20140430order_no_33030.pdf

Office of the Secretary
Service Date
April 30,2014
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER )
COMPANY’S APPLICATION TO UPDATE )CASE NO.IPC-E.-13-22
ITS WIND INTEGRATION RATES AND )
CHARGES.)
)ORDER NO.33030
________________________________________________________________________________________
)
On November 29,2013,Idaho Power Company filed an Application with the
Commission seeking to update its wind integration rates and charges.The Company’s
Application includes a 2013 Wind Integration Study Report as well as the supporting testimony
of Philip DeVol and Michael J.Youngblood.
A Notice of Application was issued on December 31,2013,allowing 21 days for
intervention.Idaho Winds,LLC;Snake River Alliance;Cold Springs Windfarm,LLC;Desert
Meadow Windfarm,LLC;Hammett Hill Windfarm,LLC;Mainline Windfarm,LLC;Ryegrass
Windfarm,LLC;Two Ponds Windfarm,LLC;Renewable Northwest Project;America Wind
Energy Association;Cassia Windfarm,LLC;Hot Springs Windfarm,LLC;Bennett Creek
Windfarm,LLC;Cassia Gulch Wind Park,LLC;Tuana Springs Energy,LLC;High Mesa
Energy,LLC;Rockland Wind Farm,LLC;Idaho Wind Partners I,LLC;and Meadow Creek
Project Company,LLC,petitioned for,and were granted,intervention.A Notice of Parties was
issued on January 31,2014.
Twelve intervenors1 (all qualifying facilities,“QFs”)represented by the firm of
Richardson Adams filed a Motion to Dismiss on January 31,2014 (hereafter,“Petitioners”).On
February 7,2014,pursuant to Rule of Procedure 256.04,the remaining Intervenors2 filed
motions in response to the Motion to Dismiss.Idaho Power filed an answer to the Motion to
Dismiss and additional motions on February 21,2014.The Petitioners filed a reply to Idaho
Power’s answer on February 28,2014.
Cold Springs Windfarm,LLC;Desert Meadow Windfarm,LLC;Hammett Hill Windfarm,LLC;Mainline
Windfarm,LLC;Ryegrass Windfarm,LLC;Two Ponds Windfarm,LLC;Cassia Wind Farm,LLC;Hot Springs
Windfarm,LLC;Bennett Creek Windfarm,LLC;Cassia Gulch Wind Park,LLC;Tuana Springs Energy,LLC;and
High Mesa Energy,LLC.
2 American Wind Energy Association;Idaho Wind Partners I,LLC;Idaho Winds,LLC;Renewable Northwest
Project;Rockland Wind Farms,LLC;Snake River Alliance;
ORDER NO.33030
By this Order,we deny Petitioners’Motion to Dismiss.Also,we clarify our intent
regarding the implementation of the underlying wind integration matters.
THE APPLICATION
Idaho Power reports rapid growth in wind generation over the past several years.
Idaho Power maintains that it currently manages a total of 678 megawatts (MW)of wind
generation capacity on its system —577 MW of capacity are provided by Public Utility
Regulatory Policies Act (PURPA)projects and an additional 101 MW of wind generation
capacity is provided by a non-PURPA project (Elkhorn Valley Wind Farm).Idaho Power states
that 505 MW of its total wind generation capacity has been added to the Company’s system
during 2010,2011,and 2012.
Idaho Power’s Application maintains that,due to the variable and intermittent nature
of wind generation,the Company must modify its system operations to successfully integrate
wind projects without impacting system reliability.Idaho Power explains that it must provide
operating reserves from resources that are capable of increasing or decreasing dispatchable
generation on short notice to offset changes in non-dispatchable wind generation.The effect of
having to hold operating reserves on dispatchable resources is that the use of those resources is
restricted and they cannot be economically dispatched to their fullest capability.Idaho Power
states that this results in higher power supply costs that are subsequently passed on to customers.
Idaho Power asserts that its capability to integrate wind generation is nearing its limit.
The Company maintains that,even at the current level of wind generation capacity penetration,
dispatchable thermal and hydro generators are not always capable of providing the balancing
reserves necessary to integrate wind generation.Idaho Power states that this situation is
expected to worsen as wind penetration levels increase,particularly during periods of low
customer demand.
The Company states that it considers the cost of integrating wind generation in its
integrated resource planning when evaluating the costs of utility and third-party generation
resources.Idaho Power maintains that the costs associated with wind integration are specific and
unique for each individual electrical system based on the amount of wind being integrated and
the other types of resources that are used to provide the necessary operating reserves.The
Company explains that,in general terms,the cost of integrating wind generation increases as the
amount of nameplate wind generation on the electrical system increases.Idaho Power asserts
ORDER NO.33030
that a failure to calculate and properly allocate wind integration costs to wind generators when
calculating avoided cost rates impermissibly pushes those costs onto customers.
The Company discusses three separate methods by which wind integration costs
could be accounted for in avoided cost rates.
1)Maintaining current allocation;
2)Current allocation with an integration tariff and
3)Equitable allocation of costs.
The Company proposes two overall changes,which have been incorporated into each of the three
methods offered above,to address the collection of wind integration costs.Change one
abandons the use of percentage of avoided cost rate allocation and instead allocates a fixed
amount based upon penetration level.Change two decouples the wind integration charge from
the avoided cost rate contained in the power sales agreement and instead has wind integration
costs assessed as a stand-alone tariff charge.
Idaho Power asserts that the costs associated with wind integration are currently
under-collected.The costs are assessed on a percentage basis of various avoided cost rates,
which results in an inequitable contribution of the various wind QFs to the cost of integrating
wind on the system.
The Company states that the use of the percentage of avoided cost rates really has no
relation to actual costs of the additional reserves necessary to integrate variable and intermittent
resources on the system.Idaho Power further maintains that setting the amount of wind
integration charge for the entire duration of the power sales agreement assures further under-
collection of integration costs as those costs rise.The under-collection from existing wind QFs
results in an additional allocation to new wind QFs.
PROCEDURAL BACKGROUND
A.Petitioners’Motion to Dismiss
Petitioners filed a Motion to Dismiss on January 31,2014.Petitioners claim that
Idaho Power’s Application to update its wind integration rates and charges illegally requests
“that the Commission modify the rates and terms in existing contractual legally enforceable
obligations of qualifying facilities (QFs)without the consent of the QFs.”Motion at 2.
Petitioners assert that unilateral modification of existing contracts is a violation of PURPA and
“the entire administrative process of entertaining Idaho Power’s Application”is preempted by
ORDER NO.33030 3
federal law.Consequently,Petitioners ask that the Commission dismiss the Application in its
entirety.Alternatively,Petitioners request that the Commission “dismiss and strike from the
record the portions of Idaho Power’s Application and testimony that recommend that the
Commission alter the rates and terms in existing contractual legally enforceable obligations.”Id,
B.Intervenors’Filings in Response to Motion
AWEA and RNP
American Wind Energy Association (AWEA)and Renewable Northwest Project
(RNP)support the Motion to Dismiss and request that the Commission direct Staff to schedule a
series of workshops for interested parties to confer with Idaho Power on its wind integration
rates and charges prior to the Company submitting a revised application.AWEA and RNP argue
that “it is not in the public interest to dismiss and strike from the record only those portions of
the Application and testimony identified by Movants as applying to existing contractual legally
enforceable obligations.”Comments at 3.The Intervenors assert that dismissing the entire
Application “would send a strong signal regarding the sanctity of contracts and the importance of
fostering a business climate that is conducive to new investments while also respecting existing
investments.”Id.at 4.
The Intervenors agree with Petitioners that Method 3 within Idaho Power’s
Application is a violation of law.However,the Intervenors go on to maintain that Methods 1
and 2 are also inconsistent with PURPA because they would impose revenue shortfalls related to
existing QFs on future wind QFs.Id.at 6.
Snake River Alliance
“The Alliance does not question that the current wind integration rates and charges
need to be reexamined in light of,among other things,the increased volume of wind on Idaho
Power’s system.However,we support the Movant’s proposed dismissal of the immediate case
to allow parties to explore other options toward resolution —or at least to determine whether the
number of disputed issues can be reduced.”Comments at 2.SRA requests that,should the case
proceed,the Commission consider the benefits of a series of workshops “to enable parties in this
case to gain a better understanding of their respective positions.”Id.at 3.SRA also asks that the
Commission schedule a technical hearing in order for the parties to adequately address all of the
issues.
ORDER NO.33030 4
Idaho Winds
Idaho Winds agrees with Petitioners that,“to the extent the Company’s Application
seeks to modify terms,rates,and prices contained in an existing Firm Energy Sales Agreement.
the Company’s Application is unsupportable as a matter of law and should be dismissed.”
Motion at 2.Idaho Winds argues that this Commission,in Order No.30488,has stated that an
integration charge will be calculated at the time the wind QF achieves operation and “remain
fixed throughout the term of the contract.”See IPC-E-07-03.Consequently,Idaho Winds
maintains that the Company’s Application should be dismissed because the wind integration
charges in existing contracts are not subject to modification.
Meadow CreeklRockland/Idaho Wind Partners
Meadow Creek,Rockland and Idaho Wind Partners join in Petitioners’Motion to
Dismiss as it applies to existing PPAs.To the extent that Idaho Power’s proposed Methods 1
and 2 might apply to existing contracts,these Intervenors request that the Commission clarify
that adoption of either method would only apply to new contracts.Intervenors argue that
modification of existing contracts “would be contrary to the terms of existing FESAs,previous
Commission orders,and PURPA and its implementing regulations.”Response at 4.Intervenors
also reason that “limiting the scope of any action requested in the Application to new contracts
will permit the Application to proceed while avoiding the burden and expense imposed on
existing contract holders associated with this case.”Id.at 2.
C.Idaho Power’s Answer
Idaho Power requests that the Commission deny Petitioners’Motion to Dismiss.
Idaho Power also opposes workshops that would only delay the Commission’s consideration of
the Company’s Application.Idaho Power argues that “whether or not the Commission has
authority to modify the existing contractual obligations of a utility that it regulates does not
preclude the Commission’s consideration of updated wind integration costs and a just and
reasonable allocation of those costs that is consistent with the public interest of the people of the
State of Idaho.”Answer at 10.The Company further maintains that “factual information of the
costs caused by all megawatts of wind that exist on Idaho Power’s system,whether that be from
existing,new,or future development,is relevant information that would be inappropriate to
exclude from the Commission’s consideration and examination of wind integration costs.”Id.
ORDER NO.33030 5
Idaho Power states that Petitioner’s argument and basis for its request for dismissal is
inappropriate and inapplicable.
D.Petitioners’Reply to Idaho Power’s Answer
Petitioners filed a reply to Idaho Power’s answer on February 28,2014,asserting that
PURPA bars Idaho Power’s attempt to change the terms of existing contracts.Petitioners
maintain that Commission re-examination of existing contracts would amount to utility-type
regulation that is prohibited by PURPA.Additionally,Petitioners point to the Commission’s
recent decision granting Idaho Power’s Motion to Dismiss against J.R.Simplot in relation to
acquisition of Company distribution facilities,wherein the Commission reasoned that “a
valuation of the property by the Commission is meaningless if the Company is unwilling to sell
at anything less than its stated price.”Order No.32970.Because the Commission cannot
modify existing PPAs,“engaging in a valuation of the wind integration charge which Idaho
Power proposes to apply to Movants’FESAs would be a meaningless waste of resources.”
Reply at 7.
FINDINGS AND CONCLUSIONS
The Idaho Public Utilities Commission has jurisdiction over Idaho Power Company,
an electric utility,and the issues raised in this matter pursuant to the authority and power granted
it under Title 61 of the Idaho Code and the Public Utility Regulatory Policies Act of 1978
(PURPA).The Commission has authority under PURPA and the implementing regulations of
the Federal Energy Regulatory Commission (FERC)to set avoided costs,to order electric
utilities to enter into fixed-term obligations for the purchase of energy from qualified facilities
(QFs)and to implement FERC rules.
The Commission has thoroughly reviewed the Application,Petitioners’Motion to
Dismiss,the corresponding motions by Intervenors,Idaho Power’s answer and Petitioners’reply.
The procedural posture of this case is straightforward:Idaho Power filed an Application with the
Commission asking the Commission to modify the Company’s wind integration rates and
charges.Idaho Power provided several alternatives for the Commission to consider.In its
Notice of Application,the Commission directed Staff,following the issuance of a Notice of
Parties,to “convene an informal prehearing conference for the purpose of discussing a schedule
to process this case,the service of discovery,and other issues raised by the parties.”Order No.
ORDER NO.33030 6
32961 at 4.Before the parties had an opportunity to meet to discuss the particulars of the case,
Petitioners filed their Motion to Dismiss with the Commission.
While the Commission understands the concerns raised by the Petitioners and other
Intervenors,the basis for Petitioners’arguments in support of their Motion to Dismiss is
misplaced.The bulk of Petitioners’arguments rely on the principles of preemption.“Under the
Supremacy Clause of the United States Constitution,a federal agency acting within the scope of
its congressionally delegated authority has the power to preempt state regulation and render
unenforceable state or local laws”which are inconsistent with federal law.Freehold
Cogeneration Asso,v.Bd.of Regulatory Comm ‘rs of the State of New Jersey,33 F.3d 1178,
1190 (3rd Cir.1995).
Federal preemption has sometimes been explained as two distinct categories.
In one kind,sometimes called ‘occupy the field’preemption,the federal role
is so pervasive that no room is left for the states to supplement it.In the other,
sometimes called ‘conflict’preemption,state law is preempted to the extent
that compliance with both laws is physically impossible,or state law would be
an obstacle to the accomplishment of the full purposes and objectives of
Congress.
Sayles Hydro Asso.v.Maughan,140 P.U.R.4t’461,465,985 F.2d 451,456 (9th Cir.1993).The
cases cited by Petitioners involve disputes in which the regulator had already taken action that
immediately affected contractual rights.In the present case,this Commission has done nothing
more than provide notice of the pending Application and allow interested parties the right to
participate.Moreover,the Petitioners have not provided evidence that the Commission has
threatened or is likely to take action that would affect their contract rights.See North American
Natural Resources v.Strand,252 F.3d 808,814 (2001).A Commission proceeding commenced
to consider a request by a utility to update its wind integration rates and charges does not conflict
with federal statutes.See Reply in Support of Motion to Dismiss at 4.Based on the foregoing,
we find that preemption principles do not apply to prohibit the Commission from considering the
Application of Idaho Power.
Petitioners and Intervenors also generally argue that any modification of their existing
contracts is prohibited by federal and state law,Commission precedent and the terms of the
contracts themselves.Whether and to what extent modification of wind integration charges
should apply to new and/or existing contracts is the basis for the underlying case.Therefore,it
ORDERNO.33030 7
would be inappropriate for us to make a determination in this regard without the benefit of a
fully developed record.
While we decline to make a premature substantive finding on whether it is legally
permissible to modify existing contracts,we find that it is fair,just and reasonable to only apply
changes prospectively.Therefore,we clarify that any Commission approved modifications to
Idaho Power’s wind integration rates and charges will only apply prospectively —to new
contracts as they are entered into by the parties and submitted to the Commission for approval.
This clarification should alleviate the concerns of many intervenors to this case.
In the event that one or more intervenors petitioned for intervention in order to protect
the rights of existing contracts,and in consideration of the clarification provided herein,we find
it appropriate to allow the parties of record an opportunity to withdraw as intervenors.The
parties shall have fourteen (14)days from the service date of this Order to withdraw as
intervenors if they believe that they no longer have a direct and substantial interest in the
underlying proceeding.After the deadline for withdrawal has passed,we direct the Commission
Secretary to issue an amended Notice of Parties and direct Staff to convene without delay an
informal conference with the remaining parties to discuss and propose an expeditious process to
consider this application.
ORDER
IT IS HEREBY ORDERED that Petitioners’Motion to Dismiss is denied.
IT IS FURTHER ORDERED that Intervenors’Motions to partially and/or fully
dismiss this matter are denied.
IT IS FURTHER ORDERED that the outcome of the underlying proceeding in Case
No.IPC-E-13-22 only be applied prospectively —to new contracts as they are entered into by the
parties and submitted to the Commission for approval.
IT IS FURTHER ORDERED that the parties be provided fourteen (14)days from the
service date of this Order to withdraw from Case No.IPC-E-13-22 if they find that they no
longer have a direct or substantial interest in the proceeding.
IT IS FURTHER ORDERED that the Commission Secretary issue a Notice of Parties
after the deadline for withdrawal has passed.
ORDER NO.33030 8
IT IS FURTHER ORDERED that,following the issuance of the amended Notice of
Parties,Staff convene an informal prehearing conference with the remaining parties to discuss
the processing of this case.
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this 9
day of April 2014.
/Jfr-
PUL KJELLA1ER,PRESIDENT
MARSHA H.SMITH,COMMISSIONER
ATTEST:
f)
.:
••
Jean D.Jewell (
i3mmission Secretary
O:IPCE I 3-22_ks2
MACK :OMMISSIONER
ORDER NO.33030 9