20230926Comments of the Commission Staff.pdf

CHRIS BURDIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE,IDAHO 83720-0074
[phone]
IDAHO BAR NO.9810
Street Address for Express Mail:
11331 W CHINDEN BLVD,BLDG 8,SUITE 201-A
BOISE,ID 83714
Attorneyfor the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER )COMPANY'S APPLICATION FOR A )CASE NO.IPC-E-23-20
CERTIFICATE OF PUBLIC CONVENIENCE )
AND NECESSITY TO ACQUIRE )
RESOURCES TO BE ONLINE IN BOTH 2024 )COMMENTS OF THE
AND 2025 AND FOR APPROVAL OF AN )COMMISSION STAFF
ENERGY STORAGE AGREEMENT WITH )KUNA BESS LLC
COMMISSION STAFF ("STAFF")OF the Idaho Public Utilities Commission,by and
through its Attorneyof record,Chris Burdin,Deputy AttorneyGeneral,submits the following
comments.
BACKGROUND
On May 26,2023,Idaho Power Company ("Company"),filed an application
("Application")with the Idaho Public Utilities Commission ("Commission")requesting an order:
(1)granting the Company a Certificate of Public Convenienceand Necessity ("CPCN")to
acquire a total of 101 megawatts ("MW")of new dispatchable energy storage to meet identified
capacity deficiencies in both 2024 and 2025;(2)approving the 20-year Energy Storage
Agreement ("ESA")between Kuna BESS LLC ("Kuna BESS"or "Seller")and the Company for
150 MW of dispatchable energy storage capacity;and (3)acknowledging the lease accounting
STAFF COMMENTS 1 SEPTEMBER 26,2023
RECEIVED
2023 September 26 3:15 PM
IDAHO PUBLIC
UTILITIES COMMISSION
necessary to facilitate the transaction,and that the resulting expenses associated with the ESA
are prudentlyincurred for ratemaking purposes.The Company asserts approval of the
Application is necessary "to position the Company to meet its obligation to provide safe,reliable
service to its customers."Application at 2.
The Company represents that several converging factors,includinglimited third-party
transmission capacity,load growth,and a decline in the peak serving effectiveness of certain
supply-side and demand-side resources have caused the Company to rapidly move to a near-term
capacity deficiency starting in 2023.Id.at 5.The Company states that these dynamic
circumstances led the Company to file a request for a CPCN to acquire resources to be online in
2023,as well as a CPCN to acquire resources to be online in 2024,and the Company expects to
acquire additional resources each year thereafter through 2027.Id.
The Company represents that it must acquire additional dispatchable resources to meet
identified capacity deficits on its system to comply with its continuing obligation to serve
customers.Id.at 3.The Company states that the proposed acquisition represents a cost-effective
means of providing adequate and reliable service to the customers in the Company's certificated
service territory.Id.
The Company represents that it conducted a competitive solicitation through a Request
for Proposals ("RFP")seeking to acquire energy and capacity to help meet the Company's
previouslyidentified capacity needs of 85 MW to be online by June of 2024,and an incremental
115 MW in 2025.Id.at 6.
The Company represents that the RFP process resulted in the selection of a 150 MW
energy storage project,consisting of a 20-year ESA for a 150 MW battery storage facility,77
MW of Company-owned battery storage to meet the 2025 capacity deficiency,and an additional
24 MW of Company-owned battery storage for the 2024 capacity need.Id.
The Company represents that the ESA acts as a type of lease through which Kuna BESS
will develop,design,construct,own,and operate the battery storage system in accordance with
the terms of the Agreement.Id.at 7.The Company will supply the charging energy for the
system and have the exclusive right to dispatch and use the charging and discharging energy in
exchange for a monthlypayment.Id.
The ESA has a Scheduled Commercial Operation Date of June 1,2025,prior to the
Company's projected capacity deficit in July of 2025.Id.at 7-8.The ESA also provides for a
STAFF COMMENTS 2 SEPTEMBER 26,2023
Guaranteed Commercial Operation Date,which is 180 days after the Scheduled Commercial
Operation Date.Id.at 8.The ESA also requires Kuna BESS to post and maintain Credit
Support which secures payment of the Termination Payment for an Event of Default by Seller,
Delay Damages for Seller's failure to achieve Commercial Operation Date by the Expected
Commercial Operation Date,and any other Seller liabilities under the ESA.Id.
The Company represents that the 77 MW battery storage facility will be located at the
Happy Valley station,and that the Company can address the 2024 capacity deficiency
economically and efficiently by adding 24 MW of battery storage at the Hemingway substation.
Id.at 9-10.The Company states that it intends on executing a Battery Energy Supply Agreement
for the 24 MW battery storage with Powin Energy Corporation.Id.
The Company represents that it is not requestingbinding ratemaking treatment for the
101 MW of battery storage in this case.The Company will make a future filing to address the
cost recovery associated with these projects.Id.at 11-12.
The Company represents that with respect to the ESA,under Generally Accepted
Accounting Principles ("GAAP"),any contract that provides the right to control an identified
asset over a period of time is considered a capital lease.Id.at 12.The Company requests that
the Commission acknowledge that the lease accounting is necessary to facilitate the transaction,
and that the Commission find that the expenses associated with the ESA are prudentlyincurred
expenses for ratemaking treatment.Id.The Company states that it will address any regulatory
accounting necessary and required under GAAP in a later proceeding closer to commencement
of operation of the battery storage facility.Id.
The Company represents that in 2013,the Commission directed the Company to follow
the RFP guidelines applicable to its Oregon service territory,which were later codified into the
administrative rules of the Public Utility Commission of Oregon ("OPUC Resource Procurement
Rules").Id.at 13-14.The Company states that coincident to filing this Application,the
Company filed an exception request with the OPUC and is currentlycompliant with the OPUC
resource acquisition process.Id.
The Company represents that it intends to finance the 101 MW of energy storage with a
combination of available cash and operating cash flow;available facilities and borrowing and
debt issuances;and potential future equity issuances by IDACORP.Id.at 14-15.
STAFF COMMENTS 3 SEPTEMBER 26,2023
STAFF ANALYSIS
Staff's review focused on the capacity deficiency in 2024 and 2025,the RFP process,the
turn-keycosts of the 24 MW of Battery Energy Storage System ("BESS")capacity,the turn-key
costs of the 77 MW of BESS capacity,and the 20-year ESA.Staff believes that the proposed
projects are the least-cost,least-risk projects among all the final shortlisted projects.However,
Staff believes that due to the issues associated with the resource selection process,the bid pool
could have been larger and there could have been additional shortlisted projects.Therefore,Staff
recommends that the Commission establish a soft cap for the 24 MW BESS,the 77 MW BESS,
and the 150 MW ESA.Specifically,Staff recommends:
1.Approval of the CPCN to acquire 24 MW and 77 MW of BESS capacity to meet
the 2024 and 2025 capacity deficiencies,respectively;
2.Setting a soft cap for the turn-keycosts of the 24 MW and 77 MW BESS projects
at the amounts specified in Paragraph 1 and 2,respectively,of Confidential
Attachment A,unless the Company presents sufficient evidence that amounts
over the cap are justified when the Company seeks cost recovery;
3.The additional overbuild capacity of 5.8 MW for the 24 MW BESS and the 17.25
MW for the 77 MW BESS be subject to a full prudence review if the Company
seeks recovery and after the overbuild capacity becomes used and useful;
4.Declaration that the expenses associated with the ESA,as proposed,are prudently
incurred for ratemaking purposes;
5.The Company seek a prudence determination of incremental expenses outside of
the contracted prices in the ESA as listed in Exhibit No.6 of Hackett's Direct
Testimony,if any,when the project becomes operational;
6.Approval of the ESA,conditioned on the Parties updating Section 19.3 of the
ESA to reflect the significance of Commission approval;
7.Acknowledgement that lease accounting is necessary to facilitate the transaction
of the ESA;and
8.The Company address the issues Staff identified in the resource selection process
in future RFPs,regardless of whether the Company files an exception with the
Oregon Public Utilities Commission ("OPUC").
STAFF COMMENTS 4 SEPTEMBER 26,2023
I.Procurement Guidelines and Requirements
The Commission directed the Company to follow Oregon's procurement guidelines,
which Staff used as a basis to evaluate the Company's RFP process.Order No.32745 at 2.
Althoughthe Company is filing an exception request with the Oregon Public Utilities
Commission (Application at 14),Staff believes the procurement guidelines exist for a reason and
should be followed to the greatest extent possible,only relaxing requirements with justification
directly tied to the specific reasons for filing an exception.
II.Prudence of Projects based on Company'sNeed for Capacity
Staff recommends:(1)approval of the CPCNs for the 24 MW BESS based on the
Company's need for capacity in 2024,and (2)approval of the CPCN for the 77 MW BESS and
of the 150 MW ESA based on the Company's need for capacity in 2025.
Need for Capacity in 2024
Staff believes that the additional capacity deficiency in 2024 that drove the need for the
24 MW BESS is justified.Besides the 103 MW of capacity deficiency in 2024 that drove the
resources proposed in Case No.IPC-E-23-05,the Company identified an additional 8 MW of
capacity deficiency during preparation of the 2023 IntegratedResource Plan ("IRP")in May
2023.Response to Staff Production Request No.7.
The Company explains that the main factors that contributed to the additional 8 MW
capacity deficiency included (1)reduced resource availabilityassociated with the Capacity
Benefit Margin ("CBM"),(2)identification of an over-allocation of capacity of a resource in the
Loss of Load Expectation ("LOLE")calculation,and (3)the unexpected 20 MW derate at
Langley Gulch.Ellsworth,Di.at 18.Staff agrees that the first two reasons have contributed to
the existing 103 MW of capacity deficiency addressed in Case No.IPC-E-23-05.Ellsworth,Di.
at 14-21 in Case No.IPC-E-23-05.Staff also agrees with the Company that the main factors that
contributed to the additional 8 MW capacity deficiency included (1)the unexpected 20 MW
derate at Langley Gulch and (2)the updated load forecast that incorporated the 2023 Loss Study.
Attachment 1 of Supplemental Response to Staff Production Request No.36 in Case No.IPC-E-
23-05.
STAFF COMMENTS 5 SEPTEMBER 26,2023
Staff performed a thorough review of the inputs and the assumptions used in the
Reliability &Capacity Assessment Tool ("R-CAT")model used to determine the 2024 capacity
deficit in the Company's system and believes the amount of the deficit is reasonable.
Need for Capacity in 2025
Staff believes that the capacity deficiency in 2025 that drove the need for the 77 MW
BESS and the 150 MW ESA is justified.The RFP was issued based on a 115 MW capacity
deficiency in 2025,which was identified through the Valmy Unit 2 closure analysis performed as
directed in Order No.34349.Supplemental Response to Staff Production Request No.3.
Subsequently,during the preparation of the 2021 IRP,a 125 MW capacity deficiency was
identified for 2025.Supplemental Response to Staff Production Request No.3.Therefore,the
Company issued Addendum No.3 of the RFP to clarify the updated capacity deficiency.
Response to Staff Production Request No.3.Later,the capacity deficiency grew to 178 MW
during preparation of the 2023 IRP in May 2023.Response to Staff Production Request No.6.
The main factors that contributed to the increase included:
1.A change of the LOLE target from 0.05 event-days per year to 0.1 event-days per
year;
2.use of a 70th percentile peak load forecast instead of a 50th percentile peak load
forecast;
3.adjustments to resource capacities to account for Equivalent Forced Outage Rates
during Demand ("EFORd")using a 5-year rollingaverage from the North
American Electric Reliability Corporation ("NERC")GenerationAvailability
Data System ("GADS");
4.reduced resource availabilityassociated with CBM;
5.updated load forecast;
6.inclusion of current transmission reservations;
7.new resource additions;
8.reduced availabilityof American Falls hydro facility;
9.derates at Langley Gulch;and
10.two solar PURPA projects in Oregon that are uncertain to come online by the
summer of 2025.
STAFF COMMENTS 6 SEPTEMBER 26,2023
Ellsworth,Di.at 10-18.
Staff performed a thorough review of the inputs and the assumptions used in the R-CAT
model used to determine the amount of the 2025 deficit and believes the amount is reasonable.
III.Prudence of Projects Based on Cost
Staff believes that the proposed projects,without the overbuilds as discussed later,are the
least-cost,least-risk projects among all the final shortlisted projects to meet the 2024 and 2025
capacity deficits.Staff based its conclusions on the Long-term Capacity Expansion Model
("LTCE")analysis conducted by the Company.
However,Staff believes that due to the issues associated with the resource selection
process,the bid pool could have been larger and there could have been additional final
shortlisted projects with lower costs.Because of these reasons,Staff recommends a soft cap for
the 24 MW BESS and the 77 MW BESS projects,without the capacity and the cost of the
overbuilds,as specified in Paragraph 1 and Paragraph 2 of Confidential Attachment A,
respectively,and that the 150 MW ESA be capped at the contract price established in the
Application unless the Company presents evidence that any additional costs are justified when
the Company seeks cost recovery.
The Resource Selection Process
Staff believes the Company generally conducted a fair and transparent resource selection
process.However,there are several key issues that have caused Staff to question whether the
Company's RFP process resulted in projects that are least-cost,least-risk resources for Idaho
ratepayers.These issues include the limited bid pool,transparency of weighting factors,
qualitative evaluations for standalone BESS,and the sequence of events in the final selection
process.
Limited Bid Pool
When the Company issued the RFP,the Company limited the size of the bid pool by
restricting ownership and resource types,preventing the Company from receiving potential
additional bids.Instead,the Company should have allowed all potential resources to bid into the
All-Source RFP and should have used scoring metrics and criteria to narrow the bid pool.By
STAFF COMMENTS 7 SEPTEMBER 26,2023
limitingthe bid pool when the Company first issued its RFP,the Company may have excluded
resources that could be obtained at a bargain price to Idaho's ratepayers.
The Company revised the RFP on April 13,2022,through an addendum to allow
respondent ownership of standalone BESS,but respondent ownership of BESS was still not
allowed in "Solar +BESS"and "Wind +BESS"projects.Exhibit No.4 of Hackett's Direct
Testimony.Althoughthe Company stated that some respondents still provided bids with PPA-
based storage components (Response to Staff Production Request No.14),additional bids might
have been submitted that were lower in overall cost,if ownership was not restricted.
Althoughthe RFP was called "2022 All-Source RFP,"certain resource types were not
allowed in the RFP.Exhibit No.4 of Hackett's Direct Testimony.For example,even though
gas-fired plants convertible to hydrogen plants were allowed,non-convertible gas-fired plants
were not allowed in the RFP.The Company explained that ensuring gas-fired plants could
convert to hydrogen would provide greater long-term operational viabilityof the resources given
the uncertainty of future clean energy policies and was consistent with the resource assumptions
used in the 2021 IRP.Response to Staff Production Request No.21 in Case No.IPC-E-23-05.
However,Staff believes that by only allowingconvertible gas-fired projects to submit bids,it
might have discouraged bids from potential non-convertible gas-fired plants that might be
available and could be a potential bargain for Idaho ratepayers.Staff also believes the Company
should not bias the types of resources based on resources included for selection in the IRP,since
they are proxy resources with assumed costs.The purpose of an RFP is to determine potential
resources that are available in the market.Until actual bids are received,the availability of
certain resources and their costs are unknown.
Transparency of Weighting Factors
Staff believes the Company adequately described the evaluation,negotiation,and
approval processes in the RFP and embedded the metrics and criteria used to score each of the
bids directlyin the forms each bidder submitted to the Company for evaluation.This allowed
each bidder to understand how their bids would be evaluatedagainst other competing bids.
However,the Company did not provide the weighting factors for the evaluation metrics
and criteria in the bid solicitation materials.Response to Staff Production Request No.40,Case
No.IPC-E-23-05.Althoughthe scoring process was likely conducted in a fair and impartial
STAFF COMMENTS 8 SEPTEMBER 26,2023
manner,Staff believes it could lead to questions of bias toward certain projects since the
weighting factors were not included upfrontwhen the RFP was issued.Staff recommends that
the Company provide the weighting factors upfront in future RFPs to improve transparency.
Qualitative Evaluations for Standalone BESS
In response to Addendum No.8 of the RFP,several bidders submitted bids for
respondent-ownedstandalone BESS projects.However,the Company did not conduct
qualitative evaluations for these projects,because the Company believes that the result of
qualitative evaluations would not change as a result of the new ownership structure.
SupplementalResponse to Staff Production Request No.13.
First,Staff believes all submitted bids should go through qualitative evaluation,and the
Company should not have assumed that the result would remain the same before the evaluation.
Second,Staff believes the evaluation result could have changed,because some qualitative factors
depend on ownership types.For example,Factor No.16 (Operation and Maintenance Plan)
requires proposals involvingIdaho Power ownership to include an Operation and Maintenance
Plan,and the evaluation is based on the plan.Another example is Factor No.20 (Draft Technical
Specifications Exceptions),which requires proposals involvingIdaho Power ownership to
include Technical Specifications of the product with changes requested by the respondent.
Exhibit No.3 of Hackett's Direct Testimony.In these examples,when the ownership changes to
respondent-owned,Staff believes the final result could be affected.
Sequence of Events in Final Selection Process
Staff has expressed its concerns about the selection process associated with the 2024
resources in Case No.IPC-E-23-05.Therefore,Staff's review in this case focused on the
selection process associated with the 2025 resources.The process for selection used the
followingsequence:
1.Projects that did not make it to the Final Short List were rejected;
2.Projects in the Final Short List were given an opportunityto update their pricing
based on increased capacity deficiency.(Four projects increased pricing,while
one project decreased pricing.Hackett,Di.at 25.);and
3.The LTCE analysis was performed with updated 2025 capacity deficiency.
STAFF COMMENTS 9 SEPTEMBER 26,2023
Staff believes that before the Company rejected any project,the Company could have
analyzed the capacity position first.Given the new capacity position,the Company could have
given all projects an opportunity to update their proposed pricing and their proposed capacity
sizes,unless a project does not have available transmission capacity.This would have allowed
the Company to identify the least-cost,least-risk resources based on the latest information
without rejecting projects prematurely.
LTCE Analysis
The Company conducted a LTCE analysis to identify the least-cost,least-risk resources
to meet the 2024 and 2025 capacity deficiencies,which Staff agrees should be used as the basis
to determinewhether the projects selected are least-cost and used to verify that the selected
projects resolve the capacity deficit.The short-listed resources with their specific operating
characteristics and levelized costs were allowed to be selected in the LTCE AURORA model as
potential resource additions.Hackett Direct at 17 in Case No.IPC-E-23-05.The LTCE model
logic selects the resources based on optimizingthe cost of the overall portfolio conditioned upon
meeting the Company's identified capacity deficiencies and when those resources are available
for service.Hackett Direct at 17 in Case No.IPC-E-23-05.The Company modeled different
alternative futures to determine if the selected resources in the least-cost portfolio were
consistently selected.Hackett,Di at 19.If a resource was consistently selected across different
alternative futures,this indicates the resource maintains its cost-effectiveness regardless of
changing future conditions and therefore carries less risk.
Selection of Resource for 2024 Deficit
In Case No.IPC-E-23-05,the LTCE modeling resulted in the selection of Project No.8
as the least-cost,least-risk project,and Project No.10 as the next least-cost,least-risk project on
the final short list.However,Project No.8 was a 100 MW solar project paired with a 60 MW
BESS and was already selected for implementation as a result of the case.Because Project No.
10 was the next least-cost,least-risk project among all the remaining projects,it was selected and
was the bid used to establish the 24 MW BESS proposed in this case.
STAFF COMMENTS 10 SEPTEMBER 26,2023
Selection of Resources for 2025 Deficit
In the LTCE analysis,Project No.31 (the 150 MW ESA)was selected as the most
economic resource,and Project No.15 (the source of the 77 MW BESS)was selected as the
second most economic resource.Exhibit No.5 of Hackett's Direct Testimony.These two
projects were consistently selected across different alternative futures.Hackett's Direct at 23.
The Company selected both of these projects to fulfill the 2025 capacity deficit.Based on
Staff s analysis of the results,it believes that these two projects are the least-cost,least-risk
resources on the final short list.In addition,Staff recommends that the Commission
acknowledge the expenses incurred for the ESA as prudentlyincurred for ratemaking treatment
conditioned upon expenses not changing as proposed and upon the Company updating Section
19.3 as described below.
Overbuild for BESS Degradation
The Company is overbuildingthe 24 MW BESS and the 77 MW BESS by 5.8 MW and
17.25 MW,respectively,even though the amount of capacity that can be dispatched at any given
time is limited to 77 MW and 24 MW Supplemental Response to Staff Production Request No.
22.The overbuilds are the Company's solution to address battery degradationdue to age and
cycling that occur over time in order to maintain the capacity of the projects over their useful
life.Staff recommends that a full prudence review of the additional overbuild capacity of 5.8
MW for the 24 MW BESS and the overbuild capacity of 17.25 MW for the 77 MW BESS be
determined when the Company seeks recovery and after the over-build capacity is known to
become used and useful.
Because of the Company's lack of experience in owning and operating BESSs in its
system and based on the information provided,Staff does not believe the Company has
demonstrated with enough certainty whether overbuilding the project to account for degradation
is the least cost method or when the overbuilt capacity will become used and useful,since the
manufacturer warranties may also be used for the first several years to mitigate excessive
degradation.
STAFF COMMENTS 11 SEPTEMBER 26,2023
Determination of Soft Caps
AlthoughStaff believes all of the projects the Company has proposed for approval in this
case are the least cost and least risk projects selected from the Company's 2024 and 2025 final
short lists,Staff recommends that they all be subject to a soft cap.A soft cap is a threshold up to
which Staff believes that the cost of the project has a high level of certainty that it is justified
based on the evidence presented and what is known at this time.However,if the actual cost of
any of the resources are higher than the caps,a determination of prudence can be made for the
additional amount(s)when the Company files for recovery of the costs if the Company can
provide evidence that the increases are justified.
In this case,Staff has a high level of certainty that of the projects that were included in
the short list and included in the LTCE analysis,the projects the Company is proposing for
approval,were the least-cost,least-risk projects based on the levelized cost assumptions used in
the Company's analysis.However,Staff also believes there are sufficient anomalies in the 2024
and 2025 resource selection processes to justify soft caps for all the resources the Company
selected.
As explained earlier,the Company will overbuild the 24 MW and 77 MW BESS projects
to account for battery degradation,but Staff has recommended a full prudence review of the
additional overbuild amounts when the Company seeks recovery due to uncertainties related to
cost-effectiveness and when they will become used and useful.For these reasons,Staff has
calculated the soft caps to only include the cost and amount of capacity of the two projects
without the overbuild amounts by taking the ratio of the 24 MW and 77 MW against the total
capacity of the projects with the overbuilds and then multiplyingthese ratios by the total cost of
the projects includingthe cost of the overbuild.The amount of the caps and the calculations are
included in Confidential Attachment A to these comments.If the Company seeks recovery for
the cost of the overbuilds,it will need to provide evidence that the overbuilds are used and useful
and that the cost of the overbuilds are least-cost.
Similar to the soft caps for the Company-owned BESS projects,Staff recommends that
the Company seek a prudence determination of any incremental expenses outside of the
contracted prices for the 150 MW ESA listed in Exhibit No.6 of Hackett's Direct Testimony.If
there are incremental expenses beyond the costs included in this Application,the Company
STAFF COMMENTS 12 SEPTEMBER 26,2023
would need to seek a prudence determination for the additional cost by justifying it with
evidence when the Company seeks cost recovery.
IV.Terms and Conditions of the 150 MW ESA
On April 26,2023,the Company and Kuna BESS entered into a 20-year ESA for a 150
MW battery storage facility located in Kuna,Idaho.Exhibit No.6 of Hackett Direct Testimony.
The ESA only becomes effective upon Commission approval of all of the terms and provisions
of the ESA as well as the accounting and regulatory treatment requested by the Company.
Section 3.1 of the ESA.Staff's review of the terms and provisions included a review of the
contract price,liquidated damages clauses,and Section 19.3.
Contract Price
The Company has a negotiated contract price per MW of effective capacity that does not
have escalation.Hackett Direct at 28;Exhibit No.6 of Hackett's Direct Testimony at 9.The
Company will make fixed payments to the Seller each month based upon the minimum capacity
the developer guarantees.Payments above the minimum guaranteed capacity would vary based
upon the effective capacity of the project and expensed monthly.Tatum Direct at 10-11 and
Exhibit No.6 of Hackett's Direct Testimony at 21.
Liquidated Damages
The Company has also negotiatedvarious liquidated damages clauses that the Company
will recover if conditions of the contract are not met by the Seller.Application at 8;Hackett
Direct at 29-30;Exhibit No.6 of Hackett's Direct Testimony at 17,23-24,40.This will ensure
that the Company and its customers will be protected financially if the conditions of the ESA are
not met.
Section 19.3 of ESA
Section 19.3 of the ESA contains the statement "[n]o amendment,modification or change
to this Agreement shall be enforceable unless set forth in writing and executed by both Parties."
ESA at 57.Staff believes that this statement neglects the significance of Commission approval
and recommends that the statement be updated to reflect the need for Commission approval
before any modification becomes valid.For example,the statement can be updated as follows:
STAFF COMMENTS 13 SEPTEMBER 26,2023
No amendment,modification or change to this Agreement shall be enforceableunless set forth in
writingand executed by both Parties and subsequently approved by the Commission.
V.Accounting Treatment of the 150 MW ESA
The Company requests and Staff recommends that the Commission acknowledgethat
lease accounting is necessary to facilitate the transaction of the ESA.
Kuna BESS will construct,own,and operate the BESS and supply 150 MW of capacity
to the Company's system.Application at 7.The Company,however,will have complete control
to dispatch the capacity.Application at 7.Because the Company is not the owner of the BESS,
but has the right of control,Staff agrees this contract qualifies as a lease.
The Company states that the lease meets the criteria of being classified as a capital lease.
Application at 12.In order for a lease to qualify as a capital lease,a lease must meet at least one
of the followingcriteria.Accounting Standards Codification 842 (a lease accounting standard
for entities reporting under U.S.Generally Accepted Accounting Principles).
1.Transfer of title/ownership to the lessee after the lease term;
2.A purchase option the lessee is reasonably certain to exercise;
3.The lease term represents the major part of the asset's useful life (75%is the most
common threshold);
4.The present value of the lease payments over the lease term equals or exceeds
substantially all of the fair value of the asset (90%is the most common threshold);
and
5.The asset is so specialized in nature that it provides no alternate use to the lessor
after the lease term.
After analysis,Staff believes that the contract has met two of the five criteria to qualify as
a capital lease:Criteria No.3 and No.4.First,the lease term of the Kuna BESS is 20 years,and
the useful life is estimated to be 20 years.Response to Production Response No.2(c).This
results in the lease term being 100%of the asset's useful life,which exceeds the 75%threshold.
Second,the present value of the lease payments over the least term is estimated to be 94%of
Kuna BESS'fair value,Response to Production Request No.2(d).This exceeds the 90%
threshold for the capital lease classification.Therefore,Staff agrees that the appropriate way to
account for Kuna BESS is as a capital lease.
STAFF COMMENTS 14 SEPTEMBER 26,2023
The Company has stated they are not seeking approval of accounting treatment of the
ESA and will address regulatory accounting closer to the commencement date.Tatum Direct at
13.The Company also states that the incremental borrowing rate may differ from the
Company's current estimate and will be known around the time that the BESS is placed into
service.This will affect the right-of-use value and liabilitythe Company will record to the
balance sheet.Tatum Direct at 13.Therefore,Staff agrees to address regulatory accounting
related to the ESA at a later date,when the necessary information is known.
STAFF RECOMMENDATION
Staff recommends:
1.Approval of the CPCN to acquire 24 MW and 77 MW of BESS capacity to meet
the 2024 and 2025 capacity deficiencies,respectively;
2.Setting a soft cap for the turn-keycosts of the 24 MW and 77 MW BESS projects
at the amounts specified in Paragraph 1 and 2,respectively,of Confidential
Attachment A,unless the Company presents sufficient evidence that amounts
over the cap are justified when the Company seeks cost recovery;
3.The additional overbuild capacity of 5.8 MW for the 24 MW BESS and the 17.25
MW for the 77 MW BESS be subject to a full prudence review if the Company
seeks recovery and after the overbuild capacity becomes used and useful;
4.Declaration that the expenses associated with the ESA,as proposed,are prudently
incurred for ratemaking purposes;
5.The Company seek a prudence determination of incremental expenses beyond the
contracted prices in the ESA as listed in Exhibit No.6 of Hackett's Direct
Testimony,if any,when the project becomes operational;
6.Approval of the ESA,conditioned on the Parties updating Section 19.3 of the
ESA to reflect the significance of Commission approval;
7.Acknowledgement that lease accounting is necessary to facilitate the transaction
of the ESA;and
8.The Company address the issues Staff identified in the resource selection process
in future RFPs,regardless of whether the Company files an exception with the
Oregon Public Utilities Commission ("OPUC").
STAFF COMMENTS 15 SEPTEMBER 26,2023
Respectfully submitted this 26th day of September 2023.
Chris Burdin
Deputy AttorneyGeneral
Technical Staff:Yao Yin
James Chandler
Kevin Keyt
i:umisc/comments/ipce23.20cbyy comments
STAFF COMMENTS 16 SEPTEMBER 26,2023
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 26th DAY OF SEPTEMBER 2023,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF TO
IDAHO POWER COMPANY,IN CASE NO.IPC-E-23-20,BY E-MAILING A COPY
THEREOF,TO THE FOLLOWING:
DONOVAN E WALKER TIM TATUM
IDAHO POWER COMPANY IDAHO POWER COMPANY
PO BOX 70 PO BOX 70
BOISE ID 83707-0070 BOISE ID 83707-0070
E-MAIL:dwalker idahopower.com E-MAIL:[e-mail]
dockets idaho ower.com
SECRETARY
CERTIFICATE OF SERVICE