20110608final_order_no_32255.pdf

Office of the Secretary
Service Date
June 8,2011
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
IDAHO POWER COMPANY FOR A )CASE NO.IPC-E-1O-56
DETERM1NATION REGARDING A FIRM )
ENERGY SALES AGREEMENT BETWEEN )
IDAHO POWER AND MURPHY FLAT MESA,)
EEC )
_____________________________________________________________________________________
)
IN THE MATTER OF THE APPLICATION OF )
IDAHO POWER COMPANY FOR A )CASE NO.IPC-E-lO-57
DETERMINATION REGARDING A FIRM )
ENERGY SALES AGREEMENT BETWEEN )
IDAHO POWER AND MURPHY FLAT )
ENERGY,LEC )
______________________________________________________________________________________
)
IN THE MATTER OF THE APPLICATION OF )
IDAHO POWER COMPANY FOR A )CASE NO.IPC-E-1O-58
DETERMINATION REGARDING A FIRM )
ENERGY SALES AGREEMENT BETWEEN )
IDAHO POWER AND MURPHY FLAT WIND,)
EEC )ORDER NO.32255
______________________________________________________________________________________
)
On December 16,2010,Idaho Power Company filed three Applications each
requesting acceptance or rejection of a 20-year Firm Energy Sales Agreement (“Agreements”)
between Idaho Power and Murphy Flat Mesa,LLC;Murphy Flat Energy,LLC;and Murphy Flat
Wind,LLC.The three projects (Facilities;Projects)are all located near Murphy,Idaho,and are
all managed by American Wind Group,LLC.The projects have self-certified as “qualifying
facilities”(QFs)under the applicable provisions of the federal Public Utility Regulatory Policies
Act of 1978 (PURPA).Idaho Power requested that its Applications be processed by Modified
Procedure.
On February 24,2011,the Commission issued a Notice of Application and Notice of
Modified Procedure setting a March 17,2011,comment deadline and a March 24,2011,deadline
for reply comments.Comments were filed by the Commission Staff,the Company and
ORDER NO.32255 1
American Wind Group on behalf of the three projects.’As set out in greater detail below,the
Commission declines to approve the Firm Energy Sales Agreements.
BACKGROUND
On November 5,2010,Idaho Power,Avista Corporation,and PacifiCoip dba Rocky
Mountain Power filed a Joint Petition requesting that the Commission initiate an investigation to
address various avoided cost issues related to the Commission’s implementation of PURPA.
Section 210 of PURPA generally requires electric utilities to purchase power produced by QFs at
“avoided cost”rates set by the Commission.“Avoided costs”are those costs which a public
utility would otherwise incur for electric power,whether that power was purchased from another
source or generated by the utility itself.”18 C.F.R.§292.101(b)(6).Order No.32176 at 1.
While the Commission pursues its investigation,the utilities also moved the
Commission to “lower the published avoided cost rate eligibility cap from 10 aMW to 100 kW
[toj be effective immediately....“Id.citing Joint Petition at 7.Under PURPA regulations
issued by the Federal Energy Regulatory Commission (FERC),the Commission must “publish”
avoided cost rates for small QFs with a design capacity of 100 kW or less.Order No.32176 at 1.
However,the Commission has the discretion to set the published avoided cost rate at a higher
capacity amount —commonly referred to as the “eligibility cap.”18 C.F.R.§292.304(c)(1-2).
When a QF project is larger than the published eligibility cap the avoided cost rate for the project
must be individually negotiated by the QF and the utility using the Integrated Resource Plan
(IRP)Methodology.Order No.32176.
The purpose of utilizing the IRP Methodology for large QF projects is to more
precisely value the energy being delivered.Id.at 10.The IRP Methodology recognizes the
individual generation characteristics of each project by assessing when the QF is capable of
delivering its resources against when the utility is most in need of such resources.The resultant
pricing is reflective of the value of QF energy to the utility.Utilization of the IRP Methodology
does not negate the requirement under PURPA that the utility purchase the QF energy.
On December 3,2010,the Commission issued Order No.32131 declining the
utilities’motion to immediately reduce the published avoided cost rate eligibility cap from 10
aMW to 100 kW.Order No.32131 at 5.However,the Order did notify parties that the
The parties in these three cases have all filed consolidated comments because the relevant facts for each of these
three projects are substantially similar.Consequently,the Commission finds it reasonable and appropriate to
consolidate these cases and issue this consolidated final Order.Rule 247,IDAPA 3 1.01.01.247.
ORDER NO.32255 2
Commission’s decision regarding the motion to reduce the published avoided cost eligibility cap
would become effective on December 14,2010.Id.at 5-6,9.
Based upon the record in the GNR-E-10-04 case,the Commission subsequently found
that a “convincing case has been made to temporarily reduce the eligibility cap for published
avoided cost rates from 10 aMW to 100 kW for wind and solar only while the Commission
further investigates”other avoided cost issues.Order No.32176 at 9 (emphasis original).On
reconsideration,the Commission affirmed its decision to temporarily reduce the eligibility cap
for published avoided cost rates from 10 aMW to 100 kW.Order No.32212.Thus,the
eligibility cap for the published avoided cost rate for wind and solar QF projects was set at 100
kW effective December 14,2010.
THE AGREEMENTS
On December 15,2010,Idaho Power and each of the three wind projects entered into
their respective Agreements.Brian Jackson,Manager of American Wind Group,LLC signed
each Agreement as the authorized manager of each QF.Applications at 2.Under the terms of
the Agreements,the wind projects each agree to sell electric energy to Idaho Power for a 20-year
term using the current non-levelized published avoided cost rates established by the Commission
in Order No.31025.Applications at 4.The nameplate rating of each Facility is 25 MW.Under
normal and/or average conditions,each Facility will not exceed 10 aMW on a monthly basis.
Idaho Power warrants that the Agreements comport with the terms and conditions of the various
Commission Orders applicable to PURPA agreements for wind resources.Order Nos.30415,
30488,30738 and 31025.
Each Facility has selected December 31,2011,as its Scheduled First Energy Date and
December 31,2012,as its Scheduled Operation Date.Applications at 5.Idaho Power asserts
that various requirements have been placed upon the Facilities in order for Idaho Power to accept
the Facilities’energy deliveries.Idaho Power states that it will monitor the Facilities’
compliance with initial and ongoing requirements through the term of the Agreements.Idaho
Power asserts that it has advised each Facility of the Facility’s responsibility to work with Idaho
Power’s Delivery business unit to ensure that sufficient time and resources will be available for
delivery to construct the interconnection facilities,and transmission upgrades if required,in time
to allow each Facility to achieve its December 31,2012,Scheduled Operation Date.
ORDER NO.32255 3
Idaho Power asserts that each Facility has been advised that delays in the
interconnection or transmission process do not constitute excusable delays and if a Facility fails
to achieve its Scheduled Operation Date delay damages will be assessed.Id.at 7.The
Applications further maintain that each Facility has acknowledged and accepted the risk inherent
in proceeding with its Agreement without knowledge of the requirements of interconnection and
possible transmission upgrades.Id.The parties have each agreed to liquidated damage and
security provisions of $45 per kW of nameplate capacity.Agreement,¶J 5.3.2,5.8.1.
Idaho Power states that each Facility has also been made aware of and accepted the
provisions in each Agreement and Idaho Power’s approved Schedule 72 regarding non-
compensated curtailment or disconnection of its Facility should certain operating conditions
develop on Idaho Power’s system.The Applications note that the parties’intent and
understanding is that “non-compensated curtailment would be exercised when the generation
being provided by the Facility in certain operating conditions exceeds or approaches the
minimum load levels of [Idaho Power’s]system such that it may have a detrimental effect upon
[Idaho Power’s]ability to manage its thermal,hydro,and other resources in order to meet its
obligation to reliably serve loads on its system.”Applications at 7-8.
By their own terms,the Agreements will not become effective until the Commission
has approved all of the terms and conditions and declares that all payments made by Idaho Power
to the Facilities for purchases of energy will be allowed as prudently incurred expenses for
ratemaking purposes.Agreement ¶21.1.
THE COMMENTS
A.Staff Comments
Staff observed that the three Agreements are nearly identical.All three of the
projects are also proposed to be built in the same general vicinity.Staff calculated that the three
projects collectively are expected to generate 169,988 MWh annually.Under the non-levelized
rates in the Agreements,the annual energy payments by Idaho Power for the expected generation
will be approximately $10.3 million in 2013 increasing to approximately $20.2 million in 2032,
or a cumulative total of $299.0 million over the 20-year term of the Agreements.The collective
net present value of the energy payments over the life of the Agreements will be approximately
$114.6 million.
ORDER NO.32255 4
The three Agreements were signed by the project developer on December 13,2010,
and signed by Idaho Power on December 15,2010.The Agreements were filed with the
Commission on December 16,2010.The Agreements contain the published avoided cost rates
from Order No.31025.However,Staff observed that Order No.32176 lowered the availability
of published avoided cost rates for wind and solar QF projects to 100 kW,effective December
14,2010.As a matter of law,Staff considers the effective date of the contract to be the date
upon which both parties signed the agreement.A signature by only one party,Staff believes,
does not create an enforceable contract nor establish the effective date of the agreement.
Consequently,Staff considers the effective date for the three Agreements to be December 15,
2010.
Because the Agreements were executed after the date upon which the 100 kW
eligibility cap became effective for wind and solar projects and because the size of each
proposed wind project clearly exceeds 100 kW,Staff maintains that approval of the Agreements
is prohibited by Order No.32176.Staff believes that the avoided cost rate for these Agreements
must be negotiated using the IRP methodology.Consequently,Staff recommended denial of the
Agreements as submitted.
B.The Projects’Comments
Brian Jackson,Manager of American Wind Group,submitted consolidated comments
on behalf of the three projects.American Wind maintains that the three Agreements were
standard contracts “that were simply filled out and not really negotiated or disputed by the
projects themselves.”Comments at 1.American Wind insists that the PPAs were finalized and
executed prior to the change in eligibility cap for published avoided cost rates.American Wind
states that the federal government and Department of Energy have “created special incentives for
wind projects”in order to stimulate jobs and support the national manufacturing industry.Id.at
2.American Wind also contends that this type of economic development provides an additional
source of revenue for America’s farms that “preserves and protects the rural way of life.”Id.
American Wind maintains that wind projects provide meaningful jobs and significant
tax benefits to the areas within which they are located.American Wind contends that these three
projects “are good for the future energy mix of the ratepayers of Idaho and they are good for the
local economy and energy security of Idaho and the nation.”Id.at 4.
ORDER NO.32255 5
C.Public Comments
Approximately nine public comments were received.Several of the comments were
written by people associated with American Wind Group and the Murphy Flats projects.All of
the comments supported approval of the three wind projects.The commenters believe that the
projects would stimulate the local economy at a time when the area is in need of economic
growth.
D.Idaho Power Reply
Idaho Power asserted that they processed the requests of the projects diligently and in
good faith.Reply at 8.However,Idaho Power argued 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 Planning process and creates system reliability and operational issues,but it
also increases the price its customers must pay for their energy needs.”Applications at 4.
Idaho Power’s reply comments explained its internal processing of PURPA power
purchase agreements.2 Idaho Power states that,once the proposed draft PPA is in final draft
form,an internal Idaho Power Sarbanes Oxley (‘SOX’)review is required.This review takes
approximately 10 business days and provides confirmation from all necessary divisions within
the Company that the contract meets all SOX requirements and thus enables Idaho Power to
execute the PPA.Following the SOX review,three executable copies of the PPA are prepared
and sent to the project for signature and execution.When signed contracts are returned to Idaho
Power by the project,Idaho Power schedules a time for the appropriate Idaho Power executive to
sign and execute the agreement.Reply at 6.“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 availability of the required Company executive with the requisite
authority to execute contracts containing such large monetary obligations as those contained in
the typical 20-year PURPA PPA.”Id.
Idaho Power maintains that initial contracting information requests were sent to the
projects in late August 2010.Discussions commenced and first draft contracts were provided to
the projects on November 23,2010.“Idaho Power continued to receive e-mail and
communications from the Projects as late as December 9,2010,indicating that the Projects were
2 The Firm Energy Sales Agreements are also known as Power Purchase Agreements,or “PPAs.”
ORDER NO.32255 6
still attempting to determine the project sizes and finalize the agreements.”Id.at 6.Idaho
Power states that unsigned executable draft agreements were hand delivered to the projects on
December 13,2010,and returned by the projects to Idaho Power on December 14,2010.
“Additionally,on December 14,2010,Idaho Power received several calls from one of the
Projects’partners questioning who was authorized to sign the agreements and putting into doubt
whether the Projects’signature on the agreements was valid.”Id.at 7.On December 15,2010,
Idaho Power confirmed with legal counsel for the projects that the signature on the Agreements
was valid.Idaho Power signed the Agreements on December 15 and filed them with the
Commission for review on December 16,2010.Idaho Power maintains that it “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,and they did not verify,upon their own confusion,whether they had placed an
authorized signature upon the agreements until December 15,2010.”Id.
Idaho Power equates the public interest implications of these contracts with those
contemplated by the Court in Sierra-Mobile cases,including Agricultural Products,and its
progeny.Idaho Power maintains that the Commission,“may annul,supersede,or reform the
contracts of the public utilities it regulates in the public interest.”Reply at 9 (internal citations
omitted).
DISCUSSION AND FINDINGS
The Commission has jurisdiction over Idaho Power,an electric utility,and the issues
raised in this matter pursuant to the authority and power granted it under Title 61 of the Idaho
Code and the Public Utility Regulatory Policies Act of 1978 (PURPA).The Commission has
authority under PURPA and the implementing regulations of the Federal Energy Regulatory
Commission (FERC)to set avoided cost rates,to order electric utilities to enter into fixed-term
obligations for the purchase of energy from qualified facilities (QFs)and to implement FERC
rules.Rosebud Enterprises,Inc.,v.Idaho Public Utilities Commission,128 Idaho 609,612,917
P.2d 766,769 (1996).
The Commission has reviewed the record in this case,including the Applications,the
Firm Energy Sales Agreements,and the comments of Commission Staff,Idaho Power,the wind
projects,and the public.It is clear from the record that extensive review of PPAs is conducted
by both parties prior to signing an agreement.From the Commission’s perspective,a thorough
ORDER NO.32255 7
review is appropriate and necessary prior to signing Agreements that obligate ratepayers to
payments of nearly $300 million over the 20-year term of these Agreements.Indeed,the
Commission has directed the utilities to assist the Commission in its gatekeeper role when
reviewing QF contracts.
The primary issue to be determined in these cases is whether the Agreements —which
utilize the published avoided cost rate —were executed before the eligibility cap for published
rates was lowered to 100 kW on December 14,2010,for wind and solar projects.“According to
the FERC,‘it is up to the States,not [FERCJ to determine the specific parameters of individual
QF power purchase agreements,including the date at which a legally enforceable obligation is
incurred under State law.”Rosebud Enterprises,128 Idaho at 780-781,917 P.2d at 623-624,
citing West Penn Power Co.,71 FERC ¶61,153 (1995).We find that the Agreements were not
fully executed (signed by both parties)prior to December 14,2010.More specifically,each
Firm Energy Sales Agreement states that the “Effective Date”of the Agreement is “The date
stated in the opening paragraph of this ...Agreement representing the date upon which this
[Agreement]was fully executed by both Parties.”Agreements ¶1.10.The opening paragraph is
dated “this 15 day of December,2010.”Agreements at 1.It is not disputed that the projects
signed the Agreements on December 13,and Idaho Power signed on December 15,2010.1d at
29.Thus,on the date the three Agreements became effective,published avoided cost rates were
available only to wind and solar projects with a design capacity of 100 kW or less.
The proposed change in the eligibility cap was clearly noticed in our Order No.
32131 issued on December 3,2010.As we observed in Order No.32176:“One need look no
further than the abundance of firm energy sales agreements filed with the Commission [between
the notice and December 14]to realize that the parties took the Commission’s notice of its
effective date seriously.”Order No.32176 at 11.The Commission does not consider a utility
and its ratepayers obligated until both parties have completed their final reviews and signed the
agreement.In other words,in order for the 10 aMW eligibility cap to be available to wind and
solar QFs,the agreement must have been effective prior to December 14,2010.The Idaho
Supreme Court has recognized that “a balance must be struck between the local public interest of
a utility’s electric consumers and the national public interest in development of alternative
energy sources.”Rosebud Enterprises,128 Idaho at 613,917 P.2d at 770.We find that it is not
ORDER NO.32255 8
in the public interest to allow parties with contracts executed on or after December 14,2010,to
avail themselves of an eligibility cap that is no longer applicable.
The published avoided cost rates established in Order No.31025 have not changed.
What has changed is the size at which wind and solar projects can avail themselves of the
published avoided cost rates.Consistent with FERC regulations,and as set out in Order No.
32176,published rates are available to wind and solar QFs with a design capacity of 100 kW or
less.18 C.F.R.§292.304(c)(1-2).Wind and solar projects larger than 100 kW are still entitled
to PURPA contracts at avoided cost rates calculated using the IRP Methodology.Regarding the
application of a change in the eligibility cap,we adopt a bright line rule:a Firm Energy Sales
Agreement/Power Purchase Agreement must be executed,i.e.,signed by both parties to the
agreement,prior to the effective date of the change in eligibility criteria.
The Firm Energy Sales Agreements between Idaho Power and the three projects were
executed on December 15,2010.The Agreements recite that each project will have a maximum
capacity amount of 25 MW.Under normal and/or average conditions,each project will not
exceed 10 aMW on a monthly basis.Because the size of each of these wind projects exceeds
100 kW,they are not eligible to receive published rate contracts.Simply put,the rates contained
in the Agreements do not comply with Order No.32176.Therefore,we disapprove the three
Firm Energy Sales Agreements.
ORDER
IT IS HEREBY ORDERED that the December 15,2010,Firm Energy Sales
Agreements between Idaho Power and Murphy Flat Mesa,Murphy Flat Energy and Murphy Flat
Wind are disapproved.
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 §6 1-626.
ORDER NO.32255 9
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of June 2011.
-ThI ,/-
I /
PAUL KJLER,PRESIDENT
MACK A.REDFORD,COMMISSIONER
MARSHA H.SMITH,COMMISSIONER
ATTEST:
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Je’n D.Jewe11J
Cdmmission Secretary
0:IPC-E-I O-561PC-E-I O-571PC-E-I O-58ks2
ORDER NO.32255 10