20110629Comments.pdf

KRISTINE A. SASSER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 6618
RECEIVED
ZOIl JUN 29 PH 2: 3 l
~(Jl';J
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
IDAHO POWER COMPANY FOR A )
DETERMINATION REGARDING THE FIRM )
ENERGY SALES AGREEMENT WITH CLARK )
CANYON, LLC FOR THE SALE AND )
PURCHASE OF ELECTRIC ENERGY. )
CASE NO. IPC-E-ll-09
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
Attorney of record, Kristine A. Sasser, Deputy Attorney General, and in response to the Notice
of Application and Notice of Modified Procedure issued in Order No. 32252 on June 1,2011, in
Case No. IPC-E-11-09, submits the following comments.
BACKGROUND
On May 24, 2011, Idaho Power Company fied an Application with the Commission
requesting acceptance or rejection of a 20-year Firm Energy Sales Agreement (Agreement)
between Idaho Power and Clark Canyon, LLC (Clark Canyon) dated May 20, 2011. The
Application states that Clark Canyon would sell and Idaho Power would purchase electric energy
generated by the Clark Canyon hydroelectric project (Facilty) located near Dilon, Montana. The
Application states that Clark Canyon proposes to own, operate and maintain a 4.7 MW (maximum
capacity, nameplate) hydroelectric generating facility. Application at 2. The Facility wil be a QF
under the applicable provisions of PURP A. The Agreement is for a term of 20 years and contains
STAFF COMMENTS 1 JUNE 29, 2011
the current non-Ievelized published avoided cost rates established by the Commission in Order
No. 31025 for energy deliveries of less than i 0 average megawatts ("aMW").
Clark Canyon selected November 1,2012, as its Scheduled First Energy Date and March
31, 2013, as its Scheduled Operation Date. Application at 3. Idaho Power asserts that various
requirements have been placed upon the Clark Canyon facility in order for Idaho Power to accept
the Facilty's energy deliveries. Idaho Power states that it wil monitor the Facility's compliance
with initial and ongoing requirements through the term of the Agreement.
The Application maintains that all applicable interconnection charges and monthly
operation or maintenance charges under Schedule 72 wil be assessed to Clark Canyon. Idaho
Power states that the Facilty is curently in the generator interconnection process. "Upon
resolution of any and all upgrades required to acquire transmission capacity for this Facilty's
generation, and upon execution of the FE SA and the GIA, this Facility may then be designated as
a network resource." ¡d. at 4.
Clark Canyon and Idaho Power have agreed to liquidated damage and security provisions
of$45 per kW of nameplate capacity or the sum of three months' estimated revenue. Agreement
~~ 5.3.2, 5.8.1.
Ownership of environmental attributes (i.e., Green Tags, Renewable Energy CreditslRCs)
associated with this Facilty are addressed in a separate agreement. Application at 3.
Idaho Power states that the Facilty has also been made aware of and accepted the
provisions in the Agreement and Idaho Power's approved Schedule 72 regarding non-
compensated curtailment or disconnection of its Facilty should certain operating conditions
develop on Idaho Power's system. The Application notes that the parties' intent and
understanding is that "non-compensated curailment would be exercised when the generation
being provided by the Facilty 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) abilty to manage its thermal, hydro, and other resources in order to meet its obligation to
reliably serve loads on its system." ¡d. at 5.
By its own terms, the Agreement wil not become effective until the Commission has
approved all of the Agreement's terms and conditions and declares that all payments made by
Idaho Power to Clark Canyon for purchases of energy wil be allowed as prudently incurred
expenses for ratemaking puroses. Agreement ~ 21.1.
STAFF COMMENTS 2 JUE 29, 2011
STAFF ANALYSIS
With few exceptions, the rates, terms and conditions contained in the Agreement are
identical to those contained in other recently approved PURP A contracts. Consequently, Staffs
comments will not address the standard rates, terms and conditions, and instead will focus only on
those things that make this Agreement unique.
One unique feature of this Agreement is that ownership of environmental attributes is
determined in a separate agreement between Idaho Power and Clark Canyon. Another unique
feature of this project is that the Facility is not located in Idaho but is seeking a contract containing
Idaho's published avoided cost rates. Both issues are discussed in more detail below.
Environmental Attribute Ownership
As the Commission is aware, there is currently no renewable portfolio standard in Idaho or
requirement that utilities possess environmental attributes. Furthermore, neither the Commission
nor the Idaho State Legislature has issued orders or passed legislation specifying who-the utilty
or the project owner--wns the RECs and is entitled to sell them. Nevertheless, RECs are
produced by PURP A projects in Idaho and they undeniably have value if sold.
The Commission has previously stated, "The utilty and the QFs are free to voluntarily
contract and negotiate the sale and purchase of such green tags should environmental attributes be
perceived by the contracting paries to have value. The price of the same we find, however, is not
a PURPA cost and is not recoverable as such by the Company." Case No. IPC-E-04-16, Order
No. 29577, p. 6. In all prior Idaho Power PURPA contracts in which RECs are produced by a
project, Idaho Power has voluntarily waived any right or claim to ownership of RECs and 100
percent ofthe RECs have been claimed by project owners. In the Clark Canyon contract,
however, the paries have negotiated a 50/50 sharing of RECs.
Idaho Power informed Staff that it initially proposed reservation of rights language for the
contract that would preserve for Idaho Power and its customers the right to RECs in this contract
should the rules, regulations, laws, or legal status as to the ownership of RECs in PURP A
contracts be clarified or changed to abide by such change in law. Ultimately, the paries saw a
mutual value to both the project and to Idaho Power and its customers in clarifying the ownership
of RECs and negotiated the separate agreement whereby the project retains all RECs for the first
ten years of the contract and Idaho Power owns all RECs for the last ten years of the contract.
There is no monetary payment for RECs in the Agreement. The project receives clarification as to
STAFF COMMENTS 3 JUNE 29,2011
ownership and retains RECs for the first ten years to obtain what value it can to help offset project
costs. Furthermore, Idaho Power and its customers receive clarification as to the ownership and
get ownership of all RECs for the last ten years to either obtain what value it can for the RECs,
which flows back to customers, or retire such RECs in order to claim the environment attributes of
the energy on its system or to meet possible future renewable portfolio standards.
Staff recognizes that agreement between the paries regarding REC ownership seems to be
exactly the type of negotiation contemplated by the Commission when it issued Order No. 29577.
Nevertheless, the sharing arangement negotiated in this case is a clear departure from the REC
ownership arrangements Idaho Power has agreed to in prior PURP A contracts. In a separate
PURPA agreement recently fied by Idaho Power (lPC-E-11-10, Interconnect Solar Development
LLC.)\, Idaho Power and the project owner have negotiated an agreement in which REC
ownership is split 50/50 throughout the entire 25-year term of the contract rather than ownership
being split 50/50 between the first and last halves of the contract terms as in this Agreement with
Clark Canyon. Although Staff has no objection to the REC ownership arrangements agreed to
between Clark Canyon and Idaho Power in this case, the variety of ownership arangements
demonstrated in recent Idaho Power contracts may be an indication that consistent ownership rules
or laws need to be established in the future.
The Clark Canyon Facilty is Located in Montana
The Clark Canyon Facility is not located in Idaho but is seeking a contract containing
Idaho's published avoided cost rates. The Facility wil be directly connected to Idahò Power's
Peterson substation which is also located in Montana. A relevant question is whether Clark
Canyon should be entitled to receive Idaho's avoided cost rates under Idaho's rules and
regulations, or whether the project should be subject to Montana's rates and rules because the
point of delivery is in Montana. In general, in order for a facilty located outside Idaho to be
eligible for an Idaho QF contract, the Commission's policy has been that the QF must either
deliver power directly to a substation located within Idaho, or alternatively, that the QF must pay
wheeling charges to have the power delivered to an Idaho substation. Currently, there are six
facilities located outside Idaho that have PURP A contracts with Idaho utilties at Idaho avoided
cost rates, and several others have been proposed.
i An application was fied in Case No. IPC.E-l 1-10 on June 17,201 i.
STAFF COMMENTS 4 JUNE 29, 2011
There are three prior cases which are instructive of the Commission's position on this
matter. In the first case, Earth Power Energy and Minerals, Inc. VS. Idaho Power Company, Case
No. IPC-E-92-29, Earth Power proposed to develop a 9.9 MW geothermal project in Nevada that
would deliver power to Idaho Power's Humboldt substation in Nevada. Earh Power had
requested Idaho avoided cost rates and contended that Idaho Power was obliged to negotiate a
contract with it in accordance with Idaho Commission rules and requirements. At the time of the
complaint, Idaho Power stil served 1200 retail customers in Nevada; consequently, Idaho Power
was subject to the regulatory authority and jurisdiction of both the Idaho Commission and the
Nevada Commission. Idaho Power argued, however, that the Idaho Commission lacked
jurisdiction over this particular contract because both the facilty and the point of interconnection
were located in Nevada. Initially, the Idaho Commission dismissed the complaint and declined to
exercise its jurisdiction because it appeared that the Nevada Commission intended to do so.
Reference Order No. 25174. However, shortly thereafter, the Nevada Commission dismissed the
complaint because it believed that the Idaho Commission was most capable of setting avoided cost
rates for Idaho Power. Subsequently, the Idaho Commission authorized Earth Power, at its
discretion, to file a new complaint. However, no complaint was ever fied, so the matter was
never fully resolved. Nevertheless, what was made clear was that jurisdiction under PURP A is
shared by all state regulatory authorities who exercise "ratemaking authority" over
multijurisdictional utilties. Reference PURP A Section 210.
A second relevant case was Island Power Company, Inc. vs. PacifCorp, Case No.
UPL-E-93-04. Island Power proposed to develop a 4.4 MW hydro project at the Clark Canyon
Dam, coincidentally, a nearly identical facility at the same exact location as is being proposed in
this case. One significant difference, however, was that Island Power proposed to wheel the
power from Montana to Idaho and deliver to either the Goshen or Jefferson substations both
located in Idaho. At the time of the complaint, PacifiCorp was providing retail electric service
both in Montana and Idaho. Island Power alleged that PacifiCorp was refusing to accept delivery
of power in Idaho and was refusing to pay Idaho avoided cost rates. PacifiCorp indicated that it
was willng to purchase the power only if it was wheeled north to a PacifiCorp substation in
Montana, and alleged that the Idaho Commission had no jurisdiction because the project was to be
sited in Montana. In its decision in the case, the Commission, as in the Earth Power case, stated
that jursdiction was shared by all state regulatory authorities who exercise "ratemaking authority"
over the utilty. The Commission noted that although the project was to be sited in Montana, the
STAFF COMMENTS 5 JUNE 29,2011
proposed point of delivery to PacifiCorp was in Idaho. The Commission denied a motion to
dismiss fied by PacifiCorp to the complaint filed by Island Power for failure to negotiate a
contract. Shortly after the Commission issued its decision, an avoided cost case was opened that
resulted in a lowering of avoided cost rates. Island Power's initial complaint then transformed into
a dispute over whether Island Power was entitled to grandfathered rates. The Commission ruled
that PacifiCorp was required to purchase the output of the Clark Canyon project at an Idaho
delivery point, but that Island Power was not entitled to grandfathered rates. Reference Order No.
25245. Island Power, however, never chose to pursue a contract.
A third relevant case was Vaagen Bros. Lumber, Inc. vs. The Washington Water Power
Company, Case No. WWP-E-94-6. In this case, Vaagen Brothers had a 1979 power sales
agreement with Washington Water Power (WWP) that had expired in 1994. Vaagen Brothers was
seeking a new contract with WWP as a PURP A QF pursuant to the Idaho avoided cost
methodology and rates. The facility was located in WWP's service territory in the state of
Washington, with a point of interconnection also in Washington. Vaagen Brothers fied a
complaint with the Idaho Commission seeking to force WWP to enter into a contract. WWP had
retail electric service territory in both the state of Washington and Idaho, just as it does now, and
was therefore under the regulatory jurisdiction of both the Idaho and Washington Commissions.
Under the facts of this case, the Commission found that it had concurent jurisdiction with
Washington, but believed that the Washington avoided cost rates and rules should apply, subject
to the jurisdiction of the Washington Commission. The Commission distinguished this case from
the Earh Power and Island Power cases stating, "Vaagen is an existing facility sited in the
Washington service territory of the utility that it wishes to sell to, the Washington Water Power
Company. The established point of delivery is in the state of Washington." The Commission
further stated that the Washington Commission had established a regulatory framework for
PURPA in Washington, and that although Idaho did have concurrent jurisdiction with the
Washington Commission, "common sense dictates that there are some instances when we should
elect not to exercise our jurisdiction." Subsequent to the Commission's decision, Vaagen Brothers
negotiated a PURP A contract with Idaho Power at Idaho's avoided cost rates; however, Vaagen
Brothers pays a wheeling charge to deliver the power to Idaho Power's system in Idaho.
Clark Canyon is slightly different than the other three cases discussed above. Clark
Canyon is a QF located in the state of Montana with a proposed point of interconnection directly
to Idaho Power's Peterson substation in the state of Montana. There would be no different
STAFF COMMENTS 6 JUE 29, 2011
interconnecting utilty and subsequent wheel of the power in order to reach Idaho Power. A
significant distinguishing feature in this case, however, is that Idaho Power has no retail electric
service territory in the state of Montana; therefore, the Montana Commission has no regulatory
framework for PURPA that is applicable to Idaho Power. NorthWestern Energy owns
transmission lines that are immediately adjacent to the proposed Clark Canyon facilty, and
PacifiCorp jointly owns transmission facilities that are equidistant to Idaho Power's transmission
facilities (approximately 11.5 miles away). Nonetheless, as long as it is wiling to pay the
necessary interconnection costs, there is nothing that prevents Clark Canyon from choosing which
utilty's transmission system it wishes to interconnect.
Under these facts, and pursuant to the direction provided by the previously discussed
Commission Orders above, Staff believes that that the Idaho Commission does, in fact, have sole
jurisdiction in this matter, and that Idaho Power has an obligation to enter into a PURP A contract
under Idaho's rules, regulations and rates.
RECOMMENDATIONS
Staff recommends that the Firm Energy Sales Agreement between Clark Canyon LLC and
Idaho Power be approved as fied. Staff further recommends that the Commission declare that all
payments for purchases of energy under the Agreement be allowed as prudently incured expenses
for ratemaking purposes.
Respectfully submitted this ), q W day of June 2011.
~a~4M-
stine A. Sasser
Deputy Attorney General
Technical Staff: Rick Sterling
i:umisc:comments/ipcel I .9ksrps comments
STAFF COMMENTS 7 JUNE 29, 2011
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 29TH DAY OF JUNE 2011,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-E-II-09, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
DONOV AN E WALKER
LEAD COUNSEL
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: dwalker(iidahopower.com
RANDY C ALLPHIN
ENERGY CONTRACT ADMIN
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: rallphin(iidahopower.com
Jo~
SECRETARY
CERTIFICATE OF SERVICE