20050826Decision memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEG AL
FROM:KIRA DALE PFISTERER
DATE:AUGUST 26, 2005
RE:APPLICATION OF P ACIFICORP (DBA UTAH POWER & LIGHT) FOR
APPROVAL OF POWER PURCHASE AGREEMENT
SCHWENDIMAN WIND LLC. CASE NO. P AC-05-
On August 15, 2005 , PacifiCorp filed an Application for approval of a Power
Purchase Agreement for the sale and purchase of electric energy between PacifiCorp and
Schwendiman Wind LLC ("Schwendiman
).
Under the Agreement, Schwendiman will sell and
PacifiCorp will purchase electric energy generated by the Schwendiman Wind Facility
Facility ) located near Idaho Falls, Idaho.
BACKGROUND
Pursuant to the Public Utility Regulatory Policies Act of 1978 (PURP A), an electric
utility, such as PacifiCorp, is required to purchase electric energy from qualifying small power
production facilities (QFs). 16 U.C. 9824(a)-3(a). The state commissions set the rate for such
purchases. 16 U.C. 9 824(a)-3(b). These published rates, referred to as the "avoided cost"
rates, are designed to reflect the incremental cost to an electric utility of electric energy or
capacity or both, which, but for the purchase from the qualifying facility, such utility would
generate itself or purchase from another source. PURP A and related FERC regulations provide
that the rates for QF purchases (1) shall be just and reasonable to the electric consumers of the
electric utility and in the public interest, and (2) shall not discriminate against qualifying
cogenerators or small power producers.
In order to qualify for the published avoided cost rates, a qualifying facility must
meet an eligibility cap limiting the size of the projects. 18 C.R. 9 292.304(c)(1). Since
DECISION MEMORANDUM
December 2004, QFs in Idaho with a production capacity under 10 average megawatts (aMW)
have been eligible for the published avoided cost rates. See Order No. 29646.
On August 4, 2005 and in response to a petition from Idaho Power Company in Case
No. IPC-05-, this Commission temporarily reduced the published rate eligibility cap for
non-firmed wind projects in Idaho from 10 aMW to 100 kW and established criteria for
assessing QF contract entitlement. See Order No. 29839. The Commission determined that the
new cap of 100 kW would be effective as of July 1 , 2005. Id. at 10. However, for those wind
QF projects less than 10 aMW and in the negotiation queue on that date , the Commission set
forth certain "grandfathering" provisions that would allow these QF projects to be eligible for the
published avoided cost rates provided that they demonstrate sufficient progress and maturity.
The grandfathering provisions set up a two-prong test for eligibility. First, the QF
must demonstrate either: (1) submittal of a signed power purchase agreement to the utility, or (2)
submittal to the utility of a completed Application for Interconnection Study and payment of fee.
Id. Provided that one of these threshold criteria is satisfied, the QF must also demonstrate other
indicia of substantial progress and project maturity, such as (1) a wind study demonstrating a
viable site for the project, (2) a signed contract for wind turbines, (3) arranged financing for the
project, and/or (4) related progress on the facility permitting and licensing path. Id.
The Commission s Order No. 29839 has been the subject of three separate petitions
filed by Windland Incorporated (Windland) all related to the grandfathering provisions.
August 5 , 2005 Windland filed a Petition for Reconsideration of the Order addressing the
grandfathering provisions; on August 9, 2005, Windland filed a Petition for Stay of the
Commission s Order specific to the grandfathering provisions until such time as the Petition for
Reconsideration is considered or resolved; and on August 10, 2005 , Windland filed a Petition
requesting that the Commission treat as final its findings in Order No. 29839 regarding the
grandfathering provisions.
On August 23, 2005, the Commission granted Windland's Petition to treat as final its
findings in Order No. 29839 regarding the grandfathering provisions. See Order No. 29851. The
Commission also decided to treat Windland's Petition for Reconsideration as though it had been
filed on August 24, 2005. Id. at 3. The Commission has yet to make a decision regarding
Windland's related Petitions for Reconsideration and Stay.
DECISION MEMORANDUM
APPLICATION
On July 19, 2005, PacifiCorp and Schwendiman entered into a Power Purchase
Agreement (the Agreement) pursuant to PURPA. The Agreement is for a 20-year term.
Pursuant to the Agreement, Schwendiman intends to design, construct, install, own
operate, and maintain a wind generating facility with a nameplate capacity rating of 500
kilowatts (17.5 MW) to be located in Bonneville County, Idaho. Schwendiman intends to
operate the Facility as a qualified small power production facility (QF) under PURP A. The wind
power will not be firmed.
Under the Agreement Schwendiman will be required to provide certain data to
PacifiCorp in order that PacifiCorp may determine whether, under normal or average conditions
the Facility will not exceed 10 aMW on a monthly basis. Furthermore, should the Facility
exceed 10 aMW on a monthly basis, PacifiCorp will accept the energy but will not purchase or
pay for the accepted, excess energy.
The Application includes a letter from Brian D. Jackson on behalf of the
Schwendiman Wind Project. Mr. Jackson is the project engineer for Schwendiman. His letter
asserts that Schwendiman meets the grandfathering requirements from Order No. 29839. More
specifically, Mr. Jackson states that Schwendiman submitted a signed power purchase agreement
to PacifiCorp on June 26, 2005. Although this signed Agreement was ultimately revised, Mr.
Jackson states that the revisions were not significant. Mr. Jackson also describes interconnection
studies and payments to PacifiCorp dating as far back as August 2003. With regard to the other
indicia of project maturity, Mr. Jackson describes wind studies and evaluations dating back to
2002; preliminary agreements for the supply of wind turbines with actual delivery scheduled for
2005; on-going negotiations regarding financing arrangements; and a conditional use permit
from Bonneville County Planning and Zoning granted in 2004.
In addition to the statements in the Application, Mr. Jackson sent a letter to
Commission Staff on August 22 , 2005 requesting expedited treatment of the Application.
According to Mr. Jackson
, "
(t)he finalization of this project has been delayed substantially by
externalities and current events which were not related to this project." Mr. Jackson would like
expedited treatment in order to make future project deadlines, including an in-service date
generation target of December 31 , 2005 and a final commercial on-line date of March 31 , 2006.
DECISION MEMORANDUM
Mr. Jackson also expressed concern that delays in the Application process could affect the
project's priority in the PacifiCorp transmission queue.
STAFF RECOMMENDATION
The Commission Staff recommends that this Application be processed under
Modified Procedure, Le., by written submission rather than by hearing. See IDAP A
31.01.01.201-204. Commission Staff further recommends a 21-day comment period consistent
with Commission Rule of Procedure 202.02.
Despite Mr. Jackson s concerns, Staff does not believe expedited treatment is
advisable. Staff notes that this is the first wind power purchase agreement submitted by
PacifiCorp in Idaho and requires sufficient time for adequate review. Staff further believes that
the Commission s decision regarding the grandfathering provisions in this case are closely tied to
the Commission s decisions on the grandfathering provisions addressed in Windland's Petitions
for Reconsideration and Stay in Case No. IPC-05-22. Staff believes a full 21-day comment
cycle is necessary both to allow Staff to fully evaluate the terms of the proposed contract and the
implications of this Application in light of Case No. IPC-05-22.
COMMISSION DECISION
Does the Commission wish to process PacifiCorp s Application for approval of a
Power Purchase Agreement with Schwendiman Wind LLC under Modified Procedure?
How long does the Commission think the comment cycle should be?
((J
Kira D Pfisterer
DECISION MEMORANDUM