20111215Comments.pdf

KRISTINE A. SASSER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 6618
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 )
TERMINATION OF ITS FIRM ENERGY SALES)
AGREEMENT WITH MAGIC WIND, LLC. )
)
)
CASE NO. IPC-E-1l-20
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. 32395 on November 9,
2011, in Case No. IPC-E-II-20, submits the following comments.
BACKGROUND
On October 25,2011, Idaho Power Company fied an Application with the Commission
requesting termination of its Firm Energy Sales Agreement (Agreement) with Magic Wind, LLC.
Specifically, Idaho Power requests that the Commission approve/acknowledge (1) the
termination of the Agreement, (2) removal of Magic Wind from Idaho Power's interconnection
queue; and (3) the disposition of amounts prepaid by Magic Wind for Idaho Power's
transmission system network upgrades associated with the "cluster group" of generators that was
the subject of Case No. IPC-E-06-21 (the "Cassia Wind" case).
STAFF COMMENTS 1 DECEMBER 15,2011
STAFF ANALYSIS
Contract Termination
On October 11, 2006, Idaho Power and Magic Wind entered into a 20-year Agreement
pursuant to PURPA. Magic Wind's first energy date was scheduled to be July 31, 2007, and its
Scheduled Operation Date was scheduled for December 31, 2007. The Commission approved
the Agreement on December 21,2006. Reference Order No. 30206.
Magic Wind was unable to meet its December 31, 2007, Scheduled Operation Date. In
December 2008, Idaho Power agreed to revise the Scheduled Operation Date to be
September 30, 2010. Pursuant to the terms of the Agreement, the project must be on-line within
ten months of the Scheduled Operation Date to avoid an event of default. Magic Wind failed to
bring the project online.
On August 3, 2011, Idaho Power and Magic Wind entered into a final agreement
("Letter Agreement") allowing Magic Wind to extend its Scheduled Operation Date to
September 30, 2012, so long as Magic Wind posted a delay security in the amount of $45 per
kilowatt of the project's nameplate capacity by no later than September 30,2011. In addition,
the Letter Agreement required that Magic Wind payor otherwise make credit arrangements with
Idaho Power to pay the $500,000 construction deposit for its interconnection (which was past
due from June 30, 2011) no later than September 30,2011. The paries agreed that if Magic
Wind failed to post the delay security or the construction deposit by September 30, 2011, the
Firm Energy Sales Agreement would be terminated without fuher notice. Magic Wind did not
post either the required delay security or the required constrction deposit by September 30,
2011. On October 4, 2011, Idaho Power sent Magic Wind a notice of termination of the Firm
Energy Sales Agreement.
Staff supports Idaho Power's decision to terminate the Agreement. Magic Wind has
failed to meet its initial Scheduled Operation Date, failed to bring the project online within 10
months to avoid an event of default, failed to meet a revised Scheduled Operation Date that was
nearly five years later, and failed to post delay security as required by the August 3, 2011 Letter
Agreement. Staff believes that Idaho Power has been exceptionally accommodating to Magic
Wind to date; nonetheless, Staff agrees with Idaho Power that the time for further
accommodation has ended. There is ample justification for termination of the Agreement.
STAFF COMMENTS 2 DECEMBER 15,2011
Removal of Magic Wind from the Interconnection Queue
At the time Magic Wind's Firm Energy Sales Agreement was submitted to the
Commission for approval, the Cassia Wind case was also pending before the Commission.
Reference IPC-E-06-2L. The Cassia Wind case involved requests from (mostly PURPA)
generators to integrate approximately 200 MW of new wind generation on Idaho Power's 138
kilovolt transmission system in the Twin Falls area (the "Cluster Group"). In June 2006, Idaho
Power completed engineering studies which showed it would cost approximately $60 milion in
network upgrades to interconnect the Cluster Group to Idaho Power's transmission system. The
Cassia Wind case dealt with issues related to the appropriate allocation of network upgrade costs
among individual projects within the Cluster Group and Idaho Power's other customers.
In August 2007, the Commission approved a settlement stipulation ("Stipulation") in the
Cassia Wind case that set forth the methodology that would be used to allocate network upgrade
costs among the individual Cluster Group projects and other Idaho Power customers. Reference
Order No. 30414. As par of the stipulation, Idaho Power estimated through a "redispatch study"
that the total interconnection costs could be reduced from $60 milion to $11 milion if projects
agreed to the potential redispatch of their project's output.
On March 9, 2010, Idaho Power sent a final Facility Study Report to the Cluster Group
members (including Magic Wind). Invoices were sent to each member for their allocable share
of the network upgrades. On April 9, 2010, Magic Wind tendered $562,536 as payment for its
allocable share. Idaho Power states that as of September 30, 2011, $76,569 has been spent on
network upgrades from Magic Wind's $562,536 prepayment of allocated cluster group costs.
Idaho Power seeks Commission acknowledgement and/or approval for Idaho Power to
remove Magic Wind from its transmission interconnection queue. QF generator interconnection
to Idaho Power's electrical system is governed by the Company's Idaho Tariff Schedule 72 on
fie with the Commission. Schedule 72 incorporates, by reference, the Company's applicable
Large Generator or Small Generator Interconnection Procedures posted on the Company's
OASIS website. In addition, QF generators are required to sign a Generator Interconnection
Agreement ("GIA"), a uniform agreement that is contained within Schedule 72, detailng
additional terms and conditions between the Company and generators. The interconnection
procedures, Schedule 72, and the GIA are all very similar to the interconnection procedures
contained in the Company's FERC Open Access Transmission Tariff ("OATT") and
FERC-regulated GIAs that the Company has for non-QF generators. Although QF generators
STAFF COMMENTS 3 DECEMBER 15,2011
are under state jurisdiction and Schedule 72, and non-QF generators are subject to federal
jurisdiction and the OATT, the Company's business practices are designed to treat all similarly
situated generators in a similar maner.
Generators are assigned a spot in the Company's interconnection queue based upon the
date and time of the interconnection request by the generator. A generator's position in the
interconnection queue, Idaho Power states, is maintained unless a generator defaults in the
payment of required fees under the Large or Small Generator Interconnection Procedures,
Schedule 72, and/or the executed GIA. Generators in the queue are responsible for paying
network upgrade charges required by the addition of their generation to the system. When a
generator is removed from the Company's interconnection queue, it potentially frees up available
transmission capacity for use by generators later, or junior, in the queue.
Magic Wind submitted a request to the Company's interconnection queue in May 2005.
As noted earlier, however, Magic Wind failed to timely post either the required delay securty or
the required construction deposit by September 30, 2011 in accordance with the Letter
Agreement. Consequently, Idaho Power maintains that Magic Wind has now forfeited its
position in the interconnection queue.
Staff supports the removal of Magic Wind from the interconnection queue. By failng to
meet both its initial and revised Scheduled Operation Dates, failng to post liquid security, and
failng to make required construction deposits, Magic Wind has demonstrated its inabilty to
move forward in a timely maner. Staff does not believe Magic Wind should be entitled to
maintain a queue position ahead of other projects more capable of performing and meeting
contractual obligations.
Consequences of Removing Magic Wind from the Interconnection Queue
As a result of removing Magic Wind from the interconnection queue and refuding
$485,96i of its prepaid amount for Network Upgrades, that amount must be reallocated to the
other members of the Cluster Group. Idaho Power proposes to reallocate the Network Upgrade
i ($562,536 prepaid - $76,569 already spent = $485,967)
STAFF COMMENTS 4 DECEMBER 15,2011
costs that result from the refud to Magic Wind to the other members of the Cluster Group
proportionately in accordance with the provisions of the Stipulation. This reallocation is
consistent with and contemplated by the Stipulation. Cluster Group members acknowledged that
Network Upgrade costs "wil increase or decrease. . . depending on whether other projects, both
earlier and later in the Idaho Power Queue are constructed." Reference Stipulation at p. 6.
As noted above, interconnection costs associated with the integration of the Cluster
Group onto Idaho Power's electrical system were resolved via Stipulation and approved by the
Commission in Order No. 30414. Consequently, Staff does not believe it is necessary for the
Commission to furher address reallocation of Network Upgrade costs amongst other members of
the Cluster Group.
Disposition of Amounts Prepaid by Magic Wind
The Stipulation and Idaho Power's business processes required each member of the
Cluster Group to prepay their allocable share of the Network Upgrades. Prepaid amounts are
used to make firm commitments with third-par vendors to purchase the equipment necessar
for Network Upgrades as well as firmly commit other engineering and labor resources to
construct the Network Upgrades. Magic Wind's allocated share of the Network Upgrade costs is
$562,536. Idaho Power reports that as of September 30, 2011, $76,569 has been spent on
Network Upgrades for the Magic Wind project.
Idaho Power proposes that the $76,569 that has already been spent on the Cluster Group
Network Upgrades for Magic Wind not be refudable. Staff agrees that money already spent by
Idaho Power specifically for the benefit of Magic Wind should not be refudable. Staff believes
that this amount should be considered a Contribution in Aid of Construction (CIAC), which is
not subject to refud consistent with the Stipulation in Order No. 30414.
Idaho Power does propose, however, to refud to Magic Wind the $485,967 of its
prepayment amount submitted on April 9, 2010 for the Network Upgrades because that amount
has not yet been spent. Staff believes it is fair and reasonable to refud the full amount of
unspent fuds to Magic Wind.
Idaho Power does not propose to refud this amount with interest, however. The
Generator Interconnection Agreement between Idaho Power and Magic Wind states the
following with regard to interest on refuds:
STAFF COMMENTS 5 DECEMBER 15,2011
8) Interest on Refuds: Monthly refund payments on AlAe amounts shall
include interest calculated in accordance with the methodology set forth in FERC
regulations at 18 C.F.R. 35.l9a(a)(2)(ii) from the date of any payment for Network
Upgrades through the date on which Seller receives final repayment. (emphasis
added).
The provisions in 18 C.F.R. 35.l9a(a)(2)(ii) address refud requirements in instaces wherein a
utilty's federal transmission rate schedules, tarffs and service agreements are suspended by
FERC order.
In this instance, Staff does not believe that interest on the refud is justified for two
reasons. First, Staff believes that both Section 8 of the Generator Interconnection Agreement
and 18 C.F.R. 35.l9a(a)(2)(ii) are intended to apply to advances in aid of construction (AIAC),
not to contributions in aid of construction (CIAC). Under the terms of the Stipulation in Case
No. IPC-E-06-21, the Cluster Group members and Idaho Power agreed to cost allocation for
Network Upgrades. For Phase 1 upgrades, Idaho Power would assume 100 percent cost
responsibility. For Phases 2,3,4, and 5, which encompass Magic Wind's required upgrades, cost
responsibilty would be paid as follows:
(i) Twenty-five percent of the costs would be provided by Cluster Group members
as a non-refudable contribution in aid of construction ("CIAC");
(ii) Twenty-five percent of the costs would be fuded by Idaho Power and
included in Idaho Power's rate base; and
(iii) Fift percent of the costs would be fuded by the Cluster Group members as
an advance in aid of construction ("AIAC") and refunded back to the Cluster
Group members over a 10-year period contingent upon the Cluster Group
member's individual power purchase agreements remaining in good standing.
Reference Case No. IPC-E-06-21, Stipulation at pp. 6-8.
Staff believes that 25 percent of the amount prepaid by Magic Wind (approximately $187,512)
would have otherwise been considered CIAC, which is not subject to refud pursuant to the
Stipulation. Second, Staff believes that the refuding provisions in both Section 8 of the
Generator Interconnection Agreement and 18 C.F.R. 35. 19a(a)(2)(ii) are clearly intended to apply
only in instances in which transmission interconnection facilties are actually constructed, placed
into service, and utilzed by the transmission customer for which the facilities were built. Here,
the majority of the refud amount was never spent in the first place, and any AIAC amounts that
would have been spent would have been refuded over a 10-year period as Magic Wind used its
STAFF COMMENTS 6 DECEMBER 15,2011
share of the transmission facilties. Furthermore, Staff does not believe that a project's delay,
default and termination of its power purchase agreement presents reasonable grounds to justify
entitlement to interest on a refud. To require interest to be paid on the refund amount would
unjustly reward Magic Wind even though it failed to perform.
RECOMMENDATIONS
Staff recommends the following:
1) that the Commission approve the termination of the Firm Energy Sales
Agreement approved by the Commission in Order No. 30206,
2) that the Commission acknowledge removal of Magic Wind from the transmission
interconnection queue,
3) that the Commission approve Idaho Power's request to consider the $76,569 spent
on the Cluster Group Network Upgrades as non-refudable to Magic Windi
4) that the Commission approve Idaho Power's request to refud to Magic Wind
$485,967 of its prepayment amount submitted on April 9, 2010 for the Network
Upgrades, and
5) that the Commission not require Idaho Power to pay interest on the $485,967
refud amount.
Respectfully submitted this 5íf4I - day of December 201 1.
~Q,a.~KiSasser
Deputy Attorney General
Technical Staff: Rick Sterling
i:umisc:commentsipcel 1.20ksrps comments
STAFF COMMENTS 7 DECEMBER 15,2011
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 15th DAY OF DECEMBER 2011,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-E-II-20, BY E-MAILING AND MAILING A COPY THEREOF, POSTAGE
PREPAID, TO THE FOLLOWING:
DONOV AN E. WALKER
JASON B. WILLIAMS
IDAHO POWER COMPANY
P.O. BOX 70
BOISE IDAHO 83707
E-MAIL: jwiliams(ßidahopower.com
dwalker(ßidahopower .com
CBearyc?idahopower .com
RANDY C. ALLPHIN
ENERGY CONTRACT ADMINISTRATOR
IDAHO POWER COMPANY
PO BOX 70
BOISE IDAHO 83707
E-MAIL: rallphin(ßidahopower.com
DEAN J MILLER
McDEVITT & MILLER LLP
PO BOX 2564
BOISE ID 83701
E-MAIL: joe(ßmcdevitt-miler.com
heatherêmcdevitt-miler .com
SECRETARY
CERTIFICATE OF SERVICE