Contract at the Same Site
A PUR A Firm Energy Sales Agreement between Idaho Power and Renewable Energy of
Idaho LLC was previously executed for this same site. Richard Vinson, one of the principals of
Yellowstone Power, was also a principal member of Renewable Energy. The sales agreement with
Renewable Energy was approved in Case No. IPC-E-04-05, Order No. 29437. That agreement went
into default and was ultimately terminated when Renewable Energy, for reasons it alleges were beyond
its control, was unable to meet the operation date of the agreement. Thereafter, Idaho Power
determined it had incured damages for non-performance in the amount of $106,804. Idaho Power
reports that it presented this default damage billing to Renewable Energy and was informed that
Renewable Energy did not have the fuds or assets to make payment. At that time, Idaho Power states,
Mr. Vinson committed that he was still pursuing development of both a sawmil and a generation
facility at this site and, upon completion of a generation facility, at a futue date he would honor this
$106,804 obligation. At this time, the sawmil has been constrcted and is operating and, as evidenced
by the attached Agreement, Mr. Vinson is moving forward with the generation facility.
Although the non-performance damage is the liability of the now defuct Renewable Energy,
and not Yellowstone Power, Mr. Vinson has agreed to pay the non-performance damage in the full
amount as an offset to the energy payments of the Yellowstone Agreement. Payment wil be
accomplished in 24 monthly installments as a debit against monthly amounts Idaho Power will owe
Yellowstone for monthly energy purchases under the Agreement. Consequently, approval of the
Agreement would enable Idaho Power to recover, for the benefit of its customers, non-performance
damages which it otherwise likely could not collect. Staff supports repayment of the non-performance
damages by Yellowstone, and recognizes the payment as a good faith gesture by Mr. Vinson.
STAFF COMMENTS 7 OCTOBER 1,2010
RECOMMENDATIONS
Staff believes that the Yellowstone Agreement falls short of satisfying grandfathering criteria
developed and relied upon by Idaho Power in judging eligibilty for the avoided cost rates contained in
Order No. 30744 that were in effect prior to March 16, 2010. Because it fails to meet the established
criteria, Staff is unable to recommend that the Commission approve the Idaho Power/Yellowstone
Agreement based on the evidence provided by the paries.
Respectfully submitted this 1:f day of October 2010.
~;;a..S&dA
Kristine A. Sasser
Deputy Attorney General
Technical Staff: Rick Sterling
i :umisc:commentsipce i O.22ksrps.doc
STAFF COMMENTS 8 OCTOBER 1,2010
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS IST DAY OF OCTOBER 2010,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-E-1O-22, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
DONOV AN E WALKER
LISA D NORDSTROM
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: dwalker(ßidahopower.com
Inordstrom(ßidahopower.com
RANDY C ALLPHIN
ENERGY CONTRACT ADMINISTRATOR
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: rallphin(ßidahopower.com
DICK VINSON
YELLOWSTONE POWER, INC.
PO BOX 1539
THOMPSON FALLS MT 59873
E-MAIL: dick(ßblackfoot.net
DEAN J. MILLER
MCDEVITT & MILLER LLP
420 WEST BANNOCK ST
BOISE ID 83701
E-MAIL: joe(ßmcdevitt-miler.com
~~.k'od.
CERTIFICATE OF SERVICE