20190329final_order_no_34295.pdf

Office of the Secretary
Service Date
March 29,2019
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF APPLICATION OF )CASE NO.IPC-E-19-04
IDAHO POWER COMPANY FOR )
APPROVALOFANENERGYSALES )
AGREEMENT WITH WOOD HYDRO )ORDER NO.34295
On February 6,2019,Idaho Power Company ("IdahoPower"or "Company")filed an
Application seeking approval of an Energy Sales Agreement ("ESA"or "Agreement")with Wood
Hydro LLC ("Wood Hydro")for energy generated by the Black Canyon #3 hydro project
("Facility").The Facility is a 150 kW nameplate capacity hydro facility near Gooding,Idaho.The
Facility is a qualifying facility ("QF")under the Public Utility Regulatory Policies Act of 1978.
On February 21,2019,the Commission issued a Notice of Application and Notice of
Modified Procedure that set a comment deadlineof March 14,2019,and a reply comment deadline
of March 21,2019.Order No.34244.Staff filed comments,and the Company filed reply
comments.
With this Order we approve the Application and ESA between Idaho Power and Wood
Hydro.
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 producedby 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 another source."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
ORDER NO.34295 1
available,the QF sells the energy under 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
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 avoided cost
rates for all QFs 100 kW and smaller.18 C.F.R.292.304(c)(1).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'sneed of such resources."Order No.32697
at 17.The Commission annuallyupdates certain inputs to the IRP methodology such as natural
gas forecasts,utility load 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'sfirst capacity deficit
date.Order No.32697 at 21.The first capacity deficit date is determinedthrough 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 (clarifying that 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.
ORDER NO.34295 2
THE APPLICATION
The Agreement is a renewal contract.The Facility has been delivering energy to Idaho
Power under a Power Purchase Agreement ("PPA")dated March 2,1984.The prior PPA is
between Idaho Power and the Big Wood Canal Company.For the renewal ESA,Wood Hydro
will lease the Facility from Big Wood Canal Company and operate the Facility and sell the
electricity to Idaho Power.The Agreement contains published avoided cost rates for seasonal
hydro projects of 10 aMW or less and contains capacity payments for the entire term of the
Agreement.The Agreement is for a 20 year term with non-levelized rates.The Agreement,as
amended,contains the Net Energy Amount monthlyadjustment approved by the Commission in
Order No.34263 for monthly generation estimates for the 90/110 performance band ("5-Day
Ahead provision").
COMMENTS
Commission Staff filed comments recommending Commission approval of the
Application.The Company filed reply comments with an amendment to the ESA.
A.Commission Staff
Staff's review focused primarily on the 5-Day Ahead provision and including capacity
payments from the outset of the renewal contract.As originally submitted,the ESA contained a
month-ahead generation estimate provision.However,the Application contained a clause stating
that the QF had retained the right to amend the contract to the 5-Day Ahead provision.In its
comments,Staff stated that both the month-ahead provision and the 5-Day Ahead provision are
currently approved by the Commission and would be reasonable in this case.Therefore,Staff
recommended approval of the Agreement with either provision.
Staff analyzed the issue of capacity payments from the outset of the renewal contract
and recommended approval of such.The Commission has established 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.Here,the Facility was not receiving capacity payments at the end of the contract
term,despite the original Power Purchase Agreement being signed in 1984.But Staff argued that
the QF should receive capacity payments from the outset of the renewal contract in this case
because the utility has acquired capacity at certain points since the original contract was signed.
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Staff pointed to Danskin coming online in 2001 and 2008,Bennett Mountain in 2005,and Langley
Gulch in 2012.
As support for its rationale,Staff cited Commission Order No.34200 in which the
Commission approved capacity payments for a QF that,before its renewal contract,had been
receiving payments under Schedule 86 (which do not include capacity payments).In that Order,
the Commission looked to the fact that the utility had occasionally procured capacity after the QF
started selling energy to the utility under Schedule 86.The Commission also recognized that the
utility had included the QF's production in its IRP load and resource balances.The Commission
decided that approving capacity payments from the outset of the renewal contract was appropriate
there because the QF's energy had helped the utility avoid procuring or building more capacity.
B.Idaho Power.
Idaho Power filed reply comments with an amendment that changed the monthly
generation estimates under the 90/110 performance band from month ahead to the 5-Day Ahead
provision.Idaho Power noted that the Application explicitlycontemplated an amendment to this
provision and that the Commission had approved the same provision in Order No.34263.
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 authorityunder 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.Based on our review,
we find it reasonable to approve the ESA.We find that the ESA contains acceptable contract
provisions consistent with PURPA,FERC regulations,and this Commission's prior orders.We
find it reasonable to approve the 5-Day Ahead provision here because the utility has historical
generation data from the Facility to supplement the generationestimates provided by the QF.We
ORDER NO.34295 4
also find that Wood Hydro is eligible for published seasonal hydro rates.Regarding capacity
payments for the duration of the renewal contract,a consistent application of the rationale in Order
Nos.32697 and 34200 supports approval of the ESA.Idaho Power procured capacity after the QF
entered its original contract,and the QF's capacity has been included in the utility's load and
resource balance.Therefore,the QF's energy has helpedthe Company avoid buildingor procuring
more capacity and cannot be considered surplus power.See Order Nos.34200 at 5,32697 at 21.
We find it reasonable to allow payments made under the replacement ESA as prudentlyincurred
for ratemaking purposes.
ORDER
IT IS HEREBY ORDERED that the ESA between Idaho Power and Wood Hydro is
approved,effective April 1,2019.
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.34295 5
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of March 2019.
PAUL K LLAND ,PRESIDENT
KRIS E RAPER,COMMISSIONER
ERIC ANDERSON,COMMISSIONER
Diane M.Hanian
Commission Secretary
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