20181204final_order_no_34200.pdf

Office of the Secretary
Service Date
December 4,2018
BEFORE THE IDAHO Pt HI N TI L ITIES COMMISSION
IN THE MATTER OF APPLICATION OF )CASE NO.IPC-E-18-12
IDAHO POWER COMPANY FOR )APPROVAL OR REJECTION OF AN )
ENERGY SALES AGREEMENT WITH )ORDER NO.34200
MCCOLLUM ENTERPRISES,LIMITED )PARTNERSHIP,FOR THE SALE AND )
PURCHASE OF ELECTRIC ENERGY FROM )
THE CANYON SPRINGS HYDRO PROJECT )
On September 11,2018,Idaho Power Company ("Company")filed an Application
seeking approval of an Energy Sales Agreement ("ESA"or "Agreement")between the Company
and McCollum Enterprises,L.P.("McCollum").McCollum operates the Canyon Springs Hydro
Project ("Canyon Springs"or "Facility"),a qualifying facility ("QF")under the Public Utility
Regulatory Policies Act of 1978 ("PURPA").The QF is a l12 kW nameplate hydroelectric facility
near Twin Falls,Idaho.
BACKGROUND
PURPA was enacted in 1978 "to lessen the country'sdependence 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).Under PURPA and its
implementing regulations,utilities must purchase the power produced by QFs.16 U.S.C.§824a-
3(b);18 C.F.R.§292.303(a).The utility must purchase the power at the avoided cost rate.18
C.F.R.§292.304(a).The avoided cost represents "the incremental costs to an electric utility of
electric energy or capacity or both which,but for the purchase from the qualifying facility or
qualifyingfacilities,such utility would generate itself or purchase from anothersource."18 C.F.R.
§292.101(b)(6).State utilities commissions have broad discretion to set the avoided cost rates
within their respective jurisdictions.Rosebud Enterprises,Inc.v.Idaho PUC,128 Idaho 624,627,
917 P.2d 781,784 (1996).
QFs have the option to sell energy either (1)as it becomes available,or (2)pursuant to
a legally enforceable obligation.18 C.F.R.292.304(d).If a QF opts to sell energy as it becomes
available,the QF sells the energy pursuant to a standard tariff for non-firm energy.See Order No.
33053.In the case of Idaho Power,that tariff is Schedule 86.If a QF opts to sell energy pursuant
ORDER NO.34200 1
to a legally enforceable obligation,the QF sells the energy under terms established by the
Commission.See e.g.,Order No.33357.The Commission must establish published avoidedcost
rates for all QFs 100 kW and smaller.18 C.F.R.292.304(c)(l).The Commission,in its discretion,
may also establish published avoided cost rates for QFs above 100 kW.18 C.F.R.292.304(c)(2).
The Commission has established published avoided cost rates for non-wind and non-
solar QFs up to 10 aMW.Order No.32697 at 14.Wind and solar QFs up to 100 kW are entitled
to published avoided cost rates.Id.at 13.Published avoided cost rates are determined by the
Surrogate Avoided Resource methodology ("SAR").The Commission uses a combined-cycle
combustion turbine as the proxy resource in calculating published avoided cost rates under the
SAR methodology.Id.at 17.These published avoided cost rates are updated annuallyto reflect
updated natural gas forecasts.Order No.32802.
The Commission uses the Integrated Resource Plan ("IRP")methodology to determine
avoided cost rates for QFs that are not entitled to published avoided cost rates.The IRP
methodology "assesses the value of each QF project in terms of its capability to deliver resources
in relation to the timing and magnitude of the utility's need of such resources."Order No.32697
at 17.The Commission annuallyupdates certain inputs to the IRP methodology such as natural
gas forecasts,utilityload forecasts,and long-term contract commitments.Order No.32697 at 22
(timing of filing changed from June 1 to October 15 of each year by Order No.32802 at 3).
For both SAR-based and IRP-based rates,the Commission has determined that it is in
the public interest to compensate QFs separately for the energy they produce and the capacity they
contribute to the purchasing utility.Id.at 16.QFs selling energy under a SAR-based or an IRP-
based contract are not entitled to compensation for capacity until the utility's first capacity deficit
date.Order No.32697 at 21.The first capacity deficit date is determined through the IRP planning
process.Order No.33357 at 25-26.If a QF renews its contract with the utility,the capacity deficit
date is still determined as of the date the original contract was executed.Order No.33419 at 26.
See also Order No.32737 at 5 (clarifyingthat Staff will tailor SAR-based rates to include capacity
for renewal contracts from the outset).Schedule 86 contracts-for QFs that sell energy to Idaho
Power as it becomes available-do not have a separate energy and capacity component.
THE APPLICATION
The Facility has been selling power to Idaho Power under a Schedule 86 Uniform
Agreement dated September 22,2004.Id.at 4.The First Energy Date,the Operation Date,and
ORDER NO.34200 2
the termination of the Schedule 86 Uniform Agreement are set to occur on the first day of the
month after the Commission issues an Order approving the new ESA.Id.The new ESA is for a
20-year term and contains published non-levelized,non-seasonal hydro avoided cost rates.Id.at
3.Because the Agreement is a replacement contract for an existing QF,and the QF has been
included in the utility's load and resource mix since 2004,the proposed ESA contains capacity
payments for the entire term of the Agreement with no capacity sufficiencyperiod.Id.at 2.The
Company requests the Commission issue an order accepting the ESA,and declaring that all
payments made by Idaho Power for purchases under the ESA be allowed as prudentlyincurred
expenses for ratemaking purposes.
COMMENTS
A.Commission Staff.
Staff filed comments disagreeing with including capacity payments from the outset of
the Agreement.Staff believes that the QF is not entitled to capacity payments until the utility's
capacity deficit date of July 2026 because the QF is not currently receiving capacity payments
under the Schedule 86 standard contract with the Company.Staff notes that the Schedule 86
standard contract does not contain performance guarantees,such as the 90-110 performance band,
that are found in SAR-based or IRP-based contracts.Staff argues that the Company should not be
able to include a QF's contribution to capacity in its long-term resource planning until contractual
conditions designed to make the energy more firm are in place.Therefore,Staff argues,the QF
was not obligated to help the Company avoid capacity costs in its previous contract and should not
be compensated for doing so in its renewal contract until the utility's first capacity deficit date,as
determined on the date of the renewal contract.
B.Idaho Power.
Idaho Power filed reply comments indicating that the Company has been including the
generation from the QF in its IRP generation forecasts because it believes it is reasonable to rely
on the QF's historic output data for forecasting.Therefore,Idaho Power argues,the QF's existing
capacity has already been included in the utility's load and resource balance,and therefore could
not be considered surplus power.
C.Canyon Springs.
Canyon Springs filed reply comments indicating that the QF had a long-term energy
supply contract with the Company before 2004.Canyon Springs argued it would be unfair to
ORDER NO.34200 3
preclude the Facility from receiving capacity payments until the Company's capacity deficit date
in 2026 because the Company has been includingthe QF's energy in its resource stack.Therefore,
Canyon Springs asserts,Idaho Power customers have been receiving the benefits of energy and
capacity from Canyon Springs for just the price of energy since 2004.
COMMISSION FINDINGS AND DECISION
The Commission has jurisdictionover this matter under Idaho Code §§61-502 and 61-
503.The Commission is empowered to investigate rates,charges,rules,regulations,practices,
and contracts of public utilities and to determine whether they are just,reasonable,preferential,
discriminatory,or in violation of any provision of law,and to fix the same by order.Idaho Code §§
61-502 and 61-503.In addition,the Commission has authority under PURPA and Federal Energy
Regulatory Commission ("FERC")regulations to set avoided costs,to order electric utilities to
enter into fixed-term obligations for the purchase of energy from QFs,and to implement FERC
rules.The Commission may enter any final order consistent with its authority under Title 61 and
PURPA.
The Commission has reviewed the record,including the Application,the ESA,the
comments of Commission Staff,and the reply comments of Idaho Power and Canyon Springs
Hydro.Based on our review,we find it reasonable to approve the ESA.
The Application raises an issue of first impression for the Commission.Specifically,
whether a QF that has been selling energy under a standard non-firm contract (Schedule 86 in the
case of Idaho Power)is entitled to capacity payments from the outset of what amounts to a renewal
contract,or whether a QF changing from non-firm to firm delivery of energy must wait until the
utility's first capacity deficit date,as determined on the date of execution of a firm contract.In
previous orders we have addressed the issue of contract renewals that continue under SAR-based
or IRP-based contracts and have stated that "if a QF project is being paid for capacity at the end
of the contract term and the parties are seeking renewal/extension of the contract,the
renewal/extension would include immediate payment of capacity."Order No.32697 at 21-22.
We find here that the fact that the QF was not receiving a separate capacity payment under its
Schedule 86 contract is not fatal to the QF's ability to receive payment for capacity from the outset
of its IRP-based or SAR-based contract.
We find that the logic that underpins our previous determination that a QF is entitled
to immediate payment for capacity in a renewal contract based on the first capacity deficit date
ORDER NO.34200 4
established at the time the original contract was entered is applicable here.In Order No.32697,
we stated,"An existing QF's capacity would have already been included in the utility's load and
resource balance and could not be considered surplus power."Id.Idaho Power acknowledges that
it has included Canyon Springs'production in its IRP load and resource balances because it has
found it reasonable to rely on the QF's historic output data.Additionally,when Canyon Springs
executed a Schedule 86 standard contract with the Company in 2004,the Company was in a
capacity procurement phase.Order No.29672.Because the utility has been relyingon the QF's
power production for IRP planning purposes and to meet its capacity needs,and no significant
physical or operational changes are contemplated in the replacement contract,we find that it would
be unfair and unreasonable to delay capacity payments simply because the QF is exercising its
option to provide power pursuant to a firm contract.
ORDER
IT IS HEREBY ORDERED that the ESA between Idaho Power and McCollum
Enterprises is approved,effective on today's date.
IT IS FURTHER ORDERED that all payments made by Idaho Power for purchases of
energy and capacity under the ESA are allowed as prudentlyincurred expenses for ratemaking
purposes.
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 with regard to any
matter decided in 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.34200 5
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of December 2018.
PAUL KÏEl LANISR,PRESIDENT
KRIÛINE RAPER MISSÏONER
ERIC ANDERSON,COMMISSIONER
Diane M.Hanian
Commission Secretary
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