20140702Comments.pdf

KRISTINE A. SASSER
DEPUTY ATToRNEY GENERAL fr [C r i',': n
IDAHO PUBLIC UTILITIES COMMISSION
Po Box 83720 20}li JUL -2 pH L: 3tr
BOISE, IDAHO 83720-0074(208)334-03s7 ,,r,1.i?'il#itii,i,,:,r;,,BAR NO. 6618
Street Address for Express Mail:
472W, WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER )
coMPANy'S APPLICATION TO UPDATE ITS ) CASE NO. IPC-E-13-22
WIND INTEGRATION RATES AND CHARGES. )) covrMENTS oF THE) coIvTMISSIoN sTAFF
)
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Kristine A. Sasser, Deputy Attorney General, and in response to the Notice of
Modified Procedure issued in Order No. 33054 on June 11,2014, in Case No. IPC-E-13-22,
submits the following comments.
BACKGROUND
On November 29,2013,ldaho 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.
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
STAFF COMMENTS JULY 2,2014
capacity on its system-577 MW of capacity are provided by Public Utility Regulatory Policies
Act (PURPA) projects and an additional l0l 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, and20l2.
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 ofincreasing 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 ofthose 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 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, making them no longer indifferent to
whether the generation was provided by a PURPA Quali$ing Facility ("QF") or otherwise
generated or acquired by the Company.
The Company discusses three separate methods by which wind integration costs could be
accounted for in avoided cost rates.
l) Maintaining current allocation;
STAFF COMMENTS JULY 2,2014
2) Current allocation with an integration tariff; and
3) Equitable allocation of costs.
The Company's Application 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 tariffcharge.
Procedural History
A Notice of Application was issued on December 3 1 , 2013 , allowing 2 1 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 intervenors' (all qualifying facilities, "QFs") represented by the firm of Richardson
Adams filed a Motion to Dismiss on January 31,2014 (hereafter, "Petitioners"). Petitioners
argued that federal preemption principles should apply that would prohibit the Commission from
considering the Application of Idaho Power. On February 7,2014, pursuant to Rule of Procedure
256.04,the remaining Intervenors2 hled 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; and Meadow Creek Project Company, LLC.
STAFF COMMENTS JULY 2,2014
Order No. 33030
The Commission issued Order No. 33030 on April 30,2014, denying Petitioners' Motion
to Dismiss. The Commission stated that "[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." Order No. 33030 at 7. However, the Commission clarified 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." Id. at8.
The Commission allowed parties fourteen days to withdraw as intervenors if any party
believed that, based on the ruling in Order No. 33030, it no longer had a direct and substantial
interest in the underlying proceeding. Several parties withdrew from the case. An Amended
Notice of Parties was issued on May 20,2014. Thereafter, pursuant to the Commission's
directive, Staff informally discussed a procedural schedule, service of discovery, and other issues
pertinent to the processing of this case with the remaining parties.
STAFF ANALYSIS
Current Wind Integration Charges and Application to Existing Contracts
Idaho Power completed its initial wind integration study and published the study report and
a subsequent addendumin200l ("2007 Study"). The results of the study indicated that at
approximately 500 MW of nameplate wind generation, there was an associated integration cost of
$7.92lmegawatt-hour ("MWh"). The other Idaho investor-owned utilities, Avista and Rocky
Mountain Power, completed wind integration studies at approximately the same time and each
utility filed a petition with the Commission asking to reduce avoided cost rates for wind projects
based on the results. Although the Commission did not combine the three utility petitions into a
single case, all three were processed simultaneously (Commission Case Nos. IPC-E-07-03, AVU-
E-07-02, and PAC-E-07-07). Joint settlement discussions were conducted with all parties in the
three cases. Separate settlement stipulations were adopted in each case establishing a tiered
integration cost structure that increased as nameplate wind generation increased.
Specifically for Idaho Power, the Commission issued Order No. 30488 in February 2008
approving a joint settlement stipulation. The stipulation also established a cap of $6.5044Wh with
the understanding that each of the utilities would update their integration studies in the future as
more wind generation was added. Order No. 30488 states:
STAFF COMMENTS JULY 2,2014
Idaho Power's published avoided-cost rates for Wind QFs will be adjusted to
recognize an assumed cost of integrating the energy generated by Wind QFs
as a part of the Company's generating resource portfolio. The rate
adjustment will be applied in three tiers, increasing as the total amount of
wind integrated onto Idaho Power's system grows. The integration charge
for each Wind QF project will be calculated at the time a Wind QF project
achieves its Operation Date as that term is defined in the Firm Energy Sales
Agreement (FESA) between the Company and the wind QF. The
integration charge will be calculated as a percentage (7Yo,8o/o or 9oh) of the
current Z}-year,levelized, avoided-cost rate, subject to a cap of $6.50/MWh.
The integration charge as calculated on the Operation Date will remain fixed
throughout the term of the contract and will be applied as a decrement to the
applicable published rate according to the table below:
Amount of Wind Online Integration Charge
7% ($6.50lMWh cap)
8% ($6.s0/MWh cap)
9% ($6.50lMWh cap)
Tier I
Tier 2
Tier 3
0 to 300 MW
301 MW to 500 MW
501 MW and above
With 678 MW of wind generation currently online in Idaho Power's service territory, new
PURPA wind projects are subject to integration charges for Tier 3 as listed in the table above. A
nine percent reduction is applied to the avoided cost rates, capped at a maximum of $6.50. The
$6.50 cap generally prevails in the latter years of non-levelized contracts during summer and
winter seasons when avoided cost rates are highest.
Idaho Power's Perceptions of Problems with the Existing Wind Integration Charges
Idaho Power believes that the costs associated with wind integration are currently under
collected. They are assessed on a percentage basis of various avoided cost rates, which the
Company claims results in an inequitable contribution of the various wind QFs to the cost of
integrating wind on the system. Idaho Power contends that the use of the percentage of avoided
cost rates really has no relation to actual costs of the additional reseryes necessary to integrate
variable and intermittent resources on the system. Additionally, 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. This under collection from existing wind QFs,
the Company states, results in an additional allocation to new wind QFs----the incremental
difference required to make the Company's customers whole, and remain indifferent to the
addition of PURPA QF generation that substantially increases the wind integration cost for new
wind projects.
STAFF COMMENTS JULY 2,2074
Although the results of the 2013 Updated Wind Integration Study differ somewhat from
the results of the 2007 Study, the results are similar enough that Staff believes the 2013 Study
corroborates the earlier study. Differences between the results can primarily be attributed to
differences in fuel and market prices, and the addition of the Langley Gulch plant. Based upon the
results of the 2013 Updated Study, Staff believes that the costs currently being assessed for wind
integration no longer represent the actual costs to integrate wind and should be revised.
The current method of computing wind integration costs as a percentage of avoided costs,
and the $6.50 per MWh cap, were outcomes of negotiation and compromise in a settlement
process. The current integration costs and the method under which they are applied was never
expected to be a precise quantification of the costs, but was instead adopted as a reasonable
approximation of costs that are somewhat difficult to determine. Staff agrees with Idaho Power
that actual integration costs will not necessarily vary as a percentage of avoided cost rates.
Consequently, Staff supports establishing wind integration charges at specific dollar figures that
increase with wind penetration level.
Integration costs will invariably change over time as a variety of other changes occur. For
example, integration costs will likely increase as more intermittent resources are added to the
utility's system, as fuel costs increase, and as electric market prices increase. On the other hand,
downward pressure on integration costs will occur as forecasting improves, as shorter real-time
markets develop (e.g., intra-hour trading, 15-minute scheduling, five minute dispatch), as eneTgy
imbalance markets develop, and as new technologies evolve, including energy storage. Not only
is it difficult to accurately determine integration costs now, but it is even more difficult to predict
what those costs may be over the entire duration of a2l-year PURPA contract.
2013 Wind Integration Study Report
In support of its Application requesting the Commission update Idaho Power's wind
integration charge, the Company presents its current Wind Integration Study Report ("2013
Study") as Exhibit No.1 to the testimony of Philip DeVol ("DeVol Testimony"), filed
contemporaneously with the Company's Application. The 2013 Study was also filed with Idaho
Power's 2011 Integrated Resource Plan ("IRP") Update on February 74,2013, in Case No. IPC-E-
11-11.
The 2013 Study analyzedthree different levels of wind penetration: 800 MW; 1,000 MW;
and 1,200 MW. The 2013 Study, which was completed in February 2013, was conducted using
inputs from the 201I IRP. Results of the analysis showed integration costs of $8.0644Wh,
STAFF COMMENTS JULY 2,2014
$13.06/MWh, and $19.01/MWh, respectively, if all wind integration costs were spread equally
across all wind generation. Once the 2013 IRP was completed and filed, the 2013 Study was
updated with 2013 IRP inputs for the load forecast, Mid-C electric market prices, natural gas price
forecast, and the coal price forecast ("Updated 2013 Study"). The results of the Updated 2013
Study are that integration costs went down to $6.83/lt4wh, $10.22lMWh, and$14.22n4wh,
respectively, if all wind integration costs were spread equally across all wind generation. Idaho
Power states that based upon the very conservative assumption that all of the current 678 MW of
wind generation capacity were being assessed the cap of $6.50/MWh (which they are not) and that
they would continue to be assessed just $6.50/MWh in the future, the incremental costs of wind
integration at the three different levels for new wind generators would be $8.67iMWh at 800 MW,
$24.00/MWh at 1,000 MW, and $34.70iMWhat1,200 MW. The Updated 2013 Study results are
summarized in the table below:
Idaho Power's Request to Modify the Wind Integration Charge
In testimony filed with its Application, Idaho Power discusses three separate methods from
which the Commission could choose to implement to account for wind integration costs in
avoided cost rates. Those methods are identified as follows:
1. Maintaining Current Allocation;
2. Current Allocation with Integration Tariff; and
3. Equitable Allocation of Costs.
The Company proposes two overall changes, which have been incorporated into each of the
methods discussed in Mr. Youngblood's testimony, to address the collection of wind integration
costs. First, Idaho Power proposes to abandon the use of percentage of avoided cost rate
allocation and instead allocate a fixed amount based upon penetration level. Second, the Company
proposes to decouple the wind integration charge from the avoided cost rate contained in the
Updated 2013 Study (using 2013IRP inputs)
Penetration Level SOOMW 1,000 Mw 1,200 Mw
Allocated Equally to
all Wind (A4Wh)$6.83 $t0.22 $14.22
Incremental Cost
Allocation (A4Wh)$8.67 $24.00 $34.70
STAFF COMMENTS JULY 2,2014
power sales agreement and instead have wind integration costs assessed as a stand-alone tariff
charge.
Maintaining Current Allocation
Idaho Power's f,rrst proposed method to implement integration charges maintains the
existing structure but only updates the rates and penetration levels. As proposed by the Company,
the three tiers and applicable charges are listed in the table below:
Amount of Wind Online Integration Charge
$8.67lMWh
$24.0O/MWh
s34.7olMwh
Tier 1
Tier 2
Tier 3
800 to 999 MW
1000 MW to I199 MW
1200 MW and above
Note that under this method, the Company proposes that the integration charges be set based on
the assumption that all incremental integration costs be recovered from new wind projects.
Staff supports this proposal because it maintains the use of three tiers and specihes costs
within each tier rather than percentages of avoided cost rates. The primary advantage to this
proposal is that it would provide certainty to wind project developers because integration charges
would remain fixed throughout the duration of the contract.
The primary disadvantage to this approach, however, is that new projects would bear an
increasingly larger share of integration costs because as intermittent energy is added to the utility's
system, without the aid of new technology and/or storage options, the costs to integrate wind
sharply increase. Pursuant to Order No. 33030 existing contracts will not be impacted. However,
Idaho Power's most recent integration study shows that integration costs have increased since its
prior study and these costs could continue to climb. In order to maintain ratepayer neutrality as
required by PURPA, Staff believes that applying updated wind integration charges prospectively
reasonably results in an increasing burden for each wind project because the intermittent energy
produced creates an increasing burden for the utility. Therefore, Staff believes that new projects
should be responsible for the full incremental cost of integration.
Staff does, however, propose one minor change. Staff recommends that Tier I charges be
imposed immediately, beginning at 678 MW, the current wind penetration level, rather than at 800
MW as proposed by the Company. Staff sees no reason to apply the current percentage-based
integration charges to new project capacity between 678 MW and 800 MW, when the 2013
STAFF COMMENTS JULY 2,2014
Updated Study confirms that wind integration charges are not an accurate representation of the
utility's actual costs. Even though the 2013 Updated Study did not compute an integration charge
for penetration levels below 800 MW, nonetheless, Staff believes the charges for the 800 MW
penetration level are close enough to be reasonably applied above the current 678 MW penetration
level.
Current Allocation with Integration Tariff
The second alternative method proposed by Idaho Power-Current Allocation with
Integration Tariff-is a slight modification to the first method discussed above. Under this
method, rather than embedding the integration charges as part of the avoided cost prices in the
contract rates, as is currently done, the Company would implement a new integration charge tariff
which would identi$ the integration charges at the respective levels, separately from the power
sales agreement. Under this method, the current deduction of $6.50/MWh would be used until
total nameplate wind generation reached 700 MW. Once 700 MW is reached, the wind integration
charge would be increased to $6.89/MWh. As shown in the graph below, subsequent increases
would occur as each incremental 100 MW of wind generation is added.
Wind lntegratioil Cost and Proposed Deduction from Avolded Cost *ates
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Namepfatawlnd (Mwl
STAFF COMMENTS JULY 2,2014
The primary benefit, Staff believes, to a tariff-based integration charge is that it would
allow integration charges to be changed over time as the costs of integration change. As discussed
previously, Staffbelieves there are factors that could cause integration charges to either increase
or decrease in the future. At this time, it is nearly impossible to know how those factors will
develop and consequently how integration costs might change in the future. If the Commission
adopts this proposal, Staff would expect that integration charges would be adjusted in the future
based on the results of periodic new wind integration studies, rather than in the exact increments
depicted in the above graph. Staff assumes the figures depicted in the graph are intended to be for
illustrative purposes only.
The primary disadvantage to a tariff-based approach, however, is that it would not be
possible to know with certainty what the charges will be in the future for any specific project.
Historically, QF developers have desired certainty in knowing what the project's revenue stream
will be for the duration of the contract term. Opposition to adjustable avoided cost rates has led to
the current methodology under which there are no adjustable rate components. Making integration
charges subject to change over the course of a long-term contract, while it may more accurately
reflect actual integration charges, presents uncertainty that Staff believes QFs would find
unacceptable.
If, however, the Commission chooses to adopt a tariff-based approach as proposed by
Idaho Power, Staff recommends that QFs be given a choice at the time of contract signature as to
whether they want an integration charge that remains fixed for the entire duration of the contract
or whether they want an integration charge specified by tariff.
Equitable Allocation of Costs
The third method proposed by Idaho Power -Equitable Allocation of Costs-would
spread the integration costs equitably across all PURPA wind generators. In this way, all wind
generators would be sharing equitably in the current costs of integrating wind onto the Company's
system. In addition, this would have the effect of reducing the charge per MWh and not
unreasonably burden new wind generation coming on-line. Under this method all existing wind
generation would be classified as "Type I" and all new wind generation would be classified as
"Type II" under the draft tariff. Both would start at the current deduction of $6.50/NIWh, but Type
I projects, who are already assessed a wind integration charge, would have a net charge of zero. In
a similar manner to the previous method discussed, the corresponding wind integration charge
STAFF COMMENTS 10 JULY 2,2014
escalates with each 100 MW of penetration. Type II projects would pay the full integration
charge, where Type I projects would pay the net difference between the full charge and the
embedded cap of $6.50/MWh. Type II charges are shown in the graph below. Type I charges
would be $6.50 less than that depicted on the graph below.
itz.zz
510.22
8S 900 ,
NameplatcWlnd (MltV|
Staff believes that the Commission's decision in Order No. 33030 would preclude this
method from being adopted. Under this method, existing projects could be subject to increases in
the wind integration charges already included in their contracts. Order No. 33030 clearly states
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." Order No. 33030 at 8.
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lntegration Cost and Proposed Deduction from Ayoided Cost Rates
STAFF COMMENTS JULY 2,2014
RECOMMENDATIONS
Staff recommends the following:
1. That the Commission accept the results from Idaho Power's Updated 2013 Wind
Integration Study and adopt the charges based on the assumption that all incremental
integration costs be recovered from new wind projects as indicated below:
Amount of Wind Online Integration Charee
$8.6744Wh
$24.0044wh
$34.70&rwh
Tier 1
Trer 2
Tier 3
678 to 999 MW
1000 MW to 1199 MW
1200 MW and above
However, Staff recommends that Tier 1 charges be imposed immediately, beginningat6TS
MW, the current wind penetration level, rather than at 800 MW as proposed by the
Company.
2. That the Commission not adopt Idaho Power's proposal for a tariff-based wind integration
charge. However, if the Commission wishes to adopt a wind integration tariff, QFs should
be allowed to voluntarily choose a tariff-based rate or a rate to be specified in the contract
that remains fixed for the life of the agreement.
Respectfully submitted this XP day of July 2014.
Technical Staff: Rick Sterling
Yao Yin
i:umisc:comments/ipce 1 3.22ksrpsyy comments
Deputy Attorney General
STAFF COMMENTS t2 JULY 2,2014
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 2Nd DAY OF JULY 2014, SERVED
THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE NO.
IPC-E-13-22, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
DONOVAN E WALKER MICHAEL J YOUNGBLOOD
REGULATORY DOCKETS GREG SAID
IDAHO POWER COMPANY IDAHO POWER COMPANYPOBOXT0 POBOXTO
BOISE ID 83707-0070 BOISE ID 83707-0070
E-MAIL: [e-mail] E-MAIL: [e-mail]@idahopower.com [e-mail]
DEAN J MILLER zuCK KOEBBE PRESIDENT
MoDEVITT & MILLER LLP IDAHO WINDS LLC
420 W BANNOCK ST 5420 W WICHER RD
BOISE ID 83702 GLENNS FERRY ID 83623
E-MAIL: [e-mail] E-MAIL: [e-mail]
KEN MILLER PETER J RICHARDSON
SNAKE RIVER ALLIANCE zuCHARDSON ADAMS PLLC
PO BOX 1731 515 N 27TH STRBET
BOISE ID 83701 BOISE TD 83702
E-MAIL: [e-mail] E-MAIL: [e-mail]
BENJAMIN G HUANG MGR GREGORY M ADAMS
C/o MOUNTAIN AIR PROJECT zuCHARDSON ADAMS PLLC
6000 N FOXTAIL WAY 515 N 27TH STREET
GLENNS FERRY ID 86623 BOISE ID 83702
E-MAIL: [e-mail] E-MAIL: [e-mail]
PAUL ACKERMAN TERESA A HILL
ASST GENERAL COUNSEL K&L GATES LLP
EXELON BUSINESS SER CORP ONE SW COLUMBIA ST
1OO CONSTELLATION WAY STE 19OO
BALTIMORE MD 21202 PORTLAND OR 97258
E-MAIL: [e-mail]
CERTIFICATE OF SERVICE
DINA M DUBSON
RENEWABLE NW PROJECT
421 sw 6rH AVE srE 1125
PORTLAND OR 97204
E-MAIL: dina@,rnp.org
DEBORAH E NELSON
PRESTON N CARTER
GIVENS PURSLEY LLP
PO BOX2720
BOrSE rD 83701-2720
E-MAIL: [e-mail]
prestoncarter@ givenspursley. com
CERTIFICATE OF SERVICE