20120202Reply Comments.pdf

RICHAD A. CUMNGS, ISB #1815
DAVID W. LLOYD, ISB #5501
CUMGS LAW OFFICES
412 East Parkcenter Boulevard, Suite 325
P.O. Box 1545
Boise, Idaho 83701
Telephone: [phone]
Facsimile: [phone]
Emai: rcummin~s(Ucummin~slawidaho.com
dlloyd(âcummin~slawidaho.com
Attorneys for High Mesa Energy, LLC
RECEIVED
2012 FEB -2 PM~: 52
BEFORE THE IDAHO PUBUC UTILITIES COMMISSION
IN THE MATTER OF THE
APPLICATION OF IDAHO POWER
COMPAN FOR A DETERMINATION
REGARDING ITS FIRM ENERGY SALES
AGREEMENT WITH IDGH MESA
ENERGY, LLC.
) Case No.: IPC-E-1l-26
)
) REPLY COMMENTS OF HIGH MESA
) ENERGY, LLC, TO COMMISSION
) STAFF COMMENTS
)
)
)
COMES NOW, High Mesa Energy, LLC, by and through its attorney of record, Richard
A. Cummings, and offers its Reply Comments to the Comments of the Commission Sta.
INTRODUCTION
Idaho Power Company ("Idaho Power") and High Mesa Energy, LLC ("High Mesa
Energy"), entered into a 20-year Firm Energy Sales Ageement ("Ageement") on November 16,
2011. Idaho Power fiOO an Application with the Commission on November 22, 2011, requesting
approval of the Agreement.
The Agreement was arrived at through arms-length negotiation between Idaho Power
and High Mesa Energy based on Idaho Power's practices and the parties' current understanding
of the Commission's directives. The Staf has recommended a rejection of the Agreement based
on what would be signifcant policy, methodology, and input factor changes for the avoided cost
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calculations. Since the changes suggested by Staf in justifying its recommendation to reject the
Ageement are so fundamental and far-reaching, we assume the Commission stil considers it
more appropriate to address these issues in the pending Case No. GNR-E-ll-03.1
CCCT V. SCCT AS BASIS FOR COMPUTING CAPACITY VALUE
The only proposed change in methodology that Staf quantied was the use of the
Combined Cycle Combustion Turbine ("CCCT") in Idaho Power's IRP model rather than the
Single Cycle Combustion Turbine ("SCCT") proposed by Staf. Staf concludes that this would
drop the levelized price from $56.43 to $53.47 per MWh.2 While a different conclusion may be
reached in Case No. GNR-E-ll-03, at the time the Ageement was negotiated, signed, and fied
for approval, the parties relied on the Commission's Order in Case No. IPC-E-95-9 adopting
what is now referred to as the IRP methodology and the Commission's consistent approval of
using CCCT capital costs in applying the methodology.
In approving the rates for both the Interconnect Solar and Rockland Wind agreements,
the Commission recognzed that it is stil appropriate for Idaho Power to use the CCCT for
avoided capital cost in calculating IRP base rates.3 A change of this fudamental input in the
IRP modelig for High Mesa Energy would run counter to the Commission's long-standing
practice for calculation of avoided cost rates for PURPA projects.
NO CAPACITY VALUE IS CAPTURED IN AURORA ENERGY PRICES
The Staff Comments express their belief that there is some capacity value included in the
prices forecast by the AURORA modeL. This is wrong. In the energy dispatch mode, which
lIn rejecting intervention by Grandview PV Solar in the Interconnect Solar case
(IPC-E-ll-IO), the Commission held "it is through Case No. GNR-E-ll-03 that the
Commission intends to address the larger issues surounding the avoided cost calculations
and methodologies." IPUC Order No. 32350, p. 2.
2Staff Comments at p. 6.
3In approving the Rockland contract, the Commssion noted that application of this
methodology "(is) consistent with the Commission requirement for projects larger than 10
MW." IPUC Order No. 32123, p. 1.
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Idaho Power's Application states that it used, it is only forecasting the margial or incremental
costs that Idaho Power would incur. This forecast has nothing to do with the cost a supplier of
the energy would incur.
Staf is unable to quantify the component of the price that may represent capacity value
because that would be derived from the supplier's cost in providin~ the energy and not Idaho
Power's margial cost to acque the energy. The supplier's costs are not uniorm and wi vary
with a variety of factors, including its efficiency, how much unused capåcity it has at the time
the energy is being provided, and the cost for its variable inputs.
Whie the Staf is not advocating a specifc adjustment for this factor, High Mesa Energy
disagrees that". . . an alternative position to the assumptions made by Idaho Power exists."4
FAIURE TO RECOGNIE NEED FOR NEW CAPACITY
Although Staff criticized Idaho Power's calculation as failg to recognize whether and
when Idaho Power actually has a need for new capacity, they also acknowledged, "In the case
of wid projects, however, because they provide minimal capacity anyway, the faiure to
recognize need for new capacity and rate computations has a relatively minor effect."
USE OF 2009 IRP ASSUMTIONS VERSUS 2011 IRP ASSUMIONS
The Staf acknowledges that at the time the modeling was done by Idaho Power, the
Ageement was siged, and the Application was fied, the 2011 IRP had not yet been approved.
It appears that Staf is not recommending the Agreement be rejected because the 2009 IRP
assumptions were used, but rather suggesting the 2011 IRP should be used if there were other
reasons to justif rejection.
WEIGHTED COST OF CAPITAL USED IN IDAHO POWER ANALYSIS
Idaho Power used the Weighted Cost of Capital incorporated into the 2009 IRP. Whie
the last general rate case (IPC-E-11-08) used 7.86% as the cost of capital rather than the 7%
4Staf Comments, p. 7.
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rate used in the 2009 IRP, Staff acknowledges the diference in capital cost would only cause
the rate to be "lowered slightly."5
ESCALTION OF PRICES FROM 2030 TO 2032
Although Staf commented on the extrapolation of rates beyond 2029, "Staf does not
object to it.m
OVERAL IMACT OF ALL STAFF PROPOSED ADJUSTMNTS
ON CONTRACT RATES
Staf concludes that the net effect of the changes it proposes would be to decrease the
proposed rate by 5% or approximately $3.00 per MWh. This is the change attributable to using
an SCCT rather than a CCCT to determine capacity cost. As discussed earlier, there is certainy
no consensus that this change is appropriate and is better left for consideration in Case No.
GNR-E-11-03.
Staf had no objection to dividing ownership of the Renewable Energy Credits ("RECs")
between High Mesa Energy for the first ten (10) years and Idaho Power for the last ten (10)
years.
CONCLUSION
Although Staf has recommended rejection of the Agreement, it appears to recogne that
the negotiations between Idaho Power and High Mesa Energy were a good faith attempt to
implement the Commission's objectives:
Staf recognes that the assumptions and analysis technques employed by Idaho
Power in developing the rates in the Ageement may reflect past practice and the
Company's current understanding of the IRP methodology. Furthermore, Sta
recognizes that there is considerable room for negotiation, and that such
flexiilty has been exercised in ths case.7
5Sta Comments, p. 8.
6Staf Comments, p. 8.
7Staf Comments, p. 10.
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High Mesa Energy requests that the Commission consider this Ageement from the same
vantage point as Rockland and Interconnect Solar. It is an agreement, perhaps an imperfect
agreement, but an agreement that nevertheless is "both feasible for the Developer and favorable
to Idaho Power customers"s and therefore should be approved.
DATED This 2nd day of February, 2012.
SOrder No. 32125, p. 6.
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, .
CERTIFICATE OF SERVICE
I HEREBY CERTIFY That on the 2nd day QfFebruary, 2012, a true and correct copy
of the within and foregoing document was served on the parties to this action in the manner set
forth opposite their names:
Commission Sta
Kristine Sasser
Deputy Attorney General
Idaho Public Utilties Commission
472 West Washigton (83702)
P.O. Box 83720
Boise, Idaho 83720-0074
Donovan E. Walker
Jason B. Wilams
Idaho Power Company
1221 West Idaho Street (83702)
P.O. Box 70
Boise, Idaho 83707
High Mesa, LLC
c/o Exelon Wind
4601 Westown Parkway, Suite 300
West Des Moines, Iowa 50266
'7
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