20190314Comments.pdf

EDWARD J. JEWELL
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720.0074
[phone]
IDAHO BAR NO. 10446
n flil[["/[lJ
l'i !ll I'i'l 3: 35
Street Address for Express Mail
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
APPLICATION OF IDAHO POWER FOR
CONSIDERATION OF AN ENERGY SALES
AGREEMENT WITH WOOD HYDRO.
CASE NO. IPC.E.19.O4
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission comments as follows on Idaho Power
Company' s Application.
BACKGROUND
On February 6,20l9,Idaho Power Company ("Idaho Power" or o'Company") filed an
Application seeking approval or rejection 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 qualiffing facility under the Public
Utility Regulatory Policies Act of 1978 ("PURPA"). Id.
Under the proposed ESA, Wood Hydro would sell and the Company would purchase
electric energy generated by the Black Canyon #3 hydro project. The Facility has a 130 kW
nameplate capacity. The Facility is owned by Big Wood Canal Company and leased by Wood
Hydro.
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1STAFF COMMENTS MARCH I4,2OI9
The Facility has been delivering energy to Idaho Power under a Power Purchase
Agreement dated March 2,1984. The Facility has a scheduled First Energy Date under the ESA
of April 1,2019.
Wood Hydro has elected an ESA with a Z}-year term with published non-levelized
seasonal hydro avoided-cost rates. The ESA contains capacity payments for the entire term of
the Agreement.
STAFF REVIEW
After a thorough review of the Company's ESA for the Black Canyon #3 Project, Staff
recommends the Commission approve the ESA. Staff s review has focused on: 1) 90/110
firmness rules; 2) the timing and the amount of the capacity payment; 3) seasonal hydro status;
and 4) adherence to the capacity size threshold to qualify for published rates.
90/110 Rule
QFs provide a monthly estimate of the amount of energy they expect to produce. If the
QF delivers more than 110 percent of the estimated amount, energy delivered in excess of I l0
percent is priced at the lesser of 85 percent of the market price or the contract price. If the QF
delivers less than 90 percent of the estimated amount, total energy delivered is priced at the
lesser of 85 percent of the market price or the contract price. Order No. 29632. Staff verified
that this provision is included in the ESA.
A change in the amount of advance notice was first proposed and subsequently approved
(see Commission Order No. 34263) in a renewal ESA between J. R. Simplot Company and Idaho
Power for generation from Simplot's Pocatello cogeneration plant in Case No. IPC-E-19-01.
Consistent with the Commission Order in that case, Staff recommends approval of the five-day
advanced notice for similar reasons in this case as described below.
Page 5 of the Application states that:
Wood Hydro is aware of J. R. Simplot Company's request that the notification of
Net Energy Amount monthly adjustments described in paragraph 6.2.3 be reduced
from one-month advanced notice to five business days' notice prior to the
upcoming month. To expedite the review of this ESA, Wood Hydro chose to not
include this language but respectfully requests to retain the option to amend the Net
Energy Amount adjustment methods in this ESA should the Commission accept
and approve J.R. Simplot Company's request.
2 MARCH I4,2OI9STAFF COMMENTS
On March 12,2019, two days before Staff s Comments were due, Staff was notified by
Idaho Power that the Company intends to file an Amendment to the notification of Net Energy
Amount monthly adjustments provision to match the five-day advance notice provision included
in the J.R. Simplot Company Application referenced above. However, the Company could not
guarantee that the amendment would be submitted in time for Staff to review it prior to
submitting its comments. The Company also shared through email the draft Replacement Page
(Attachment A) that would replace the corresponding page in the ESA to reflect the change.
Staff has reviewed the draft Replacement Page that reflects the amendment and believes
that the amended item Article 6.2.3 (Seller's Adjustment of Estimated Net Energy Amounts
After the Operation Date) is reasonable and matches Article 6.2.3 (Seller's Adjustment of
Estimated Net Energy Amounts After the Operation Date) in J. R. Simplot Company's ESA.
Staff recommends approval of the Amendment as long as the officially filed Replacement page
contains the same wording for Article 6.2.3 as included in the draft Replacement page. If the
submitted Replacement Page does not substantially comply with Article 6.2.3 in IPC-E-19-01,
Staff recommends approval of the Application as originally submitted.
Staff continues to believe that five-day advanced notice is reasonable and could
potentially be more accurate for the Company to use in its short-term planning as they enter into
the delivery month. This would be true for any contract regardless if it is a new or renewal
contract, because as a general rule, forecasts are typically more accurate closer to the time of
execution. In addition, the Wood Hydro facility has been delivering energy to the Company
since the 1980's, and therefore has extensive historical production data that the Company can use
for both short-term and long-term planning.
Staff still has concerns for QFs that lack extensive historical production and needs to
better understand the benefits of one-month advance notice that could be lost when extensive
historical generation data is not available. Staff would like to see more information comparing
the advantages and disadvantages of the two options. Staff recommends that these types of QF
contracts be examined on a case-by-case basis.
Capacity Pa)rment
The Company has submitted a replacement ESA with Wood Hydro that contains avoided
capacity payments that begin immediately at the start of the contract period. The current Power
Purchase Agreement does not include capacity payments. According to the criterion established
1JSTAFF COMMENTS MARCH I4,2OI9
in Commission Orders for determining eligibility for immediate capacity payment in
replacement contracts, Wood Hydro should not be eligible for immediate capacity payments in
its renewal ESA. However, Staff has recognizedthatthe conditions that existed at the time the
legal enforceable obligation (LEO) was established in the prior contract could prevent a QF from
qualifying for immediate payments under the criterion. In those cases, the QFs should still
qualify for immediate capacity payments under more broad PURPA and Commission guidelines.
Given that there is a possibility for exceptions, Staff did a careful analysis of the principles that
the Commission used to determine its criterion, and based on its analysis, Staff recommends that
the Wood Hydro project be eligible for immediate capacity payments.
The Commission established the criterion in Case No. GNR-E-I1-03 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 at2l. Responding to a Petition for Reconsideration in the same
case, the Commission further clarified "that the renewal or extension of an Agreement with a QF
will only [emphasis added] include immediate payment for capacity if the QF seeking renewal or
extension was being paid for capacity at the end of the prior Agreement." Order No. 32871 at 2.
Staff believes that a large majority of renewal contracts can be and have been fairly
evaluated for immediate capacity payments using the Commission's capacity payment criterion
discussed above. However, Staff is also aware that there may be exceptions, especially given the
recent exception given to McCollum Enterprises, L.P. (McCollum), authorizing an ESA for its
Canyon Springs Project in IPC-E-I8-I2. Inthat case, the Commission authorized immediate
capacity payments in McCollum's contract even though the QF was not receiving capacity
payments at the end of the prior agreement. Order No. 34200 at 4-5. The Commission made an
exception because Canyon Springs was operating under a Schedule 86 non-firm payment
schedule, which prevented McCollum from ever receiving capacity payments. However, the
Commission stated it qualified "because the utility has been relying on the QF's power
production for IRP planning purposes and to meet its capacity needs." Id. at 5.
Similarly, Wood Hydro was not eligible to receive capacity payments during its prior
contract. When the LEO was established in Wood Hydro's initial contract 35 years ago, the
Commission found, for purposes of determining avoided cost, that "the cost of incremental
capacity on the Idaho Power system is essentially zero." Order No. 18190 at 11. This finding
4STAFF COMMENTS MARCH I4,2OI9
was based on the information that the Commission knew at that time: the Company was energy
and not capacity constrained. 1d.
To be consistent, Staff utilized the Commission's approach in justifying its ruling in the
McCollum case by examining the specific circumstances of the case relative to the principles that
underpin the Commission's criterion as determined in Order No. 32697.
The primary question in determining capacity payment eligibility is whether or not the
operation of the QF permits the Company to avoid or defer adding future additional capacity. As
FERC stated in its Order No. 69, "[C]apacity payments can only be required when the
availability of capacity from a [QF] actually permits the purchasing utility to reduce its need to
provide capacity by deferring the construction of new plant or commitments to firm power
purchase contracts." Order No. 69, 45 Fed.Reg. at 12,225-26. However, to answer this question,
the timing of when capacity is being avoided and payments should begin has to be determined.
In Order No. 32697 the Commission has determined this timing as stated below:
In calculating a QF's ability to contribute to a utility's need for capacity, we find it
reasonable for the utilities to only begin payments for capacity at such time that the
utility becomes capacity deficient. If a utility is capacity surplus, then capacity is
not being avoided by the purchase of QF power. By including a capacity payment
only when the utility becomes capacity deficient, the utilities are paying rates that
are a more accurate reflection of a true avoided cost for the QF power. Order 32697
at2l.
Furthermore, the Commission used this rationale to develop its capacity payment eligibility
criterion for contract extensions and/or renewals.
It is logical 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. 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. Therefore, we find it
reasonable to allow QFs entering into contract extensions or renewals to be paid
capacity for the full term of the extension or renewal. 1d.
Although Wood Hydro does not qualifu for immediate capacity payments by not
receiving capacity payments at the end of its current contract, Staff does believe that Wood
Hydro has allowed the Company to avoid or defer capacity. Staffls justification is based on the
length of time Wood Hydro has been in operation and on the Commission's rationale that a QF is
eligible when the utility becomes capacity deficient.
5STAFF COMMENTS MARCH I4,2OI9
Aided by perfect hindsight and what is known at this time, Staff believes that during the
35-year original contract period, the QF has been contributing to the Company's need for
capacity starting when the Company became capacity deficient. Since about the year 2000, the
Company has added significant amounts of capacity such as Danskin (2001 and 2008), Bennett
Mountain (2005), and Langley Gulch (2012) gas plants. Because the Company went through
those multiple capacity deficiency periods during Wood Hydro's 35-year contract term, Staff is
confident that the project has contributed to the Company's need for capacity after the Company
became capacity deficient and has aligned with the rationale behind the capacity payment
criterion.
Seasonal Hydro Status
A "seasonal hydro" project is a hydro generation facility that produces at least 55% ofits
annual generation during the months of June, July, and August. Staff verified that this project is
expected to generate 55% of its annual generation during the three months according to its
Monthly Estimated Net Energy Amounts provided, and therefore it is categorized as a "seasonal
hydro" project. Staff confirmed that the ESA is based on the avoided cost rates of seasonal
hydro resources.
Capacitv Size Threshold
Page 4 of the Application states that "Wood Hydro plans to continue operating and
maintaining a 150 kilowatt ('kW') (Maximum Capacity Amount, paragraph B-4, Appendix B)
energy facility located near the city of Gooding, Idaho" and that "The nameplate rating of this
Facility is 150 kW". Idaho Power admitted through Response to the First Production Request
that "150" is a typographical error. It should read "130" in both places.
In order for a hydro project to quali$r for published rates, the project capacity cannot
exceed 10 aMW. Project capacity is determined on a monthly basis under normal or average
design conditions. In other words, the maximum monthly generation that qualifies for published
rates is capped at the total number of hours in the month multiplied by 10 MW. Order
No. 29632 at 14. This project has a 130 kW nameplate capacity and therefore produces less than
10 aMW on a monthly basis under normal or average conditions. Thus, Staff verified the project
is eligible for the published avoided cost rates.
6STAFF COMMENTS MARCH 14,2019
STAF'F RECOMMENDATIONS
Staff recommends the Commission approve the ESA contingent on the condition that the
amended page contained in the final ESA does not materially deviate from the draft amended
replacement page contained in Attachment A. If the submitted Replacement Page does not
substantially comply with Article 6.2.3 in IPC-E-19-01, Staff recommends approval of the
Application as originally submitted. Staff also recommends the Commission declare Idaho
Power's payments to Wood Hydro under the ESA be allowed as prudently incurred expenses for
ratemaking purposes.
Respectfully submitted this It4t^ day of Mar ch2019
J
Deputy General
Technical Staff: Yao Yin
i :umisc/comments/ipce l9.4ejyyrftnc comments
7STAFF COMMENTS MARCH I4,2OI9
REPLACEMENT PAGE 16
(Redline)
June
September
October
January
February
70,560
74,160
28,421
0
0
Season 3
6.2.2 Seller's Adjustment of Estimated Net Energy Amounts - Prior to the Operation Date, the
Seller may revise all of the previously provided monthly Estimated Net Energy Amounts
by providing written notice to Idaho Power in accordance with paragraph25.l.
Netif,eatien
Idon+h
N€{rcmb€r
Deeember
Janua#y
@I@
A,pri+
May
**ne
Jcy
Angust
SeptemUer
eeeber
Attachment A
Case No. IPC-E-19-04
Staff Comments
03ll4ll9 Page I of 3
6.2.3
ien
b,) Failure te previde timely rvritten notiee ef ehanges te the Estimeted Net Energ,'
rtmounts wilt Ue aee
Estimated Net Amounts - After
the Operation Date, the Seller may revise any future monthly Estimated Net Energy
Amounts by providing written notice no later than 5 PM Mountain Standard time on the
25th day of the month that is prior to the month to be revised. If the 25th day of the month
falls on a weekend or holiday, then written notice must be received on the last business
day prior to the 25th day of the month. For example, if the Seller would like to revise the
Estimated Net Energy Amount for October, they would need to submit a revised schedule
no later than September 25th or the last business day prior to Septemb er 25th.
a.) This written notice must be provided to Idaho Power in accordance with
paragraph 25.1 or by electronic notice as agreed to by both parties.
b.) Failure to provide timely written notice of changes to the Estimated Net
Energy Amounts will be deemed to be an election of no change from the
most recently provided Estimated Net Energy Amounts.
Attachment A
Case No. IPC-E-19-04
Staff Comments
03ll4l19 Page 2 of 3
REPLACEMENT PAGE 16
(Clean)
Season 3
June
September
October
January
February
6.2.2 Seller's Adjustment of Estimated Net Energy Amounts - Prior to the Operation Date, the
Seller may revise all of the previously provided monthly Estimated Net Energy Amounts
by providing written notice to Idaho Power in accordance with paragraph25.l.
6.2.3 Seller's Adjustment of Estimated Net Energv Amounts After the Operation Date - After
the Operation Date, the Seller may revise any future monthly Estimated Net Energy
Amounts by providing written notice no later than 5 PM Mountain Standard time on the
25th day of the month that is prior to the month to be revised. If the 25h day of the month
falls on a weekend or holiday, then written notice must be received on the last business
day prior to the 25th day of the month. For example, if the Seller would like to revise the
Estimated Net Energy Amount for October, they would need to submit a revised schedule
no later than September 25th or the last business day prior to Septemb er 25th.
a.) This written notice must be provided to Idaho Power in accordance with
paragraph 25.1 or by electronic notice as agreed to by both parties.
b.) Failure to provide timely written notice of changes to the Estimated Net
Energy Amounts will be deemed to be an election of no change from the
most recently provided Estimated Net Energy Amounts.
70,560
74,160
28,421
0
0
Attachment A
Case No. IPC-E-19-04
Staff Comments
03ll4ll9 Page 3 of 3
t6
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 14TH DAY OF MARCH 2019,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-E-19-04, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
DONOVAN WALKER
REGULATORY DOCKETS
IDAHO POWER COMPANY
PO BOX 70
BOrSE ID 83707-0070
E-mail : dwalker@idahopower. com
dockets@ idahopower.com
ENERGY CONTRACTS
IDAHO POWER COMPANY
PO BOX 70
BOrSE rD 83707-0070
E-mail: [e-mail]
TED SORENSON
WOOD HYDRO LLC
1032 GRAND VIEW DR
IVINS UT 84738
E-mail: [e-mail]
CERTIFICATE OF SERVICE