20050914Letter and corrected comments.pdf

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OFFICE OF THE ATTORNEY GENERAL
LAWRENCE G. WASDEN
September 14, 2005
Jean D. Jewell
Commission Secretary
Idaho Public Utilities Commission
PO Box 83720
Boise, Idaho 83720-0074
RE:Staff Comments Filed in Case No. P AC-O5-
Dear Ms. Jewell:
Attached please find Corrected Staff Comments dated today, September 14 , 2005. Please
replace the Staff Comments filed yesterday, September 13 2005 , in Case Number PAC-05-
with the Corrected Staff Comments on the Commission s website to avoid any confusion.
The changes to Staff s Comments solely involve the final paragraph on page 2 regarding the 90
to 110 percent performance band adopted by the Commission in Order No. 29632. Staffs
Comments mischaracterized the Commission s findings in Order No. 29632, and the changes are
necessary to demonstrate the actual 90 to 110 percent performance band adopted by the
Commission in Order No. 29632 and applied by Staff when reviewing this contract.
The relevant text now states:
When a QF delivers less than 90 percent of the forecasted amount for
reasons other than forced outage or forced majeure events... the shortfall
energy shall be priced at 85% of the market price. less the contract rate. the
difference capped at 1500/0 of contract rate.Id. Further
, "
energy delivered
in excess of 100%should be priced at 85% of the market or contract price
whichever is less.Id. However
, "
(t)he QF will receive no payment for any
energy provided above the 10 MW cap.Id.
The corrected text states:
When a QF delivers less than 90 percent of the forecasted amount all
delivered energy shall be priced at 850/0 of the market price. or the contract
rate. whichever is less Id. Further when a OF delivers energy in excess of
Contracts & Administrative Law Division, Idaho Public Utilities Commission
O. Box 83720, Boise, Idaho 83720-0074, Telephone: [phone], FAX: [phone], E-mail: Ipuc(g)puc.state.id.
Located at 472 West Washington St., Boise, Idaho 83702
Jean D. Jewell
September 14, 2005
Page 2
110 percent of the forecasted amount, the energy delivered in excess of
110%should be priced at 850/0 of the market or contract price, whichever is
less.Id. However
, "
(t)he QF will receive no payment for any energy
provided above the 10 MW cap.Id.
Thank you
J~tf)
Kira Dale Pfisterer
Deputy Attorney General
Enclosure
cc:Parties of Record
L:PAC-O5-09 _kdp
L~CE !VED
KIRA DALE PFISTERER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 6571
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, ID 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
ACIFICORP FOR APPROVAL OF A POWER
PURCHASE AGREEMENT FOR THE SALE
AND PURCHASE OF ELECTRIC ENERGY
BETWEEN P ACIFICORP AND SCHWENDIMAN WIND LLC
CASE NO. P AC-O5-
CORRECTED COMMENTS OF
THE COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Kira Dale Pfisterer, Deputy Attorney General, and submits the following
comments in response to Order No. 29862.
I. BACKGROUND
On August 15 , 2005 , PacifiCorp filed an Application for approval of a Power Purchase
Agreement (the Agreement) for the sale and purchase of electric energy between PacifiCorp and
Schwendiman Wind LLC (Schwendiman). Schwendiman intends to operate the Facility as a
qualified small power production facility (QF) under the Public Utility Regulatory Policies Act
of 1978 (PURPA). The wind project will provide non-firm intermittent energy. On August 31
2005 , the Commission solicited comments on the Application. See Order No. 29862.
CORRECTED STAFF COMMENTS SEPTEMBER 14, 2005
A. The Legal Framework
Pursuant to PURPA and related regulations promulgated by the Federal Energy
Regulation Commission (FER C), an electric utility, such as PacifiCorp, is required to purchase
electric energy from eligible QFs. 16 U.C. ~ 824a -3(a); 18 C.~ 292.303. The state
commissions set the rate for such purchases. 16 U.C. ~ 824a - 3(b); 18 C.R. ~ 292.304.
These rates must be just and reasonable to the utility s customers and in the public interest and
must not discriminate against qualifying cogenerators or small power producers. Id.
1. The Eligibility Cap
In Idaho, standard administratively determined rates, the "published rates " are made
available to QFs that meet an eligibility cap limiting the size of the project. On August 4, 2005
the Commission temporarily reduced the eligibility cap for non-firmed wind projects in Idaho
from 10 average megawatts (10 aMW) to 100 kilowatts (kW). See Order No. 29839 (Case. No.
IPC-05-22). Pursuant to the Commission s Order, this new eligibility cap is effective July 1
2005. Id. at 11.
2. The 90-110 Performance Band
On November 22, 2004, the Commission established certain performance criteria for the
purpose of determining eligibility for firm energy avoided cost rates. See Order No. 29632 (Case
No. IPC-04-08). These eligibility criteria apply to all utilities.
The criteria established in Order No. 29632 include monthly forecasts of expected
generation. Id. at 14. Proj ects must deliver generation within a band of 90 to 110 percent of the
monthly forecasted amount in order to be eligible for the published avoided cost rates for firm
energy projects. Id. at 20. When a QF delivers less than 90 percent of the forecasted amount, all
delivered energy shall be priced at 85% of the market price, or the contract rate, whichever is
less. Id. Further, when a QF delivers energy in excess of 110 percent of the forecasted amount
the "energy delivered in excess of 110% should be priced at 85% of the market or contract price
whichever is less.Id. However
, "
(t)he QF will receive no payment for any energy provided
above the 10 MW cap.Id.
I Although Case No. IPC-04-08 arose from a complaint case against Idaho Power, all three electric utilities
including PacifiCorp, participated because the proceeding involved generic issues related to the methodology for
computing published rates and the refining eligibility criteria for them. In fact, PacifiCorp offered a witness in the
case who agreed with Idaho Power that QFs should be required to commit to monthly (as opposed to daily or
hourly) delivery schedules in order to obtain fmn energy prices. Tr. at 510-511.
CORRECTED STAFF COMMENTS SEPTEMBER 14, 2005
B. The Application
PacifiCorp submitted the Application for Commission approval on August 15 , 2005.
This Application includes a formal pleading submitted by PacifiCorp s attorney; a letter from
project engineer, Brian D. Jackson, on behalf of the Schwendiman Wind Project; and the
Agreement itself dated July 19, 2005.
The Agreement is for a twenty-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 17.5 megawatts (MW) to be located near Idaho Falls, in Bonneville
County, Idaho. The generation of the Facility is not expected to exceed 10 average MW on a
monthly basis. Nonetheless, the Agreement contains provisions addressing the contingencies of
over- and under-production. If the facility generates power in excess of 10 aMW, PacifiCorp
will accept the power to a certain maximum level but will not pay for it. The Agreement also
contains provisions relating to a "minimum availability obligation.Pursuant to these
provisions, the Facility must achieve an average availability minimum of at least 75 percent in
the first year, 85 percent in years 2-, and 80 percent in the last 10 years of the Agreement.
Mr. Jackson letter in the Application specifically addresses the grandfathering
requirements of Order No. 29839. Mr. Jackson asserts that Schwendiman meets each of the
criteria for published rate eligibility.
II. STAFF ANALYSIS
It is Staffs position that the grandfathering provisions in Order No. 29839 apply to this
Application and Staff finds that the Agreement meets the Commission grandfathering
provisions for published rate availability as set forth in Order No. 29839. Nonetheless, the
Agreement fails to include a provision establishing a 90-110 percent performance band as
required by Order No. 29632. Therefore, Staff recommends that the Commission deny this
Application as filed.
A. Order No. 29839 Applies to This Application.
On August 4, 2005, the Commission issued Order No. 29839 in response to an Idaho
Power petition requesting a temporary suspension of the Company s obligation under PURP A to
enter into new contracts to purchase energy generated by wind QFs. Order No. 29839 at
Idaho Power requested that the proposed temporary suspension remain in effect for a period of
CORRECTED STAFF COMMENTS SEPTEMBER 2005
time sufficient to allow the Commission to investigate the impacts on Idaho Power s customers
arising out of the addition of substantial amounts of wind-powered generation projects. Id.
The Commission did not grant Idaho Power s requested suspension.Instead, the
Commission: (1) reduced the published rate eligibility cap for non-firmed wind projects to 100
kW effective July 2005; (2) required individual negotiation for larger wind QFs; and (3)
established criteria for assessing QF contract entitlement under the previous standard. Id.
The contract entitlement provisions, deemed the "grandfathering provisions " allow a QF
like Schwendiman, with a capacity over 100 kW but less than 10 aMW, to be eligible for the
published rates. 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. at 10. Provided that one of these threshold criteria is satisfied, the QF must also
demonstrate other indicia of substantial progress and project maturity, such as (a) a wind study
demonstrating a viable site for the project, (b) a signed contract for wind turbines, (c) arranged
financing for the project, and/or (d) related progress on the facility permitting and licensing path.
Id. If the grandfathering provisions do not apply, then the QF must negotiate a rate with the
utility subject to Commission approval. Id.
Order No. 29839, including the grandfathering provisions, applies to PacifiCorp. The
Order states:
PacifiCorp and Avista ... have both requested similar procedural and
regulatory treatment as pertains to the availability of published rates for
wind QF's. On the evidence presented, we find that neither PacifiCorp
nor Avista are in the situation of having to purchase an amount of QF
wind generation as has been offered and presented to Idaho Power.
Nevertheless, because we find for administrative reasons that it is prudent
and expedient to examine this question for all jurisdictional utilities at the
same time, we find this request to be reasonable and justified.
Order No. 29839. Thus, the Commission decided that, even though PacifiCorp and Avista are
not experiencing the same problems as Idaho Power, they are subject to the same "procedural
and regulatory treatment as pertains to the availability of published rates for wind QF'Staff
believes this necessarily includes the grandfathering provisions.
Moreover, even though the grandfathering provisions specifically are subject to petitions
for reconsideration and for stay, the Order is in effect until the Commission makes a
determination otherwise. Pursuant to Idaho Code 9 61-626(3), "(aJ petition for reconsideration
CORRECTED STAFF COMMENTS SEPTEMBER 14, 2005
shall not excuse any corporation, public utility or person from complying with or obeying any
order or any requirement of any order of the commission or operate in any manner, to stay or
postpone the enforcement thereof, except as the commission may by order direct." Therefore
until the Commission makes a decision to stay the application of Order No. 29839 or to rescind
or modify Order No. 29839, including the grandfathering provisions, it is the legal standard that
applies to the Schwendiman contract.
B. The Schwendiman Agreement Meets the Grandfathering Provisions of Order No. 29839.
In evaluating whether the Schwendiman Proj ect meets the grandfathering criteria set
forth in Order No. 29839, Staff considered each criterion individually. As described in further
detail below, the Schwendiman contract does not meet the first requirement for grandfathering in
that there was not a signed power purchase agreement by July 1 , 2005. However, Schwendiman
does meet the second requirement for grandfathering, because it has submitted a completed
interconnection study application and has paid a fee. In addition, Schwendiman meets at least
one of the described indicia of project development and maturity. Therefore, Staff believes
Schwendiman meets the grandfathering provisions necessary for published rate eligibility as set
forth in Order No. 29839.
1. Schwendiman Did Not Have a Signed Power Purchase Agreement by July 1. 2005.
The Application does not demonstrate that there was a signed power purchase agreement
by July 1 , 2005. The submitted Agreement is dated July 19, 2005. Nonetheless, Mr. Jackson
states in the Application that Schwendiman submitted a signed power purchase agreement to
PacifiCorp on June 26, 2005. Jackson further provides
, "
PacifiCorp was not yet willing to sign
that document and thus, several points were revised and finalized during further negotiations in
July to reach a negotiated final contract agreeable to both parties.
In response to Staff production requests, PacifiCorp states that the parties were still
negotiating material aspects of a power purchase agreement when Schwendiman tendered the
signed June 26th draft Agreement. PacifiCorp further states that it had asked Schwendiman on
June 22 not to tender the draft because material terms remained at issue. According to the
Company, the June 22 draft Agreement was incomplete for several reasons, including the
following: (1) a lack of agreement on damage provisions; (2) a lack of agreement on liquidated
damage calculations; (3) questions regarding Schwendiman ability to perform per the
milestones; (4) a missing engineer s certification; and (5) a missing QF certification.
CORRECTED STAFF COMMENTS SEPTEMBER 14, 2005
Based on the information provided by both parties, Staff believes there was not an
agreement of the parties, either express or implied, by July 1 , 2005. Therefore, the Application
fails to meet the first requirement for published rate availability set forth in Order No. 29839.
Furthermore, this Agreement appears to differ from the contracts contemplated by Staff
in its comments recommending grandfathering criteria in Case No. IPC-05-22. In those
comments, Staff recommended that contracts be grandfathered if they had been signed by the
project owner and were materially the same as other Idaho Power wind contracts that had
recently been signed. Except for the project names, locations, descriptions and generation
amounts, all recent Idaho Power wind contracts had been virtually identical. As a result, Staff
believes that signature by the project owner implied agreement with Idaho Power, despite the
lack of an Idaho Power signature.
This Agreement differs for two distinct reasons. First, there was clear disagreement
between the parties on and after July 1 , 2005. Further negotiation was necessary before the
parties could reach a final agreement. Second, this Agreement was not with Idaho Power, it was
with PacifiCorp. This contract was the first PURP A contract PacifiCorp has submitted for
Commission approval in over ten years and differs markedly from all previous PacifiCorp
contracts. Thus, it is unreasonable to assume that any delay past the Commission s July 1 cutoff
date was simply administrative and that ultimate contract signature would simply be a ministerial
matter. Although PacifiCorp eventually signed the contract and submitted it for Commission
approval, it did so after July 1. Consequently, Staff does not believe the first criterion of contract
signature prior to July 1 , 2005 has been met.
2. Submittal of a Completed Application for Interconnection Study and Fee Payment
Schwendiman meets the second requirement for project eligibility, because Schwendiman
submitted a number of applications for interconnection study and made payments to PacifiCorp
to conduct such studies prior to July 1 , 2005. In his letter accompanying PacifiCorp
Application, Mr. Jackson describes interconnection studies and payments to PacifiCorp dating as
far back as August 2003. Staff has verified that the interconnection studies have been done and
that the fees were indeed paid. Thus, Staff believes that the second criterion for proj ect
eligibility has been satisfied.
3. Other Indicia ofProiect Maturity
The other indicia of project maturity outlined in Commission Order No. 29839 include: a
wind study demonstrating a viable site for the project; a signed contract for wind turbines;
CORRECTED STAFF COMMENTS SEPTEMBER 14, 2005
arrangement of project financing; and related progress on the facility permitting and licensing
path. Staff believes that Schwendiman meets at least one of these criteria - the wind study
demonstrating a viable site for the project.
a. Wind study demonstrating a viable site for the project
Staff finds that Schwendiman meets the requirement of a wind study demonstrating a
viable site. The wind study provided in response to Staff s production requests consists of a
summary of wind data collected by Schwendiman, in addition to a September 2004 letter from a
wind energy consultant analyzing the data. The consultant's analysis seems to conclude that the
proposed site is viable, but it also concludes that there is some uncertainty as to the true long-
term wind speeds at the site, uncertainty about some of the wind data themselves, and
uncertainty about extrapolation of the wind data to other heights. Although Staff would prefer to
see a wind study without so much uncertainty, Staff nevertheless believes that the wind study
completed for the proposed site meets minimum standards.
Signed contract for wind turbines
Schwendiman has been unable to produce a signed contract for purchase of wind
turbines. Only a "preliminary agreement" has been obtained to date. A June 30 , 2005 letter
from the turbine manufacturer states "We can schedule your new orders for the Clipper turbines
but we need to make those orders firm with cash deposits as soon as your power purchase
agreements are completed." The letter also states
, "
I will maintain this project's position in the
production schedule while we finalize the Turbine Supply Agreement over the next month.
Therefore, Staff does not believe that this criterion is satisfied.
c. Arrangement of project financing
Staff does not believe that this criterion is satisfied. Schwendiman admits that financing
arrangements are completely contingent upon the signed, approved power purchase agreement as
well as the signed and finalized turbine purchase order. A September 6, 2005 letter provided in
response to Staff production requests confirms this and further provides that financing will be by
private investors who do not wish to be disclosed at this time.
d. Related progress on the facility permitting and licensing path
Staff is not certain if Schwendiman meets this criterion. Schwendiman has obtained a
conditional use permit from the Bonneville County Planning and Zoning Commission.
Schwendiman further contends that environmental reviews have also been conducted as part of a
USDA grant in 2003 and 2004. However, the Idaho Department of Fish and Game contacted
CORRECTED STAFF COMMENTS SEPTEMBER 14, 2005
Staff informally to express concerns about the proposed project and inquire about the agency
ability to comment on the project, either in proceedings before the Commission or in other
forums. Thus, Staff is still uncertain as to whether this criterion is satisfied.
C. The Schwendiman Agreement Fails to Include a 90-110 Performance Band.
The Agreement between PacifiCorp and Schwendiman does not comply with the required
90-110 percent performance band criteria established in Order No. 29632. Moreover, the
minimum availability provisions" fail to address the concerns addressed by the performance
band. The 90-110 percent performance band criteria established by the Commission are to
applied to monthly generation in order to insure a reasonable degree of firmness, whereas the
minimum availability obligation" provisions in this Agreement only apply to annual generation.
Staff believes that a project could meet the "minimum availability obligation" in this Agreement
but fail to meet the 90-110 percent performance band criteria required by the Commission.
Because this Agreement fails to contain a 90-110% percent performance band, Staff does not
believe that this Agreement should be approved as submitted.
D. The Schwendiman Agreement Otherwise Meets the Commission s Requirements for
Published Rate Eligibility.
Staff has reviewed all of the other rates, terms and conditions in the proposed Agreement
and believes that they comply with all effective Commission orders. For example, provided that
the Schwendiman Agreement meets the grandfathering provisions of Order No. 29839, the
Facility must have a production capacity under 10 aMW in order to be eligible for the published
avoided cost rates. See Order No. 29646. 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. This Agreement satisfies
the Commission s requirements and sufficiently guarantees that the facility will not receive the
published rates when producing in excess of 10 aMW.
CORRECTED STAFF COMMENTS SEPTEMBER 14, 2005
E. Cost Allocation of Contract Costs.
Staff has some concerns regarding the potential impact of this QF contract on
PacifiCorp s Idaho customers. However, it is impossible at this time to evaluate fully what such
an impact will be.
On February 28, 2005 , the Commission approved PacifiCorp s proposed Inter-
Jurisdictional Cost Allocation Revised Protocol (Revised Protocol). See Order No. 29708. The
Revised Protocol is the methodology the Commission will follow when allocating PacifiCorp
system costs to Idaho.
As stated in Recital E on page 1 of the Agreement, the Agreement will be categorized as
a "New QF" under the terms of the Revised Protocol. The Revised Protocol states that the costs
of "any NEW QF contract which exceed the costs PacifiCorp would have otherwise incurred
acquiring a comparable resource will be assigned on a situs basis to the State approving such
contract" (emphasis added). Costs not in excess of a "comparable resource" will be system
assigned. The Revised Protocol defines a comparable resource to mean "resources with similar
capacity factors, start-up costs, and other output and operating characteristics.
In order to be able to determine in the future whether the costs to PacifiCorp under this
Agreement exceed the costs PacifiCorp would have otherwise incurred acquiring a comparable
resource, Staff inquired of PacifiCorp as to how it intends to define the "comparable resource.
Staff believes that it is important to clearly and specifically define the comparable resource now
because it may be very difficult in the future to reconstruct today s market prices and resource
alternatives looking back in hindsight. For example, if the comparable resource is the market
those costs will need to begin to be tracked for any benchmarking or comparison that would be
required at a later date. In addition, the market must be defined in terms of which location will
be used and in terms of whether the market will be defined as long-term or short-term. If the
comparable resource is another generation alternative, then the current costs of other
comparable alternatives should be memorialized now for possible use in a future rate case.
In response to Staff s production requests regarding a definition of the comparable
resource, PacifiCorp responded that the Commission should make that determination in a future
rate case. Absent a company analysis establishing a "comparable resource " it is impossible for
Staff to fully evaluate the impact of the Schwendiman project on PacifiCorp s Idaho customers.
CORRECTED STAFF COMMENTS SEPTEMBER 14, 2005
IV. STAFF RECOMMENDATION
Staff recommends that the Agreement not be approved as filed because of the absence of
the 90-110 percent banding provisions that are required by Commission Order No. 29632.
Respectfully submitted this 'J (\I'
i I
day of September 2005.
;-
1./l4:t
Kira Dale Pfister
Deputy Attorney General
Technical Staff: Rick Sterling
i: umiscl comments/paceO5. 9kdprps
CORRECTED STAFF COMMENTS SEPTEMBER 14, 2005
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 14TH DAY OF SEPTEMBER 2005
SERVED THE FOREGOING CORRECTED COMMENTS OF THE COMMISSION
STAFF IN CASE NO. PAC-05-, BY MAILING A COpy THEREOF POSTAGE
PREP AID TO THE FOLLOWING:
BRUCE GRISWOLD
MANAGER ORIGINATION
ACIFCORP
825 NE MULTNOMAH STE 1800
PORTLAND OR 97232
LISA NORDSTROM
OFFICE OF THE GENERAL COUNSEL
ACIFICORP
825 NE MUL TNOMAH SUITE 1800
PORTLAND OR 97232
DATA REQUEST RESPONSE CENTER
ACIFICORP
825 NE MUL TNOMAH SUITE 800
PORTLAND OR 97232
MAILED TO datarequest~pacificorp.com
BRIAN D. JACKSON, P.
7800 ALF ALF A LANE
MELBA, ID 83641
DEAN J MILLER ES
McD EVITT & MILLER LLP
420 W. BANNOCK
BOISE ID 83702
SECRET AR)J
CERTIFICATE OF SERVICE