20110608final_order_no_32258.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-11-Ol
DETERMINATION REGARDING A FIRM )
ENERGY SALES AGREEMENT BETWEEN )
IDAHO POWER AND WESTERN DESERT )ORDER NO.32258
ENERGY,LLC )
On February 2,2011,Idaho Power Company filed an Application requesting
acceptance or rejection of a 20-year Firm Energy Sales Agreement (Agreement)between Idaho
Power and Western Desert Energy,LLC.The project (Facility,Project)is located near Oreana,
Idaho.The Project is 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 Application be processed by Modified Procedure.
On March 10,2011,the Commission issued a Notice of Application and Notice of
Modified Procedure setting an April 7,2011,comment deadline and an April 14,2011,deadline
for reply comments.Comments were filed by the Commission Staff,the Company and Western
Desert Energy.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 PacifiCoq,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 bythe utility itself.”18 C.F.R.§292.lOl(b)(6).OrderNo.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
[to]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.
ORDER NO.32258 1
However,the Commission has the discretion to set the published avoided cost rate at a higher
capacity amount —commonly referred to as the ‘e1igibility cap.18 C.F.R.§292.304(c)(l -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
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-lO-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 AGREEMENT
On January 28,2011,Idaho Power and Western Desert Energy entered into an
Agreement wherein Western Desert Energy proposes to design,construct,install,own,operate,
and maintain a 5 MW (maximum capacity)wind generating Facility.Under the terms of the
Agreement,the Facility agrees to sell electric energy to Idaho Power for a 20-year term using the
current non-levelized published avoided cost rates as currently established by the Commission in
Order No.31025.Application at 4.Under normal and/or average conditions,the Facility will
ORDER NO.32258 2
not exceed 10 aMW on a monthly basis.Idaho Power warrants that the Agreement comports
with the terms and conditions of the various Commission Orders applicable to PURPA
agreements for wind resources.Order Nos.30415,30488,30738 and 31025.
The Facility has selected September 1,2012,as its Scheduled First Energy Date and
December 1,2012,as its Scheduled Operation Date.Applications at 5.Idaho Power asserts that
various requirements have been placed upon the Facility in order for Idaho Power to accept the
Facility’s energy deliveries.Idaho Power states that it will monitor the Facility’s compliance
with initial and ongoing requirements through the term of the Agreement.Idaho Power asserts
that the Facility has been advised that delays in the interconnection or transmission process do
not constitute excusable delays and if the Facility fails to achieve its Scheduled Operation Date
delay damages will be assessed.Id.at 6.The parties have agreed to liquidated damage and
security provisions of $45 per kW of nameplate capacity.Agreement,¶5.3.2,5.8.1.
By its own terms,the Agreement 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 Facility for purchases of energy will be allowed as prudently incurred expenses for
ratemaking purposes.Agreement ¶21.1.
THE COMMENTS
A.Staff Comments
Staff calculated that the Facility is expected to generate 12,930 MWh annually.
Under the non-levelized rates in the Agreement,the annual energy payments by Idaho Power for
the expected generation will be approximately $0.8 million in 2013 increasing to approximately
$1.5 million in 2031,or a cumulative total of $23.3 million over the 20-year term of the
Agreement.The net present value of the energy payments over the life of the Agreement will be
approximately $8.7 million.
The Agreement was signed by the Project developer on January 22,2011,and signed
by Idaho Power on January 28,2011.The Agreement was filed with the Commission on
February 2,2011.The Agreement contains 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
ORDER NO.32258 3
enforceable contract nor establish the effective date of the Agreement.Consequently,Staff
considers the effective date for this Agreement to be January 28,2011.
Because the Agreement was executed after the date upon which the 100 kW
eligibility cap became effective for wind and solar projects and because the size of the proposed
wind project clearly exceeds 100 kW,Staff maintains that approval of the Agreement is
prohibited by Order No.32176.Staff believes that the avoided cost rate for this Agreement must
be negotiated using the IRP methodology.Consequently,Staff recommended denial of the
Agreement as submitted.
B.The Project’s Comments
Western Desert Energy asserts that it began requesting a power purchase agreement
from Idaho Power in August 2010.Comments at 2.Idaho Power provided a letter of
understanding on September 28,2010.Western Desert Energy executed Idaho Power’s letter of
understanding on November 9,2010.Around mid-December 2010,the Project learned of the
Joint Petition filed by the utilities requesting that the Commission reduce the eligibility cap for
published avoided cost rates.“Nobody from Idaho Power had informed the Project of this filing
during communications throughout the fall.”Id.at 9.On January 3,2011,Idaho Power
provided a draft Firm Energy Sales Agreement (FESA)“for the very first time since Western
Desert Energy had first contacted it almost a year previously.”Id.at 9.Western Desert Energy
signed the Agreement on January 22,2011.Idaho Power signed the Agreement on January 28,
2011.
Western Desert argues that its failure to fully execute an Agreement prior to the
implementation of the Commission’s reduced eligibility cap for published rates “is not
necessarily fatal to the PURPA developer’s right to the grandfathered published rates.”Id.at 6.
The Project asserts entitlement to published avoided cost rates “because it attempted to entitle
itself to a long-term contract before December 14,2010.”Id.at 10.The Project asserts that,
except for Idaho Power’s routine processing,an Agreement was materially complete.Id.at 6.
Western Desert Energy also claims that,although it was unable to execute an agreement prior to
December 14,2010,it should not be precluded from obtaining published avoided cost rates
because Idaho Power did not make the Project aware of the proceeding that it initiated with the
Commission to reduce the eligibility cap for published rates.Id.at 10.The Project argues that
equities weigh in favor of approval of the contract.Id.at 11.
ORDER NO.32258 4
C Idaho Power Reply
Idaho Power stated that it executed the Agreement diligently and in good faith and
will honor it if approved by the Commission.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 Commission-mandated IRP planning process and creates system reliability
and operational issues,but it also increases the price its customers must pay for their energy
needs above the Company’s actual avoided costs.”Id.at 9.
Idaho Power’s reply comments explained its internal processing of PURPA power
purchase agreements.’Idaho Power states that,once the proposed draft PPA is in final draft
form,an internal 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.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.
Id.at 5.“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.at 6.
Idaho Power states that contact with Western Desert Energy and Idaho Power’s
Delivery unit began in March 2010.Idaho Power asserts that the Project was sent a PPA,an
Interconnection and Transmission Process letter,a Transmission Capacity Application
Questionnaire,and a draft Network Resource Integration Agreement on September 28,2010.Id.
The Project delivered the Transmission Capacity Questionnaire to Idaho Power on December 13,
2010.Idaho Power states that,on January 3,2011,the Company sent the Project a draft PPA for
review and comment.On January 6,2011,the Company initiated its internal SOX review.The
Project was notified by Idaho Power on January 19,2011,that a final executable Agreement was
ready to be picked up.The Project signed the Agreement on January 22,2011.Idaho Power
‘The Firm Energy Sales Agreements are also known as Power Purchase Agreements,or “PPAs.”
ORDER NO.32258 5
received the signed contract back from the Project on January 24 and,after review,signed the
Agreement on January 28,2011.
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 10 (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 Application,the
Firm Energy Sales Agreement,and the comments of Commission Staff,Idaho Power,and
Western Desert Energy.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
review is appropriate and necessary prior to signing an Agreement that obligates ratepayers to
payments in excess of $23 million over the 20-year term of this Agreement.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 this case is whether the Agreement —which
utilizes the published avoided cost rate —was 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 [FERC]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 780-78 1,917 P.2d at 623-624,
citing West Penn Power Co.,71 FERC ¶61,153(1995).We find that the Agreement was not
ORDER NO.32258 6
fully executed (signed by both parties)prior to December 14,2010.More specifically,the 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.”Agreement 1.10.The opening paragraph is dated “this
28th day of January 2011.”Agreement at 1.It is not disputed that the Project signed the
Agreement on January 22,and Idaho Power signed on January 28,2011.Id.at 29.Thus,on the
date the Agreement 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
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 Project also argues that “[w]hen the published rates change,or become otherwise
unavailable to a QF before the QF can obtain a contract,the QF is entitled to grandfathered rates
if it can ‘demonstrate that but for the actions of [the utility,the QF]was otherwise entitled to a
power purchase contract.”Comments at 4.However,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.Because published avoided cost rates remain unchanged
ORDER NO.32258 7
and only the eligibility size has changed,grandfathering criteria applied to changes are not
applicable here.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 Agreement between Idaho Power and Western Desert Energy
was executed on January 28,2011.The Agreement recites that the Project will have a maximum
capacity amount of 5 MW.Because the size of the wind project exceeds 100 kW,it is not
eligible to receive a published rate contract.Simply put,the rates contained in the Agreement do
not comply with Order No.32176.Therefore,we disapprove the Firm Energy Sales Agreement.
ORDER
IT IS HEREBY ORDERED that the January 28,2011,Firm Energy Sales Agreement
between Idaho Power and Western Desert Energy is 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 §61-626.
ORDER NO.32258 8
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of June 2011.
PAUL KJELLAIiR,PRESIDENT
\L 7J
MACK A.REDFORD,COMMISSIONER
t4 7dLL
MARSHA H.SMITH,COMMISSIONER
ATTEST:
Jeh D.Jeweli!
Commission Secretary
O:IPC-E-1 1-Olks3
ORDER NO.32258 9