20171013final_order_no_33904.pdf

Office ofthe Secretary
Service Date
October 13,2017
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANYTO )CASE NO.IPC-E-14-15
APPROVEORREJECTITS ENERGYSALES )AGREEMENTWITH CLARK CANYON )ORDERNO.33904
HYDRO,LLC.)
In June 2014,Idaho Power Company asked the Commission to approve or reject its
Energy Sales Agreement (hereafter "Agreement")with Clark Canyon (hereafter "Clark").The
Agreement is governed by the Public Utility Regulatory Policies Act (PURPA).The
Commission issued a Notice of Application and Notice of Modified Procedure,Order No.33064,
then suspended the procedural schedule,Order No.33088,after Staff discovered discrepancies
between the Agreement and Clark's Federal Energy Regulatory Commission (FERC)license.
On March 31,2017,Clark received a renewed FERC license.Clark and Idaho Power
met with Staff in May 2017,and again in July 2017 after Clark retained counsel.The parties
jointly asked the Commission to lift the suspension and adopt an agreed procedural schedule,
which the Commission granted.Order No.33810.Clark timely submitted comments to which
Commission Staff and Idaho Power timely responded.Clark also filed a timely reply.
Having reviewed the record,the Commission now enters this Order rejecting the
Agreement for failure to satisfy its agreed terms,as described below.
BACKGROUND
PURPA was passed as part of the National Energy Act of 1978 to encourage electric
energy conservation,the efficient use of resources by electric utilities,and equitable retail rates
for electric consumers.16 U.S.C.§2601 (Findings).Under PURPA,FERC prescribes "broad,
generally applicable rules"for the Act's implementation.Portland General Electric Co.v.
FERC,854 F.3d 692,(D.C.Cir.2017);16 U.S.C.§824a-3(a),(b).The Act "requires state
public-utility commissions to implement FERC's rules at the local level."Portland General
Electric,854 F.3d 692;16 U.S.C.§824a-3(f).
PURPA provides that electric utilities must purchase electric energy from "qualifying
facilities"(QFs)at rates approved by this Commission.16 U.S.C.§824a-3;Idaho Power Co.v.
Idaho PUC,155 Idaho 780,789,316 P.3d 1278,1287 (2013).Under PURPA,the purchase rate
ORDER NO.33904 1
for PURPA contracts shall not exceed the "incremental"or "avoided cost"to the utility,defined
as the cost of energy which,but for the purchase from [the QF],such utility would generate or
purchase from another source."16 U.S.C.§824a-3(d);18 C.F.R.§292.101(6)(defining
avoided costs).
APPLICATIONAND CASE HISTORY
Idaho Power and Clark signed the Agreement in May 2014.Application at 2.The
Commission had previously approved an agreement between Idaho Power and Clark in 2011.Id.
at 3,citing Order No.32294.However,Clark's owner at the time encountered "difficulties in
development efforts,"and so in March 2014,Clark and Idaho Power entered a Memorandum of
Understanding (MOU)to terminate the 2011 agreement and execute the Agreement at issue here.
Clark Comments at 3;Osorio Affidavitat 3.
The Agreement contained "published rates for Seasonal Hydro projects of 10 average
megawatts ("aMW")or less ...which were in effect prior to June 1,2014,and prior to the
published avoided cost rate update ...effective on June 1,2014."Application at 2.In the
Agreement,Clark "selected June 1,2017,as the Scheduled Operation Date."Id.at 6.Also,the
Agreement provided that it "shall only become finally effective upon the Commission's approval
of all terms and provisions hereof without change or condition and declaration that all payments
to be made to [Clark]hereunder shall be allowed as prudentlyincurred expenses for ratemaking
purposes."Agreement §21.1.
On June 27,2014,FERC Staff issued a Notice of Probable License Termination for
Clark's failure to commence construction by the August 25,2013,date required in the FERC
license.Clark Comments at 6-7.Per the parties'agreement,Commission Staff moved to
suspend the case in July 2014,to "allowthe project an opportunity to correct the discrepancies"
with Clark's FERC license.Staff Motionto Suspend Procedural Schedule at 1.On August 5,
2014,the Commission granted the motion and suspended the schedule.Order No.33088.On
March 19,2015,FERC terminated Clark's license.Clark Comments at 9.On March 31,2017 -
about two months before the June 1,2017 Scheduled Operation Date specified in the Agreement
-FERC issued a new license to Clark.Id.at 12.
COMMENTS
Clark's comments,Staffs and Idaho Power's responses,and Clark's reply are
summarized by issue as follows.
ORDER NO.33904 2
A.Clark's Requested Relief
Clark asked the Commission to change the Agreement's Scheduled Operation Date from
June 1,2017 to December 31,2019,and then approve the revised Agreement.Clark Comments
at 1.Clark argued its proposed amendment to the agreed-upon Scheduled Operation Date is
"consistent with the parties'past conduct and course of dealing"and their MOU.Id.at 15-16,
20-21.According to Clark,its proposal is supported by Idaho contract law,and to deny its
proposal would cause Clark undue hardship.
B.Contract LawArguments
Clark argued that its change to the Agreement's Scheduled Operation Date is warranted
under the mistake of fact doctrine,which reshapes contractual duties to achieve a just result
consistent withthe parties'intent.Clark Comments at 21 (citing Thieme v.Worst,113 Idaho 455
(Ct.App.1987)).Clark contended the mistake of fact doctrine should be applied to correct "the
parties'mistaken belief here that no regulatory delays were likely to preclude [Clark]from
completing construction ...."Clark Comments at 23.Clark also contended the doctrine of
impossibility or impracticability of performance should apply to permit amendment to the
Scheduled Operation Date,because Clark's performance of that contractual term has been made
impossible without Clark's fault.Id.at 24 (citing Landis v.Hodgson,109 Idaho 252,256-58 (Ct.
App.1985)).Clark argued that the circumstances surrounding FERC's revocation of Clark's
license fit squarely within the impossibility doctrine.Clark Comments at 24-25 (citing Landis,
109 Idaho at 257).
Staff asserted the missed Scheduled Operation Date is not a mistake of fact that can be
corrected,and Clark's "mistaken belief here that no regulatory delays were likelyto preclude [it]
from completing construction"was a risk taken in any PURPA contract.Id.at 4 (citation
omitted).Staff also argued the impossibility doctrine does not apply because the Commission
has not approved the Agreement,thus the contract has yet to be formed.Id at 4-5.Staff
therefore recommended that the Commission reject the Agreement.
Clark argued Staffmisunderstood how the mistake of fact doctrine applies here.Reply at
7.Clark contended the mistake of fact is not the missed Scheduled Operation Date,but the
assumption when the 2014 Agreement was executed "that there were no latent defects in the
project's regulatory approvals by FERC."Id.Regarding the impossibility doctrine,Clark
asserted Staff ignored that the doctrine applies after "government imposition of a new law,
ORDER NO.33904 3
regulation or order which makes the performance of a duty impractical."Id.at 9 (quoting
Landis,109 Idaho at 257).Clark argued that FERC's Notice of Probable Termination and later
termination order fits squarely withinthe impossibility doctrine,thus Clark should be relieved of
its dutyto achieve the Scheduled Operation Date in its 2014 Agreement.Id.
Idaho Power noted this is "the third time that Idaho Power and [Clark]have had a fully
signed [agreement)where [Clark]has failed to construct the project and failed to meet the
Scheduled Operation Dates that it chose"in those agreements.Idaho Power Comments at 2.
The Company asserted that Clark's contractual arguments are "not dispositive of the
Commission's role,responsibility,and authority...to approve or reject"this signed Agreement.
Id The Company further asserted,because the Scheduled Operation Date has passed and "the
project configuration is now different,"the Commission cannot approve all terms and provisions
without"'change or condition'as is required before the [Agreement]becomes a fully effective
contract."Id at 8.
C.Undue Hardship
According to Clark,if the Agreement is terminated and not corrected,"Idaho Power's
currentlyeffective avoided cost rates for a new [Agreement]would not be economically viable
for the Clark Canyon project."Clark Comments at 29.Clark asserted that such a result "would
work an unjust and undue hardship on Clark Canyon."Id.at 2.Clark urged the Commission to
ignore that avoided cost rates have decreased since Clark and Idaho Power signed the 2014
Agreement.Id at 29-30.Clark cautioned,the Commission should not "assume that the delay of
time or approval of the 2014 [Agreement]harms Idaho Power's customers."Id at 30.
The Company contended there is a substantial difference between the avoided cost rates
in the Agreement and those that would be available today,therefore it "cannot simply agree to
extend the Scheduled Operation Date."Idaho Power Comments at 8.Idaho Power calculated
that the "net present value in total cost to customers over the 20-year contract is $17,924,845 for
the 2014 [Agreement],and $11,337,522 for a 2017 [agreement]-a net present value difference
of over $6,587,000."Id Idaho Power stated it
has no ability to agree on its own to an extension of time in the 2014
[Agreement],where that would extend the application of higher prices to Idaho
Power customers.That decision is only one that the Commission could make by
finding it to be in the public interest-cr not-to extend the dates in the 2014
[Agreement].
ORDER NO.33904 4
Id at 10.
Staff asserted the Commission should not consider the hardship Clark would bear if the
Agreement were rejected.Staff Comments at 5.Staff noted the Company's calculation that
approving the Agreement with 2014 rather than current avoided cost rates would have a negative
net present value customer impact of $6.6 million.Id.Staff opposed as unreasonable,Clark's
proposal to place this $6.6 millionburden on ratepayers.Id
Clark challenged Idaho Power's calculation that the present value difference in avoided
cost rates between the 2014 Agreement and today is $6.6 million.Reply at 11-12.Clark noted
that Idaho Power assigned no value to the RECs Idaho Power would receive under the 2014
Agreement,and that the Company failed to account for capacity payments to which Clark would
be entitled under a replacement contract if the 2014 Agreement were terminated.'Id at 12-15.
Clark contended that the present value difference between using 2014 rather than current avoided
cost rates is about $700,000 rather $6.6 million.Id at 16 (citing Reading Affidavit,submitted
withClark's Reply).
COMMISSIONFINDINGSAND DECISION
The Commission has jurisdiction over this matter under Idaho Code §§61-502 and 61-
503.The Commission has the express statutory authority to investigate rates,charges,rules,
regulations,practices,and contracts of public utilities and to determine whether they are just,
reasonable,preferential discriminatory,or in violation of any provision of law,and may fix the
same by Order.Idaho Code §§61-502 and 61-503.In addition,the Commission has authority
under PURPA and FERC's implementing regulations to set avoided costs,to order electric
utilities to enter into fixed-term obligations for the purchase of energy from qualified facilities
and to implement FERC rules.The Commission may enter any final Order consistent with its
authority under Title 61 and PURPA.The Commission has reviewed the record,including the
Application and comments.
This Application initially came to us in 2014 requesting approval or rejection of the
Agreement.The Agreement contemplates that it will become effective upon our approval
"without change or condition."Agreement §21.1.Because the Agreement's Scheduled
i Clark argues it is "entitled to the capacity payments from the start of its replacement contract,"as its project should
have been included in the Company's Integrated Resource Plan (IRP)analysis once the parties signed that 20l4
contract.Reply at 13-14.Clark states that it was included "as a committed resource"but its output was not
considered in the calculations of capacity deficiency dates,in the Company's 2015 and 2017 IRPs.Id.at 14 (citing
Idaho Power discovery responses).
ORDER NO.33904 5
Operation Date has passed,Clark now asks us to approve the Agreement with a change-tothe
Scheduled Operation Date.The Company raises concerns with that approach,specifically
objecting to the ratepayer impacts of approving the Agreement with its 2014 avoided cost rates,
versus approving an Agreement with today's avoided cost rates.The net present value of the
ratepayer impacts could be as high as $6.6 million.
We find it would not be just or reasonable to approve the Agreement with a provision we
know is incorrect,as is the case with the Scheduled Operation Date that has passed.If we
approved the Agreement with a lapsed Scheduled Operation Date,Clark would be immediately
in breach.We further find it would not be just or reasonable to approve the Agreement and
modify the Scheduled Operation Date.Our authority to modify agreements is limited-for
example,we must find the modifications are either agreed to by the contracting parties or
supported by the public interest.See,e.g.,Afton Energy,Inc,v.Idaho Power Co.,111 Idaho
925,928 (1986);AgriculturalProducts Corp.v.Utah Power &Light Co.,98 Idaho 23 (1976).
Neither is true here.
The parties do not agree to Clark's proposed change,nor does the public interest support
it.Notably,Clark was responsible for maintaining a valid FERC license,a responsibility
contemplated by the parties and provided for in the very terms of Clark's Agreement withIdaho
Power.Agreement §3.3 (Clark recognizes that retaining a valid FERC license or exemption "is
a material part"of the Agreement,and Clark's "failure to maintain a valid FERC license or
exemption will be a material breach"thereof).Clark's failure to maintain a valid FERC license
is no one's fault but their own.Further,approving the Agreement with its 2014 avoided cost
rates instead of current rates could have as much as a $6.6 millionimpact on customers,which
we find demonstrably contrary to the public interest.Accordingly,we find it appropriate,just,
and reasonable to reject the Agreement.
ORDER
IT IS HEREBY ORDERED that the Agreement that is the subject of the Application
in this proceeding is rejected.
THIS IS A FINAL ORDER.Any person interested in this Order may petition for
reconsideration withintwenty-one (21)days of the service date of this Order withregard to any
matter decided in this Order.Within seven (7)days after any person has petitioned for
ORDER NO.33904 6
reconsideration,any other person may cross-petition for reconsideration.See Idaho Code §61-
626.
DONE by Order of the Idaho Public UtilitiesCommission at Boise,Idaho this /y
day of October 2017.
PAUL KJE ,PRESIDENT
KRISTIÑERAPER,COMMISSIONER
ERIC ANDERSON,COMMISSIONER
A
Diane M.Hanian
Commission Secretary
1:\LeganLORDERS\IPCE1415 djh4 final doc
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