HomeMy WebLinkAbout20141114final_order_no_33180.pdfOffice of the Secretary
Service Date
November 14.2014
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR )CASE NO.IPC-E-14-20
APPROVAL OR REJECTION OF AN )
ENERGY SALES AGREEMENT WITH )
BOISE CITY SOLAR,LLC,FOR THE )
SALE AND PURCHASE OF ELECTRIC )ORDER NO.33180
ENERGY.)
_____________________________________________________________________________________________
)
On July 25,2014,Idaho Power filed an Application with the Commission for
approval or rejection of an energy sales agreement with Boise City Solar,LLC,for the sale and
purchase of electric energy.The Commission issued a Notice of Application on August 20,
2014.A Notice of Modified Procedure was issued on September 5,2014,setting a comment
deadline of October 31,2014,and a reply deadline of November 7,2014.Order No.33118.
More than 120 public comments were received,including comments filed by the
Sierra Club,Idaho Conservation League,Snake River Alliance,and other community leaders.
Commission Staff filed comments and Idaho Power filed a reply.
By this Order,we approve the modified Agreement between Idaho Power Company
and Boise City Solar as submitted by Idaho Power in its reply,and as more fully set out in the
body of this Order.
THE APPLICATION
Idaho Power requests that the Commission accept or reject the Energy Sales
Agreement between Idaho Power and Boise City Solar,LLC,under which Boise City Solar
would sell and Idaho Power would purchase electric energy generated by the project’s 40
megawatt (MW)solar photovoltaic project located in Ada County on South Cloverdale Road
between Boise and Kuna,Idaho.The Agreement between the parties was executed on July 17,
2014.
The Agreement is for a term of 20 years.Idaho Power states that the Agreement was
executed in compliance with the Commission’s Orders directing the implementation of PURPA
for the State of Idaho and contains negotiated avoided cost rates based upon the incremental cost,
integrated resource plan pricing methodology available to solar projects whose generation will
exceed 100 kilowatts (kW).Idaho Power explains that the Agreement also contains negotiated
ORDER NO.33180 1
solar integration charges as directed by the Commission in Order No.33043,as well as several
other negotiated provisions requiring specific Commission approval.
The proposed project is expected to use mono crystalline solar modules with Tier 1
inverters and utilize a dual axis tracking system.The facility has a nameplate rating of 39.989
MW AC.Boise City Solar selected January 16,2016,as its Scheduled Operation Date.Various
requirements have been placed upon Boise City Solar in order for Idaho Power to accept energy
deliveries from the project.Idaho Power states that it will continue to monitor compliance with
these requirements throughout the term of the Agreement.
Idaho Power explains that this Agreement is the first of its type (along with Grand
View Solar)submitted for approval that contains negotiated avoided cost rates based upon the
incremental cost,integrated resource plan pricing methodology.Prices were determined on an
incremental basis with the inclusion of this project in its queued position of proposed projects on
Idaho Power’s system.Over the 20-year term of the Agreement,monthly rates vary from
approximately $44/megawatt hour (MWh)for light load hours in early months of the Agreement
to as high as $1l3/MWh for heavy load hours in the later years of the Agreement.The
equivalent 20-year levelized avoided cost rate would amount to approximately $72.l5/MWh.
The Agreement also contains a solar integration charge that was negotiated and
agreed to by the parties.Although the integration charge is based on Idaho Power’s solar
integration study,the study was not yet complete during contract negotiations.However,the
most currently available data and analysis from the study was used by the parties in the course of
negotiations.The negotiated solar integration charge starts at $1 .34/MWh for the first year of
the Agreement (2015)and escalates to $3.1 l/MWh in 2036.The equivalent 20-year levelized
solar integration charge would amount to approximately $2.01/MWh.Idaho Power states that
the 20-year estimated contractual obligation based upon estimated generation levels,including
avoided cost rates and solar integration charges,is approximately $161,461,924.
The Agreement contains provisions for a 90/110 firmness requirement,as well as a
solar integration charge,and a pricing adjustment.Idaho Power affirms that it prefers that
90/110 firmness be included in all PURPA QF agreements and the Company does not consider
solar integration charges to be a replacement for the 90/110 requirements.Idaho Power states
that 90/110 firmness requirements and solar integration charges address different concerns:
90/110 addresses the Commission definition of firmness for entitlement to an avoided cost rate
ORDERNO.33180
determined at the time of contracting for the duration of the contract whereas solar integration
charges address the increased system operation costs incurred because of the variable and
intermittent nature of the generation.Based on negotiations and an agreed to price adjustment,
the Company states that it is comfortable and confident that the Agreement contains provisions
to reasonably assure that the project performs in conformance with its generation estimates and,
if not,the project receives a reduced price for the non-conforming month’s generation,The
Agreement allows for a 2%deviation in the monthly Adjusted Estimated Net Energy Amount (as
estimated for the 90/110 provisions)from the generation profile estimates without assessing a
price adjustment.If the project’s actual generation deviates downward by more than 2%of its
generation estimates,then a corresponding percentage adjustment to the monthly price is
imposed.However,the adjustment is limited to a maximum price reduction of 10%.Idaho
Power states that consistent and material deviations from the hourly energy estimates in the
generation profile will be considered by Idaho Power to be a material breach of the Agreement.
Idaho Power states that the parties negotiated a deviation from the requirement of
only allowing for quarterly adjustments to the Estimated Net Energy Amounts relevant to the
90/110 provisions.The Agreement provides for the ability to change Estimated Net Energy
Amounts on a monthly basis.New provisions providing for actual delay damages as opposed to
liquidated damages are also included in the Agreement,consistent with Order No.32697.The
Application further states that the parties negotiated a 50/50 split of environment attributes (aka
renewable energy credits).
As with all PURPA QF generation,the project must be designated as a network
resource (DNR)to serve Idaho Power’s retail load on its system.Consequently,the Agreement
contains provisions requiring completion of a Generator Interconnection Agreement (GIA),
compliance with GIA requirements,and designation as an Idaho Power network resource as
conditions of Idaho Power accepting delivery of energy and paying for the same under the
Agreement.In order for the project to maintain its DNR status,there must be a power purchase
agreement associated with its transmission service request that maintains compliance with Idaho
Power’s non-discriminatory administration of its Open Access Transmission Tariff (OATT)and
maintains compliance with FERC requirements.
Article 21 of the Agreement provides that the Agreement will not become effective
until the Commission has approved all of the Agreement’s terms and conditions and declared
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that all payments Idaho Power makes to Boise City Solar for purchases of energy will be allowed
as prudently incurred expenses for ratemaking purposes.
COMMENTS
More than 120 public comments were filed with the Commission regarding this
Application,including comments filed by the Idaho Conservation League,Snake River Alliance,
Sierra Club and Boise’s Mayor Dave Bieter.A large number of comments were submitted by
different individuals based on a form letter.Many others were original and thoughtful comments
from citizens who are concerned about the environment and optimistic about the contribution
that the Boise City Solar project will have on the local economy.We appreciate the public’s
participation in our process.
Staff Comments
Staff acknowledged the potential benefits of a QF,but noted that the Commissions
authority with regard to PURPA contracts,and therefore Staff’s focus,is to ensure that the rates,
terms and conditions contained in proposed power sales agreements are reasonable.The rates in
the agreements must accurately reflect the utility’s avoided costs,and the terms and conditions
must fairly protect both the QFs and the utility and its ratepayers.
Staff explained that rates in the Agreement were determined using the incremental
cost IRP methodology.The rates consist of three components:(1)the avoided cost of energy,(2)
the avoided cost of capacity,and (3)the solar integration charge.The avoided cost of energy is
based upon the incremental costs the utility would incur,but for the addition of the QF resource,
to generate power itself or to purchase power from another source.The avoided cost of capacity
reflects the cost of constructing or purchasing a generation resource capable of producing that
energy.The solar integration charge is intended to account for the expense of integrating solar
resources into the utility’s distribution and transmission system.
After a detailed review of Idaho Power’s application of the incremental cost IRP
methodology,Staff identified several concepts used by Idaho Power that Staff believes make the
final results deviate significantly from the true avoided cost of energy.First,as proposed,the
incremental cost IRP methodology assumes that the resource of the highest displaceable
incremental cost always has enough volume to be displaced.Idaho Power acknowledged that
“[tjhis simplification may introduce some error...[lit will always be in favor of the QF since
ORDER NO.33180 4
Idaho Power begins with the highest incremental cost resource that is displaceable to set the
avoided cost for any hour.”See Case No.GNR-E-ll-03,Bokenkamp,Di.pp.26.
Staff explained that this simplification introduces significant error that becomes
greater as the project size increases.Staff proposed that the Company modify its
calculation/methodology by assigning QF capacity to different resources in the order of
incremental cost values (i.e.,from the highest displaceable to the second highest displaceable to
the third highest displaceable)until all the QF capacity is distributed.The final price is the
weighted average of a set of incremental costs with different displacements.Staff reasoned that
its proposed method takes into account the capacities of the actual resources that the QF
generation displaces.
The second issue identified by Staff involves the fuel price used within the
incremental cost IRP methodology.Idaho Power’s proposed methodology assigns one fuel price
to each year,assuming the fuel price stays the same over the entire year.Staff explained that,
while coal prices may not fluctuate within the year,fuel prices for gas-fired plants vary
significantly from month to month.When the IRP methodology applies a fixed annual natural
gas price without considering the monthly variations,solar QFs are underpaid in the winter and
overpaid in the summer.Staff stated that,because solar QFs produce more energy in the summer
when natural gas prices are lower,the overall effect is overpayment to solar QFs.Consequently,
Staff asserted that it is inappropriate and not an accurate reflection of the Company’s avoided
cost to use the annual average natural gas price in calculating the avoided cost of energy.
Staff believed that the negotiated solar integration charges utilized within the
Agreement are reasonable.Staff further confirmed that new provisions providing for actual
delay damages as opposed to liquidated damages are included in the Agreement and are
consistent with Commission Orders.See Order No.32697.Staff believed that the additional
contract provisions,including but not limited to,a mechanical availability guarantee,price
adjustments,forecasting fees,and ownership of renewable energy credits are reasonable and
comply with prior Commission orders.
Idaho Power Reply
Based on Staff’s recommendations,Idaho Power re-ran its model for pricing Boise
City Solar’s generation.Although the Company was able to incorporate Staff’s concepts into its
avoided cost price model,the results differed slightly.Idaho Power submitted its revised prices
ORDER NO.33180 5
with reply comments as Replacement Appendix E.Boise City Solar agreed to the revised
pricing.
FINDINGS AND CONCLUSIONS
The Idaho Public Utilities Commission has jurisdiction over Idaho Power,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 is also empowered to resolve complaints between QFs
and utilities and approve QF contracts.
PURPA requires that utilities purchase generation produced by QFs under a federal
rate mechanism (i.e.,avoided cost)that is established and implemented by state utility
commissions.18 C.F.R.§292,304(b)(2);Order No.32697 at 7.“Avoided costs”are the
incremental costs to the electric utility of power which,but for the purchase from the QF,such
utility would generate itself or purchase from another source.18 C.F.R.§292.l01(b)(6).
PURPA and FERC regulations direct not only that rates for purchases not discriminate against
QFs,but also that avoided cost rates be just and reasonable to the utility’s ratepayers and in the
public interest.18 C.F.R.§292.304(a)(1).The rates at which Idaho electric utilities purchase
QF power must be approved by this Commission.Idaho Power Co.v.Idaho Public Utilities
Commission,155 Idaho 780,789,316 P.3d 1278,1287 (2013).
PURPA and FERC regulations mandate that QF projects be compensated according
to their ability to provide a utility with needed energy and capacity at a rate that reflects the costs
that the utility avoids by purchasing QF generation.As we have stated on numerous occasions,
the purpose of utilizing the IRP methodology for large QF projects is to more precisely value the
energy being delivered to the utility.The IRP methodology must be implemented in a way that
recognizes the individual generation characteristics of each project by assessing when the QF is
capable of delivering its resources against when the utility is most in need of such resources.
We recently undertook a detailed review of the implementation of PURPA in Idaho.
See generally GNR-E-11-03.Specifically with regard to the IRP methodology,we noted that
“[tihe IRP Methodology had its inception in 1995 (Case No.IPC-E-95-9)but has seldom been
ORDERNO.33180 6
utilized —even by large QF projects....Therefore,the IRP Methodology has not had the benefit
of adjustments over time to ensure that the calculation produces an accurate representation of the
utility’s avoided cost.”Order No.32697 at 17.We intend that the IRP methodology be a
flexible tool,taking into account many different variables,and producing a result that accurately
values a QF’s capability to deliver resources in relation to the timing and magnitude of the
utility’s need for such resources.
We find that the IRP methodology must reflect the incremental cost associated with
each project’s unique ability to delivery generation to the utility.We further find that
consideration of each displaceable resource based on the capacity of the QF is fair and
reasonable.We also find it reasonable to account for monthly variations in natural gas prices —
as opposed to use of an annual average.We appreciate Staff’s diligent and detailed review of the
variables to be used within a methodology that,thus far,has been under-utilized and,therefore,
untested.We find that,based on the proposed and accepted modifications,the resultant pricing
is more reflective of the true value of QF energy being delivered to the utility.By utilizing the
modified variables within the IRP methodology,we find that the community’s environmental
and economic interests can be met without Idaho Power’s ratepayers being harmed.
Therefore,we find that the proposed,modified Agreement,including Replacement
Appendix E regarding rates calculated by Idaho Power using Staff’s concepts,is just,reasonable
and in the public interest.We approve the modified Agreement between Idaho Power and Boise
City Solar,LLC,without material change or condition.We find it reasonable to allow payments
made under the Agreement as prudently incurred expenses for ratemaking purposes.
ORDER
IT IS HEREBY ORDERED that the modified Agreement between Idaho Power and
Boise City Solar is approved,without change or condition.
THIS IS A FINAL ORDER.Any person interested in this Order may petition for
reconsideration within twenty-one (21)days of the service date of this Order.Within seven (7)
days after any person has petitioned for reconsideration,any other person may cross-petition for
reconsideration.See Idaho Code §61-626.
ORDER NO.33180 7
Ii•1iiDONEbyOrderoftheIdahoPublicUtilitiesCommissionatBoise,Idaho this /
day of November 2014.
PAUL KJELLANDER,ESIDENT
MACK A.REDD,CO I ONER
fl/L4A4
MARSHA H.SMITH,COMMISSIONER
ATTEST:
‘ean D Jewell
Cdmmission Secretary
O:IPC-E-1 4-20ks2
ORDERNO.33180 8