20110325Reply Comments.pdf

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DONOVAN E. WALKER (lSB No. 5921)
LISA D. NORDSTROM (ISB No. 5733)
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: [phone]
dwalkerCcidahopower.com
InordstromCcidahopower.com
Attorneys for Idaho Power Company
Street Address for Express Mail:
1221 West Idaho Street
Boise, Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR A )CASE NO. IPC-E-10-51
DETERMINATION REGARDING A FIRM )
ENERGY SALES AGREEMENT )IDAHO POWER COMPANY'S
BETWEEN IDAHO POWER AND ALPHA )REPL Y COMMENTS
WIND, LLC )
)
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR A )CASE NO. IPC-E-10-52
DETERMINATION REGARDING A FIRM )
ENERGY SALES AGREEMENT )IDAHO POWER COMPANY'S
BETWEEN IDAHO POWER AND BRAVO )REPL Y COMMENTS
WIND, LLC )
)
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR A )CASE NO. IPC-E-10-53
DETERMINATION REGARDING A FIRM )
ENERGY SALES AGREEMENT )IDAHO POWER COMPANY'S
BETWEEN IDAHO POWER AND )REPL Y COMMENTS
CHARLIE WIND, LLC )
)
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR A )CASE NO. IPC-E-10-54
DETERMINATION REGARDING A FIRM )
ENERGY SALES AGREEMENT )IDAHO POWER COMPANY'S
BETWEEN IDAHO POWER AND DELTA )REPL Y COMMENTS
WIND, LLC )
IDAHO POWER COMPANY'S REPLY COMMENTS - 1
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR A
DETERMINATION REGARDING A FIRM
ENERGY SALES AGREEMENT
BETWEEN IDAHO POWER AND ECHO
WIND, LLC
)
) CASE NO. IPC-E-10-55
)
) IDAHO POWER COMPANY'S
) REPLY COMMENTS
)
)
Idaho Power Company ("Idaho Powet'), in response to Order No. 32188, the
Comments of the Idaho Public Utilties Commission ("IPUC" or "Commission") Staff, and
the Comments of Alpha, Bravo, Charlie, Delta, and Echo Wind, LLC ("Cotterel" or
"Projects"), hereby submits the following Reply Comments:
I. INTRODUCTION
On December 16, 2010, Idaho Power filed with the Commission an Application
for a determination regarding the Firm Energy Sales Agreements ("Agreements")
between Idaho Power and the various Projects. On February 24, 2011, the
Commission issued Notice of those Applications and Notice of Modified Procedure,
Order No. 32188, setting forth a comment deadline of March 17, 2011, and a reply
comment deadline of March 24, 2011.
Commission Staff filed Comments on March 17, 2011, recommending that the
Commission not approve any of the five Agreements between Idaho Power and the
Projects because Staff does not consider any of the Agreements to be effective prior to
the December 14,2011, effective date of the Commission's Order No. 32176, which
lowered the published avoided cost rate eligibilty cap for wind and solar Qualifying
Facilties ("QF") from 10 average megawatts ("aMW") to 100 kilowatts ("kW").
The Projects filed Comments on March 17, 2011, requesting that the
Commission approve the Agreements. In their Comments, the Projects make
IDAHO POWER COMPANY'S REPLY COMMENTS - 2
arguments advocating that they are entitled to be grandfathered at the published
avoided cost rates for pròjects up to 10 aMW which were in effect prior to December 14,
2011.
In these Reply Comments, Idaho Power submits factual information regarding
the Company's processes for receiving requests, negotiating, and executing power
purchase agreements pursuant to the Public Utilty Regulatory Policies Act of 1978
("PURPA"); factual information regarding the processing of the Projects' PURPA power
purchase agreements; and contextual information regarding the review of the Projects'
power purchase agreements by the Commission.
II. SUMMARY OF IDAHO POWER'S PROCESSES
FOR PURPA AGREEMENTS
A. Initial Project Inquiries.
Idaho Power continuously receives numerous inquiries from various potential
generation projects. Upon this initial contact, typically, a general discussion is had with
each of the potential projects to explain the Power Purchase Agreement ("PPA") and
Generation Interconnection Agreement ("GIA") process, which are two separate and
required processes that must be completed in order to sell generation to Idaho Power.
The potential project is advised that to begin the offcial process of either the PPA or the
GIA, that written documents and information wil be required from the project.
In the case of the GIA process, a completed Generation Interconnection
Application is required. In the case of a PURPA PPA, a document specifying
information such as the location, contracting party, resource type, estimated nameplate
rating, general description of the project, estimated on-line date, and other pertinent
information is required so that a draft PPA may be created.
IDAHO POWER COMPANY'S REPLY COMMENTS - 3
B. Generator Interconnection and Transmission Availabilty.
The GIA process is conducted by Idaho Powets Delivery business unit. Federal
Energy Regulatory Commission ("FERC") regulations require Idaho Power to maintain
separations between certain Idaho Power business units, in this case between Delivery,
or the Company's Transmission Provider function, and Power Supply, or the Company's
Merchant function. The first step in the interconnection process is the submission of a
Generator Interconnection Application. Submittal by the project and acceptance of this
application as complete establishes the proposed project's position in the
interconnection queue and begins the engineering process of determining the feasibilty
and costs of interconnecting the proposed project to Idaho Powets electrical system.
Additionally, the potential upgrades and/or availability of transmission capacity to move
the project's energy from the point of interconnection within Idaho Power's system to
Idaho Powets customer loads must also be determined.
After receipt and acceptance of the Generator Interconnection Application from
the potential generation project, Idaho Power Delivery works through a process of
inquires and meetings to obtain the required information to perform a Feasibility Study,
a System Impact Study, and a Facilty Study. The interconnection and transmission
process is governed by Idaho Powets Tariff Schedule 72, filed with and approved by
the Commission, and provisions of its Open Access Transmission Tariff ("OATT"), filed
with and approved by FERC. The potential project is informed of the progress of each
step in this process. In addition, the potential project has various decision points and
financial deposit requirements throughout this process. Failure by the potential
generation project to make these decisions or make the deposit payments in a timely
IDAHO POWER COMPANY'S REPLY COMMENTS - 4
manner can lead to delays or termination of the interconnection process pursuant to
Idaho Powets Tariff Schedule 72 and OATT.
c. PURPA Power Purchase Agreement.
Once a potential generation project has submitted written information on their
proposed project that demonstrates the project is eligible for a PURPA purchase power
agreement and wishes to move forward with the development of the proposed project,
Idaho Power begins the process of drafting a PPA for the proposed project. Quite often
a proposed project wil send in incomplete and/or non-definitive information, which
requires inquiries and exchanges between the Company and the project in order to
obtain the information necessary to prepare a draft agreement. In many cases the
potential projects never provide definitive information and never move forward with draft
purchase power agreement discussions.
The schedule for processing a PPA can be affected by multiple factors, including
the proposed project's responsiveness to information requests, the proposed project's
provision of key decisions at key decision points, and the quantity of proposed projects
being processed by the Company. In the case of multiple PPA requests received by the
Company, Idaho Power processes the requests on a "first-come, first-served" basis.
This does not mean that multiple projects are not being processed at the same time.
Multiple requests and draft contracts are often being processed simultaneously and are
in various stages of the contract process.
Once the proposed project's draft PPA is agreed upon by the parties and in final
draft form, an internal Idaho Power Sarbanes Oxley ("SOX") review is required. This
review is required to achieve compliance with the SOX regulatory requirements. It
IDAHO POWER COMPANY'S REPLY COMMENTS - 5
involves a review and approval of the draft agreement by Idaho Power management,
accounting, financial reporting (FAS133, Fin 46, etc), legal, and confirmation of the
appropriate Idaho Power executive authorized to execute the agreement. As this
review requires the involvement of numerous areas within the Company an expected
completion time of this review is approximately 10 business days. Very rarely does this
review result in any material changes to the draft PPA. Instead, the review process
provides confirmation from all the necessary divisions within the Company that the
contract meets each area's SOX requirements and enables Idaho Power to execute the
PPA.
Upon completion of the internal SOX review, three executable copies of the PPA
are prepared and sent to the project for signature and execution. The project is notified
that the PURPA agreement must be executed within 10 days. In addition, the project is
also notified that if any rules or regulations applicable to the agreement are modified or
changed prior to both parties executing the agreement that Idaho Power wil be required
to modify the agreement accordingly.
Upon return of the three agreements, signed and executed by the project, Idaho
Power then schedules a time with the appropriate Idaho Power executive to sign and
execute the agreement. Generally this is accomplished within one to two business days
of when the executed agreement is received back from the project, but is dependent on
the limited availabilty of the required Company executive with the requisite authority to
execute contracts containing such large monetary obligations as those contained in the
typical20-year PURPA PPA.
IDAHO POWER COMPANY'S REPLY COMMENTS - 6
Upon execution of the agreement by both parties, the executed agreement is
forwarded to Idaho Powets legal department for preparation of an Application and filng
of the agreement with the Commission for its review. Generally, this application is
prepared and submitted within five business days of the date that the agreement is fully
executed.
II. COTTEREL'S POWER PURCHASE AGREEMENT PROCESS
These Projects initially bid into Idaho Powets 2009 request for proposals ("RFP")
for a wind resource as one large wind project of 150 megawatts ("MW"). The Projects
were selected in that RFP process to begin contract negotiations. However, after many
months of negotiations, an agreement was unable to be reached and negotiations were
terminated. Idaho Powets RFP was also terminated without selecting a resource for
various reasons, some being that the Company received requests for and started
placing a very large amount of QF wind under contract, which it was required it to
pursue pursuant to PURPA.
On October 28,2010, the Projects sent into the Company contracts that they had
obtained from the internet. However, these contracts were not the current agreement
templates used by Idaho Power. These contracts were for the same project that
Cotterel had proposed in the Company's RFP as a single 150 MW resource, but had
now broken apart into five 10 aMW, approximately 30 MW nameplate, pieces with a
corresponding request for five QF contracts at published, 10 aMW rates. Although
Cotterel had stated to the Company at the close of the RFP that it intended to consider
all options for its project, including PURPA, the first indication, communication, or notice
that Idaho Power received from the Projects that they wished to pursue PURPA
IDAHO POWER COMPANY'S REPLY COMMENTS - 7
agreements with the Company was by its transmittal of these contract templates that it
obtained from the internet.
On November 4, 2010, Idaho Power responded to the Projects with a standard
PURPA contract process letter requesting information to initiate the PURPA process.
On November 8, 2010, the Projects filed a Complaint with the Commission claiming the
Company was refusing to contract with them. The Projects responded to Idaho Powets
November 4, 2010, letter with further information on November 16, 2010.
On December 9, 2010, the transmission capacity application questionnaire was
received from the Projects with information required to begin the transmission review
process.
On December 6, 2010, Idaho Power received confirmation back from the
Projects' counsel that proposed changes in the draft PPAs were acceptable. On
December 7, 2010, final draft agreements were provided to the Project's counsel for
review. On December 10, 2010, final execution drafts were provided to the Projects for
execution. (The Projects' counsel picked them up from Idaho Power's front desk on that
day).
The contracts were executed by Shell, the owner of the Projects, (presumably in
their offces in Houston) on December 13,2010, and then mailed to Idaho Power. The
contracts were received by Idaho Power on December 14, 2010, signed by the
Company on December 15, 2010, and filed for review with the Commission on
December 16, 2010. Idaho Power had no opportunity to execute the contracts prior to
the December 14, 2010, effective date of Order No. 32176 because the contracts were
not returned to Idaho Power by the Projects until December 14, 2010.
IDAHO POWER COMPANY'S REPLY COMMENTS - 8
iv. IDAHO POWER'S APPLICATION FOR REVIEW OF THE AGREEMENT
As the Company did with all PURPA contracts that were executed subsequent to
the filing of the Joint Petition of the three Idaho electric utilties in Case No. GNR-E-10-
04, Idaho Power filed the Projects' PURPA contracts for review with the Commission
specifically seeking the Commission's acceptance or rejection of the agreements.
Idaho Power specifically did not ask for the Commission's approval, nor did the
Company specifically ask for the Commission's rejection. Instead, the Company asked
for and seeks the Commission's independent review of the agreement. The
Commission's independent review of the agreement serves several functions including:
(1) Commission approval as required by the terms of the contract in order for it be
effective; (2) if accepted by the Commission, the Company seeks authorization that all
payments for purchases of energy under the agreement be allowed as prudently
incurred expenses for ratemaking purposes; and (3) a Commission determination as to
whether such agreement(s) is/are in the public interest.
As stated in its Application, Idaho Power clearly understands its obligation under
federal law, FERC regulations, and this Commission's Orders, that it has not been
relieved of, to enter into power purchase agreements with PURPA QFs. As stated in
the Joint Petition filing, Idaho Power has received a very large amount, in terms of both
number of projects and volume of MWs, of requests from PURPA QF developers in a
very short time frame demanding to enter into published avoided cost rate PURPA
contracts. The Company dilgently and in good faith processed these requests, in the
ordinary course of business and on an expedited basis, and filed the same for review
with this Commission, as is its legal obligation. The Company executed these contracts
IDAHO POWER COMPANY'S REPLY COMMENTS - 9
in good faith and if those contracts are approved by the Commission, wil honor and
comply with the requirements therein.
However, the request for review of the Projects' agreements, as well as several
other executed PURPA agreements that were filed subsequent to the November 5,
2010, Joint Petition in Case No. GNR-E-10-04, were made with the specific reservation
of rights and incorporation of the averments set forth in that Joint Petition regarding the
possible negative effects to the both the utilty and its customers of additional and
unfettered PURPA QF generation on system reliability, utilty operations, the costs of
incorporating and integrating such a large penetration level of PURPA QF generation
into the utilty's system, and, most importantly, the dramatic increase in costs that must
be borne by the Company's customers because of the disaggregation of large projects
into 10 aMW increments and the inflated avoided cost rates obtained thereby from the
use of the Surrogate Avoided Resource methodology.
Even though Idaho Power was legally obligated to continue to negotiate,
execute, and submit PURPA QF contracts for Commission review containing published
rates for projects at and below 10 aMW, the Company is also obligated to reiterate that
the continuing and unchecked requirement for the Company to acquire additional
intermittent and other QF generation regardless of its need for additional energy or
capacity on its system not only circumvents the Integrated Resource Plan ("IRP")
planning process and creates system reliabilty and operational issues, but it also
increases the price its customers must pay for their energy needs above the Company's
actual avoided costs.
IDAHO POWER COMPANY'S REPLY COMMENTS - 10
There was no effort or inquiry even made by the Projects with Idaho Power as to
pursuing a large PURPA project priced at the required IRP avoided cost methodology
for large projects, nor what the IRP pricing would be for their particular project. Rather
than pursue a PURPA contract pursuant to the IRP pricing methodology as required by
this Commission for large projects like this, the Projects, with no notice or inquiry, sent
in contracts obtained from the internet on October 28, 2010, followed shortly thereafter
by unnecessary Complaints filed with the Commission with no further inquiry as to
whether Idaho Power would execute PURPA contracts with the Projects and no basis
for alleging that Idaho Power was not proceeding, in the ordinary course of business, to
negotiate contracts. Idaho Power executed and filed several contracts with different,
similarly situated projects both before and after the Projects' initial submission of
contracts and a Complaint without the Projects having to file a Complaint to do so. A
simple inquiry would have informed the Projects that Idaho Power was not refusing to
contract at published rates up to 10 aMW, as the eventual execution and filng with the
Commission of over 20 such contracts can evidence.
The Commission, in its role as the regulatory authority for all investor-owned,
public utilities in the state of Idaho, has an independent obligation and duty to assure
that all contracts entered into by the public utilties it regulates are ultimately in the
public interest. In the state of Idaho, contracts are afforded constitutional protection
against interference from the State. Idaho Const. Art. I, § 16. However, despite this
constitutional protection, the Commission may annul, supersede, or reform the contracts
of the public utilties it regulates in the public interest. Agricultural Products Corp. v.
Utah Power & Light Co., 98 Idaho 23,29, 557 P.2d 617, 623 (1976) ("Interference with
IDAHO POWER COMPANY'S REPLY COMMENTS - 11
private contracts by the state regulation of rates is a valid exercise of the police power,
and such regulation is not a violation of the constitutional prohibition against impairment
of contractual obligations."); see also Federal Power Comm's v. Sierra Pac. Power Co.,
350, U.S. 348, 76 S.Ct. 368, 100 L.Ed. 388 (1956); United Gas Pipe Line Co. v. Mobile
Gas Service Corp., 350 U.S. 332, 76 S.Ct. 373, 100 L.Ed. 373 (1956) (U.S. Supreme
Court finding that rates fixed by contract could be modified only "when necessary in the
public interest"). The Commission may interfere in such a way with the contracts of a
public utility only to prevent an adverse affect to the public interest. Agricultural
Products, 98 Idaho at 29. "Private contracts with utilties are regarded as entered into
subject to reserved authority of the state to modify the contract in the public interest."
Id.
Idaho Power proceeded reasonably and in good faith in the negotiation and
eventual signing and execution of a published rate, 10 aMW PURPA contracts with the
Projects as required by the then current applicable law, rules, and regulations. Idaho
Power will continue to meet its legal and regulatory requirements and obligations with
regard to the Commission's implementation of PURPA. However, as also required by
the Commission, Idaho Power has an additional obligation when contracting with QF
projects, recently reiterated to it by the Commission: "We intend for the Company to
assist the Commission in its gatekeeper role of assuring that utilty customers are not
being asked to pay more than the Company's avoided cost for QF contracts. We
expect Idaho Power to rigorously review such contracts." Order No. 32104.
IDAHO POWER COMPANY'S REPLY COMMENTS - 12
v. CONCLUSION
While meeting its legal obligations to contract with QF projects pursuant to the
Commission's implementation of PURPA, the Company also asks that the Commission
review such contracts to assure that they comport with the public interest. The public
interest implications raised in the GNR-E-10-04 proceeding are of similar magnitude as
those contemplated and required by the Sierra-Mobile doctrine and Agricultural
Products and its progeny, as to invoke and authorize the Commission - in the exercise
of its legislative, state police power and authority to protect the public in the contractual
rates that it sets and the public utilty contracts that it reviews for the purchase of energy
from QF projects under PURPA. Idaho Power respectfully reiterates its request for the
Commission to review the Projects' contracts as to whether they are in the public
interest and issue its Order either accepting or rejecting the same.
DATED at Boise, Idaho, this 24th day of March 2011.
£~
DONOVAN E. WALKER
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S REPLY COMMENTS - 13
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 24th day of March 2011 I served a true and
correct copy of the within and foregoing IDAHO POWER COMPANY'S REPLY
COMMENTS upon the following named parties by the method indicated below, and
addressed to the following:
Commission Staff
Kristine A. Sasser
Deputy Attorney General
Idaho Public Utilties Commission
472 West Washington
P.O. Box 83720
Boise, Idaho 83720-0074
Alpha, Bravo, Charlie, Delta, Echo
Wind LLCs
Attn: Operations Manager
c/o Cotterel Wind Energy Center LLC
150 North Dairy Ashford
Building C, Suite 356D
Houston, Texas 77079
Peter J. Richardson
Gregory M. Adams
RICHARDSON & O'LEARY, PLLC
515 North 27th Street
P.O. Box 7218
Boise, Idaho 83702
-- Hand Delivered
U.S. Mail
_ Overnight Mail
FAX
-- Email Kris.SasserCcpuc.idaho.gov
Hand Delivered
-- U.S. Mail
_ Overnight Mail
FAX
-- Email dick.wiliamsCcshell.com
Hand Delivered
-- U.S. Mail
_ Overnight Mail
FAX
-- Email peterCcrichardsonandoleary.com
gregCcrichardsonandoleary.com
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IDAHO POWER COMPANY'S REPLY COMMENTS - 14