25454.pdf

Office of the Secretary
, Service Date
APR 20 1994
BEFORE THE IDAHO PUBLIC UTiliTIES COMMISSIQN.
ROSEBUD ENTERPRISES, INC.,
Respondent.
CASE NO. IPC-92-
Complainan
ORDER NO. 25454
IDAHO POWER COMPANY,
SUMMARY
The underlying complaint in Case No. IPC-92-31 was filed by Rosebud
Enterprises, Inc. (Rosebud) on December 14, 1992. Rosebud is the developer of a
proposed 40 megawatt electric generating facility to be located in the vicinity of
Mountain Home, Idaho. The facility will burn high sulphur, waste petroleum coke.
The waste nature of the fuel enables the developer to qualify and self-certify the
project as a PURPA small power production facility (QF). Rosebud proposes to sell
the electrical output of the facility to Idaho Power Company (Idaho Power; IPCo;
Company).
In its complaint, Rosebud states that it is ready, willing and able to sign
a contract. Its attempts to negotiate, it states, have been frustrated by Idaho Power
refusal to offer it avoided cost rates calculated under Commission-approved
methodology for the purchase of project capacity and energy. Rosebud seeks an
avoided cost rate to ascertain project viability. Rosebud is demanding unlevelized
rates for a 35 year contract. Rosebud has rejected three sets of rates which it
contends do not conform with Commission approved methodology. Pursuant to a
Company request for rates and terms acceptable to the QF, Rosebud by letter dated
May 25, 1993 offered to provide firm power under essentially the same rates, terms
ORDER NO. 25454
and conditions of the Commission-approved Meridian generating contract. Rosebud'
offer was rejected. Rosebud contends that it has provided Idaho Power with all the
information the utility needs to calculate rates (e., site, fuel, technology, operating
characteristics, etc.
Idaho Power in response notes that Commission-established rates are not
available for projects greater than 10 megawatts. Idaho Power points out that
individual negotiation is required for QFs greater than 10 megawatts. Idaho Power
contends that Rosebud has refused to engage in substantive good faith negotiation
and has not satisfied the Commission s "ready, willing and able" standard for
entitlement to a power purchase contract and rates. Tr. pp. 549, 550. The value of
energy and capacity from a project of this size, the Company maintains, must be
determined as part of the Company s Integrated Resource Plan (IRP) and not the
Commission established methodology for QFs less than 10 megawatts. Furthermore
resources of Rosebud's size, the Company argues, should not be acquired prior to
need; the timing of such an acquisition is critical. The Company has presented
Rosebud with three sets of rates that have been rejected. The Company maintains
that Rosebud must secure or demonstrate an ability to obtain all necessary federal
state and local environmental and siting permits, (Tr. p. 587); and in the give and
take of negotiation must itself propose rates and terms for Company consideration.
Furthermore, a contract term greater than 20 years , the Company maintains, is non-
standard and requires justification.
Public hearing in Case No. IPC-92-31 was held on December 15 and 16
1993 and January 11 , 1994. The following parties appeared by and through their
respective counsel:
Rosebud Enterprises, Inc.Owen H. Orndorff
Idaho Power Company Barton L. Kline
Larry D. Ripley
PacifiCorp John M. Eriksson
ORDER NO. 25454
Boise Kuna Irrigation District, the N ampa and
Meridian Irrigation Districts, the New York
Irrigation District, the Wilder Irrigation District
and the Big Bend Irrigation District
Richard B. Burleigh
Independent Energy Producers of Idaho Peter J. Richardson
Commission Staff Scott D. Woodbury
Pursuant to PURP A and the implementing rules and regulations of the
Federal Energy Regulatory Commission, electric utilities must purchase in accordance
with 18 C.R. ~ 292.304, any energy and capacity which is made available from a
qualifying facility (QF). Reference 18 C.R. ~ 292.303(a). The Idaho Public Utilities
Commission has taken this obligation seriously and has established a process for
determining rates for projects smaller than 10 MW. We have required that rates for
projects greater than 10 MW be individually negotiated. At issue in this complaint
is what the requirement for individual negotiation means and whether negotiated
rate calculations must begin at the rates established for smaller projects using the
the surrogate avoided resource (SAR) methodology. In this Order, the Commission
finds that Idaho Power did not negotiate with Rosebud in accordance with established
avoided cost methodology and rules for negotiation with QFs greater than 10 MW.
The Commission directs Idaho Power to follow the established methodology and to
calculate and provide Rosebud with avoided cost rates using as a "starting point" the
firm rates in existence on December 14, 1992, the complaint filing date.
DISCUSSION
Active contract negotiation between the parties in this case has really
advanced little further than a discussion of power purchase rates. Tr. p. 567. Simply
put, Rosebud requested avoided cost rates calculated consistent with Commission-
approved methodology to ascertain project viability. Rosebud believes that Idaho
Power has failed to provide such rates. This failure Rosebud interprets as a refusal
by the Company to negotiate in good faith. Tr. pp. 191 192. Idaho Power contends
that its rate proposals (Exhibits 207, 208, 209) were summarily rejected without any
ORDER NO. 25454
counter proposals being offered. The Company maintains that Rosebud is
sophisticated enough to calculate the Company s avoided cost rates. Indeed, Idaho
Power contends that Rosebud has an obligation to suggest rates. If that is not what
is intended through negotiation, then Idaho Power suggests that the Commission
drop its charade that there should be negotiations. Tr. pp. 601, 602.
As perceived by Rosebud, IPCo desires to apply its current IRP and
Resource Management Report and in-house load estimates to the proposed Rosebud
Mountain Home facility. The Company, Rosebud states, has long believed that its
true avoided cost can be determined only by the Company and not by the
Commission. Tr. p. 240. The Commission, Rosebud states has addressed this utility
position previously, citing the following Commission language:
The utility is in a unique position when negotiating with CSPPs.
It controls the resources and data by which a determination can
be made as to whether its scheduled avoided costs are in sync
with its perceived "true" avoided costs. If it perceives a
significant change , then it is incumbent upon the utility to
initiate an appropriate filing with the Commission.
Case No. P-300-, Order No. 15746, p. 5; Tr. p. 243.
To put the negotiation in this case in context, pnor to filing of the
Complaint, Idaho Power on March 26, 1992 offered Rosebud a schedule of purchase
prices for a Wyoming sited QF project for a 20-year period. IPCo Post-Hearing Brief.
The proposed siting presented transmission problems for IPCo. By letter dated
September 30, 1992 the proposed rates were rejected by Rosebud and the QF project
was resited to Mountain Home. Rosebud states that all necessary project information
was provided to the Company for calculation of rates and that it provided IPCo a
proposed reliability standard equal to IPCo s plants, a notice of QF status, a
description of plant technology similar to an existing plant, IPCo s interconnect form
with all relevant information requested, letters demonstrating availability of fuel, a
plant electrical diagram prepared by an independent engineer, a site map and a study
by an independent consultant describing petroleum coke. Rosebud Supplemental
Comments.
ORDER NO. 25454
By letter of December 10, 1992 the Company informed Rosebud:
IPCo has carefully evaluated its projected need for additional
resources. . . Idaho Power has determined that it will not need
to acquire any additional resources prior to the year 2000.
. . .
It would be imprudent for IPCo to contractually commit at this
time. Tr. pp. 573, 574.
Rosebud interpreted the Company s letter as a unilateral suspension of its obligation
to purchase. A Complaint was filed on December 14, 1992. The Complaint alleging
bad faith, Idaho Power contends, has had a chilling effect on further negotiations.
Tr. p. 531. Rosebud requested that IPCo recalculate the March 26, 1992 rates for
commencement of commercial deliveries on January 1, 1998 at unlevelized rates for
35 years.
Following the Complaint and at a prehearing conference of the parties on
February 3 , 1993, the Commission indicated its unwillingness to suspend or defer the
obligation of Idaho Power Company to negotiate in good faith with Rosebud.
Reference Notice of Case Status (February 19, 1993). The parties agreed to continue
negotiating.
On April 1993, in the only formal or face-to-face negotiating session of
the parties (Tr. p. 535) Idaho Power presented Rosebud with two sets of calculated
rates. Tr. pp. 529, 530. The first set (Exhibit 207) provides zero capacity for a
dispatchable facility through 2005 and shows dispatchable rates for only 8% of the
project's output. The second set (Exhibit 208) for a non-dispatchable plant provides
Tariff Schedule 86 non-firm rates through 2005. Tr. p. 299. The Company s offers
are based on a natural gas proxy plant and the Company s IRP. Neither set of rates
was a firm offer or commitment. Rosebud rejected IPCo s proposed rates. The
negotiating session lasted 15 minutes.
On April 2 , 1993 , in a letter from IPCo to Staff (with copy to Rosebud)
(Exhibit 110) the Company laments Rosebud's unwillingness to make a counter-
proposal. The Company states:
IPCo is hopeful that Rosebud will reconsider its position and
make a good faith effort to continue negotiations by proposing
purchase prices and purchase arrangements that Rosebud would
find acceptable. It is unreasonable to expect that negotiations
ORDER NO. 25454
will be successful if they are totally unilateral. It is unfair to
require IPCo to "bid against itself." Tr. pp. 519, 520.
On April 16, 1993, IPCo presented Rosebud with a third set of rates for a
dispatchable plant (Exhibit 209) with capacity payments beginning in 1998. By letter
dated April 19, 1993 , Rosebud rejected the rates as not conforming with Commission
approved methodology.
On May 25, 1993, Rosebud by letter (Exhibit 109) presented the following
offer to IPCo:
Rosebud hereby offers to provide IPCo firm capacity and energy
based on the identical contract Meridian Energy signed
(Reference Order No. 24805, IPC-92-4) including rates, terms
and conditions excepting only the site, fuel, initial date
operations changed to January 1, 1998 and sizing of the project.
On May 28, 1993 , Rosebud provided IPCo with a tabular clarification of the offer.
The Company in a letter to Commission Staff dated June 1993 interprets Rosebud'
May 25th offer as "consistent with its continuing refusal to negotiate rates, terms and
conditions based on the specific characteristics and values of the Mountain Home
project. "
The primary source of impasse, IPCo states, is Rosebud's position that
published rates are to form the "starting point" for negotiations. Tr. pp. 533, 582.
IPCo has provided Rosebud with several rate alternatives. The rate alternatives
IPCo states, were developed on the basis of the project-specific value of the Mountain
Home project using tools developed by IPCo in response to the Commission s least-
cost resource planning process. Tr. p. 550.
Rosebud's contention that the basis for negotiated rates should be the
published avoided cost rates based on the SAR is based on Commission
pronouncements beginning with the P-300-12 case and continuing through Order No.
25160 in this case. Rosebud's Supplemental Comments. This position was joined by
intervenor IE PI representing a loose association of cogenerators (Tr. p. 160). IE PI
believes that the administratively established rates for QFs less than 10 megawatts
are to be used as a starting point for negotiations for QFs greater than 10 megawatts
with adjustments for time of need, cost of integration, etc. Tr. pp. 166-168.
ORDER NO. 25454
Idaho Power states that the applicable standard for determining rates for
QFs greater than 10 megawatts, individual negotiation, is not well understood. Tr.
p. 556. The Company believes that "there is no explicitly approved process for
adjusting published avoided costs for QFs greater than 10 megawatts" (Tr. p. 563)
and that it was left to the Company to develop how adjustments should be made.
The Commission recognized the lack of experience with larger projects in Order
No. 25227.
As reflected in its testimony and final comments, Staff contends that there
is an established methodology for calculating avoided costs for QFs greater than 10
megawatts. At the time large QFs are "ready, willing and able" to obligate
themselves to deliver capacity and energy to the utility, Staff asserts that they are
entitled to receive the published avoided cost rates, adjusted for the specific effects
that the QF has on the utility s distribution system and on the load/resource balance
used to determine the published avoided cost rates. Tr. p. 423.
IPCo and Rosebud fundamentally disagree on the adjustments that must
be made to the "starting point" coal-SAR methodology to develop project-specific
purchase prices for QF projects greater than 10 megawatts. The adjustments IPCo
applied to the starting point methodology are generally referred to by the Company
as the "IRP methodology." The Company s Integrated Resource Plan (IRP) is a
biennial assessment of future power supply requirements and probable resources the
Company expects to acquire under least cost planning. Tr. pp. 686 , 687. The IRP is
viewed by the Company as the source of best available information regarding
load/resource needs. Tr. p. 711. In developing rates for Rosebud IPCo utilized its
IRP planning or computer modeling tools to determine a project-specific value. Tr.
pp. 528, 539. The analytical tools enable the Company to determine a load forecast
resource need (amount/type) and to engage in system simulation analysis. Tr.
pp. 711 , 714, 715. The IRP can be amended to include the purchase or acquisition
of any proposed resource with a specified starting date, contract term and capacity
and energy characteristics. Tr. p. 689.
Acquisition of the Rosebud project the Company contends will only enable
it to avoid the capacity and energy costs of dispatchable resources expected to operate
ORDER NO. 25454
at relatively low capacity factors to meet system load requirements, primarily during
times of high loads or low water conditions. Tr. p. 529. The analysis used by the
Company, it states, is the same analysis that it uses to assess the value of any other
resource considered for inclusion in its least-cost resource portfolio. Tr. p. 689.
Avoided cost rates for QFs greater than 10MW, the Company contends
must reflect both resource need and the cost of alternative resource options, and
should be based on the best available data. Tr. p. 688. Idaho Power recommends
continuing to move toward the use of the IRP as the primary vehicle for assessing the
value of all potential resource acquisitions. Use of the IRP to evaluate resources, it
states, will tend to reduce, if not eliminate, premature long-term financial
commitments to resources. Tr. p. 539. The Company perceives substantial risk and
exposure in acquiring large long-term supply side resources prior to need, a risk
which it sees as being exacerbated by the potential for increased competition. Tr. p.
540, 542 , 630, 631, 642, 561. Addressing this risk the Company argues that it needs
to remain as flexible and cost-competitive as possible. Tr. p. 543, 652. Spot market
purchases provide the Company with flexibility. Tr. pp. 704, 705. A long-term QF
resource the Company contends provides no such flexibility. Tr. p. 705. Any contract
in excess of one year triggers the point at which the Company begins to look at the
risks of inflexibility. Tr. p. 658.
The Appendix A load/resource schedule, the Company maintains, is
inadequate for looking at the value of a large resource on IPCo s system. Appendix
A looks only at energy requirements in one month of the year, August. Tr. p. 710.
The IRP based method , the Company maintains, enables a more detailed
load/resource analysis. Tr. p. 701.
IPCo s load forecast in its '93 IRP shows long-term load growth averaging
1.4% per year, 2.1% per year between '92 and ', while the Commission has adopted
a load growth assumption of3.25%. Tr. pp. 244, 245. Over a long period of time, the
parties agree that point estimates are almost always wrong. Rosebud contends that
during the near term between '92 and ', the Commission growth estimate of3.25%
appears to be reasonable and more likely than the IPCo projection of 2.1% growth.
ORDER NO. 25454
Tr. p. 254. The accuracy or reasonableness of point forecasts beyond 1998 Rosebud
maintains are not at issue.
The year 1998 is the Appendix A date of first need with Rosebud. Tr. pp.
272, 305. The procedure followed in Appendix A (Order No. 24911, IPC-93-4),
Rosebud contends, is appropriate for all PURP A planning. The meaningful difference
it states, between QFs under 10 megawatts in size and those greater than
megawatts is the effect on the surplus period. This, Rosebud contends , is accounted
for by adjusting the surplus period as capacity is added. Tr. pp. 255, 293. In the
context of this proceeding, however, Rosebud maintains that the accuracy of the
economic or load forecast to 2014 is not at issue, nor is it relevant-what is relevant
are the risks facing ratepayers of excess generation capacity on the one hand and
insufficient capacity on the other. The Company, it states, does not examine the risks
and costs of insufficient capacity. Tr. pp. 268 , 269.
Dispatchability is generally an added value available from a QF. Tr. p. 426
"Whether the. . . dispatchable rate is more or less than the non-dispatchable rate. . .
will depend on the value of dispatchability to the utility, the sharing of future
variable cost risks, etc." Order No. 22636, p. 56. IPCo acknowledges that it cannot
require dispatchability. However, this is a factor that can be accounted for in rates.
A nondispatchable resource is clearly less valuable than a dispatchable resource.
This is especially true as the size of the project increases.
Idaho Power concedes that the IRP method of calculation that it used to
produce rates for negotiation with Rosebud is not an approved methodology for QFs
less than 10 megawatts. Tr. p. 717. The differences between the two methodologies
the Company admits are relatively large. Tr. p. 736. Published rates are not used
in the IRP-based analysis nor was any of the current model that is used for avoided
cost determination for QFs less than 10 megawatts. Tr. p. 716.
The Company s desire to use the IRP methodology rests on the fact that
large QF projects are likely to have a material effect on utilities and their customers
on a planning, operating and revenue requirement basis. Tr. p. 527. The Company
maintains that the IRP is the best available source of information regarding
load/resource needs and that ratepayer neutrality cannot be maintained if the
ORDER NO. 25454
starting point methodology for developing project-specific values cannot be adjusted
to apply the most recent data for large QFs and the effect that such a project or
projects would have on a utility s load-resource balance. IPCo Post-hearing Brief. If
the IRP is determined to be the appropriate means to determine the value of QF
resources, IPCo suggests that the Commission would probably have to do more than
simply acknowledge the filing of the IRP. Tr. p. 593.
Rosebud contends that the IRP upon which IPCo based its proposed rates
did not even exist in December of '92 when Rosebud filed its complaint. Rosebud
contends that use of the IRP methodology in this case allows the unilateral right to
reduce rates, terms and conditions. Rosebud Supplemental Comments. If the
appropriate starting point is found to be the Company s IRP, then the Commission
Rosebud contends, needs to reconcile various conflicts between the Company s IRP
and established Commission policy. Utilization of integrated resource plans for the
calculation of avoided cost rates, Rosebud cautions, has yet to be evaluated in a public
hearing process. Tr. p. 343. The assumptions and conclusions have not been
scrutinized. Tr. pp. 286 , 294. Prior to such a hearing, Rosebud contends that IPCo
should be directed to use the current SAR as a basis of avoided cost rates offered to
QFs. Tr. p. 363.
Staff also argues that if IPCo has a different methodology that it wants to
follow for acquisition of QF power from large QFs, it should file a formal case. The
Company should not be allowed to unilaterally change the rules. The methodology
proposed by IPCo, Staffstates
, "
may prove to be superior to the existing methodology,
but it is not the approved methodology. The Company has not presented the
Commission with a formal Application. The proposed methodology has not been
subjected to public and administrative scrutiny. IPCO is still a regulated utility.
is the Commission that sets policy, not the Company. If policy is established and
allowed to be opening violated then Commission regulation becomes a meaningless
exercise." Final Comments of Commission Staff.
PacifiCorp contends that SAR based avoided costs no longer represent the
Company s resource alternatives. The concern is not with the SAR method itself
PCP states, but that administratively determined avoided costs cannot keep pace
ORDER NO. 25454 10-
with the changes in the current electric power supply market. Tr. p. 391. Actual
market-based alternative costs, the Company contends, must be used as the basis for
negotiation for QFs greater than 10 megawatts. Tr. pp. 390, 398.
Existing SAR policy PacifiCorp maintains has not evolved to the point of
explaining all the types of adjustments that may be made in negotiation with large
QFs, nor has it been reconciled with current integrated resource planning or the
authorization of EWGs under EPAct 92. If the SAR methodology is retained as the
starting point for negotiations, the Commission, PacifiCorp recommends should make
clear that departures from the SAR methodology are authorized for the purpose of
more accurately reflecting avoided costs. The party seeking a departure from the
SAR methodology would, presumably, have the burden of demonstrating that the
departure is reasonable and necessary to more accurately reflect true avoided costs.
Because the objective is full avoided cost, PacifiCorp further contends that
negotiations should focus on contemporaneous market based resource costs and
information on the utility s resource needs and plans as set forth and made available
in the utility s Integrated Resource Plan and resource management report. A utility
IRP is superior to the SAR methodology as a starting point for negotiating with large
QFs; it is the standard, PacifiCorp contends, against which the utility s own resources
will be judged for ratemaking purposes and has strong indicia of objectivity and
reliability. PacifiCorp Closing Statement.
IEPI stresses the importance of have stability and predictability in the
rates , terms and conditions associated with power purchase contracts. Tr. p. 150.
For IEPI the relevant issue in this case is one of procedure, whether IPCo (or any
utility) should be permitted to change the ground rules for avoided cost contract rates
and negotiations without going through the PUC and public hearing process. Tr. pp.
153 , 156. Allowing utilities to unilaterally change Commission avoided cost orders
and rates, IEPI contends, is intolerable from a financing and planning perspective
and also injects substantial uncertainty in the implementation and administration
of avoided cost rates and contracts. Tr. p. 154.
ORDER NO. 25454 11-
COMMISSION FINDINGS
Based on our review of the record, testimony and post-hearing position
papers filed in this case and based on our further review and consideration of the
prior Commission Orders specifically identified in this case, the Commission finds
that an established methodology and set of rules exist to guide utility negotiations
with QFs for projects greater than 10 megawatts.
The methodology previously established by the Commission is best
articulated in the following cases:
Case No. P-300-, Order No. 17546, p. 34 Standard Rates
. . . For facilities with a design capacity in excess of 10 000
kW (WWP) proposes to negotiate separate, individualized
contracts.
Published rates (are to) form the starting
point for negotiations, but individualized
consideration (is to) be given to issues such
as losses, reliability, ability to schedule, etc.
Case No. U-I008-244, Order No. 20859, (Potlatch)
In Case No. P-300-, the genesis case for CSPPs (i.
QFs), we articulate the concept of individual negotiated
contracts for facilities greater than 10 megawatts. In that
case we indicated that for such facilities the published or
filed avoided cost rates would form a starting point for
meaningful negotiations. . . .
And so forth" cannot equate with "perceived changes" in
avoided costs. If (the utility) perceived its avoided costs to
be changing significantly then it was incumbent upon it to
file an Application requesting that they be changed by
the Commission. pp.
We agree that filed rates should be the basis for
negotiation. p. 3.
It is the responsibility of the utility and the CSPP through
individual negotiation to determine the appropriateness of
adjustments for "losses, reliability, ability to schedule
ORDER NO. 25454 12-
etc." If there is no required balancing or adjustment for
those or related factors , then the CSPP is entitled to the
scheduled or filed avoided cost rates. p. 4.
Case No. U-1500-170, Order No. 22636
Large projects shall be. subject to adjustments to the
published rates to reflect their effect on the utility s load-
resource balance.
QF Size
Under the declaratory ruling issued in Potlatch v. WWP
I008-244, Order No. 20859, published or filed avoided
cost rates are to form a starting point for meaningful
negotiations for facilities greater than 10 megawatts. p.
49.
These previous Commission Orders have found that established rates that are now
determined using the SAR methodology for projects under 10 MW are the starting
point for individual negotiation on larger projects with adjustments for project
specifics.
We find that Idaho Power did not negotiate in accordance with the
established methodology with Rosebud. Even if, as claimed by Company, it used the
established rates as a starting point, it is clear that it quickly abandoned the SAR
methodology in favor of its preferred Integrated Resource Plan methodology.
Notwithstanding this, during the past several years, the Company, with the
encouragement of the Commission has acquired increasing sophistication in the IRP
process. Case Nos. U-1500-165; IPC-91-19; IPC-93-14. When that methodology
is fully developed and mature, it may achieve the goal of insuring that all resource
acquisition by the Company is on a consistent, competitively neutral basis, aimed at
producing the lowest cost resource plan and acquisition action for ratepayers. With
this in mind, we understand the Company s desire to use the IRP methodology.
However, the IRP methodology is fundamentally different from the SAR methodology;
rates developed under the former cannot be said to be consistent with the latter.
Thus, the issue facing the Commission is whether we should require
negotiations in accordance with an existing method or whether we should permit
ORDER NO. 25454 13-
rates for negotiation to be developed under the newer IRP methodology. For the
purpose of this case, we conclude that the existing method must be followed. Several
reasons compel this result.
First, the Commission has not previously approved the IRP method as a
basis for QF negotiations. In fact, the Commission has been careful to retain its
authority over the pricing for purchases of QF power, recognizing that too much
discretion in the hand of a utility can result in the situations that led to PURP A in
the first instance. If the Company desires to demonstrate a need to integrate the
SAR and IRP processes, the appropriate vehicle is its avoided cost docket, Case No.
IPC-93-, or a similar docket. The Commission will welcome the opportunity
consider such a proposal. Until, however, the method is approved as the basis for QF
negotiations, any attempt to insert the method into a specific project negotiation
proceeding is premature.
We also believe that an attempted unilateral deviation from established
Commission policy ignores a fundamental element of the relationship between a
regulatory Commission and a regulated utility. The Commission establishes its
polices after appropriate public process with an opportunity for appeal. Once, though
a policy becomes final, it is the obligation of the regulated utility to act in accord with
the policy until such time as changed circumstances lead the Commission to adopt
new policy. The regulated utility does not have the prerogative to substitute its own
judgment as to the wisdom of the policy or to unilaterally adopt new policy. This
Commission has been vigilant in enforcing this fundamental principle of the
regulatory relationship. (See Order No. 23773, imposing a fine of$13 000 upon Union
Pacific Railroad upon a finding that UPPR ignored a Commission policy). Whatever
the ultimate merits of IRP may be , we cannot allow its use in this case, when to do
so would require us to overlook an even more important fundamental principle.
A related reason for our conclusion is the matter of third party reliance.
The Commission does not slavishly adhere to existing policies just for the sake of
resisting change. Rather, we recognize that other utilities or parties rely on policies
as they are adopted by the Commission. Parties who have a reliance interest in
ORDER NO. 25454 14-
existing policy have a corresponding right to participate in appropriate proceedings
if change to existing policy is contemplated or proposed.
The Appendix A load/resource schedule and the Appendix B variables are
the appropriate schedule and variables to be used in utility negotiation with QFs
greater than 10 megawatts until they are changed. Under present methodology the
Appendix A load/resource schedule determines "need" and first deficit year. A
separate procedure has not been established for QFs greater than 10 megawatts.
Consequently, "need" is not to be based on a utility s internal (IRP) definition of need.
In negotiating with QFs greater than 10 megawatts, a utility under present
methodology may make adjustments for "losses, reliability, ability to schedule, etc.
The load/resource balance should also be adjusted to reflect the addition of the
proposed resource. We agree with PacifiCorp that existing SAR policy does not
explain all the types of adjustments that may be made in negotiation with large QFs.
That is why we have left the adjustments subject to negotiaton.
Proposed adjustments to the rates are to be made in line item fashion.
Each adjustment must be clearly identified and individually justified. The related
value (plus or minus) of the adjustment must also be clearly identified. All
adjustments to the posted rate must be clearly identified down to a number. The
Company should make adjustments for all relevant factors. Our listing is only a
suggestion and may not include every adjustment that is appropriate. The
adjustments made will vary depending on project characteristics.
As the Commission has previously indicated in its Orders, the standard
authorized term for contracts is 20 years. Rosebud has requested 35 years. There
is no automatic entitlement to such a term. Any departure from 20 years must be
project justified and authorized. The relevant factor in any offer of proof is the
attendant risks and benefits to the utility and ratepayers given the inherent
inaccuracies in forecasting and the size of the QF, not the projected life of the QF
facility or project economics.
Having concluded that Idaho Power Company has not followed existing
guidelines for negotiation, we now specify procedures for further negotiations between
the two parties. Idaho Power is directed to follow the established methodology in its
ORDER NO. 25454 15-
negotiation with Rosebud. Good faith negotiation is required on the part of both
parties. The Company should now calculate rates for Rosebud in accordance with
SAR methodology, and without undue delay. The rates to be used as the "starting
point" in this case are the firm rates in existence at the time of complaint filing, those
established in Case No. IPC-92-, Order No. 24383. Adjustments should
outlined in the manner specified above. If a rate has not been successfully negotiated
within 60 days, the Company is directed to present Rosebud with its proposed
avoided cost rate with detailed justification as described above. The proposed rates
must be rates at which the Company is willing to purchase Rosebud's capacity and
energy. Upon receipt of the Company s proposal, Rosebud will then have 60 days to
review the proposed rate and either accept same or present its own proposal.
Rosebud's changes or objections to the Company s proposal must be specifically set
out with detailed rationale and justification. If the parties are unable to reach
agreement, both proposals should be presented to the Commission.
We note that Rosebud has offered to provide firm power under essentially
the same rates, terms and conditions of the Commission approved Meridian contract.
Given the nature of the Company s negotiation and rate proposals, we interpret
Rosebud's offer as a demonstration of willingness and commitment to provide firm
power. As we specifically indicated in our approval of the Meridian contract
however, that contract rate and those terms were not precedential. Use of similar
rates and terms must therefore be otherwise justified.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Idaho
Power Company, an electric utility, pursuant to the authority and power granted it
under Title 61 of the Idaho Code and the Public Utility Regulatory Policies Act of
1978 (PURPA).
The Idaho Public Utilities Commission has authority under the Public
Utility Regulatory Policies Act of 1978 and the implementing regulations of the
Federal Energy Regulatory Commission (FERC) to set avoided costs, to order electric
ORDER NO. 25454 16-
utilities to enter fIXed term obligations for the purchase of energy from qualified
small power production facilities, and to implement FERC rules.
In consideration of the foregoing and as more particularly described above
Idaho Power Company IS HEREBY ORDERED to follow the established avoided cost
methodology and rules in its negotiation with Rosebud Enterprises, Inc.
Idaho Power Company IS FURTHER ORDERED to calculate and provide
Rosebud Enterprises, Inc. with avoided cost rates using as a "starting point" the firm
rates established in Case No. IPC-92-, Order No. 24383 with adjustments, as
needed, outlined in the format specified.
THIS IS A FINAL ORDER. Any person interested in this Order (or in
issues finally decided by this Order) or in interlocutory Orders previously issued in
this Case No. IPC-92-31 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
or in interlocutory Orders previously issued in this Case No. IPC-92-31. 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. 25454 17-
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho
this :?Io xL day of April 1994.iJ~
MARSHA H. SMITH, PRESIDENT
~~~
DEAN J. MILLER, COMMISSIONER
Commissioner Nelson I s Dissent Attached
RALPH NELSON, COMMISSIONER
ATTEST:
~L/Zl fl
Myrna Walters
Commission Secretary
JR \ O-IPC-92-31.SW3
ORDER NO. 25454 18-
DISSENT
COMMISSIONER RALPH NELSON
CASE NO. IPC-92-
I respectfully dissent from the majority opinion in this case. I agree with
the majority that a utility should not be allowed to unilaterally change Commission
policy. I also believe, however, that there should be more flexibility in negotiating a
contract than this order seems to allow.
Further, it is my belief that Rosebud never presented substantial
competent evidence in this case to convince me that it was ready, willing and able to
commit itself to a specific contract with Idaho Power either before the filing of its
complaint on December 14, 1992, the last day of hearing; January 11, 1994; or on
January 14, 1994, the date on which this Commission issued Order No. 25361
essentially suspending the published avoided cost rates.
The method by which rates, terms and conditions for QF contracts larger
than 10 MW are established, is unrefined. As the majority notes, this was necessary
to allow for flexibility in negotiation between a utility and larger QF's whose projects
can have a significant impact on a utility s operations. See, Order No. 25454 at p. 15.
I concede that Idaho Power appears to have adopted a new methodology for
calculating avoided cost rates for larger QF's (i.e., the IRP method).
In spite of this, I believe that this Commission should recognize , in this
case, the changes that are taking place in the electric generation industry. Actual
avoided costs appear to be substantially less than they were the last time this
Commission reviewed them formally. The Energy Policy Act of 1992 opens a new
world to non-utility generators allowing them to compete nationwide and assuring
they can wheel their power. The size of non-utility plants has increased dramatically
and the lead time necessary to bring one on line is a fraction of the time necessary
to build the hypothetical, coal-fired surrogate avoided resource used by this
Commission to establish avoided cost rates.
While I am confident that most, if not all, of these issues will be addressed
in the pending avoided cost cases (See, e.g. Case No. IPC-93-28), adhering to rigid
DISSENT
guidelines in the present case will cost Idaho Power s ratepayers considerably more
than they should have to pay for the power generated by Rosebud. Idaho Power
bears a certain share of the responsibility for not responding more quickly to
changing market conditions by seeking Commission approval of a new QF pricing
methodology.
I do not believe that Rosebud ever demonstrated that it was ready, willing
and able to commit to a contract with Idaho Power prior to the date that this
Commission essentially suspended the avoided cost rates in Order No 25361
(January 14, 1994). As the majority itself notes, good faith negotiation requires give
and take from all participants. Order No. 25454 at p. 16. I agree with the majority
that Idaho Power s negotiating technique in this case has been far from exemplary.
Unlike the majority, however, I am equally convinced that the same observation
applies to Rosebud. For example, Rosebud was offered several rates from Idaho
Power including a rate for a proposed plant near the Idaho-Wyoming border.
Rosebud, however, never countered with a rate that it considered acceptable.
Rosebud is a sophisticated developer that apparently intends to invest a considerable
sum of money in constructing a QF project. Clearly it possesses the savvy and
financial wherewithal to calculate what it considers is an appropriate rate for its
project. The inescapable conclusion that I reached after reviewing the evidence in
this case, is that Rosebud was merely attempting to assess the financial viability of
constructing a plant and that its conduct never rose to the level of serious contract
negotiation. By summarily rejecting Idaho Power s offers, but still insisting that the
Company calculate a rate , Rosebud apparently expected Idaho Power to bid against
itself so that Rosebud could avoid leaving anything on the negotiating table. I do not
consider this good faith negotiation.
Finally, while Rosebud ultimately indicated that it would accept the same
terms and conditions as the Meridian Generating contract, this Commission was
quite explicit that it approved that contract because of unique circumstances and that
its approval of the contract should not be considered precedential. Rosebud was well
DISSENT
aware of this when it requested the Meridian Generating contract from Idaho Power.
Again, this behavior does not rise to the level of good faith negotiation.
In conclusion, I believe that neither prior Commission orders nor sound
policy justifies the majority s decision to limit the degree of flexibility allowed an
electric utility and a larger than 10 MW QF when negotiating a contract. I also
believe that Rosebud failed to negotiate in good faith with Idaho Power and never
was ready, willing and able to commit to a contract. I believe, therefore, that
although Idaho Power is obligated by federal law to purchase power from Rosebud
the terms and conditions under which it should have to purchase that power should
be subject to Order No. 25361.0~u~
RALPH NELSON, COMMISSIONER
DISSENT