20120209Reply Comments.pdf

Williams Bradbury
ATTORNEYS AT LAW RECEIVED
lOl2 FEB -9 AM II: 46
Februar 9, 2012 IDAHO PUBLIC
UTiliTIES COMMISSiON
Ms. Jean Jewell
Commission Secreta
Idaho Public Utilties Commission
472 W. Washington
Boise,ID 83702
Re: IPC-E-11-25
Dear Ms. Jewell:
Please find enclosed an original and seven copies of the Reply Comments of Dynamis
Energy, LLC for fiing in the above referenced case.
Than you for your assistace in this matter. Please feel free to give me a call should
you have any questions.
Sincerely,R~iJ~
Ronald L. Wiliams
RLW/jr
Enclosures
1015 W. Hays Street - Boise, ID 83702
Phone: [phone] - Fax: [phone] - ww.wiamsbradbur.com
Ronald L. Wiliams, ISB No. 3034
Willams Bradbur, P.C.
1015 W. Hays St.
Boise,ID 83702
Telephone: [phone]
Fax: [phone]
ron~willamsbradbury.com
2nl2 FEB -9 AM II: 46
Attorneys for Dynamis Energy, LLC
BEFORE THE IDAHO PUBLIC UTILITES COMMISSION
IN THE MATTER OF THE APPLICA nON OF )
IDAHO POWER COMPANY FOR A )
DETERMINA nON REGARDING ITS FIRM )
ENERGY SALES AGREEMENT WITH )DYNAMIS ENRGY, LLC, )
)
Case No. IPC-E-11-25
REPLY COMMENTS OF
DYNAMIS ENERGY, LLC
COMES NOW, Dynamis Energy, LLC, ("Dynamis") by and through its counsel
of record, Wiliams Bradbur, PC, and fies these Reply Comments in response to
Comments of Commission Staff.
I
INTRODUCTION
Dynamis and Idaho Power Company ("Idaho Power" or the "Company") entered
into a Firm Energy Sales Agreement ("FESA" or "Agreement") on November 16, 2011.
Commission Staff, on Februar 2, 2012, recommended rejection of the Agreement for
reasons primarily related to Staff s belief that the Company should have employed a few
alternative avoided cost methodologies or used different modeling input varables in
calculating Dynamis' avoided cost rates. Staf also notes a computational error that, if
REPLY COMMENTS OF DYNAMIS ENERGY, LLC Page 1
corrected, would result in "an increase of approximately $1 per MWh in each year of the
Agreement." 1
Staff recommends rejection of the Agreement because of this computational error
(that would increase FESA rates) and for five other IRP methodology driven points,
sumarized as follows: (1) that there is an inherent capacity value captued in AURORA
energy prices, (2) that the IRP methodology fails to recognize the time new capacity may
be needed by the Company, (3) that Idaho Power should have used 2011 IRP
assumptions, not 2009 assumptions, (4) that the Company should have used a more
curent weighted cost of capital, and (5) the prices for the last five years of the FESA
were extrapolated, not AURORA calculated.
While each point will be discussed in more detail below, Staff acknowledges that
points 1, 2 and 5, would not necessarily result in a different avoided cost rate for
Dynamis. In fact, Staff admits as to being "uncertain of how to quantify the (potential
rate-change) amount," 2 or whether different modeling assumptions "would produce
different results.,,3 For points 3 and 4, Staff admits that such methodology changes would
have a "relatively minor,,4 impact on avoided costs, or that such change would "lowerr)
slightly" Dynamis' avoided cost rate.
Dynamis, unlike Staff or the Company, does not have AURORA and is unable to
calculate the upward rate adjustment related to the calculation error, nor the "minor" or
"slight" downward adjustments related to Staffs recommendations 3 and 4. There is a
possibilty, if not a likelihood, that all thee rate adjustments, taen together, would result
i Staff Comments, p. 5.2 In reference to whether there is a capacity value captued by AURORA. Staff Comments, p. 6.
3 2009 versus 2011 IRP Assumptions; Staff Comments, p. 7.
4 Failure to recognize Need for New Capacity until
2015, Staff Comments, p 6.
REPLY COMMENTS OF DYNAMIS ENERGY, LLC Page 2
in an avoided cost rate increase for Dynamis. Dynamis is not interested in a rate increase
however, and explicitly waives any right or claim to its full avoided cost, if that is the
potential outcome adjusting for this model input variable. In good faith, after almost a
year of negotiations with Idaho Power, Dynamis signed the FE SA, is bound by it, and
intends to honor that contractual commitment, even if, in hindsight, it might have "done
better." Dynamis would prefer to move forward with this FE SA, and get on with
building its project.
II
CONTRACT NEGOTIATIONS FOR PROJECTS GREATER THAN 10 MW
Dynamis and Idaho Power spent the better par of 2010 in good faith, but
techncal, negotiations on the FESA. As a larger, 22 MW high load factor PURPA
project, many operating attributes and "value adders" were discussed, some of which
found their way into the Agreement. Other concepts, such as Dynamis' offer to make the
plant dispatchable by Idaho Power, did not. Idaho Power was always willng to discuss
how unique Dynamis project characteristics could be of benefit to the Company, and its
ratepayers. Idaho Power was also constantly reminding Dynamis of its obligation 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 the QF contracts." 5 Idaho
Power also notified Dynamis, during negotiations, that the Company's position on
ownership of Renewable Energy Credits ("RECs"). had changed, and after some
challenging sessions, the paries agreed to share equally in REC ownership over the life
of the FESA. Idaho Power also informed Dynamis that it would prefer not to accept
delivery of energy during light load hours. Dynamis was able to re-configue its project
5 Order No. 32104, Case No. IPC-E-I0-22, In the Matter of. . . Yellowstone Power, Inc.
REPLY COMMENTS OF DYNAMIS ENERGY, LLC Page 3
operations to accommodate this request, which also happened to result in a higher price
per kWH avoided cost rate.6
Dynamis understands and appreciates that Staff s review of FESAs is an
important public interest "check" on any utilty's execution of such agreements.
However, that check should be primarly focused on whether the "deal" (i.e., the price
paid) is fair to the ratepayer, and that ratepayers are protected if the deal comes apar.
There comes a point where Staffs after-the-fact review of each of the details of the ars-
length negotiation between a utilty and a QF puts Staff in control of such negotiations,
without Staff having actually "been there" to appreciate how diffcult negotiations can, at
times, be. To Dynamis, and likely to other developers, Staffs point-by-point suggestions
that Idaho Power could have done ''this'' or should have considered "that" - when such
changes, in total, appear to have little material impact on the avoided cost rate - has a
chillng effect on any futue arms-length negotiations of large QF projects. Such a
belated critique of the negotiating process, not necessarily the end result, also
signficantly dilutes this Commission's directive to the utilties that contracts for larger
projects are to be "negotiated" - provided that the utility also exercises its fiduciar role
as a "gatekeeper" to insure that such contract prices do not exceed avoided costs.
The IRP methodology for determining avoided cost rates for larger PURP A
projects was established in a 1995-96 case.7 In that case, it was Staffs recommendation
that the Commission no longer decide and dictate modeling assumptions and input
variables to be used by each utility in calculating IRP based avoided costs. Instead, Staff
6 In order to get the higher $/MWh rate Dynamis had to agree to sell less kWhs annually (e.g., no light load
hours generation), which resulted in lower overall project revenues than otherwise could have been
achieved in a 24 X 7 operation.7 IPUC Case No. IPC-E-95-9.
REPLY COMMNTS OF DYNAMIS ENERGY, LLC Page 4
recommended that: "With implementation of the IRP methodology, the Companies will
be responsible for determining those varables. As long as the values and assumptions fall
within a reasonable range, utilties are free to choose values most appropriate for their
own situation."g (emphasis added) The Commission adopted this Staff recommendation
in its order approving the IRP methodology for calculating avoided cost rates for larger
PURPA projects.9 The Commission should continue to apply this "reasonable range" test,
in determining if negotiated IRP QF rates are fair to utility ratepayers.
The first Idaho Power approved FESA using IRP calculated rates was the
Rockland Wind contract where the Commission said: "The value of each factor was not
individually quantified. Neverteless, the rates included in the Agreement, Staff notes,
were the result of mutual negotiations." 10 The Commission, in Rockland, also ". . .
commend(ed) the paries for negotiating an Agreement that we (the Commission) find
sets forth a creative solution to resource issues that have heretofore often resulted only in
impasse and the fiing of complaints."
11 More recently, the Commission in the
Interconnect Solar contract approval case12 rejected a very similar set of Staff IRP
methodology proposed changes, instead instructing Idaho Power to continue to "negotiate
these agreements with an awareness of its actual avoided cost." 13
Whle the FESA in this case may not be perfect, it represents the product of
"mutual negotiations" that resulted in an Agreement "both feasible for the developer and
favorable to Idaho Power customers.,,14 The Dynamis FE SA submitted for approval
8 Exhibit 101, Case No. IPC-E-95-9, R. Sterling DI, Page 15 of24 (emphasis added).
9 Order No. 26576.
io Order No. 32125, p. 6. In the Matter of. . . Rockland Wind Project LLe.
HId. at p. 10
12 Case No. IPC-E-ll-I0
I3 Order No. 32384, p. 10. In the Matter of. . . Interconnect Solar Development, LLe.
14 Rockland, at p. 10.
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"contains acceptable contract provisions. . . that are just and reasonable,,15 and are within
a "reasonable range."
III
RESPONSE TO STAFF SPECIFIC POINTS
a. Rates: Staff notes that the rates in the FE SA are above the "Stadard"
QF rates, primarily for the reasons that: (i) the Dynamis project will only deliver energy
during heavy load hours (except Sundays and holidays), and (ii) the Dynamis facility has
a very high capacity factor, with "generation (that) will not be intermittent." 16 Staff also
notes that the rates calculated by Idaho Power might have been different, had Idaho
Power adopted all of Staff s recommended changes from its comments in the
Interconnect Solar case, instead of just "some of Staffs recommendations." 17 (emphasis
added) Staff suggests that the Interconnect Solar Order directs Idaho Power to adopt all
of Staff s IRP recommended changes in that case, "while negotiating futue power
purchase agreements.,,18
The fudamental point missed by Staff, in making ths recommendation, is that
"negotiations" between Idaho Power and Dynamis had finished before the Interconnect
Solar Order was published by the Commission and the paries had come to a meeting of
the minds as to all material terms and conditions of the Dynamis FESA. In fact, Dynamis
advised Idaho Power in writing on October 19, 2011, prior to the Interconnect Solar
15 !d.
16 Staff Comments, p. 3.
17 As discussed above, this very statement implies that Staff believes it is in control of all the elements of
large project contract negotiations, not the paries, for the reason that all of Staff s comments in a previous
case should have been adopted by the utility, even though they were rejected by the Commission in
Interconnect Solar.
18 Staff Comments, p. 5.
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Order, that Dynamis was "ready, wiling and able to execute this PPA19 at your (Idaho
Power's) earliest convenience," and that the draft PPA presented to Dynamis "is ready to
be finalized and executed. ,,20
Under PURP A, Dynamis had established its right to a legally enforceable
obligation21 with Idaho Power, prior to issuance of Order No. 3238422. Thus, regardless
of the question of whether Idaho Power should have adopted all, or just some of Staff s
recommendations made in Interconnect Solar, the fact that the Interconnect Solar Order
was published after Idaho Power and Dynamis had finished contract negotiations and
reached a meeting of the minds makes this Staff point moot.
b. Idaho Power Error in Computations
Dynamis appreciates Staff discovering that Idaho Power's application of the IRP
methodology understated the value of Dynamis capacity, by failng to calculate capacity
values derived from 2013 capital expenditures, not 2011 costs. As mentioned above,
Dynamis waives any claim to this adjustment and would prefer to see the FESA approved
by the Commission in a timely maner, rather than correcting for this error. To the extent
that Idaho Power's ratepayers benefit from this concession, Dynamis believe it is all the
more reason for the Commission to approve the FESA.
19 Empire Lumber v. Washington Water Power, 114 Idaho 191, 193, 755 P.2d 129, 1231 (1988) (holding
that a utilty is not required to enter into a PPA until the seller is "ready, wiling and able to sign a
contract."); see also, A. W. Brown Co. Inc. v. Idaho Power Co., 121 Idaho 812, 828 P.2d 841 (1992)
20 Email confirationfromDynamis'
attorney to Idaho Power, October 19,2011, at 4:04 PM.21 18 C.F.R. § 292.304(d)(2). See also 18 C.F.R. § 292.304(b)(5); 18 C.F.R. § 292.304(e)(2)(iii). See, e.g.,
Small Power Production and Cogeneration Facilities; Regulations Implementing Section 2/0 of the Public
Utility Regulatory Policies Act of I978, Order No. 69, FERC Statutes and Regulations, Regulations
Preambles 2001-2005'r 30,128, at 30,880 (1980) (subsequent history omitted).
22 Id, Interconnect Sola~
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c. Amount of Capacity Value Captured in AURORA Energy Prices
Staff suggests that there may be a capacity value contained within the AURORA
energy price, implying therefore that Dynamis may be paid too much for capacity.23 Staff
offers no evidence to support this assertion however, and admits Staff "is uncertain of
how to quantify this (capacity) amount. ,,24
When Idaho Power rus AURORA to determine QF energy rates, the Company is
ruing AURORA in an energy dispatch mode and not in a capacity expansion mode.
Runing in this (energy dispatch) mode, AURORA explicitly ignores capacity values. It
also ignores carbon costs, taes or other offsets that would potentially increase the energy
avoided cost value. This is in contrast to when AURORA rus for IRP planning puroses,
where "The potential cost of carbon emissions is accounted for in the IRP (AURORA
modeling) by applying a carbon adder or tax.,,25
As the Commission said in Order No. 32350 "It is through Case No GNR-E-11-
03 that the Commission intends to address the larger issues surrounding avoided cost
calculations and methodologies." 26 As in the Interconnect Solar docket, Dynamis urges
the Commission not to tu ths contract approval case into one that delves into the
complex question of whether AURORA does, or does not, contain a capacity component.
Staff admits that "nearly all of the specific issues that have been raised regarding the
Dynamis Agreement will be addressed more fully in a generic context in Case No. GNR-
E-11-03.,,27 This question belongs in that case, not this contract approval case.
23 Staff Comments, p. 6.
24 Id.
25 DRAFT Idaho Power 2011 IRP, p. 94.
26 P. 6, Interconnect Solar Order, denying the intervention of Grand View Solar.
27 Staff Comments, P. 8.
REPLY COMMENTS OF DYNAMIS ENERGY, LLC Page 8
d. Failure to Recognize Need for New Capacity Value.
Paying, or not paying, for capacity before capacity is needed, has been a topic
debated for the last 30 plus years of PURP A implementation in Idaho. In Case No. IPC-
E-93-28 (establishing the methodology for IRP calculated rates) the Commission
specifically required capacity payments to be made over the life of a contract, noting that:
"(capacity) levelization more accurately reflects the way in which costs are recovered for
utility-owned projects." 28 This issue was again reviewed in 2002 in Case No. GNR-E-
02-01 with Staff outlining nine reasons why a utility's short term surlus should not be a
reason to defer long term capacity payments in PURP A contracts.29 If the specter of
deferring the inclusion of avoided capacity costs in avoided cost rates to match utility
plant additions is to again rise, it should do so in GNR-E-11-03 and not this contract
approval case.
Staff also correctly notes that Idaho Power's 2009 IRP showed a slight capacity
deficit in 2013, extended to 2015 in the 2011 IRP. The scheduled First Energy Date for
the Dynamis project is October 15, 2013 and the Scheduled Operation Date is Februar
15, 2014. Consequently, Dynamis believes that even if this recommendation was
adopted, it would have negligible, if any, impact on Dynamis' FESA prices.
e. Use of 2009 IRP Assumptions vs. 2011 IRP Assumptions.
Staff suggests that with a 2011 draft IRP in circulation, input varables from that
IRP, instead of the 2009 IRP, should have been used to calculate Dynamis' rate, because
they "would produce different (rate) results.,,30 However, at the time the Dynamis FE SA
28 IPUC Order No. 25884, p 8 of 11.
29 See Order No. 29124 at p. 5 - 9.
30 Staff Comments, p. 7.
REPLY COMMENTS OF DYNAMIS ENERGY, LLC Page 9
was signed (November 16, 2011), the 2011 IRP was stil in draft form. It was not
"accepted" by the Commission until December 30, 2011.
As pointed out above, at the 1995 launch of the IRP methodology for calculating
rates for larger PURP A projects, Staff recommended "... that updates to resource
portfolio data, such as plant capital costs, operation and maintenance costs, heat rates,
generation capability, plant factors, economic life, etc. not be allowed except during
biennial IRP submissions. ,,31 Staff s recommendation in this case, to use draft 2011 IRP
inputs, instead of 2009 inputs, is contrar to Staffs more reasoned recommendation in
the 1995 case establishing the IRP methodology for calculating avoided cost rates. In
Interconnect Solar the Commission sanctioned the use of the 2009 IRP input varables
and rejected a premature shift to the 2011 IRP varables, as recommended by Staff.
Likewise, the Commission should refrain from ordering the Dynamis FESA to be
renegotiated using 2011 input variables.
f. Weighted Cost of Capital Used in Idaho Power Analysis.
As noted above, this recommendation by Staff is a sub-set of the 2009 versus
2011 IRP recommendation addressed above, and should be rejected for the reasons stated
above. Furthermore, it is unfair for Staff to specifically "cherr pick" a single variable
from the 2011 IRP - such as a new weighted cost of capital - and seek to apply it to the
calculation of the Dynamis FESA, for the reason that this adjustment would "slightly
lower" Dynamis' contract rate.
g. Idaho Power and Customer Safeguards
Staff notes some public comments expressing concern about the reliability of the
power producing technology to be employed by Dynamis at the facility. Others public
31 R. Sterling, DI, Page 18; IPUC Case No. IPC-E-95-9.
REPLY COMMNTS OF DYNAMIS ENERGY, LLC Page 10
comments, expressing confidence from qualified experts as to the reliability of the
facility and the process, are also worthy of note.
In response to the concerns expressed about the Dynamis technology, Staff
reviews and does a good job of explaining the various provisions of the FESA that
protect Idaho Power and its ratepayers from Dynamis' failure to perform. First and
foremost, as noted by Staff; if Dynamis does not generate energy, it does not get paid.
Dynamis would also like to point out that if it underpedorms by more than 10% on its
hourly energy obligations in a ten hour period, it takes a price reduction of 15%, until the
hourly performance criteria are again met. 32 Dynamis is unaware of any other Idaho
PURP A contract that has such hourly performance obligations, and penalties for failure
to perform.
III
CONCLUSION
Although Staffs recommendation is to reject the Dynamis FESA, Staff also
acknowledges the Commission's recent support and reinforcement of existing IRP
methodology calculated avoided cost rates, and the value derived from the ars-length
negotiating process for larger PURP A projects. Staff also "recognizes that there is
considerable room for negotiation, and that such flexibilty has been exercised in this
case." 33
Dynamis is left with two obvious conclusions. First, had Staff been doing the
negotiating instead of, or alone with Idaho Power, there might have been a different
result. That result is unown, however. This also raises an importt policy
32 FESA, ir 6.3.
33 Staff Comments, p. 12.
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consideration: how much is Staff to inject itself into the negotiating process, after the
fact? Staff s position in this case appears to be that "the next" negotiation by the utility
should de facto include all of the recommendations Staff made on "the last" negotiated
PP A, instead of just "some" of the recommendations made in a prior case.34 The
consequences of not doing so (i.e., not incorporating all of Staffs prior input
adjustments) appear to justify a recommendation by Staff for FE SA rejection in the
follow-up case. Dynamis believes that the better role for staff is to review each FESA
according to the stadard originally ariculated by Staff, such that: "As long as the values
and assumptions fall within a reasonable range, utilities are free to choose values most
appropriate for their own situation.,,35
Dynamis' second conclusion is that even if Staffs recommendations are fuly
implemented, they would not result in an avoided cost rate reduction for Dynamis. More
likely, they would result in a rate increase. Dynamis appreciates Staff s honesty in
discovering the capacity calculation error. If however, on this one point, Dynamis can
accept a rate that is less than the full avoided cost, in order to move the process along, it
is "ready, willng and able" to do so, and to get about the business of building its project.
34 At page 5 of Staff comments: "With regard to computation methods and assumptions in this case, Idaho
Power has adopted some ofStafls recommendations made in the Interconnect Solar case, but has rejected
others. Staff continues to believe that certin other assumptions and computational methods are
appropriate."35 Exhibit 101, Case No. IPC-E-95-9, R. Sterling DI, Page 15 of24 (emphasis added).
REPLY COMMNTS OF DYNAMIS ENERGY, LLC Page 12
For the reasons stated above, Dynamis requests that the Commission approve the
FESA entered into between Dynamis and Idaho Power.
'th
DATED this q day of Febru, 2012.
,
f(~ LlJ~-
Ronald L. Wiliams
Wiliams Bradbur P.C.
Attorneys for Dynamis Energy, LLC
REPLY COMMENTS OF DYNAMIS ENERGY, LLC Page 13
CERTIFICATE OF SERVICE
\,
I hereby certify that on this qi day of Februar, 2012, a true and correct copy of
the foregoing was served by the method indicated below, and addressed to the following:
Donovan E. Walker D US Mail
Lead Counsel D Facsimile
Idaho Power Company D Hand Delivery
PO Box 70 D Overnight Mail
Boise,ID 83707-0070 ~E-Mail Address
E-Mail: dwalker~idahopower.com
Randy C. Allphin D US Mail
Energy Contract Admin.D Facsimile
Idaho Power Company D Hand Delivery
POBox 70 D Overnight Mail
Boise,ID 83707-0070 ~E-Mail Address
E-Mail: rallphin~idahopower.com
Kristine A. Sasser D US Mail
Deputy Attorney General D Facsimile
Idaho Public Utilties Commission D Hand Delivery
PO Box 83720 D Overnght Mail
Boise, ID 83720-0074 ~E-Mail Address
E-Mail: kris.sasser~puc.idaho.gov
Wade Thomas D US Mail
V P and General Counsel D Facsimile
Dynamis Energy D Hand Delivery
776 E. Riverside Dr, Suite 150 D Overnght Mail
Eagle ID, 83616 ~E-Mail Address
wthomas~dynamisenergy.com
j(rMllJ~
Ronald L. Wiliams
REPLY COMMENTS OF DYNAMIS ENERGY, LLC Page 14