20150108final_order_no_33208.pdf

Office of the Secretary
Service Date
January 8,2015
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR )CASE NO.IPC-E-14-28
APPROVAL OR REJECTION OF AN )
ENERGY SALES AGREEMENT WITH )
CLARK SOLAR 1,LLC FOR THE SALE )
AND PURCHASE OF ELECTRIC ENERGY.)ORDER NO.33208
______________________________________________________________________________
)
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 Clark Solar 1,LLC (Facility,Project).The Application
states that Clark Solar 1 would sell and Idaho Power would purchase electric energy generated
by the Project’s solar photovoltaic facility located in Elmore County,Idaho.On November 6,
2014,the Commission issued a Notice of Application and Notice of Modified Procedure setting
a comment deadline of December 19,2014,and a reply deadline of December 26,2014.Order
No.33164.
On December 19,2014,Commission Staff and Intermountain Energy Partners (IEP)
(on behalf of the Project)filed comments.Idaho Power filed reply comments on December 23,
2014.On December 24,2014,Intermountain Energy Partners filed a Motion requesting
permission to file sur-reply in response to Idaho Power’s reply comments.On December 31,
2014,the Commission granted IEP’s Motion.Order No.33203.Intermountain Energy Partners
filed sur-reply comments on January 5,2015.
By this Order,we approve the Agreement between Idaho Power and Clark Solar 1
with rates as reflected in Second Replacement Appendix E,filed by Idaho Power with its reply
comments.
THE APPLICATION
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 70.98 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
ORDER NO.33208 1
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 $11 3/MWh for heavy load hours in the latter years of the
Agreement.The equivalent 20-year levelized avoided cost rate is approximately $61 .71/MWh.
The Agreement also contains negotiated solar integration charges as directed by the
Commission in Order No.33043.Solar integration starts at a charge of $3.29/MWh for the first
year of the Agreement (2017)and escalates to $5.77/MWh in 2036.The equivalent 20-year
levelized solar integration charge is approximately $4.1 5/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 $249,756,516.
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 Clark Solar 1 have agreed to changes in some provisions that the
parties propose for Commission approval.All terms and conditions have been negotiated and
agreed to by the parties,with the exception of when Idaho Power begins to experience a capacity
deficiency.With respect to when capacity payments will begin,the parties agreed to submit two
alternative pricing schedules and have further agreed to accept and abide by the Commission’s
determination as to the appropriate pricing schedule for this Agreement.Idaho Power supports
the pricing in Appendix E.Clark Solar 1 supports the pricing in Appendix F.
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
ORDER NO.33208 2
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 ensure 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
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.
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 Clark Solar 1 for purchases of energy will be allowed as prudently incurred
expenses for ratemaking purposes.Agreement ¶21.1.
COMMENTS
Initial Comments ofIdaho Power
On November 20,2014,Idaho Power filed initial comments with revised avoided cost
rates (Replacement Appendix E)based on modifications recommended by Commission Staff in
ORDER NO.33208 3
Case Nos.IPC-E-l4-19 (Grand View Solar)and IPC-E-14-20 (Boise City Solar).Grand View
Solar and Boise City Solar represent the first two PURPA solar contracts to be considered by the
Commission with rates calculated consistent with recent changes to the incremental cost IRP
methodology.Staff recommended adjustments of IRP methodology variables related to
assumptions about fuel forecast and assumptions about displaceable resources.Idaho Power,
Grand View Solar and Boise City Solar accepted Staff’s recommended adjustments and the
agreements —with Replacement Appendix E —were subsequently approved by the Commission.
See Order Nos.33179 and 33180.
Clark Solar 1 requested that Idaho Power re-run the pricing contained in its
Agreement to incorporate Staff’s recommended,and now Commission-approved,adjustments
from the Grand View Solar and Boise City Solar cases.At the time Idaho Power filed the
revised rates (Replacement Appendix E)with the Commission,Clark Solar 1 had not yet agreed
to adopt the rates contained in Replacement Appendix E.Idaho Power did not file a
Replacement Appendix F.
Commission Staff
Staff reviewed the purchase prices contained in Replacement Appendix E,1 Upon
review of the variables used by Idaho Power to calculate avoided cost rates using the incremental
cost IRP methodology,Staff discovered that Idaho Power,in its AURORA analysis,modeled the
hourly generation profile using an assumed standardized shape rather than using the Project’s
actual hourly generation shape.Staff noted that the generation shape assumed by Idaho Power
more closely matched that of a “flat plate”solar system instead of a “single axis”system,which
is the design for this Project.2 Staff’s recalculation of the avoided cost rates using the Project’s
actual generation profile instead of a standardized assumed profile resulted in a decrease of the
avoided cost rates.
Because use of the Project’s actual generation profile more accurately represents the
true avoided costs to the utility for the purchase of the Project’s power,Staff recommended use
l For comparison purposes,the 20-year levelized rate for the Agreement as originally submitted is $61.7 1/megawatt-
hour (MWh)and the rate from the Replacement Appendix E is $60.22/MWh.The estimated 20-year contractual
obligation based upon the originally submitted prices is $249,756,516 and the estimated 20-year contractual
obligation with the revised prices is $243,784,875.The levelized integration charge contained in the ESA is the
same in both instances at $4.1 5/MWh.
2 A flat plate system uses solar panels that are fixed and do not track movement of the sun in any direction.A single
axis system uses panels that track the sun’s movement in one direction.
ORDER NO.33208 4
of the avoided cost rates calculated in Idaho Power’s response to Staffs Third Production
Request instead of the rates included in the original Agreement accompanying the Company’s
Application and instead of the rates contained in Replacement Appendix E included in the initial
comments of Idaho Power.
Staff supported use of a July 2021 first capacity deficit because it accurately reflects
Idaho Power’s resource/deficit position.Selection and use of this capacity deficiency
assumption is also consistent with the Commission’s findings in Case No.IPC-E-14-22.
Therefore,Staff recommended approval of capacity deficiency as reflected in Appendix E and
rejection of capacity deficiency in Appendix F.Staff further maintained that the negotiated solar
integration charges in the Agreement are reasonable.
Staff reviewed all of the contract provisions and,with the exception of the
modifications listed above,Staff determined the Agreement’s terms were reasonable and comply
with prior Commission Orders.Therefore,Staff recommended that the Commission issue an
Order accepting the Agreement between Idaho Power and Clark Solar 1,incorporating the
avoided cost rates contained in Idaho Power’s response to Staffs Third Production Request
(which also reflect capacity deficiency consistent with the originally submitted Appendix E).
Staff further recommended that the Commission declare that all payments for purchases of
energy under the Agreement be allowed as prudently incurred expenses for ratemaking purposes.
Clark Solar 1 Reply Comments
On December 19,2014,Clark Solar 1 filed its comments with the Commission
agreeing to adjustments consistent with those approved by the Commission in the Grand View
Solar and Boise City Solar contracts,but with capacity payments as reflected in Appendix F.
Clark Solar 1 characterized the methodological adjustments as “basically incomprehensible to a
person of ordinary intelligence”and maintained that the price difference was “certainly within a
margin of error inherent in avoided cost estimations”but decided “it is not worth the effort
required to contest [the adjustments].”Clark Solar 1 Comments at 4.
Intermountain Energy Partners recommended approval of the pricing in Appendix F
which reflects a first deficit year for Idaho Power in 2016.IEP maintained that its Agreement
became a binding contractual obligation between the parties when it was executed on October
13,2014.IEP argued that,as of that date,the Commission-approved IRP methodology
contemplated a first deficit year of 2016.IEP acknowledged that,subsequent to the parties
ORDER NO.33208 5
entering into their Agreement,the Commission issued an Order confirming Idaho Power’s use of
a capacity deficit date of 2021.However,IEP stated that the Commission should adhere to its
well-established principle that Commission orders operate prospectively only.
Idaho Power Reply
On December 23,2014,Idaho Power filed reply comments.Idaho Power submitted
a Second Replacement Appendix E that incorporated Staffs additional recommended rate
adjustments consistent with Idaho Power’s response to Staffs Third Production Request.Idaho
Power also requested that the Commission affirm the pricing in the Second Replacement
Appendix E that utilizes a first capacity deficit of July 2021.Idaho Power argued that,despite
TEP’s legally enforceable obligation argument,the agreement between the parties is not binding
until it is reviewed and approved by the Commission.The Company maintained that the
Commission has already decided that 2021 is the appropriate capacity deficit for use in
determining avoided costs under the incremental IRP methodology.Consequently,Idaho Power
asked that the Commission affirm that July 2021 is the proper first capacity deficit for the
calculation of avoided cost rates for Clark Solar 1 ‘s contract.
Intermountain Energy Partners Sur-Reply
On December 24,2014,Intermountain Energy Partners filed a Motion requesting
permission to file sur-reply in response to Idaho Power’s reply comments.On December 31,
2014,the Commission granted IEP’s Motion.Order No.33203.Intermountain Energy Partners
filed sur-reply comments on January 5,2015.IEP informed the Commission that after
consideration of legal arguments and business practicalities,it agreed to accept the prices in the
Second Replacement Appendix E as submitted by Idaho Power in the Company’s reply
comments filed with the Commission on December 23,2014.IEP requested that,based on
agreement between the parties as to the appropriate appendix and pricing,the Commission
consider the matter fully submitted and issue an Order approving the contract.
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
ORDER NO.33208 6
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.
Congress enacted PURPA in response to a national energy crisis.“Its purpose was to
lessen the country’s dependence on foreign oil and to encourage the promotion and development
of renewable energy technologies as alternatives to fossil fuels.”FERC v Mississippi,456 U.s.
742.745-46 (1982).To encourage the development of renewable energy resources,PURPA
requires that electric 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.Unfortunately,PURPA does not address and
FERC regulations do not adequately provide for consideration of whether the utility being forced
to purchase QF power is actually in need of such energy.
Idaho Power’s 2013 Integrated Resource Plan does not reflect that the utility is in
need of energy to reliably serve its customers.And yet,in less than four months time,13 QFs
have contracted with Idaho Power for nearly 400 MW of solar generation —all expected to be
on-line and producing power by the end of 2015.The combined 20-year contractual obligation
of these 13 projects is approximately $1.4 billion.As we have previously stated,100%of the
costs of QF generation are passed on to ratepayers.
The purpose of utilizing the IRP methodology for these projects is to more precisely
value the energy being delivered to the utility.We appreciate the diligence of Commission Staff
in reviewing and modifying the variables used within the incremental cost IRP methodology in
order to produce an avoided cost that more accurately reflects the value of the energy from the
generation resource.The IRP methodology must be implemented in a way that recognizes the
actual generation characteristics of each project.We find that the most recent modifications
recommended by Staff and accepted by the parties regarding the generation profile used within
the IRP methodology are just and reasonable.We,therefore,approve the Agreement,including
the Second Replacement Appendix E,between Idaho Power and Clark Solar 1,LLC without
material change or condition.We find it reasonable to allow payments made under the
Agreement as prudently incurred expenses for ratemaking purposes.
We recently undertook a detailed review of the implementation of PURPA in Idaho.
See generally GNR-E-11-03.This Commission considered changes to numerous terms and
ORDER NO.33208 7
conditions contained in PURPA agreements.Recent modifications of variables within the
incremental cost JRP methodology confirm that the methodology provides flexibility that allows
us to accurately value each QF’s unique capability to deliver its resources.However,QFs
continue to request contracts with Idaho Power in significant enough numbers that we remain
concerned about the Company’s ability to balance the substantial amount of must-take
intermittent generation and still reliably serve customers.While we are pleased with the
progression of the IRP methodology,avoided cost rates are not the only terms to a PURPA
contract.The utilities are in the best position to inform the Commission if review of additional
PURPA contract terms and conditions is warranted.
ORDER
IT IS HEREBY ORDERED that the Agreement between Idaho Power and Clark
Solar 1,utilizing pricing in the Second Replacement Appendix E,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 §6 1-626.
ORDER NO.33208 8
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day’of January 2015.
PAUL KJE ANDE1LJPRESIDENT
N\u 15
MACK A.REDFORD,COMMISSIONER
L
MARSHA H.SMITH,COMMISSIONER
ATTEST:
7t$L77QP
Jei D.Jewell (‘,
Commission Seè’retary
O:IPC-E-I 4-28ks2
ORDER NO.33208 9