20070322Comments.pdf

Geothermal Inc.
GREEN RENEWABLE ENERGY
1509 Tyrell Lane, Suite B, Boise, ID 83706
Tel: [phone] Fax: [phone]
Ms. Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
472 W. Washington Street
Boise. ill 83702-5983
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March 22, 2007
RE: Case No. IPC-O7-
Dear Ms. Jewell:
Enclosed please find the original and seven (7) copies of the COMMENTS OF
GEOTHERMAL INC in the above case.
Sincerely,
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Douglas J. Glaspey
Chief Operating Officer
Website: 'I/'NIIN. usaeothermal. com OTCBB: UGTH TSX.V: GTH
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BEFORE THE IDAHO PUBLIC UTILITIES COMMf~_~IPN2'
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IN THE MATTER OF IDAHO POWER
COMP ANY'S PETITION TO REVISE THE
PUBLISHED AVOIDED COST RATES TO
INCLUDE A DAILY LOAD SHAPE; AND
TO CLARIFY THE RULES GOVERNING
ENTITLEMENT TO PUBLISHED AVOIDED)COST RATES
CASE NO. IPC-07-
COM:MENTS OF
u. S. GEOTHERMAL INC.
Introduction
In accordance with the Commission s Notice of Petition in the above
captioned case, U.S. Geothennal Inc. respectfully submits these comments on
Idaho Power s application to the Commission for an order allowing the change
in published avoided costs and rules governing entitlement to published avoided
costs. In general, the comments address the complexities, costs and unintended
adverse outcomes of the proposed changes. The rules proposed simply do not
effectively address the issues that Idaho Power Company ("Company ) is trying
to target. Simpler, more effective methods are available to address the
Company s concerns.
Daily Load Shape Adjustment
On its face, the Company s proposal to value heavy load and light load hours
differently is not objectionable, although the data utilized in setting the value for
each period appears somewhat arbitrary and risky. The costs required to meet
the Company s proposal, as well as the risks created, will not be offset by any
resulting benefits, unless a facility under the current rules was intentionally
operated in other than a base load manner, with its output weighted to light load
hours. It is just as likely, perhaps more likely, that an inaccurate valuation of
period prices will result in higher costs to electrical customers than a QF
program based on compliance with base load operations. Adverse behavior
aimed at maximizing revenues, while meeting the Commissions new definition
of a "10 aMW Facility , is actually more likely to occur under the Company
proposal than it is under the current rate structure. In addition, the proposal will
most adversely impact the smaller qualifying facilities ("QF'), the facilities
that are of the least concern to the Company and who can least afford the
administrative burdens and direct costs.
A more direct approach would appear to be a contractual representation by
the QF "that it is a base load facility and will be continuously operated during
the tenn of the contract as a base load facility." If the Company feels that a QF
is operated in a manner inconsistent with the representation, it could declare a
breach and seek appropriate contractual and legal remedies.
(A)Setting Heavy Load and Light Load Values:
The Company has utilized the average Mid Columbia heavy load and
light load transactions for the period January 1 2003 through January 20
2007. The appropriateness of that period in establishing values is
unsubstantiated and many questions are left unanswered. Does this
approach adequately represent "Idaho Power s daily load shape" over the
anticipated contract period? Why not a shorter or longer period of
historical transactions? Why not a forecasted heavy load and light load
price differential for future years? Does the approach adequately reflect
the difference in heavy load and light load periods during different seasons
within the year? Can a non base load project operate in a manner that is
detrimental to the Company s customers if the values are not reflective of
true market costs?
The broad and diverse nature of the QF's within the Company s QF
program, has in the past and will in the future, average out any daily
period production variances as long as facilities are not allowed to
intentionally operate in a non base load manner. It is just as likely,
perhaps more likely, that an inaccurate valuation pursuant to the
Company s proposal will result in higher costs to electrical customers than
a QF program based on compliance with base load operations. If the
Commission accepts the Company s proposal, the electrical customers of
Idaho had better hope that the high load period valuation is correct
because incentives have been created for energy deliveries during that
period. The Company s proposal is a complex solution, subject to
unintended outcomes, which is being targeted at a very narrow issue that
can be more effectively addressed through contractual tenns and
conditions.
(B)Costs of the Proposal:
The Company s proposal will require additional metering, recording,
payment processing and administrative management for implementation.
Nothing has been presented by the Company to infonn the Commission of
the costs of implementing the program so that a cost-to-benefit analysis
can be analyzed. It is clear that the added cost burden of the Company
proposal will significantly affect the smaller QF projects, while delivering
unproven and unlikely benefits to the Company and its customers. The
Company should provide the Commission with an implementation plan
including costs for both the Company and the QF, prior to any approval
and implementation of the proposal so that a rational analysis of costs and
benefits can be obtained.
(C)Alternative Proposal
As discussed above, a much more direct and effective tool targeted at
addressing the Company s concern can be achieved through inclusion of
simple contractual representations by the QF. Only QF facilities meeting
the Commissions size limitation requirements will be impacted by the
Company s proposal. Larger facilities will continue to be subject to
negotiated pricing and terms and conditions. Evaluation of the
Company s proposal, or the proposed alternative, should include
consideration of the overlying goals of the QF program administered by
the Commission and the federal and state objectives for the development
of alternative energy sources. Any solution to the Company s concerns
should be only as broad as required, while remaining consistent with the
Commission and the State of Idaho s goal to develop diversified
relatively small, environmentally benign facilities, subject to the minimal
imposition of contractual and administrative costs and burdens.
ID.Disaggregation of Large QF's Into Smaller Projects
The Company states in its Petition that it is concerned that "larger wind
powered QF projects will choose to create multiple legal entities to reconfigure
themselves into multiple smaller projects in order to qualify for the historically
higher published rates . The Company s concern is driven by what it perceives
to be the price differential between market based rates and published QF rates.
Its solution to this concern is not a discussion of appropriate rates, but the
imposition of an arbitrary ownership restriction on projects located within a
five-mile radius . As discussed below, such a rule would conflict with federal
law and have significant impacts on the fe-contracting of existing projects, the
future development of new projects and overall industry efficiencies.
The Company s proposal is contrary to federal law because PURPA'
implementing regulations already provide a test for deciding whether adjacent
facilities should be aggregated into a single facility for the purpose of
determining whether they meet the maximum size limitations for Qualifying
Facilities. In essence, the federal regulations provide that adjacent facilities
shall be considered a single facility only if they are located within one mile of
each other:
(2) Method of calculation. (i) For purposes of this
paragraph, facilities are considered to be located at the same site as
the facility for which qualification is sought if they are located
within one mile of the facility for which qualification is sought
and, for hydroelectric facilities, if they use water ITom the same
impoundment for power generation.
(ii) For purposes of making the determination in clause (i),
the distance between facilities shall be measured ITom the
electrical generation equipment of a facility.
18 C.R. Sec. 292.204(a)(2).
Not only is the Company s proposal contrary to federal law, it is at best an
indirect way of dealing with the Company s real concerns. The Company
argument is clearly with the rates established for QF's eligible for published
rates, and not with some arbitrary geographical affinity of commonly owned
facilities. Case No. IPC-07-03 currently before the Commission addresses
what the Company believes to be appropriate modifications to the published
rates for wind generated projects. The outcome of that case will be rates, either
changed or unmodified, that the Commission has detennined are in the interest
of the Company s customers. If the Company believes there are inequities in the
existing QF program rates, it should pursue changes in the SAR avoided costs
address the perceived intermittent value of certain resources, or address other
factors it believes should be considered in QF rate setting. These changes
should be pursued through appropriate and direct discussion of those issues, not
collaterally through an arbitrary set of rules that will have a significant negative
impact on the development of new QF projects and on the beneficial retention
of existing QF projects within the state ofIdaho.
(A)Re-Contracting Existing QF Projects
The rule proposed by the Company to limit the eligibility of projects
for published avoided cost rates to those projects that "together with any
other electric generating facility using the same motive force, owned or
controlled by the same person(s) or affiliated person(s), and located at the
same site (defined as within a mile radius), does not exceed 10 aMW
measured on a monthly basis , would have severe impacts on the re-
contracting of existing QF projects. A significant number of QF contracts
will expire over the next 15 year period. Many of these projects will be
exploring potential new power sales agreements with the Company, or
other potential purchasers, and the Company s proposed rule would
disqualify the eligibility of a number of these facilities. Following are
several examples of the impact of such a rule.
(1.) The Bypass (9.96 MW) and Hazelton A (7.7 MW)
hydroelectric projects are located within an approximate 2 mile
radius ITom each other on the North Side Canal Company
irrigation system. The ownership of the projects has transferred
since development, but is common between the two facilities.
(2.The Hazelton B (7.6 MW) and Wilson Lake (8.4 MW)
hydroelectric projects are located within an approximate 3 mile
radius ftom each other on the North Side Canal Company
irrigation system. The ownership of the projects is through
subsidiaries ofIda-West Energy Co. (Idaho Power s wholly owned
subsidiary) and a private investor. The power purchase contracts
will terminate in 6 years.
(3.The South Forks (7.97 MW) and Low Line Midway (2.
MW - currently scheduled for operation in June 2007)
hydroelectric projects are located within an approximate 2 mile
radius ITom each other on the Twin Falls Canal Company irrigation
system. The Twin Falls Canal Co. has ownership interests in both
projects.
As these project contracts, as well as others, terminate pursuant to the
tenns of their initial power sales agreements, what public good is served
by disqualifying these projects ftom published QF rates? What public
good is served by encouraging the QF projects to seek contracts with other
parties, potentially out of state utilities? In the case of the Low Line
Midway example, what public good is served by disqualifying the two
projects as a result of the Midway development (Midway will have been
developed 23 years after South Forks), thereby discouraging the potential
development of further renewable sites?
(B)Development of New Projects
The rule proposed by the Company to limit the eligibility of projects
could have significant impacts on the development of new QF projects.
Sites not developed previously may become attractive in the future for a
myriad of reasons. Advancements in geothennal drilling technology, new
geothermal heat transfer technology, improvements in wind
turbine/generator technology, a change in land ownership rights, a change
in federal and/or state tax policies, an increase in avoided resource costs
establishment or expansion of green tag credit or carbon credit based
programs, and a change in the cost and availability of capital are just a few
examples of why resources in the same general geographical area may be
developed at different points in time. What public good is served by
disqualifying these projects ITom published rates and discouraging their
development pursuant to the QF program, established by the Commission
consistent with the interests of the electrical customers ofIdaho?
(C)QF Industry Efficiencies
Ownership interests over the life of QF facilities may change for a
number of reasons: consolidation, foreclosures, corporate market entry or
exit, and residual contractual or leasehold rights to mention a few. None
of these potential changes has anything whatsoever to do with the
Company s stated purpose in establishing the proposed rule. The
ownership transfers may well be in direct response to the efficiencies that
the market will require in order for the industry to be viable on an ongoing
basis. The indirect impacts of the proposed rule on the efficiency of the
industry could be substantial, and in any case wasteful, without producing
any material benefits for either the QF or the electrical customers.
IV.Conclusion
The remedies proposed by the Company, for what it perceives to be
inadequacies in the existing QF program, are contrary to existing law, clumsy,
unnecessarily broad, miss-targeted, likely to result in significant and unintended
outcomes, and wholly inappropriate. The risks inherent in the Company
proposal are likely to produce outcomes exactly opposite of the intended results.
Many of the potential outcomes would result in costs and inefficiencies, without
corresponding benefits, contrary to the interest of the state and its electrical
customers. The real bottom line concern of the Company in both cases is the
appropriateness of the published QF rates. The following recommendations
address the Company s stated concerns, without creating costs and outcomes
which do not serve the public interest.
(1.)Standard fonn power sales agreements for QF projects
meeting the Commissions requirements shall include a
representation and covenant by the QF that
, "
The project is a
base load facility and will be continuously operated as a base
load facility throughout the tenn of the contract". If the
Company feels that a QF is operated in a manner inconsistent
with the representation, it could declare a breach and seek
appropriate contractual and legal remedies.
(2.The Company should be directed to pursue, through actions
similar to it's filing of Case No. IPC-07-03 currently before
the Commission, the remedies for what it believes are QF rate
inequities through appropriate QF rate filings with the
Commission.
The Idaho State Legislature has spoken clearly in support of increasing Idaho
renewable energy production with the recent adoption of the 2007 Idaho Energy
Plan. The Plan specifically cites the importance of developing in-state renewable
energy projects to provide a "secure, reliable energy system by reducing
dependence on remote sources , and to "provide fuel diversity, reducing Idaho
exposure to high and fluctuating natural gas, oil and coal prices." In addition, the
Plan recognizes that "in-state renewable resources contribute to economic growth
by creating jobs and tax revenue in Idaho, ftequently in rural areas that are most
in need of economic stimulus." The changes proposed by the Company, which
will increase the complexity and cost of QF projects, and would apply an
arbitrary, restrictive limit on the location of QF projects, are contrary to the 2007
Idaho Energy Plan and the expressed will of the Legislature.
Finally, the changes resulting from the Oregon case cited by the Company were
only accomplished through the acquiescence of all parties. US. Geothennal Inc
as an active QF participant with a current PURP A contract and a potential
developer of additional QF projects in Idaho, strongly disagrees with the
Company s proposed changes and recommends that the Commission dismiss
them in their entirety.
Respectfully submitted this 22nd day of March, 2007.
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Douglas J. Glaspey
Chief Operating Officer
us. GeotherllUll Inc.
CERTIFICATE OF SERVICE
I HERBY CERTIFY that on this 22nd day of March, 2007, I caused a true and
correct copy of the foregoing comments of u.S. GEOTHERMAL lNC to be served by
the method indicated below, and addressed to the following:
Commission Secretary
Idaho Public Utilities Commission
472 W. Washington Street (83702-5983)
O. Box 83720
Boise, ill 83720-0074
( ) u S. Mail, Postage Prepaid
(X) Hand Delivered
( ) Overnight Mail
( ) Facsimile
( )
Electronic Mail
Monica Moen, Attorney II
Idaho Power Company
1221 W. Idaho Street (83702)
O. Box 70
Boise, ill 83707-0070
( ) u S. Mail, Postage Prepaid
(X) Hand Delivered
( ) Overnight Mail
( ) Facsimile
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Electronic Mail
Barton L. Kline, Senior Attorney
Idaho Power Company
1221 W. Idaho Street (83702)
O. Box 70
Boise, ill 83707-0070
( ) u S. Mail, Postage Prepaid
(X) Hand Delivered
( ) Overnight Mail
( ) Facsimile
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Exergy Development Group of Idaho, LLC
C/o Peter 1. Richardson
Richardson & O'Leary, PLLC
515 N. 27ili Street
Boise, ill 83702
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Signed: J": C;\
Douglas 1. Gla pey