20141031Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER REDFORD
COMMISSIONER SMITH
COMMISSION SECRETARY
COMMISSION STAFF

FROM: KRISTINE SASSER
DEPUTY ATTORNEY GENERAL

DATE: OCTOBER 31, 2014

SUBJECT: IDAHO POWER’S APPLICATION FOR APPROVAL OR REJECTION
OF AN ENERGY SALES AGREEMENT WITH POCATELLO SOLAR 1,
CASE NO. IPC-E-14-27

On October 17, 2014, Idaho Power Company filed an Application with the
Commission requesting acceptance or rejection of a 20-year Energy Sales Agreement
(Agreement) between Idaho Power and Pocatello Solar 1, LLC (Facility, Project). The
Application states that Pocatello Solar 1 would sell and Idaho Power would purchase electric
energy generated by the Project’s solar photovoltaic facility located in Power County, Idaho.
THE AGREEMENT
The Application states that the proposed Project expects to use mono crystalline solar
modules with Tier 1 inverters and utilize a single axis tracking system for its 19.98 megawatt
(MW) solar project. Application at 3. The Facility will be a QF under the applicable provisions
of the Public Utility Regulatory Policies Act of 1978 (PURPA). The Agreement is for a term of
20 years and contains incremental, integrated resource planning (IRP) avoided cost rates
applicable to solar projects that exceed 100 kilowatts (kW). Idaho Power states that 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, the
monthly rates vary from approximately $34/megawatt-hour (MWh) for light load hours in early
months of the Agreement to as high as $115/MWh for heavy load hours in the latter years of the
Agreement based on linear escalations of light load and heavy load monthly rates. The
equivalent 20-year levelized avoided cost rate is approximately $61.87/MWh.
The Agreement also contains negotiated solar integration charges as directed by the
Commission in Order No. 33043. The solar integration charge starts at a charge of $1.18/MWh
for the first year of the Agreement (2017) and escalates to $3.66/MWh in 2036 in the same
DECISION MEMORANDUM 2
manner as the monthly energy rates (linear escalation). The equivalent 20-year levelized solar
integration charge is approximately $2.01/MWh. The 20-year estimated contractual obligation
based upon the estimated generation levels applied to the avoided cost rates and solar integration
charges is approximately $75,634,801.
The Project has selected December 31, 2016, as its Scheduled Operation Date. Id. at
4. Idaho Power asserts that various requirements have been placed upon the Facility in order for
Idaho Power to accept the Project’s energy deliveries. Idaho Power states that it will monitor the
Facility’s compliance with initial and ongoing requirements through the term of the Agreement.
Idaho Power explains that the Agreement contains several terms and conditions that
vary from previously approved agreements in order to comply with the Commission’s recent
Orders and in order to properly implement the negotiated rates and integration charges. In
addition, Idaho Power and Pocatello Solar have agreed to changes in some provisions that the
parties propose for Commission approval.
The Agreement contains provisions for a 90/110 firmness requirement, solar
integration charge and pricing adjustment. Idaho Power states that the 90/110 requirement
addresses the Commission’s definition of firmness for entitlement to avoided cost rates
determined at the time of contracting for the duration of the contract. The solar integration
charge addresses the increased system operation costs (holding reserves, upward and downward
regulation) because of the variable and intermittent nature of the generation. The parties further
negotiated and agreed to provisions that provide for a new type of price adjustment that is
uniquely applicable to contracts that utilize the incremental IRP pricing methodology. The
purpose of this price adjustment mechanism is to require that the Project performs in
conformance with the generation profile that the Project submits, which forms the basis for the
avoided cost pricing that is contained in the Agreement and locked in for the 20-year term. If the
Project does not perform in conformance with the generation profile as submitted, then a
corresponding adjustment is made to the price paid for that month of generation. The Agreement
allows for a 2% deviation in the monthly Adjusted Estimated Net Energy Amount from the
generation profile estimates before a price adjustment is applied. Consistent and material
deviations from the hourly energy estimates in the generation profile will be considered a
material breach of the Agreement.
New provisions providing for actual delay damages as opposed to liquidated damages
are included in the Agreement, consistent with Order No. 32697. The parties negotiated a 50/50
split of environment attributes (aka renewable energy credits). As with all PURPA QF
DECISION MEMORANDUM 3
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.
All terms and conditions have been negotiated and agreed to by the parties, with the
exception of the appropriate applicable capacity deficit period. The parties have agreed to
submit two alternative pricing schedules to the Commission with the remainder of the
Agreement, and have further agreed that each party will accept, abide by, and be bound by the
Commission’s determination as to the appropriate pricing schedule for this Agreement.
By its own terms, the Agreement will not become effective until the Commission has
approved all of the Agreement’s terms and conditions and declares that all payments made by
Idaho Power to Pocatello Solar for purchases of energy will be allowed as prudently incurred
expenses for ratemaking purposes. Agreement ¶ 21.1.
Idaho Power requests that its Application be processed by Modified Procedure
pursuant to Commission Rules of Procedure 201-204. IDAPA 31.01.01.201-.204.
STAFF RECOMMENDATION
Staff recommends that the case be processed by Modified Procedure with a comment
deadline of December 19, 2014.
COMMISSION DECISION
Does the Commission wish to process this case under Modified Procedure with a
comment deadline of December 19, 2014?

Kristine A. Sasser
Kristine A. Sasser
Deputy Attorney General

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