20200528Final_Order_No_34677.pdf

ORDER NO. 34677 1

Office of the Secretary
Service Date
May 28, 2020
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 BIG
WOOD CANAL COMPANY FOR THE SALE
AND PURCHASE OF ELECTRIC ENERGY
FROM THE SAGEBRUSH HYDRO
PROJECT
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CASE NO. IPC-E-19-38

ORDER NO. 34677

On December 9, 2019, Idaho Power Company (“Company”) applied for Commission
approval or rejection of its Energy Sales Agreement (“ESA”) with Big Wood Canal Company
(“Seller”) for the Sagebrush hydro project (“Sagebrush Facility”). The Sagebrush Facility is a
qualifying facility (“QF”) under the Public Utility Regulatory Policies Act of 1978 (“PURPA”).
On January 10, 2020, the Commission issued its Notice of Application and Notice of
Modified Procedure. Order No. 34528. The Commission Staff (“Staff”) filed written comments
on January 31, 2020. Wood Hydro, LLC (“Wood Hydro”) filed reply comments on February 5,
2020.1 The Company filed reply comments on February 21, 2020. March 17, 2020, Wood Hydro
filed supplemental reply comments.
Having reviewed the record, the Commission enters this Order approving the
Company’s Application as modified by the findings set forth below.
BACKGROUND
Under PURPA, electric utilities must purchase electric energy from QFs at purchase or
"avoided cost" rates approved by the Commission. 16 U.S.C. § 824a-3; Idaho Power Co. v. Idaho
PUC, 155 Idaho 780, 789, 316 P.3d 1278, 1287 (2013). The Commission has established two
methods for calculating avoided costs, depending on the size of 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 at 7-22.

1 Ted Sorenson represents that he is filing the Reply Comments on behalf of Wood Hydro. Sorenson is listed as a
governor of Wood Hydro according to records of the Idaho Secretary of State. He is also listed as an “Authorized
Agent” of Big Wood as set forth in the ESA. See ESA at p. 1, paragraph 1.2, and p. 33, paragraph 25.2.

ORDER NO. 34677 2

THE APPLICATION
The Sagebrush Facility is a 575 kilowatt (“kW”) nameplate capacity hydroelectric
facility near Gooding, Idaho. Application at 2. The Sagebrush Facility delivers energy to the
Company under a PURPA energy sales agreement executed on April 1, 1985. Id. at 2. The existing
energy sales agreement expires on May 31, 2020. Id. The Company and Seller intend the proposed
ESA to replace the expiring energy sales agreement. The Company represents the proposed ESA
complies with Commission orders regarding this type of agreement. Id. The Company asks the
Commission to process the Application before the current energy sales agreement expires. Id. at
6.
In the proposed ESA, Seller has contracted for non-levelized, seasonal hydro published
avoided cost rates as set by the Commission in Order No. 34350 for a 20-year term. Id. at 4.
Because this is a replacement ESA, it contains capacity payments for the entire term of the
Agreement. Id. at 3. The Company requests its Application be processed by Modified Procedure.
Id. at 6.
COMMENTS
1. Staff Comments.
Staff recommends approval of the proposed ESA between the Company and Seller
conditioned on the parties modifying the avoided cost rates in the ESA. Id. at 2. Staff’s
recommendation is based upon its review of the ESA, which was focused on: (1) the 90/110
rule with a five-day advanced notice for adjusting Estimated Net Energy Amounts; (2) eligibility
for and the amount of capacity payments; and, (3) verification of seasonal hydro status. Staff
Comments at 2.
Staff verified that the 90/110 provision is included in the ESA. Id. Staff confirmed
that the ESA adopted a five-day advance notice for adjusting Estimated Net Energy Amounts for
purposes of complying with 90/110 firmness requirements. Id. Staff noted that the Seller is being
paid for capacity at the end of the expiring contract and thus the proposed avoided cost rates
include capacity payments for the full term of the proposed ESA for the nameplate capacity of 575
kW. Id. at 2-3. However, Staff noted the nameplate capacity of the Sagebrush Facility has
increased by 145 kW from the previous 430 kW in the expiring contract. Id. at 3. Staff asserted
the Company has only reflected the amount of capacity contained in the expiring contract in its
resource planning, so it has only avoided the cost of the original 430 kW. Id. As a result, Staff
ORDER NO. 34677 3

asserts the Seller should only receive capacity payments for 430 kW. Id. Staff asserts the 145 kW
increase in nameplate capacity should be treated as a new project and receive capacity payments
only after the Company becomes capacity deficient. Id.
Staff proposed applying a blended avoided cost rate to the Sagebrush Facility’s 575
nameplate capacity. Id. at 4. The blended rates use the weighted-average of two sets of rates based
on their respective nameplate capacities: 1) energy payments and immediate capacity payments
based on the nameplate capacity of 430 kW in the expiring contract; and 2) energy and capacity
payments starting when the Company’s system becomes capacity deficient in 2026 based on the
incremental increase in nameplate capacity of 145 kW in the proposed ESA. Id.
Staff calculated the blended avoided cost rates for both seasonal and non-seasonal
hydro even though the Sagebrush Facility is classified as a seasonal project because if the
Sagebrush Facility fails to meet associated criteria for three calendar years it could be reclassified
as a non-seasonal hydro project for the remaining term of the ESA. Id.
2. Wood Hydro’s Reply Comments.
Wood Hydro states the Sagebrush Facility and the Jim Knight hydro project (“Jim
Knight Facility”) for which the Seller has filed proposed energy sales agreements in this case and
Case No. IPC-E-19-37, are near each other, on the same waterway, rely on the same water flows,
and are run by the same operator. Wood Hydro Reply Comments at 2. Wood Hydro asserts the
proposed energy sales agreements are materially identical, and the Facilities’ effects on the
Company’s system and resource planning can be viewed and received as one plant. Id. As a result,
Wood Hydro argues the 75 kW reduction in the Jim Knight Facility’s nameplate capacity was
contemplated by the Company’s IRP and would be filled by the increase in nameplate capacity for
the Sagebrush Facility, reducing the Sagebrush Facility’s resource expansion to an absolute
number of 70 kW. Id. Wood Hydro asserts that filling the void in the resource stack with QF
power matches the Commission’s reasoning in Order No. 32697 that initially separated energy and
capacity payments in the surrogate avoided resource method. Id.
Wood Hydro disagrees with Staff’s proposal for melding the new incremental capacity
with historical capacity and developing blended rates. Wood Hydro asserts this isn’t consistent
with PURPA’s avoided cost requirement or the means of handling new and existing capacity in
Order No. 32697. Wood Hydro alleges if nothing has changed in the “old capacity” of the
Sagebrush Facility, then this portion should be given the actual avoided cost rate as calculated by
ORDER NO. 34677 4

Commission order. Id. at 3. If the Sagebrush Facility’s production exceeds 430 kW any additional
amount could be treated differently. Id. Lastly, Wood Hydro asserts that if production does not
reach the outer limits of a plant’s capacity, penalizing capacity incorporated in the Company’s IRP
does not comport with PURPA or the Commission’s previous ratemaking. Id.
3. Company Reply Comments.
The Company agrees with Staff’s recommendation that only the nameplate capacity in
the expiring contract is entitled to capacity payments during the Company’s current capacity
deficiency period. Idaho Power Reply Comments at 2. The Company also doesn’t agree with
Wood Hydro’s request for a netting/offset between the Sagebrush and Jim Knight Facilities. Id.
The Company states it will move forward with whatever rate the Commission deems appropriate
for the proposed ESA. Id.
4. Wood Hydro Supplemental Comments.
Wood Hydro asserts the increase in nameplate capacity for the Sagebrush Facility
resulted from necessary upgrades to accommodate an increase in cubic feet per second flow
through its sister Jim Knight Facility. Wood Hydro Supplemental Comments at 1.
Wood Hydro asserts that Staff’s proposed blended rates are less than the avoided cost
rates that would be paid to the Seller for the old nameplate capacity of 430 kW. Id. at 2. Applying
the standard avoided cost rates, Wood Hydro alleges that if the Sagebrush Facility delivers only
430 kW throughout the year, the Seller would receive the full capacity payment for all energy
deliveries under the expiring contract. But if the blended rates are applied, the Seller would not
receive the same capacity payment until 575 kW is delivered. Id. at 2-3. Wood Hydro asserts the
better method is to pay old capacity (430 kW) at published rates for energy and capacity, and
incremental capacity at published rates for energy until the Company’s system becomes capacity
deficient in 2026. Id. at 3. Wood Hydro also suggests that the Commission could adopt a rule that
adding incremental capacity would not be an issue unless the addition exceeds 1 MW. Id.
Last, Wood Hydro states that approving Staff’s blended rates in a case processed by
Modified Procedure is inappropriate and that Commission Rule of Procedure 121 specifies
procedures and content for cases proposing new rates. Id.2

2 Rule 121, entitled Form and Content of Application to Change Rates, states in summary: “Applications by any public
utility . . . to increase, decrease or change any rate, fare, toll, rental or charge or any classification, contract, practice,
rule or regulation resulting in any such increase, decrease or change” must contain certain information.

ORDER NO. 34677 5

COMMISSION FINDINGS AND DECISION
The Commission has jurisdiction over 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. The Commission also has authority under PURPA and Federal Energy
Regulatory Commission (“FERC”) regulations to set avoided cost rates, to order electric utilities
to enter 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 Staff, and the reply comments of the Company and Seller. Based on our review, the
Commission finds it reasonable to approve the ESA based on the findings and conditions set forth
herein.
The Commission approves the ESA because it contains Commission-approved terms
that the Sagebrush Facility is eligible for based on its characteristics such as fuel source, project
size, generation output profile, and renewal contract status. However, such approval only allows
for the Seller to receive capacity payments for the previous nameplate capacity of the Sagebrush
Facility.
The Sagebrush Facility’s nameplate capacity is now 575 kW, 145 kW more than
existed with the expiring contract between the Company and Seller. Under the expiring contract,
the Seller is being paid for capacity for 430 kW. As such, 430 kW from the Sagebrush Facility is
already included in the Company’s load and resource balance and would not be surplus power.3
See Order No. 32697 at 21-22. The Commission finds it reasonable for the Seller to be paid for

3 In Case No. GNR-E-11-03 the Commission found:

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.

Order No. 32697 at 21-22 (emphasis added).
ORDER NO. 34677 6

capacity up to 430 kW for the full term of this renewal ESA. See Order No. 32697 at 21-22. The
Commission also finds that the 145 kW increase in capacity for the Sagebrush Facility comes at a
time when the Company is not capacity deficient. This “new” capacity is analogous to a new QF
whose output and pricing must be evaluated when an executed energy sales agreement with an
electric utility is filed with the Commission for review. Therefore, the Commission finds that the
Seller shall not receive capacity payments for the 145 kW increase to the nameplate capacity of
the Sagebrush Facility until the Company becomes capacity deficient.
The Commission also finds that all payments made by the Company for purchases of
energy and capacity under the ESA, as modified by this Order, are allowed as prudently incurred
expenses for ratemaking purposes.
While the Commission appreciates Staff’s creativity in developing a blended rate, it
is not a currently approved avoided cost calculation. The Commission also finds that the record
does not support Wood Hydro’s netting/offset argument. The Sagebrush Facility and Jim Knight
Facility are separate QFs, in different locations and under two different energy sales agreements.
Each QF is unique and must meet the eligibility requirements of both FERC and this Commission
to achieve this status without consideration of characteristics of a separate QF. Therefore, netting
between the projects would be inappropriate.
O R D E R
IT IS HEREBY ORDERED that the ESA, as modified by the Commission’s findings
herein, is approved, effective on the service date of this Order.
IT IS FURTHER ORDERED that all payments made by the Company for purchases
of energy and capacity under the ESA, as modified by this Order, are allowed as prudently incurred
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 about 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.
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ORDER NO. 34677 7

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 28th
day of May 2020.

PAUL KJELLANDER, PRESIDENT

KRISTINE RAPER, COMMISSIONER

ERIC ANDERSON, COMMISSIONER

ATTEST:

Diane M. Hanian
Commission Secretary

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