20071019Answer and Motion.pdf

Peter 1. Richardson ISB 3195
RICHARDSON & O'LEARY PLLC
515 North 27th Street
PO Box 7218
Boise, Idaho 83702
Telephone: [phone]
Fax: [phone]
peter(illrichrdsonando 1 eary. com
Attorneys for Exergy Development Group of Idaho LLC
RECEIVE
I""lfu 1 I') 1 .:. I
, ~.
, iDAHO 1;1 II:') 1('d i jUriES c oAl;;:i!sDiO:,
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S PETITION TO INCREASE THE)
PUBLISHED RATE ELIGIBILITY CAP FOR
WIND-POWERED SMALL POWER PRODUCTION FACILITIES; AND
TO ELIMINATE THE 90%/110%
PERFORMANCE BAND FOR WIND-
POWERED SMALL POWER PRODUCTION
FACILITIES
CASE NO. IPC-07-
EXERGY DEVELOPMENT GROUP
OF IDAHO LLC'S ANSWER TO
JOINT MOTION TO APPROVE
SETTLEMENT STIPULATION
MOTION TO ACCEPT ANSWER OUT
OF TIME
COMES NOW, Exergy Development Group ofIdaho LLC ("Exergy ) by and through
its attorney of record, Peter J. Richardson, and lodges its Answer to the Joint Motion to Approve
Settlement Stipulation ("Joint Motion ) by Idaho Power Company ("Idaho Power ) and the
Renewable Northwest Project ("RNP") in the above captioned docket.
SUMMARY OF EXERGY'S POSITION
Exergy urges the Commission to rej ect the proposed Settlement as it is not supported by
an adequate record and is contrary to the public interest.
Exergy Development Group ofIdaho LLC's Answer to Joint Motion IPC-O7-
LACK OF RECORD
Exergy s Comments filed on October 5, 2007, in this docket pointed out the need for an
evidentiary hearing in order to create an adequate record upon which a Commission decision
may be made. The Settlement provides no additional evidence remedying that defect. There
simply is an inadequate record upon which the Commission may make its ruling on the need for
and/or magnitude of a wind integration rate for Idaho Power.
III
LACK OF CERTAINTY FOR MAKING A DECISION
The parties to the Joint Motion concede that identifying wind integration costs is
uncertain at best:
The Parties agree that the basic methodology Idaho Power used to prepare the
wind integration study is sound. However, as always the case with computer
modeling, the devil is in the assumptions. The science of wind integration cost
modeling is in its infancy.
Joint Motion at p. 9. Emphasis provided.
Staff s Comments I underscore the uncertainties surrounding any wind integration cost
number this Commission may adopt:
Workshops held to review the results of the utilities' integration studies
highlighted the broad range of possible outcomes that could be achieved by
varying the assumptions for numerous variables used within the study.
Part of this imprecision and uncertainty is due to the difficulty of modeling the
intermittent nature ofthe wind, the generation it produces and its effect on the rest
of the electrical system. Another reason is the many assumptions that have to be
made in the analysis.
Staff believes that reasonable arguments could be made to justify combinations of
differences in assumptions that result in widely varying integration costs.
Staff Comments at p. 4. Emphasis provided.
I Staff Comments were filed October 5, 2007. ("Staffs CommentsExergy Development Group of Idaho LLC's Answer to Joint Motion IPC-O7-
Staff concluded by conceding that "reasonable arguments could be made to justify
combinations of differences in assumptions that result in widely varying integration costs.
In a nutshell, this Commission is being asked to proceed in the face of "widely" varying
integration costs that are based on a science in its "infancy" and using "assumptions for
numerous variables" with "imprecision and uncertainty . To do so would result in a wind
integration rate that is, by definition, arbitrary.
LACK OF LEGAL FOUNDATION FOR SETTING RATES
It is black letter utility law that rates must be based on known and measurable costs.
This issue often arises in determination of expected additions to rate base that have yet to be
realized. The legal concept is the doctrine of "known and measurable changes
The "known and measurable changes" doctrine is a fundamental doctrine in utility law that is
commonly at issue when the Commission is adjusting test year data. The Idaho Supreme Court
has repeatedly stated that test year data should be adjusted for known and measurable changes if
the changes are shown to be reliable and certain In Citizens Utility Co. v. Idaho Public Utilities
Commission, 99 Idaho 164, 579 P.2d 11 0 (1978), the Court provided the test when post-test-year
events should be considered:
The Court has stated before that test year data should be adjusted for anticipated
and known changes where the changes are shown to be reliable and certain. . . .
The Commission should include in the rate base all items which are proven with a
reasonable certainty to be justifiably used in providing services. There are two
good reasons for including these items in the rate base: First, to avoid a rate base
which does not adequately demonstrate real revenue needs and second, to reduce
the necessity of a future application to adjust the rate base to represent additional
investments.
Idaho l64, 170-579 P.2d at 116-17.
Exergy Development Group of Idaho LLC's Answer to Joint Motion IPC-O7-
In Utah Power & Light v. Idaho Public Utilities Commission, 102 Idaho 282, 629 P.2d 678
(1981), the Court addressed the issue of what constituted a "known and measurable change
Test year data should be adjusted for known and measurable changes where the
changes are shown to be reliable and certain. . .. The Commission should
include in the rate base all items which are proven with reasonable certainty to be
justifiably used by the utility in providing services to its customers. . . .
Idaho at 284 629 P.2d at 680.
The known and measurable doctrine is not only sound utility law; it is grounded in basic
common sense. Setting rates, whether in determining anticipated rate base additions or
determining future wind integration costs on unknown, unreliable and uncertain data is simply
irresponsible. As the examples noted above illustrate, the Joint Motion and Staff Comments are
replete with admissions to the effect that this Commission is being asked to violate that most
basic of utility doctrines
, "
known and measurable." In addition, the following laundry list of
some of the many unknown and ummeasurable assumptions that must be made provide further
evidence that it is ill-advised and, indeed, impossible to adopt a wind integration rate at this time:
Part of this imprecision and uncertainty is due to the difficulty of (1) modeling the
intermittent nature ofthe wind, (2) the generation it produces and its (3) effect on
the rest of the electrical system. Another reason is the (4) many assumptions that
have to be made in this analysis. For example, assumptions have to be made
about the (5) magnitude, (6) locations and (7) timing of future wind generation
development; (8) wind forecasting effectiveness, (9) geographic diversity of wind
resources; (10) size, (11) height and (13) other characteristics of expected wind
turbines; (14) reserve requirements; (15) future electric market structures and (16)
pricing; (17) resources available to provide reserves; and (18) operating
constraints of existing generating plants. Staff believes that reasonable arguments
could be made to justify (19) combinations of differences in assumptions that
result in widely varying integration costs.
Staff Comments at p. 4. Numbering provided.
These nineteen assumptions can be combined to create an innumerable set of possible
o.Jltcomes. Those ilJJlumer.ahle pm;sjble outcomes., howeve are fatally flawed from the outsetExergy lJevefopment Group of 13ahO LLC' s Answer to J omfMotJon C- E-O7 -
because the study s starting point is an assumed level of wind penetration that is nothing more
than a fiction.
This Commission has historically taken its obligations under the known and measurable
doctrine very seriously. For example, in an Idaho Power rate case the company sought a
ratemaking adjustment based on anticipated changes to its capital structure. The Commission
responded by observing:
The proposed financings that Dr. Morrissey has included in Idaho Power
Company s capital structure represent a substantial increase in the Company
total capitalization. Yet, at the same time these projected financings are not even
projected to occur for almost six months. Depending on the idiosyncrasies ofthe
capital markets, it is highly possible that an issue now programmed for release in
1979 could be deferred or postponed indefinitely. Likewise, depending upon the
prevailing financial climate, it is possible that the yields required in capital
markets will vary substantially from that estimated by Dr. Morrissey in his
projections. This Commission is reluctant to impose additional unnecessary costs
on the ratepayers of Idaho Power Company where such costs cannot be measured
without uncertainty and speculation
Order No. 14495 , Docket No. U-I006-140, Mach 1979, at p. 16. Emphasis provided.
Idaho Power s assumptions about wind penetration are likewise dependent upon not just the
idiosyncrasies" of the capital markets , but also on the long list seventeen uncertainties
identified in Staff s Comments. In its Order in the Idaho Power rate case quoted above, the
Commission refused to make a rate adjustment because the expected contingency was "not even
projected to occur for almost six months ! Here the contingencies that are anticipated will
occur, if at all, many years into the future and not six months.
In addition, in the situation of the rate case order quoted above, even if the Commission
were to approve Idaho Power s proposed rates based on anticipated future capitalization, the
Commission always has the ability of revisiting its decision to correct the rates in the future in
2 Planned wind parks can be rendered uneconomic for innumerable reasons, such as
changes in capital markets" tax policy, equipment costs, and commodity prices.
Exergy'Development Group of Iaaho LlC's Answer to Joint Motion IPC-O7-
the event the expected contingency did not come to fruition. In this instance the Commission
will not have that tool. The Settlement Stipulation requires that the Commission set wind
integration costs and LOCK THEM IN FOR TWENTY YEARS with no safety valve in the
event the rates were significantly in error. See Staff Comments at p. 5.
The Commission ought to set Idaho Power s wind integration rate at zero, to reflect what
it currently is. As Idaho Power experiences, indeed if Idaho Power experiences, wind integration
costs in the future it should be required to demonstrate with certainty what those costs are and
justify the basis for its calculations. New wind power purchase agreements should be required to
have a clause allowing the imposition of a fair, just and reasonable wind integration rate that
varies with actual integration costs. It should also be capped based on a reasonable, and
justifiable, assumption relative to an anticipated maximum wind integration rate.
LACK OF SUPPORT FOR THE STIPULATION
Of the twelve parties to this docket only four signed the stipulation. Of those four two
are utilities and one is not directly impacted by the proposed wind integration fee as it is not a
developer or potential owner of wind projects. The existence of a settlement with a minority of
the participants to the proceeding does not support a finding that it is necessarily in the public
interest.
LACK OF FOUNDATION FOR SETTING RATE
Idaho Power and RNP propose to tie the wind integration rate to Idaho Power s published
avoided cost rates. That is a misguided and legally unsupportable proposition. It is legally
unsupportable because Idaho Power s avoided cost rates are based on this Commission
implementation ofPURP A's requirements that offer to purchase QF power based on Congress
Exergy Development Group ofIdaho LLC's Answer to Joint Motion IPC-O7-
and FERC's definition of avoided costs. It is misguided because the avoided cost rate is
independent of, and unrelated to , the costs Idaho Power incurs to integrate wind. For example, if
Idaho Power s avoided resource were to be changed from a gas plant to a lower cost resource, its
avoided cost rates and hence its wind integration rate would automatically be lowered -
irrespective of its actual level of wind integration costs. Such an illogical result is strong
evidence of the arbitrary nature of tying wind integration rates to the published avoided cost
rates.
VII
CONCLUSION
Exergy s October 5, 2007, Comments urged this Commission to hold evidentiary
hearings to determine whether Idaho Power has wind integration costs and if so to establish the
methodology for the company s recovery ofthose costs. Idaho Power and RNP's Joint Motion
and Settlement have not changed Exergy s position. For the reasons stated above and in its
October 5 , 2007, filing Exergy respectfully urges this Commission to deny the Joint Motion and
set a schedule for all interested parties to provide evidence as to the correct calculation and level
of Idaho Power s wind integration costs.
MOTION TO ACCEPT ANSWER OUT OF TIME
Due to the press of other issues, including preparation for pre-filed testimony in the Idaho
Power general rate case, counsel for Exergy needed additional time in which to prepare Exergy
Answer. It has obtained the concurrence of all those who executed the stipulation as well as the
Commission Staff to file these comments two days out of time. No party will be prejudiced
thereby and Exergy therefore respectfully moves that the Commission accept and consider its
Answer.
Exergy Development Group of Idaho LLC's Answer to Joint Motion IPC-O7-
Respectfully submitted this 19th day of October 2007.
RICHARDSON &O'LEARYPLLC
By t vir) tkLA.
Peter J. Richardson
Attorneys for Exergy Development Group
of Idaho, LLC
Exergy Development Group of Idaho LLC's Answer to Joint Motion IPC-O7-
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this day, October 19 2007, I caused a true and
correct copy of the foregoing EXERGY DEVELOPMENT GROUP OF IDAHO LLC'
ANSWER IPC-O7-03 to be served by the method indicated below, and addressed to the
following:
Ms. Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
POBox 83720
Boise 10 83720-0074
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Barton L. Kline
Idaho Power Company
PO Box 70
Boise ID 83707-0070
bkline(illidahopower. com
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Monica Moen
Idaho Power Company
PO Box 70
Boise ID 83707-0070
mmoen(illidahopower. com
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Natalie McIntire
Renewable Northwest Project
917 SW Oak St. Ste. 910
Portland, OR 97205
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Scott Woodbury
Idaho Public Utilities Commission
424 W Washington Street
Boise ID 83702
scott. woodbury(illpuc.idaho. gov
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EXERGY DEVELOPMENT GROUP, LLC
CERTIFICATE OF SERVICE ANSWER IPC-07-
Michael G. Andrea
Staff Attorney
1411 E Mission Ave
PO Box 3727 MSC-
Spokane W A 99201
Michael. andrea(illavistacorp. com
R. Blair Strong
Jerry K. Boyd
Paine, Hamblen, Coffin, Brooke & Miller LLP
717 West Sprague Avenue Ste 1200
Spokane WA 99201-3505
r. b lair. strong(illpainehamb len. com
Dean Brockbank
Rocky Mountain Power
201 S. Main St. Ste. 2300
Salt Lake City, Utah 84111
dean. brockbank(illpacificorp.com
Brian Dickman
Rocky Mountain Power
201 S. Main St. Ste. 2300
Salt Lake City, Utah 84111
brian. di c kman(illpac ifi corp. com
William Eddie
Advocates for the West
610 SW Alder St, Ste. 910
Portland, OR 97205
beddi e (illad v 0 cates we st. org
EXERGY DEVELOPMENT GROUP, LLC
CERTIFICATE OF SERVICE ANSWER IPC-07-
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Rich Rayhill
Ridgeline Energy
720 W. Idaho Street, Ste. 39
Boise, Idaho 83702
rrayhill(illrl-en.com
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Robert Ellis
4 Nickerson, Ste. 301
Seattle, W A 98109
rellis(~,rl-en.com
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Glenn Ikemoto
Idaho Windfarms
672 Blair Ave
Piedmont, CA 94611
glenni~pacbell.net
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Dean J. Miller
PO Box 2564
Boise, Idaho 83701
i oe~mcdevitt -miller .com
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Ronald K. Arrington
John Deere Renewables
6400 NW 86th St.
PO Box 6600
Johnston, IA 50131
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Ken Miller
Snake River Alliance
PO Box 1731
Boise ID 83701
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EXERGY DEVELOPMENT GROUP, LLC
CERTIFICATE OF SERVICE ANSWER IPC-07-
Gerald Fleischman
11535 W. Hazeldale Ct.
Boise ID 83713
Gfeisch9 8 ~hotmail. com
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Brian Jackson
2792 Desert Wind Rd.
Oasis ID 83647-5020
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J. Humphries
2630 Central Ave.
Idaho Falls ID 83406
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Gary Seifert
Kurt Myers
INL Biofuels & Renewable Energy
2525 S. Fremont Ave
PO Box 1625, MS 3810
Idaho Falls, Idaho 83415-3810
Gary. seifert~inl. gov
Kurt.myers~inl.gov
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Peter Richardson
ISB # 3195
EXERGY DEVELOPMENT GROUP, LLC
CERTIFICATE OF SERVICE ANSWER IPC-07-