20141229final_order_no_33198.pdf

Office of the Secretary
Service Date
December 29,2014
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
APPROVAL OR REJECTION OF AN
ENERGY SALES AGREEMENT WITH
MURPHY FLAT POWER, LLC FOR THE
SALE AND PURCHASE OF ELECTRIC
ENERGY.
)) CASE NO. TPC-E-14-32
)
)) ORDER NO. 33198
)
)
On October 17, 2014, Idaho Power Company filed an Application with the
Commission requesting acceptance or rejection of a Z0-year Energy Sales Agreement
(Agreement) between Idaho Power and Murphy Flat Power, LLC (Facility, ProjecQ. The
Application states that Murphy Flat would sell and Idaho Power would purchase electric energy
generated by the Project's solar photovoltaic facility located in Owyhee County, Idaho.
On November 6,2014, the Commission issued a Notice of Application and Notice of
Modified Procedure setting a comment deadline of December 5, 2014, and a reply deadline of
December 12,2014. Order No. 33168. On December 3,2014, Commission Staff filed a Motion
to extend the comment deadline. Based on the consent of all parties, the Commission granted
Staffs Motion. Order No. 33189. The comment deadline was extended until December 12,
20L4, and replies were to be filed no later than December 19,2014.
By this Order, we approve the Agreement between Idaho Power and Murphy Flat
with rates as reflected in the Second Replacement Appendix E.
THE APPLICATION
The Application states that the proposed Project expects to use JA 305w photovoltaic
panels with SMA inverters and utilize a single axis tracking system for its 20 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 (RP) 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 Z}-year term of the Agreement, the monthly rates
vary from approximately $33lmegawatt-hour (MWh) for light load hours in early months of the
ORDER NO. 33198
Agreement to as high as $143/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 $64.57lMWh.
The Agreement also contains negotiated solar integration charges as directed by the
Commission in Order No. 33043. Solar integration starts at a charge of $ 1 .95/It4Wh for the first
year of the Agreement (2016) and escalates to $3.52lMWh in 2036. The equivalent 20-year
levelized solar integration charge is approximately $2.46lMWh. The 20-year estimated
contractual obligation based upon the estimated generation levels applied to the avoided cost
rates and solar integration charges is approximately $67,953,626.
The Project has selected December 1,2016, 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 Murphy Flat have agreed to changes in some provisions that the
parties propose for Commission approval.
The Agreement contains provisions for a 90/ll0 firmness requirement, solar
integration charge and pricing adjustment. Idaho Power states that the 90/l l0 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 fuither
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
0RDER NO. 33198
allows for a 2%o deviation 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 prof,rle 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 Murphy Flat for purchases of energy will be allowed as prudently incurred
expenses for ratemaking purposes. Agreement fl 21.1.
COMMENTS
Initial Comments of ldaho 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
Case Nos. IPC-E-14-19 (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 Staffs recommended adjustments and the
agreements - with Replacement Appendix E - were subsequently approved by the Commission.
See Order Nos. 33 179 and 33180.
oRDER NO. 33198
Murphy Flat requested that Idaho Power re-run the pricing contained in its Agreement
to incorporate Staffs 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, Murphy Flat had not yet agreed to adopt the
rates contained in Replacement Appendix E. On December 3,2074, however, Murphy Flat filed
its own initial comments with the Commission agreeing to the rates contained in Replacement
Appendix E.
Commission Staff
Staff reviewed the purchase prices contained in Replacement Appendix E.l 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 Staffs 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 forthe purchase of the Project's power, Staff recommended use
of the avoided cost rates calculated in Idaho Power's response to Staff s 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 as
Attachment I to the initial comments of Idaho Power.
Staff confirmed that the capacity component of the rates was computed consistent
with the approved incremental cost IRP methodology. In making the computations, the
Company assumed a capacity deficiency period extending until July 2021. Staff supported use
' For comparison purposes, the 2O-year levelized rate for the Agreement as originally submitted is $64.57lmegawatt-
hour (MWh) and the rate from the Replacement Appendix E is $64.15/MWh. The estimated 20-year contractual
obligation based upon the originally submitted prices is $67,953,626 and the estimated 20-year contractual
obligation with the revised prices is $67,294,802. The levelized integration charge contained in the ESA is the same
in both instances at $2.46lMWh.
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.
ORDERNO.33198
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. Staff fuither 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 the Commission issue an Order
accepting the Agreement between Idaho Power and Murphy Flat, incorporating the avoided cost
rates consistent with Idaho Power's response to Staff s Third Production Request. Staff further
recommended the Commission declare that all payments for purchases of energy under the
Agreement be allowed as prudently incurred expenses for ratemaking purposes.
Murphy Flat Reply Comments
On reply, Murphy Flat consented to the use of avoided cost rates consistent with
Staffls recommended modifications and included in Idaho Power's response to Staffs Third
Production Request. Murphy Flat requested that the Commission approve its Agreement based
on prices to be submitted by Idaho Power in the form of a substituted Appendix E.
Idaho Power Reply Comments
Idaho Power filed reply comments on December 19, 2014, that included a Second
Replacement Appendix E consistent with Stafls recommended modifications to the IRP
methodology variables. Idaho Power requested that the Commission incorporate and approve
the Second Replacement Appendix E with its approval of the Agreement.
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.
ORDER NO. 33198
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 energytechnologies as alternatives to fossil fuels." FERCv 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(bX2); 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 2016. The combined 20-year contractual obligation
of these l3 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. However, while fuel costs of Idaho Power's existing resources will be displaced by
PURPA generation, the capital costs of the utility's displaced resources will continue to be
recovered through ratepayers' bills along with the costs of the QF power.
We appreciate the diligence of Commission Staff in reviewing and modifying the
variables used within the 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 arejust and reasonable.
We, therefore, approve the Agreement, including the Second Replacement Appendix E, between
Idaho Power and Murphy Flat Power, 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 general/y GNR-E-I l-03. This Commission considered changes to numerous terms and
ORDERNO.33198
conditions contained in PURPA agreements. Recent modifications of variables within the
incremental cost IRP 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 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 Murphy
Flat Power, 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 ldaho Code $ 61-626.
ORDERNO.33198
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
"{day of December 2014.
ATTEST:
PAUL KJ
MACK A. REDFORD,
MARSHA H. SMITH,MMISSIONER
,.^. D ;.
D. Jewel
0ommission
oRDER NO. 33198