20170825Comments.pdf

DAPHNE HUANG
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 8370
Street Address for Express Mail
472 W . WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORB THE IDAHO PUBLIC UTILITIBS COMMISSION
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IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY TO
APPROVE OR REJECT ENERGY SALES
AGREEMENT WITH CLARI( CANYON
HYDRO, LLC
CASE NO. IPC.E-14-15
COMMENTS OF THE
COMMISSION STAFF
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In June 21l4,ldaho Power Company asked the Commission to approve or reject its
Energy Sales Agreement - for the sale and purchase of energy under the Public Utility
Regulatory Policies Act (PURPA) - with Clark Canyon (hereafter "Clark"). 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 201 7 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 now responds.
A. 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
STAFF COMMENTS AUGUST 25,2017I
for electric consumers. l6 U.S.C. $ 2601 (Findings). Under PURPA, the Federal Energy
Regulatory Commission (FERC) prescribes "broad, generally applicable rules" for the Act's
implementation. Portlond 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 "quali$ing
facilities" (QFs) at rates approved by this Commission. l6 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
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. $ 82aa-3(d); 18 C.F.R. $ 292.101(6) (defining
avoided costs).
B. Idaho Power's Application
Idaho Power and Clark signed the Energy Sales Agreement at issue here in May 2014.
The Agreement contained "published rates for Seasonal Hydro projects of 10 average megawatts
("aMW") or less . . . which were in effect prior to June 1, 2074, and prior to the published
avoided cost rate update . . . effective on June 1,2014." Application at2. Clark had "selected
June 1 ,2017, as the Scheduled Operation Date." Id. at 6. Also, Article 21 of the Agreement
provided that the Agreement "will not become effective until the Commission has approved all
of the [Agreement's] terms and conditions and declared that all payments Idaho Power makes to
Clark Canyon for purchases of energy will be allowed as prudently incurred expenses for
ratemaking purposes." Id. at9.
C. Clark's Comments
Clark asks the Commission to approve its Agreement with Idaho Power with a revised
Scheduled Operation Date of December 31,2019. Clark Comments at 1. Clark asserts the
revised date corresponds with "the delay of over two years during which this docket was
suspended to allow Clark Canyon to correct discrepancies that occurred between Clark Canyon's
[FERC] hydropower license and the terms of the [Agreement] shortly after the [Agreement] was
submitted for Commission approval." Id. at2. According to Clark, a denial of the Agreement
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"would work an unjust and undue hardship on Clark Canyon, which would not have incurred the
substantial expense to obtain a new FERC license or may have been able to pursue other options
to lock in pricing available in 2014 if it did not expect that its right to sell under the submitted
[Agreement] would be preserved." Id.
D. Staff Comments
Staff believes that Clark's Agreement with Idaho Power should not be approved because
the June 2017 Scheduled Operation Date has passed, rendering the Agreement invalid. The
Idaho Supreme Court has defined a breach of contract as "a failure, without legal excuse, to
perform any promise, which forms the whole or part of a contract." Idaho Power Co. v.
Cogeneration, Inc., 134Idaho 738,746 (2000) (other citations omitted). If the Commission
were to approve the Agreement, Clark would be immediately in breach. Staff disagrees with
Clark's arguments that the Agreement should be modified and approved, and recommends that
the Commission reject it.
I. Agreement is not binding because it lacks Commission approval
Staff disagrees with Clark's assertion that its Agreement with Idaho Power is already
binding despite that the Commission has yet to approve it. Clark Comments at 17. This
argument presumes that the Commission's role is nothing more than a rubber stamp - a
procedural hurdle without substance. The Commission has the duty to examine PURPA
agreements between utilities and QFs, to determine whether they are consistent with FERC
regulations and the Commission's prior orders setting applicable avoided cost rates and contract
terms. The Commission has the statutory authority to approve or reject these agreements, and its
decision in this regard is substantive. As Clark acknowledges, its Agreement provides that it
"shall only become finally effective upon the Commission's approval of all terms and provisions
hereof without change or condition." Clark Comments at 17.
2. Breached term is not a mistake offact, but a miscalculated business risk
Staff also disagrees with Clark's argument that its missed Scheduled Operation Date is a
mistake of fact warranting modification under Idaho contract law. Clark Comments at21. *A
mutual mistake occurs when both parties [to a contract] share a misconception about a vital fact
upon which they based their bargain at the time of contracting." Thieme v. Worst,l l3 Idaho
3STAFF COMMENTS AUGUST 25,2017
455,458 (Ct. App. 1987); see Clark Comments atZl. The Scheduled Operation Date in Clark's
Agreement with Idaho power is not a fact. It is a contractual term to which Clark and Idaho
Power agreed, and that has - undisputedly - been broken. Clark's "mistaken belief here that no
regulatory delays were likely to preclude [it] from completing construction" was a business risk,
and one that is taken in any PURPA contract.
Notably, Clark had previously missed the Scheduled Operation Date for its 2011
Agreement with Idaho Power that the Commission approved in Order No.32294. Id. at3. ln
March 2014, Clark and Idaho Power agreed to terminate the 201I Agreement and enter the 2014
Agreement (at issue here) with the new Scheduled Operation Date of June 7,2017 . Id. at 4-5.
According to Clark, its parent company ICP US Hydro Holdings failed to "maintain[]
adequate communications with FERC on the development of activities," resulting in FERC's
"Notice [to Clark] of Probable License Termination for failure to commence construction by the
date required in the FERC license." Id. at 4,6-7. This highlights that the regulatory delay which
Clark failed to anticipate was, at least in part, due to mismanagement by Clark's parent company
ICP. Clark also notes that, absent a warning letter from FERC (per typical practice) for failure to
commence construction, its "leadership assumed that the project had commenced construction
when it executed an enforceable contract for the project-specific turbines and other components."
Clark Comments at 7. Such an assumption further demonstrates the business risk Clark took and
must now live with.
Staff is unpersuaded by Clark's assertion that there is "precedent for the Commission
correcting discrepancies in a submitted [Agreement)." Id. at20. In Order No. 32384, cited by
Clark, the Commission approved an energy sales agreement after having extended the deadline
for parties to submit the agreement by a few weeks in order to allow them time to correct an
error underlying rates. In that case, the error was computational and the parties agreed to the
changes. See Order No. 32384 at l-2. As far as Staff is aware, Idaho Power does not agree to
Clark's proposed modifications, and the error is not merely computational, thus the situation here
is distinguishable.
3, Doctrine of impossibili$ or impracticality does not apply
In addition, Staff disagrees with Clark's argument that the doctrine of impossibility or
impracticality justifies excusing its missed Scheduled Operation Date. Clark Comments at24.
"Where, after a contract is made, a party's performance is made impracticable without his fault
4STAFF COMMENTS AUGUST 25,2017
by the ocsurrence of an event the non-occurence of which was a basic assumption on which the
contract was made, his duty to render that performance is discharged, unless the language or the
circumstances indicate the contrary." Landis v. Hodgson, 109 Idaho 252,256 (Ct. App. 1985)
(quoting RESTATEMENT (2ND) OF CONTRACTS $ 261); see Clark Comments at24. As
already discussed, Staff believes the Agreement between Clark and Idaho Power was not yet
"made" because the Commission has yet to approve it. Also, there was no "basic assumption on
which the contract was made" that Clark would experience no regulatory delays because, as also
discussed, any assumption that there would be no regulatory delays was a business risk that
Clark chose to take.
4. Ratepayers should not bear the cost of Clark's business risk
Finally, Clark asserts, "If the 2014 ESA were not corrected to accommodate the delay
associated with the unexpected termination of the FERC license and the [Agreement] were
terminated, Idaho Power's currently effective avoided cost rates for a new [Agreement] would
[be too low and thus] not . . . economically viable for the Clark Canyon project." Clark
Comments at29. According to Clark, "A comparison to the current avoided cost rates would
therefore have little relevance to the actual legal issues before the Commission" because there
would otherwise "be no sale of the project's output under currently available rates." Id. at 30.
Clark's investments into the Clark Canyon project, see Clark Comments at 12-13, as with any
project, were made at risk of unviability, whether Clark calculated that risk or not.
Given that the missed Scheduled Operation Date has rendered the contract invalid, Staff
does not support Clark's proposal to treat the contract as valid nonetheless, at rates that would
allow the project to be viable - in other words, rates higher than would be set today. In response
to a production request from Clark, the Company calculated a customer impact (net present value
difference) of approximately $6.6 million, between the invalid 2014 contract and a new contract
if signed at the time of the June 8, 2017 Order lifting the suspension in this case. Staff objects to
Clark's proposed action because approving it would unreasonably place the ($6.6 million)
burden of Clark's business risk on ratepayers.
5. Policy goals are not a basis to cure an invalid contract
Finally, Clark argues that "[f]ederal and state policies are intended to encourage small
power production," thus the Scheduled Operation Date should be revised to facilitate the
5STAFF COMMENTS AUGUST 25,2017
project's viability. Id. at26. Those policy goals do not supersede applicable contract law
providing that a contract is invalid, and Clark cites no legal authority to the contrary. Clark and
Idaho Power freely entered into the now invalid Agreement. Staff is aware of no legal basis to
alter the terms of that Agreement, without Idaho Power's consent, to make it valid. See ldaho
Power Co. v. New Energy Two, 156Idaho 462, 463-64,328 P.3d 442, 443-44 (2014) ("Freedom
of contract is a fundamental concept underlying the law of contract and is an essential element of
the free enterprise system.") (citations omitted).
6. Conclusion
Ultimately, Staff believes the Agreement should not be approved because the agreed
Scheduled Operation Date has passed, rendering the Agreement invalid. Clark has shown that it
miscalculated its business risks, and as a result, its project will not be viable unless its invalid
Agreement is made valid. Staff believes it is unreasonable to burden ratepayers with the
consequences of Clark's miscalculations. Accordingly, Staff recommends that the Commission
reject the Agreement between Clark and Idaho Power.
Tf*rofAugust 2017.Dated at Boise, Idaho, this
Umisc/Comments/ipce I 4. I 5djh
uang
Deputy Attorney General
6STAFF COMMENTS AUGUST 25,2017
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 25TH DAY OF AUGUST 2017,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC.E-14-15, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
DONOVAN E. WALKER
IDAHO POWER COMPANY
P.O. BOX 70
BOISE, ID 83707
E-MAIL : [e-mail]
dockets@idahopower. com
ALINA OSORIO /PRESIDENT
CLARK CANYON HYDRO LLC
ICP US HYDRO HOLDING INC
I ADELAIDE ST EAST
STE 2410
TORONTO, ONTAzuO M5C 2V9
RANDY C. ALLPHIN
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: [e-mail]
GREGORY M ADAMS
PETER J RICHARDSON
RICHARDSON ADAMS PLLC
515 N 27TH STREET
BOISE TD 83702
E-MAIL: [e-mail]
peter@ri chardsonadams.com
SECRET
CERTIFICATE OF SERVICE