20110415Reply Comments.pdf

RECEIVED
esIDA~POR~
An IDACORP company
53
DONOVAN E. WALKER
Lead Counsel
dwalkertâidahopower.com
April 14, 2011
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
P.O. Box 83720
Boise, Idaho 83720-0074
Re: Case No. IPC-E-11-01
IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY
FOR A DETERMINATION REGARDING A FIRM ENERGY SALES
AGREEMENT WITH WESTERN DESERT ENERGY, LLC FOR THE SALE
AND PURCHASE OF ELECTRIC ENERGY
Dear Ms. Jewell:
Enclosed for filing please find an original and seven (7) copies of Idaho Power
Company's Reply Comments in the above matter.
~ø~
Donovan E. Walker
DEW:csb
Enclosares
1221 W. Idaho St. (83702)
P.O. Box 70
Boise, ID 83707
DONOVAN E. WALKER (ISB No. 5921)
JASON B. WILLIAMS
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: [phone]
dwalkercæidahoRower.com
jwilliamscæidahoRower.com
RECEIVED
iOll APR 14 PM~: 53
Attorneys for Idaho Power Company.
Street Address for EXRress Mail:
1221 West Idaho Street
Boise, Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA TIER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR ) CASE NO. IPC-E-11-01
A DETERMINATION REGARDING A FIRM )
ENERGY SALES AGREEMENT WITH ) IDAHO POWER COMPANY'S
WESTERN DESERT ENERGY, LLC FOR ) REPLY COMMENTS
THE SALE AND PURCHASE OF ELECTRIC )ENERGY. )
)
)
Idaho Power Company ("Idaho Powet'), in response to Order No. 32203, the
Comments of the Idaho Public Utilities Commission ("Commission") Staff, and the
Comments of Western Desert Energy, LLC ("Western Desert" or "Project") hereby
submits the following Reply Comments:
I. INTRODUCTION
On February 2,2011, Idaho Power filed with the Commission an Application for a
determination regarding the Firm Energy Sales Agreement ("Agreement") between
Idaho Power and Western Desert. On March 10, 2011, the Commission issued Notice
IDAHO POWER COMPANY'S REPLY COMMENTS - 1
of that Application and Notice of Modified Procedure, Order No. 32203, setting forth a
comment deadline of April 7, 2011, and a reply comment deadline of March 14, 2011.
Commission Staff filed Comments on April 7, 2011, recommending that the
Commission not approve the Agreement between Idaho Power and the Project because
Staff does not consider the Agreement 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 Facilities ("QF") from 1 0
average megawatts ("aMW") to 1 00 kilowatts ("kW"). On April 7, 2011, the Project
submitted comments advocating approval of the Agreements.
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 Project's PURPA power
purchase agreement, and contextual information regarding the review of the Project's
power purchase agreement 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
Generatian Interconnection Agreement ("GIA") process, which are two separate and
required processes that must be completed in order to sell generation to Idaho Power.
IDAHO POWER COMPANY'S REPLY COMMENTS - 2
The potential project is advised that to begin the official 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.
B. Generator Interconnection and Transmission Availabilty.
Any generator desiring to connect to Idaho Powets system must arrange for
appropriate interconnection and transmission services. 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 Powets 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
IDAHO POWER COMPANY'S REPLY COMMENTS - 3
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 ("DATI"), 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 proæss. Failure by the potential
generation project to make these decisions or make the deposit payments in a timely
manner can lead to delays or termination of the interconnection process pursuant to
Idaho Powets Tariff Schedule 72 and OATI.
c. PURPA Power Purchase Agreements.
Once a potential generation project has submitted written information on its
proposed project that demonstrates the project is eligible for a PURPA PPA 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 developer 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 PPA
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
IDAHO POWER COMPANY'S REPLY COMMENTS - 4
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 terms and conditions of a proposed project's PPA are 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 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 ten 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, enabling 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 ten 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 copies of the agreement, signed and executed by the
project, Idaho Power then schedules a time with the appropriate Idaho Power executive
IDAHO POWER COMPANY'S REPLY COMMENTS - 5
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.
Upon execution of the agreement by both parties, the executed agreement is
forwarded to Idaho Powets legal department for preparation of an application and filing
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. WESTERN DESERT'S POWER PURCHASE AGREEMENT PROCESS
Idaho Power records indicate initial contacts between Idaho Power, Power
Supply, and the developer of the Project began in late August/September of 2010.
Idaho Power records also indicate that initial contact between the Project and Idaho
Power, Delivery, began in March of 2010. Currently, the Project is working towards its
GIA with Idaho Power Delivery. On March 9, 2010, the Project's interconnection
application was received. On March 29, 2010, a Feasibilty Study Agreement was
offered to the Project. On June 24, 2010, a draft Feasibilty Study Report was issued,
and on August 9, 2010, a Facility Study Agreement was offered to the Project. The
Facilty Study is completed, with a draft report issued to the Project on January 24,
2011.
On September 28, 2010, the Project was sent a PPA, an Interconnection and
Transmission Process letter, as well as a Transmission Capacity Application
Questionnaire, and a draft Network Resource Integration Agreement. On October 12,
IDAHO POWER COMPANY'S REPLY COMMENTS - 6
2010, the Company sent a follow-up communication to the Project to verify receipt of
the documents sent to it on September 28.
On October 22, 2010, the Company received communication from the Project
stating that the Project was working through the Transmission Capacity Questionnaire
and had some questions. Idaho Power responded to the questions that same day,
October 22, 2010. On November 9, 2010, Idaho Power sent a communication to the
Project addressing the Project's inquiry to potentially add an additional 3 megawatts
("MW") to its 5 MW project. The Company explained that the total size of the project
was needed for the Transmission Capacity Questionnaire, so that the proper request for
any available transmission capacity could be made to Idaho Power Delivery, and if it
was not included, that a separate request for the additional MW would have to be made.
The Transmission Capacity Questionnaire was delivered to Idaho Power by the Project
on December 13, 2010. Idaho Power, Power Supply, submitted the Transmission
Service Request to Idaho Power Delivery the same day it received the information from
the Project, December 13,2010.
On January 3, 2011, Idaho Power sent the Project a letter notifying it that
transmission capacity was available and also sent the Project a draft PPA for review
and comment. On January 4,2011, the Company received the draft PPA back from the
Project. On January 6, 2011, the Company initiated its internal review process,
including the SOX review. On January 19, 2011, the Company notified the Project that
the final execution copy agreement was ready to be picked up or mailed to it for
signatures. The Project responded on January 19, 2011, that it would pick up the
agreement the following morning. The Project signed the agreement on January 22,
2011. On January 24, 2011, Idaho Power received the signed contract back from the
IDAHO POWER COMPANY'S REPLY COMMENTS - 7
Project. Idaho Power signed the agreement on January 28, 2011, and filed the same
for the Commission's review on February 2, 2011.
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 Project's PURPA contract for review with the Commission
specifically seeking the Commission's acceptance or rejection of the Agreement. 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 PPA. 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 is 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 MW, 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
IDAHO POWER COMPANY'S REPLY COMMENTS - 8
with this Commission, as is its legal obligation. The Company executed these contracts
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 Project's Agreement, 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 reliabilty, 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 Commission-mandated 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 - 9
The Commission, in its role as the regulatory authority for all investor-owned,
public utilties 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
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 tte
public interest") ("Sierra-Mobile doctrine'). The Commission may interfere in such a
way with the contracts of a public utilty only to prevent an adverse affect to the public
interest. Agricultural Products, 98 Idaho at 29. "Private contracts with utilities 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 the published avoided cost rate 10 aMW PURPA
contract with the Project as required by the then current applicable law, rules, and
regulations. Idaho Power wil continue to meet its legal and regulatory requirements
and obligations with regard to the Commission's implementation of PURPA. However,
IDAHO POWER COMPANY'S REPLY COMMENTS - 10
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.
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 Project's contract as to whether it is in the public interest and
issue its Order either accepting or rejecting the same.
Respectfully submitted this 14th day of April 2011.
ý;tt~
OVAN E. WALKER
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S REPLY COMMENTS - 11
CERTIFICATE OF MAILING
I HEREBY CERTIFY that on the 14th day of April 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 Sasser
Deputy Attorney General
Idaho Public Utilties Commission
472 West Washington
P.O. Box 83720
Boise, Idaho 83720-0074
Western Desert Energy, LLC
Sandy Sanderson
Western Desert Energy, LLC
1770 West State Street #317
Boise, Idaho 83702
Peter J. Richardson
Gregory M. Adams
RICHARDSON & O'LEARY, PLLC
515 North 2th Street
P.O. Box 7218
Boise, Idaho 83702
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FAX
-l Email Kris.SassercæRuc.idaho.gov
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-l Email sandysCWgreenenergywest.com
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re richardsonandolea .com
z uJ cL
Donovan E. Walker
IDAHO POWER COMPANY'S REPLY COMMENTS - 12