20190809Comments.pdf

MATT HLINTER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 10655
RECEIVED
?019 fiUG -9 Pl{ t2: tg
lil;,iiil f iJRtlC
;:i-1f i :S C0l,{MISSION
Street Address for Express Mail
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE TDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR APPROVAL
OF THE FIRST AMENDMENT TO THE
ENERGY SALES AGREEMENT FOR THE MC6
HYDRO LLC PROJECT
CASE NO. IPC.E,-Ig.2I
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission comments as follows on Idaho Power
Company's Application.
BACKGROUND
On July 3,2019,Idaho Power Company filed an Application seeking approval of the
First Amendment to its Energy Sales Agreement (ESA) with MC6 Hydro LLC. The ESA falls
under the Public Utility Regulatory Policies Act of 1978 (PURPA), and is a contract for the sale
and purchase of electric energy generated by the MC6 Hydro Project, a PURPA qualifying
facility (QF). The Amendment changes the Scheduled Operation Date from July 30,2019,to
August 31,2020.
Under PURPA, electric utilities must purchase electric energy from "qualifying facilities"
(QFO at purchase or "avoided cost" rates approved by this Commission. 16 U.S.C. $ 824a-3;
Idaho Power Co. v. Idaho PUC, 155 Idaho 780,789,3 l6 P.3d 1278, 1287 (2013). The
Commission has established two methods for calculating avoided costs, depending on the size of
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1STAFF COMMENTS AUGUST 9,2019
the QF project: (1) the surrogate avoided resource (SAR) methodology, used to establish
"published" avoided cost rates; and (2) the integrated resource plan (IRP) methodology, to
calculate avoided cost rates for projects exceeding published rate limits. See Order No. 32697
at7-8. Published rates are available for wind and solar QFs with a design capacity of up to 100
kilowatts (kW), and for QFs of all other resource types with a design capacity of up to 10
average megawatts (aMW). Id.; see also 18 C.F.R. $ 29n0a@).
The Commission approved Idaho Power's ESA with MC6 Hydro LLC in20l8. Order No.
34106. The ESA contains a Scheduled Operation Date of July 30,2019. Application at2. After
the ESA was executed and approved, a principle developer of the QF died unexpectedly, delaying
construction of the QF. 1d. On June 2l,z}lg,Idaho Power and MC6 Hydro LLC entered into an
agreed Amendment to their ESA, subject to this Commission's approval. Application at 1
In the Amendment, Idaho Power and MC6 Hydro LLC agree to delete Appendix B-3 of
the ESA-titled "Scheduled First Energy and Operation p4{s"-and replace it with a new
Appendix B-3 that changes the Scheduled Operation Date from July 30,2019, to August 31,
2020. Id. at2; see Attachment I of Application in Case No. IPC-E-18-09. The Amendment
provides that "[t]he July 30, 2019, Scheduled Operation Date will remain in effect only as the
start date for calculating any Delay Damages." Application at 2. If the Amendment is approved,
MC6 Hydro LLC's Delay Damages will be calculated from the original Scheduled Operation
Date in the ESA. Id.; see Attachment I of Application in Case No. IPC-E- 1 8-09.
STAFF REVIEW
The Company proposes to amend the scheduled operation date in the currently authorized
contract between MC6 Hydro and the Company from July 30, 2019, to August 31,2020. By
extending the date in the contract, the primary issue is whether or not the avoided cost rates in
the original contract should be maintained. Staff examined three questions through its
evaluation: (l) do Commission orders provide any guidance conceming the shelf life of PURPA
rates for contracting pu{poses; (2) how does the 28 months from the contracting date to the new
scheduled operation date compare with other PURPA contracts; and (3) what is the customer
impact over the life of the contract using avoided cost rates in the current contract versus using
the most recent authorized avoided cost rates.
2STAFF COMMENTS AUGUST 9,2019
Although the Commission has expressed concern about using "stale rates" in related
situations (see OrderNos. 33048,33197, and 33904), Staff believes thatthe amended scheduled
operation date is acceptable in this case.
Staff identified two instances when the Commission has shown concern about the shelf
life of PURPA rates. The first instance is when the QF files a complaint, the parties cannot agree
on a contract, and aLegally Enforceable Obligation (LEO) is established. In Order No. 33197,
the Commission states that "[a]llowing 365 days before rates are deemed stale strikes a balance
between the QF's desire for certainty in the rate and the utility's (and ultimately ratepayers')
interest in paying an accurate avoided cost." See Idaho Power Company's Schedule 73. In
Order No. 33048, the Commission states that "[w]e find it reasonable and just to allow a QF 365
days to deliver its electrical output from a determination that a legally enforceable obligation has
arisen." See Avista's Schedule 62.
The second instance was when Clark Canyon Hydro sought to amend the scheduled
operation date in its contract with Idaho Power. See Case No. IPC-E-14-15. Unlike the
circumstances in the present case, the contract signed by the parties in2014 was never approved
by the Commission. When the developer requested contract approval in2017, the scheduled
operation date had already passed. The developer requested that the operation date be amended
to December 2019 without amending the contract rates. Consequently, the amended date was
not supported by Idaho Power or Staff, and the Commission found that it would not be
reasonable to approve a contract with a lapsed scheduled operation date that rendered the
developer in breach.
The present case differs from these two instances because Idaho Power and MC6 have an
enforceable, Commission-approved contract. In the first instance, the Commission's remarks in
Order Nos. 33048 and 33197 concerned situations where the Commission, prompted by a
complaint from the QF, determines a LEO has arisen, despite the lack of a contract. By contrast,
Idaho Power and MC6 have an enforceable contract that has already been approved by the
Commission, and seek only to amend the scheduled operation date. In the second instance, Clark
Canyon Hydro sought to amend a contract that had not yet been approved by the Commission.
Had the Commission amended the contract as requested by Clark Canyon Hydro, the contract
would have been unenforceable because the contract provided that it "shall only become finally
effective upon the Commission's approval of all terms and provisions hereof without change or
condition." See Case No. IPC-E-14-15, Attachment 2 of Application at3l; Order No. 33904
STAFF COMMENTS AUGUST 9,2019aJ
at 4. Inthe present case, Idaho Power seeks to amend its enforceable, Commission-approved
contract in a manner allowed under the provisions of the contract. Thus, the present case is
significantly different than these two instances. Nevertheless, the Commission's rulings in these
two instances help Staff understand its concern for establishing avoided cost rates close to the
time that the projects begin operation in order to ensure the rates accurately represent the real
value ofenergy.
Staff also notes that Rocky Mountain Power's (RMP) Schedule 38-which defines the
contracting rules and timelines QFs and RMP are required to follow for IRP-based PURPA
projects-sets a time limit for scheduled operation dates to occur after a contract is established.
See Order No. 33474. Schedule 38 states that "[t]he scheduled commercial operation date must
not be greater than thirty (30) months after the execution date of the power purchase agreement."
Although MC6 is not an IRP-based project on RMP's system, the amended scheduled operation
date would meet Schedule 38's 30-month requirement.
By amending the scheduled operation date to August 31,2020, the timeframe between
the contracting date and the scheduled operation increases from 15 months to 28 months. Staff
compared this 2S-month timeframe against existing PURPA projects on Idaho Power's system
and found that the timeframes for existing PURPA projects range from a few months to almost
five years. Approximately 90oh of the contracts had timeframes that were less than 28 months.
Although the 28-month time period is on the high side, it is within the range compared to other
PURPA projects on Idaho Power's system.
Staff calculated about a 7Yo lower cost over the life of the contract using current rates
versus rates contained in the original contract. The net present value ofthe project based on the
rates in the original contract is $4.55 million, whereas the net present value of the project based
on the most recent version of the model approved in Order No. 34350 is $4.23 million.l
Requiring the contracting parties to use current authorized rates would result in lower costs to
customers. The reduced rates are primarily due to recent lower gas price forecasts that have been
incorporated into published avoided cost rates.
I The comparison is conducted on a contract period l}om 2020 to 2040, even though the original contract included a
contract period from 2019 to2039. Idaho Power emailed Staff a replacement Appendix D to include one additional
year of prices through 2040 based on the original version of the SAR model and will file the replacement Appendix
D with the Commission as soon as possible. See Attachment A.
STAFF COMMENTS AUGUST 9,20194
Staff believes it would be arbitrary to make a recommendation to withhold authorization
just because the cost to customers is lower. For example, it is common knowledge that the
historical trend of decreasing prices in the natural gas market was not foreseen over the past
decade including when the original rates were determined. It also stands to reason that current
low natural gas price predictions, driving down avoided cost rates, may not persist and could
possibly increase in the coming years. Staff believes its recommendation should be based on
having a reasonable time limit, rather than a higher or lower avoided cost. Since this timeframe
with the amended scheduled operation date is acceptable in this case.
However, the above-cited Commission orders and RMP's Schedule 38 show that the
Commission is concerned about the shelf life of avoided cost rates. Therefore, Staff believes that
establishing a time limit for rates to be binding in contracts would set a clear expectation for
parties negotiating contracts in the future. Without this expectation, Idaho Power could have
moved forward with the existing contract and collected delay damages until the project became
operational. But if a time limit was established, parties in this case would have been required to
update the currently authorized avoided cost rates. To establish a limit, fuither investigation may
be needed to evaluate what is the most reasonable and fair time limit between contracting dates
and scheduled operation dates.
STAFF RECOMMENDATIONS
Staff recommends approval of the amendment to change the scheduled operation date
from July 30,2019 to August 31,2020.
/A
Respectfully submitted this f day of August 2019
Matt Hunter
Deputy Attorney General
Technical Staff: Yao Yin
Rachelle Farnsworth
Travis Culbertson
i : umisc/comments/ipce I 9.2 I mhyyrftnc comments
5STAFF COMMENTS AUGUST 9,2019
rem,
An IDACORP Company
July 25,2019
Idaho Public Utilities Commission
Attention: Yao Yin
P.O. Box 83720
Boise, lD 83720
Re: MC6 Hydro Energy Sales Agreement - First Amendment
Ms. Yin,
Per our discussions regarding the First Amendment to the MC6 Hydro PURPA Energy Sales
Agreement ("ESA"), please find attached a replacement Appendix D to the ESA. The
replacement Appendix D contains one additional year of prices through 2040, which were the
published avoided cost prices approved by the Idaho Public Utilities Commission
("Commission") in Order No. 33773 and No. 33898 for a non-seasonal hydro PURPA
qualifying facility. These are the same avoided cost prices contained in the original ESA
approved by the Commission in Order No. 34106, but with one year of prices added to
Appendix D in order to administer the BSA, as amended, for the full term of the agreement.
lf you have any questions, please do not hesitate to contact mc.
Sincerely,
Michael Darrington
Idaho Power Company
Energy Contracts
Cc: Donovan Walker (ldaho Power)
Jerry Jardine (Idaho Porver)
Ted Sorensen (MC6 Hydro)
1221 W. ldaho 5t. {83702)
1"1;jil'rtrr, Attachment No. A' Case No. IPC-E- l9-21
Staff Comments
08/09119 Page I of4
D-1
APPENDIX D
(REPLACEMENT)
NON-SEASONAL HYDRO FACILITY ENERGY PRICES
(Prices based on 2.1 MW of Capacity)
Base Energ} l-leav.v l.oad Purcha$c Price - For all Base Enerry received during Heavy Load Hours,
Idaho Power will pay the non-levelized energy price in accordance with Commission Order 33773
dated May 31,2017, and 33898 dated October 5,2017, with seasonalization factors applied:
Season 1 -(73.50%) Season 2 - (120,00%) Season 3 - (100.00 %)
Year Mills/kWh Mills/kWh Mills/kWh
2019
2020
2021
2022
2023
2024
202s
2026
2027
2028
2029
2030
2031
2032
2033
2034
203s
2436
2037
2038
2439
2040
27.68
28.80
29.41
29.10
29.6s
30.87
33.29
58.52
59.82
6l.04
62.42
63.27
64.14
65.31
66.26
67.sl
68.91
70.33
71.9Q
73.12
7 4.61
76.37
45.19
47.02
48.02
47.52
48.41
50.40
54.3s
9s.s4
97.67
99.65
l0r,9r
103.31
104.7 |
106.62
r 08.1 9
I 10.21
112.51
114.83
117.39
119.37
121.82
124.68
37.66
39.t9
40.02
39.60
40.34
42.00
45.29
79.62
81.39
83.04
84.93
86.09
87.26
88.85
90.1 s
91 .85
93.75
95.69
97.82
99.48
101.52
103.90
Attachment No. A
Case No. IPC-E-19-21
Staff Comments
08/09/19 Page2of4
46
D-2 Ilase Energy l,tght l,oatl Purchas - For all Base linergy received during Light Load Hours,
Idaho Power will pay the non-levelized energy price in accordance with Commission Order 33773
dated May 31,2017, and 33898 dated October 5,2Al7,with seasonalization factors applied:
Season I - (73.50 %) Season 2 - (120.A0 %) Season 3 - (100.00 %)
Year Mills&Wh Mills/kWh MillslkWh
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2440
22.33
23.4s
24.06
23.75
24.30
25.52
27.94
53.17
54.47
55.69
57.07
57.92
58.79
59.96
60.9 r
62.16
63.56
64.98
66.55
67.77
69.26
71.02
36.46
38.29
39.28
38.78
39.67
4t.67
45.61
86.80
88.93
90_92
93.1 8
94.57
95.98
97.89
99.45
r 0l.48
103.77
r06.r0
r08.65
110.64
il3.08
I 15.9s
30.38
3r.91
32.74
32.32
n.a6
34.72
38.01
72.34
74.11
75.76
77.65
78.8 r
79.98
81.57
82.87
84.57
86.47
88.41
90.s4
92.20
94.24
96.62
Attachment No. A
Case No. IPC-E-19-21
Staff Comments
08109119 Page 3 of 4
47
D-3 At-!.!lpgg f,rcfg,y PriSg--'l'he price to be used in the calculation of the Surplus Energry Price and
Delay Damage Price shall be the non-leve lized energy price in acoordance with Commission Order
33773 dated May 31,2017, and 33898 dated October 5,2017, with seasonalization factors applied:
Year
Season | -(73.50%) Season 2 -(120.00%) Season 3 - (100.00 %)
Mills/kWh Mills/kWh Mills/kWh
20t9
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2438
2039
2040
25.30
26.42
27.03
26.72
27.27
28.49
30.91
56.14
57.44
58.66
60.04
60.89
61,76
62.92
63.88
65. l3
66.s3
67.95
69.52
70.74
72.23
73.99
4l.3r
43.14
44.13
43.63
44.52
46.52
50.46
91.65
93.'.78
95.76
98.03
99.42
r00.82
102.73
104.30
106.33
108.62
r 10.94
il3.50
11s.49
t17.93
r 20.E0
34.42
35.95
36.78
36.36
37.10
38.76
42.0s
76.38
78.r 5
79.80
8l .69
82.8s
84.02
85.61
86.91
88.61
90.s2
92.45
94.58
96.24
98.28
100.66
Attachment No. A
Case No. IPC-E-19-21
staff comments
08109119 Page 4 of 4
48
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 9TH DAY oF AUGUST 2019,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF IN
CASE NO. IPC-E-19-21, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
DONOVAN WALKER
REGULATORY DOCKETS
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-mail : dwalker@idahopower. com
[e-mail]
MIRIAH ELLIOTT
MC6 HYDRO LLC
1032 GRANDVIEW DR
IVINS UT 84738
MICHAEL DARRINGTON
ENERGY CONTRACTS LEADER
IDAHO POWER COMPANY
PO BOX 70
BOrSE rD 83707-0070
E-mail: [e-mail]
energycontracts@ idahopower. com
J-,4h
SECRETAR'/
CERTIFICATE OF SERVICE