20101124final_order_no_32125.pdf

Office of the Secretary
Service Date
November 24, 2010
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
APPROV AL OF A FIRM ENERGY SALES
AGREEMENT FOR THE SALE AND
PURCHASE OF ELECTRIC ENERGY
BETWEEN IDAHO POWER COMPANY
AND ROCKLAND WIND PROJECT LLC
) CASE NO. IPC-10-
) ORDER NO. 32125
On September 8, 2010, Idaho Power Company (Idaho Power; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) requesting approval of a
negotiated 25-year Firm Energy Sales Agreement (Agreement) between Idaho Power and
Rockland Wind Project LLC (Rockland) dated September 3, 2010. The Commission in this
Order approves the Agreement.
AGREEMENT
Under the terms of the Agreement, Rockland will sell and Idaho Power will purchase
electric energy generated by the Rockland Wind Project (Facility) located near American Falls in
Power County, Idaho. The location of the Facility is more particularly described as Township 7
, Range 31 E, Section 31; Township 8 S, Range 30 E, Sections 13 23-33-36; Township
8 S, Range 31 E, Sections 6, 7, 16, 19 31 and Township 9 S, Range 30 E, Sections 1-
Power County, Idaho. Agreement Appendix B-2. Rockland warrants that the Facility is a
qualifying facility (QF) under applicable provisions of the Public Utility Regulatory Policies Act
of 1978 (PURPA). Agreement ~ 3.2.
The Rockland Wind Project will tentatively be comprised of 44 Vestas VI 00 turbines
for a total nameplate rating of 79.2 MW. Agreement Appendix B-l. The maximum capacity
amount is 80 MW. Appendix B-4. Because this amount exceeds 10 aMW, the Company ran its
AURORA economic dispatch model consistent with the Commission requirements for projects
larger than 10 MW to establish a basis for the energy purchase price in the Agreement.
The Agreement with Rockland contains many terms and conditions that vary from the
standard PURP A firm energy sales agreement typically submitted by Idaho Power. The varying
terms and conditions of this Agreement identified by the Company include: (1) provisions for
Partial Completion Damages; (2) a simplified Mechanical Availability Guarantee (MAG)
ORDER NO. 32125
calculation; (3) the Company s right to Renewable Energy Credits (RECs) after year 2021; (4)
better financial damage and security provisions for the benefit of customers; (5) more extensive
wind forecasting data; (6) a 25-year contract term; and (7) an energy price that is lower than the
published avoided cost rate. The non-standard terms and conditions are summarized below:
Partial Completion Damages. ~ 5.11. The expected Nameplate Capacity of the
Facility is 80 MW. If the Nameplate Capacity is less than 72 MW, Idaho Power will be entitled
to collect Partial Completion Damages from Rockland in the amount of $10 000 per MW less
than 72 MW.
Mechanical Availability Guarantee ~ 6.The MAG calculation within this
Agreement, the Company notes, is more stringent and potentially easier to administer than the
MAG in standard PURP agreements.In both this Agreement and standard PURP
agreements, the MAG is set at 85 percent. However, in this Agreement, the mechanical
availability of the Facility is determined by dividing the availability of each turbine as recorded
in the automated operating system of each turbine by the Nameplate Capacity of each turbine
less Idaho Power-caused curtailments. In comparison, in the standard PURP A agreements
impact of available wind, unplanned maintenance , and many other factors that are difficult to
measure are included in the Mechanical Availability calculation.
Renewable Energy Credits ! Agreement Article VIII. The Facility retains the rights
to all RECs through the end of calendar year 2021. ~ 8.1. Idaho Power will own the rights to all
RECs from the beginning of calendar year 2022 through the remaining term of the Agreement (a
minimum of 15 years). ~ 8.2. This allows the QF developer to retain the RECs for the initial 10
years of the Agreement and obtain what value it can for them to help offset the cost of
development for the project at a time when the Company does not have a Renewable Portfolio
Standard (RPS) obligation for the RECs. At the same time, it also allows the Company to retain
the RECs for the last IS years of the Agreement, after the project is developed and mature, and
when a future RPS may require the Company to obtain and have RECs.
Damages and Security. This Agreement, the Company contends, has considerably
more identified damages and security requirements of Rockland than those that are typically
applied to a QF project in a standard PURP A firm energy sales agreement. All specified
I Under Agreement paragraph 5., if Rockland is unable to obtain an agreement for the sale of RECs associated
with the expected Net Energy (initial year 218 062 000 kWh, ~ 6.4.1) produced by the Facility on terms acceptable
to Seller, then Seller shall have the right to terminate the Agreement.
ORDER NO. 32125
damages are supported by liquid security requirements placed upon Rockland. Thus, in the event
Idaho Power must exercise any of the damage claims, there is established security that Idaho
Power may draw upon to satisfy the damages. Just as in standard PURP A agreements, Rockland
must post $45 per kW (80 MW equals $3 600 000) of Delay Security that Idaho Power may draw
upon if the Facility is delayed in achieving its Operation Date. ~ 5.1 0.1. Additional security
required in this Agreement that is above and beyond that required in standard PURP A
agreements includes:
(a) Signing Security - $300 000. Rockland must post this security prior to
Idaho Power filing this Agreement with the Commission seeking its
approval. As of September 3 , 2010, Rockland posted the required
$300 000 signing security with the Company. ~ 5.
(b) Operational Security - $1 500 000. Rockland must post this security prior
to the project achieving its Operation Date and shall then maintain this
security for the full term of the Agreement. ~ 5.3(e).
Wind forecasting . ~ 9.3. In addition to Rockland being required to contribute to the
Idaho Power wind forecasting cost as specified for all new PURP A wind agreements, the
Agreement also requires Rockland to install, maintain, and provide wind measurement data from
state-of-the-art wind monitoring equipment to Idaho Power for the full term of the Agreement.
Contract Term . The Facility has selected July 15 , 2011 , as the Scheduled First
Energy date and December 31 , 2011 , as the Scheduled Operation Date. Appendix B-3. The
contract term specified in this Agreement is 25 years. ~ 5.1. This term is greater than the
standard term of 20 years as provided in the less than 10 MW PURP A agreements. This 25-year
contract term was a result of negotiations that attempted to balance many related factors within
the Agreement in a manner that was favorable to Idaho Power customers and also manageable
for Rockland.Some of those factors are: the project's willingness to meet performance
requirements for the full 25-year term; financial security in place for the entire term;
advantageous energy pricing for the years past 20 years; Idaho Power ownership of the RECs
generated in years 11 through 25; and Idaho Power s right of first offer to participate in
expansion and/or ownership of the Facility at any time during the term of the Agreement.
Energy Price Agreement Article VII. As a basis for energy prices in this
Agreement, Idaho Power executed the AURORA economic dispatch model for this Facility
estimated energy shape as specified by Commission requirements. This model provides strictly
ORDER NO. 32125
an energy price based upon the estimated generation from this Facility being available to meet
Idaho Power s customers' energy needs. This AURORA energy price contains no value for
RECs or other items of value identified within the Agreement. The energy price identified by
the AURORA run , including a discount of $6.50 per megawatt-hour (MWh) for wind
integration, was a levelized price of $56.21. In comparison, the published avoided cost levelized
price for a 10 average MW or less PURPA wind project with a planned on-line year of 2011 is
$75.88 per MWh.
The negotiated levelized energy price contained within the Agreement for the 25-year
term calculates to be $71.29 per MWh. The actual all-hours energy pricing stream (~ 7.3) begins
at $57.15 per MWh in 2011 , escalates at 2.5 percent through the first 20 years to $91.36 in the
20th contract year (2030), then escalates at a reduced rate of 2 percent for the last 5 years of the
Agreement, ending at a price of $101.37 in the 25 th contract year (2035). In comparison, the
published avoided cost rate available to PURP A wind projects less than 10 average MW for the
year 2011 is $55.26 per MWh, escalating to $113.21 per MWh in year 2030. This Agreement
also contains both the seasonal and time-of-day pricing as required in all PURP A agreements. ~~
7.1-
Although the $71.29 levelized energy price within this Agreement is greater than the
base AURORA value of $56., the Company notes that it is also lower than the published
avoided cost rate of $75.88. This Agreement, the Company contends, provides many additional
items of value to Idaho Power and its customers in comparison to a standard PURP A agreement
for QFs 10 MW and under, some of those items being REC ownership, greater security and
damage provisions , wind forecasting data, additional contract years at comparatively lower cost
and the right of first offer for ownership or expansion of this site. In addition, the $71.29 price is
considerably lower than prices bid into the 2012 wind RFP issued in May 2009, which Idaho
Power recently concluded without awarding a contract.
Idaho Power believes that the negotiations with Rockland , which resulted in the
present Agreement, evidence the fact that the large PURP A negotiation process for large QFs
greater than 10 MW is viable and can result in a project that is both feasible for the developer
and favorable to Idaho Power customers.
ORDER NO. 32125
Interconnection and Transmission
The Firm Energy Sales Agreement provides that Rockland must have completed an
interconnection feasibility study, is responsible to complete a Generation Interconnection
Agreement (GIA), and is responsible for all costs associated with interconnection of the Facility
to Idaho Power s system. ~ 5.8. As of the time of filing this Application, Idaho Power
represents that the Company has completed the feasibility study, and Rockland has accepted the
same. The parties are in the final stages of a facility study with an executed Generation
Interconnection Agreement to follow. Idaho Power Power Supply has also filed a Transmission
Service Request for this project (rated at 80 MW) and has received a favorable response from the
transmission group that transmission capacity is available for this project contingent upon
completion of the GIA and this Agreement.
The Agreement provides that it will not become effective until the Commission has
approved all of the Agreement's terms and conditions and declared that all payments Idaho
Power makes to Rockland for purchases of energy will be allowed as prudently incurred
expenses for ratemaking purposes. ~ 21.
On September 23 , 2010, the Commission issued a Notice of Application and
Modified Procedure in Case No. IPC-10-24. IDAPA 31.01.01.201.203. The deadline for
filing written comments was November 19 2010. Comments were received from Blue Ribbon
Energy LLC , an Idaho QF , and Commission Staff.
Blue Ribbon Energy LLC
Blue Ribbon has no objection to the Commission s approval of the contract but notes
that large QFs such as the developer of Rockland have greater ability to absorb a lower payment
rate in order to obtain tax credits and other benefits compared to smaller developers. Blue
Ribbon recommends that Idaho Power or any other utility not be allowed to treat the Agreement
as establishing a precedent for rates.
Commission Staff
Commission Staff recommends approval of the Rockland/Idaho Power Agreement for
reasons set forth below.
The Rockland Agreement, Staff states, is umque because it represents the only
PURP A agreement negotiated by Idaho Power for a facility larger than 10 aMW. The only other
ORDER NO. 32125
instance of a PURP A agreement for a facility larger than 10 aMW is between A vista Utilities and
Clearwater Paper (formerly Potlatch). Staff estimates that Idaho Power will pay Rockland
approximately $422 million over the life of the 25-year Agreement. This equates to a net present
value of nearly $183 million.
Energy Price (Agreement Article VII)
Idaho Power believes, and Staff agrees, that the AURORA-generated avoided cost
rate ($56.21) simply represents a market price alternative that primarily reflects the value of
energy and does not fully reflect capacity value. Furthermore , the AURORA energy price
contains no value for RECs or other items of value identified in the Agreement. The Company,
Staff notes, believes that many, if not all, of these additional items of value are difficult, if not
impossible, to quantify precisely. These items include the following:
Renewable Energy Certificate ownership for years 11-
Mechanical Availability Guarantee
Wind forecasting data
Greater security and damage provisions
Right of first offer for ownership or expansion of the site
Extended contract term at reasonable cost
In addition, Idaho Power believes there is value in a long-term fixed priced contract as compared
to volatile market prices over the same period.
It is unclear to Staff exactly how Idaho Power and Rockland began with a 20-year
AURORA price of $56.21 and ultimately reached a negotiated 25-year levelized rate of $71.29.
The value of each factor was not individually quantified. Nevertheless, the rates included in the
Agreement, Staff notes, were the result of mutual negotiations.
One way to judge the reasonableness of the negotiated rates in the Agreement, Staff
contends , is to compare those rates to the published avoided cost rates for projects 10 aMW and
smaller. Another way is to compare the rates in the Agreement to prices bid into the Company
2012 Wind RFP issued in May 2009, which Idaho Power recently concluded without awarding a
contract. By both measures - comparison to published avoided cost rates or comparison to 2012
Wind RFP bid prices - Staff believes the prices in the Agreement are reasonable. When REC
ownership and other factors are considered as well , the prices in the Agreement seem to Staff
even more reasonable.
ORDER NO. 32125
Idaho Power believes that the negotiations with Rockland, which resulted in the
present Agreement, evidence the fact that the PURP A negotiation process for large QFs greater
than 10 aMW is viable and can result in a project that is both feasible for the developer and
favorable to Idaho Power customers. Staff agrees.
Contract Term
PURP A, and the implementing regulations of the Federal Energy Regulatory
Commission, Staff notes, are silent as to the length of the contract over which the QF is entitled
to receive the avoided cost rate. Consequently, this is a matter that lies within this Commission
discretion. The reason for the earlier 35-year maximum contract length was that 35 years was the
amortization period allowed for similar utility owned facilities. A contract length that agreed
with the project's amortization schedule served to make financing easier , and in effect, helped to
encourage QF development.
Staff notes that in 1987, the Commission in Order No. 21630 shortened the standard
contract length to 20 years reasoning that risk and uncertainty inherent in long-range forecasting
increases dramatically with time and that a shorter contract term would reduce that risk. The
Commission ruled that contracts longer than 20 years would be available to QFs only upon a
persuasive showing of need. In 1996, the Commission in Order No. 26576 shortened the
contract length to five years.
In 2002, the Commission returned to 20 years, stating a 20-year contract length
better coincides with the amortization period or planned resource life of the renewable or
cogeneration resources being offered , better reflects the amortization period of generation
projects constructed by the utilities themselves and will coincidently provide a revenue stream
that will facilitate the financing of QF projects.2 (Order No. 29029, p. 7). The 20-year standard
contract length has remained in place since 2002.
One thing that has stayed consistent in the standard contract length for
agreements, Staff states, is that the Commission has always remained amenable to considering
longer contract lengths upon a persuasive showing of need. (Reference e., Order Nos. 21630
2 At the same time it increased the standard contract length to 20 years, the Commission increased the size limitation
for eligibility for published rates from 1 MW to 5 MW. That size limit was subsequently increased to 10 aMW in
2002. (Reference Order No. 29069).
ORDER NO. 32125
26576). In the case of Rockland, a 25-year contract term coincides with the expected 25-year
life of the Project.
Staff is concerned, however, that the current vintage of wind turbines does not have a
long track record upon which to judge their long-term durability and performance. A 25-year
equipment life may be possible, but it has not been proven. Staffs concerns, however, are
significantly mitigated by the performance requirements within the Agreement which provide
financial motivation for the project to maintain, operate, and replace the wind turbines as
required to meet the Mechanical Availability Guarantee for the full 25-year contract term.
addition, Staff notes that the turbines for this project will be supplied by one of the oldest and
most reputable manufacturers in the wind industry.
Renewable Energy Credits3 (Agreement Article VIII)
In response to Staff production requests, Idaho Power admits that many, if not all, of
the additional items of value in the Agreement including RECs - are difficult, if not
impossible, to quantify precisely. Based on available information, Idaho Power estimates REC
pricing to range from a low of approximately $4 to $5 to a high of $50 per REC.
Staff believes that current pricing is not indicative of prices that might be expected 15
years from now. Furthermore, Staff expects REC prices to vary widely in the future based on
state and federal REC policy.
Signing Security $300 000
As Staff understands it, the viability of the Rockland project depends upon the QF'
ability to secure a sale of RECs for the first ten years of the contract term. Because such a sale
has yet to be secured, there is some risk that the project will not be developed. The signing
security addresses this possibility. If Rockland terminates within 30 days of Commission
approval, it incurs a penalty of $1 million, of which the $300 000 Signing Security can be used
as partial payment.
Operational Security 500 000 (Agreement ~ 5. 3 (e))
The Agreement provides for the calculation of damages due Idaho Power if the
project fails to meet various performance and other contract requirements throughout the contract
term. Past history on PURP A agreements, Staff states, has indicated that while damages can
3 Under Agreement paragraph 5., if Rockland is unable to obtain an agreement for the sale of RECs associatedwith the expected Net Energy (initial year 218 062 000 kWh, ~ 6.4.1) produced by the Facility on terms acceptable
to Seller, then Seller shall have the right to terminate the Agreement.
ORDER NO. 32125
contractually be calculated and assessed, quite often recovery of those calculated damages can be
very difficult because the projects quite often do not have liquid assets available. Rockland must
post this security prior to the project achieving its Operation Date and shall then maintain this
security for the full term of the Agreement.
Partial Completion Damages (Agreement ~ 5.11)
Because the 80 MW nameplate capacity of the proposed facility is so large, Staff
believes that it is reasonable to include provisions for damages in the event of partial completion.
The negotiated amount is $10 000 per each MW less than 72 MW. If the Project were to achieve
only partial completion, it is reasonable, Staff contends, to expect that Idaho Power would be
forced to acquire an alternate resource to satisfy load, perhaps at a higher cost and perhaps on
short notice.
Mechanical Availability Guarantee (Agreement ~ 6.
The Mechanical Availability Guarantee (MAG) calculation within this Agreement
the Company notes, is more stringent and potentially easier to administer than the MAG in
standard PURP A agreements. The MAG in this Agreement is still set at 85%. Staff does not
oppose this change.
Wind Forecasting (Agreement ~ 9.
Installation of wind monitoring equipment, Staff believes, is standard practice for
new, large wind projects. The Agreement requires Rockland to install, maintain, and provide
wind measurement data from state-of-the-art wind monitoring equipment to Idaho Power for the
full term of the Agreement. It makes sense to Staff that if such equipment is installed by
Rockland, that the data be shared with Idaho Power.
Interconnection and Transmission
Staff expects that an executed Generation Interconnection Agreement will be
submitted for Commission approval once it is finalized.
COMMISSION FINDINGS
The Commission has reviewed the filings of record in Case No. IPC-10-
including the proposed Agreement and filed comments. We are satisfied with the developed
record on Modified Procedure and find it reasonable and in the public interest to consider the
matter and enter our Order without a hearing and without further notice or procedure. IDAP A
31.01.01.204.
ORDER NO. 32125
Idaho Power has presented a 25-year negotiated Firm Energy Sales Agreement with
Rockland Wind Project LLC for electric energy provided by an 80 MW wind generation project
in Power County, Idaho. Rockland warrants that the project is a PURP A qualified facility as that
term is used and defined in 18 C.R. 9292.201 et seq. We commend the parties for negotiating
an Agreement that we find sets forth a creative solution to resource issues that have heretofore
often resulted only in impasse and the filing of complaints.
The Commission finds that the proposed Agreement submitted in this case contains
acceptable contract provisions and includes negotiated non-levelized avoided cost rates that we
find to be just and reasonable. We further find it reasonable to allow payments made under the
Agreement as prudently incurred expenses for ratemaking purposes.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Idaho Power Company,
an electric utility, pursuant to the authority and power granted 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 from qualified facilities and to implement FERC rules.
ORDER
IT IS HEREBY ORDERED and the Commission hereby approves the September 3
2010, Firm Energy Sales Agreement between Idaho Power Company and Rockland Wind
Project LLc.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of 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. 32125
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ;2 '/ rJt
day of November 2010.
~ ~~
D. KEMP SIDENT
MARSHA H. SMITH, COMMISSIONER
MACK A. REDFORD, COMMISSIONER
ATTEST:
bls/O:IPC-IO-24 sw2
ORDER NO. 32125