20130222Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER REDFORD
COMMISSIONER SMITH
COMMISSION SECRETARY
COMMISSION STAFF

FROM: DON HOWELL
DEPUTY ATTORNEY GENERAL

DATE: FEBRUARY 4, 2013

SUBJECT: SWAGER FARMS AND DOUBLE B DAIRY’S MOTION TO DISMISS IDAHO
POWER’S COMPLAINTS AND PETITIONS FOR DECLARATORY ORDERS
FOR LACK OF SUBJECT MATTER JURISDICTION, CASE NOS. IPC-E-12-25
AND IPC-E-12-26

On November 9 and 21, 2012, Idaho Power Company filed two separate “Complaints and
Petitions for Declaratory Order” regarding two Power Purchase Agreements (PPAs) between itself and
New Energy Two and New Energy Three, respectively. In the 12-25 case, Idaho Power alleges that
New Energy Two’s proposed anaerobic digester at Swager Farms failed to meet its scheduled
commercial operation date of October 1, 2012. In the 12-26 case, Idaho Power alleges that New
Energy Three’s proposed anaerobic digester at the Double B Dairy did not meet its scheduled
operation date of December 1, 2012. Idaho Power asserted in both complaints that the qualifying
facilities (QFs) have “failed to take the necessary steps required to bring the facilit[ies] online and
operational by the dates required in [their power purchase agreements (PPAs)] including, . . . failing to
take steps required to secure the interconnection of [their] proposed facilit[ies] to Idaho Power’s
system.” Complaints at 3.
On December 4, 2012, the Commission issued a Notice of the Complaints and Petitions and
ordered the two complaints be consolidated into a single proceeding. Order No. 32692. The
Commission also directed the Commission Secretary to serve copies of the complaints on the
respondents. The Commission ordered that the respondents file their answer no later than December
27, 2012.
DECISION MEMORANDUM 2
BACKGROUND
A. Interconnection
The background for these cases is taken primarily from the two complaints and is
summarized below. In October 2009, New Energy Two and New Energy Three (collectively “New
Energy”) initiated discussions with Idaho Power to begin the interconnection process for two anaerobic
digester projects to be located at Swager Farms and Double B Dairy.1 Under PURPA, QFs are
obligated to pay the costs of constructing the necessary interconnection facilities (or transmission
upgrades) between the QF project and the purchasing utility’s system. 18 C.F.R. § 292.308.2 Initially
each biogas project was projected to provide 1.2 MW of power to the utility.
In October 2009, New Energy submitted a small generator interconnection request to Idaho
Power for each project. Both QF projects executed interconnection Facility Study Agreements with
Idaho Power in late October 2009. Order No. 32692 at 2. Idaho Power subsequently prepared and
submitted separate Study Reports for each project to New Energy.
In May 2010, Idaho Power and New Energy entered into two separate PPAs for each of the
biogas projects. The PPAs contained avoided cost rates which were in effect prior to the issuance of
Order No. 31025 (March 16, 2010), and contained 15-year operating terms. The scheduled
commercial operation date (COD) for Swager Farms was October 1, 2012, and the COD for Double B
was December 1, 2012. On July 1, 2010, the Commission approved the Swager Farms and the Double
B Dairy PPAs in Order Nos. 32026 and 32027, respectively.
About the time Idaho Power submitted the PPAs for approval, Idaho Power and New
Energy continued their discussions regarding interconnection. In January 2011, New Energy requested
that the interconnection capacity for each of its projects be increased from 1.2 MW to 2.0 MW. The
parties subsequently executed new Facility Study Agreements and Idaho Power then prepared a new
Facility Study Report for each project. Drafts of the two Study Reports were provided to New Energy.
In late April 2011, Idaho Power issued its final Facility Study Reports estimating that constructing the
transmission interconnection for Swager Farms’ 2 MW interconnection would cost approximately
1 Double B subsequently authorized New Energy Three to act on its behalf in negotiating with Idaho Power.
2 Typically the interconnection process has three primary steps. First, a QF submits a small generator interconnection (GI)
request to the utility and the parties execute an Interconnection Facilities Study Agreement. Second, once the Study
Agreement is executed, the utility prepares a GI “Study Report” outlining the necessary construction for interconnection.
Finally, if the interconnection Study Report (including proposed routing, estimated costs, and a construction schedule) is
acceptable to the QF, then the parties execute a “Generator Interconnection Agreement” (GIA) and the QF pays the utility
so the utility can begin construction of the interconnection facilities.
DECISION MEMORANDUM 3
$1.71 million.3 Idaho Power’s final Facility Study Report for Double B’s 2.0 MW capacity estimated
interconnection would cost approximately $376,000. In May 2011, New Energy advised Idaho Power
that Exergy Development would be assisting New Energy with its two QF projects. Order No. 32692
at 3. The parties then had protracted discussions and communications leading up to Idaho Power
preparing the draft “Generation Interconnection Agreements” (GIAs) for each QF.
On May 9, 2012, Idaho Power asserts that it sent a draft GIA to New Energy/Exergy for the
Double B project and advised it that failure to submit all of the requested items and the executed GIA
“will cause the Generator Interconnection request to have been deemed withdrawn.” Double B
Complaint at ¶ 49. On June 19, 2012, Idaho Power sent Double B a final GIA to be executed and
returned to Idaho Power no later than July 20, or “your Generation Interconnection Application will be
deemed withdrawn.” Id. at ¶ 53. Idaho Power insists that the GIA was not returned and that Idaho
Power subsequently issued a deficiency notice that the GIA has been deemed withdrawn and that the
project has been removed from Idaho Power’s interconnection queue. On August 28, 2012, Idaho
Power refunded Exergy’s interconnection deposit for the Double B project. Id. at ¶ 54-55.
On March 22, 2012, Idaho Power asserts it sent the draft GIA to Swager Farms. Swager
Farms at ¶ 58. In April 2012, Exergy asked that Idaho Power “revisit” the interconnection at a lower
capacity of 0.8 MW. Id. at ¶59. The parties executed a “Re-Study” Feasibility Study Agreement
which estimated a cost of $225,000. Id. at ¶61. On September 14, 2012, Idaho Power states that it sent
the final GIA to Swager Farms at the lower .8 MW interconnection. Id. at ¶ 66. Swager Farms at ¶ 66.
The cover letter for the Swager Farms GIA noted that Idaho Power “must have the executed GIA and
funding no later than October 1, 2012, in order to complete construction by [December 31, 2012].” Id.
(emphasis added). Idaho Power alleges that Swager Farms did not execute the GIA.
A. Force Majeure
On September 28, 2012, Swager Farms and Double B provided a joint “Notice of Force
Majeure” to Idaho Power. In accordance with Section 14 of their respective PPAs, the QF projects
notified the utility that they could not perform under their respective Agreements because of “the
occurrence of a Force Majeure event.” Swager Complaint at Tab 56; Double B Complaint at Tab 36.
More specifically, the QFs allege that the Commission’s generic PURPA investigation (GNR-E-11-03)
caused the force majeure event. More specifically, they insist that the Commission’s investigation
3 The final Study Report also noted that interconnection costs for the smaller 1.2 MW interconnection would cost
approximately $575,000.
DECISION MEMORANDUM 4
regarding the ownership of renewable energy credits (RECs) and the issue of “curtailment” caused
lenders to be “unwilling to lend in Idaho pending the outcome of these proceedings.” Id. Thus, with
“no financing available, . . . it [is] impossible for [the QFs] to perform [their] obligation” under the
PPAs. Id. at ¶ 4.4
THE COMPLAINTS AND PETITIONS
In its November 2012 Complaints and Petitions, Idaho Power requested that the
Commission make several findings or take specific actions. In particular, the utility requested that the
Commission find and declare:
1. That the Commission has jurisdiction “over the interpretation and enforcement
of the [PPAs] and the GIA[s]”;

2. That Exergy’s “claim of force majeure does not . . . excuse [the QFs] failure to
meet the amended Scheduled Operation Date for the [PPAs]”;

3. That New Energy/Exergy have failed to place Swager Farms and Double B in
service by their respective scheduled commercial operation dates of October 1,
2012, and December 1, 2012;

4. That Idaho Power may terminate the PPAs if Swager Farms and Double B failed
to cure their defaults under their respective PPAs by December 30, 2012, and
March 1, 2013;

5. That under the terms of the PPAs Idaho Power is entitled to an award of
liquidated damages; and

6. Award any further relief to which Idaho Power is entitled.

Swager Farms Complaint at 37; Double B Complaint at 27-28.
NEW ENERGY’S MOTION TO DISMISS
On December 27, 2012, New Energy filed a timely “Motion to Dismiss for Lack of Subject
Matter Jurisdiction.” New Energy makes two primary arguments. First, based upon the opinions of
the Idaho Supreme Court, New Energy maintains that the Commission does not possess the necessary
jurisdiction to interpret and/or enforce contracts. See Motion at 6 quoting Lemhi Tel. Co. v. Mountain
States Tel. & Tel. Co., 98 Idaho 692, 571 P.2d 753 (1977).

4 The Notice also stated that if Idaho Power disputes this matter, the QF “reserves the right to submit the same to the Idaho
Public Utilities Commission and/or pursue any resolution to which in may be entitled before the appropriate Idaho District
Court, FERC and/or any other applicable tribunal or governing body.” Swager Complaint Tab 56 citing PPA § 19.1.
DECISION MEMORANDUM 5
Second, New Energy/Exergy argues neither it nor the underlying PPAs confer jurisdiction
on the Commission. As evident in its Motion to Dismiss, New Energy asserts it has not consented to
Commission jurisdiction. Motion at 11. New Energy’s Motion to Dismiss is contained in your case
notebook.
IDAHO POWER RESPONSE
On January 10, 2013, Idaho Power filed a response to the Motion to Dismiss. The utility
argues that the Commission does have jurisdiction over this matter for two reasons. First, relying upon
McNeal v. Idaho PUC, 142 Idaho 685, 132 P.3d 442 (2006), Idaho Power argues there are instances in
which the Commission does have jurisdiction authority to interpret contracts. Response at 3.
Second, Idaho Power maintains that two provisions of the PPAs provide the Commission
with jurisdiction over disputes arising from the PPAs. Response at 5. In particular, Idaho Power notes
that paragraph 19.1 of the PPA provides that “All disputes related to or arising under this Agreement,
including, but limited to, the interpretation of the terms and conditions of this Agreement, will be
submitted to the Commission for resolution.” Idaho Power also maintains that PURPA grants the
Commission “jurisdiction over the implementation of PURPA.” Id. at 7. Idaho Power’s response is
contained in your case notebook.
NEW ENERGY REPLY
On January 16, 2013, New Energy filed a reply to Idaho Power’s response. New Energy
takes issue with the points raised by Idaho Power. The reply is also contained in your case notebook.
COMMISSION DECISION
Based upon your review of the Motion to Dismiss, Idaho Power’s response, and New
Energy’s reply, what is your decision regarding New Energy’s Motion to Dismiss?

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