20060308Comments.pdf

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SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 1895
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f) PH ?:15
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
ACIFICORP FOR APPROV AL OF A POWER
PURCHASE AGREEMENT FOR THE SALE
AND PURCHASE OF ELECTRIC ENERGY BETWEEN P ACIFICORP AND SCHWENDIMAN WIND LLC
CASE NO. PAC-O5-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Joint Motion for Approval of Amended Power Purchase Agreement, Notice of Modified
Procedure and Notice of Comment/Protest Deadline issued on February 8, 2006 in Case No.
PAC-05-, submits the following comments.
BACKGROUND
On August 15 , 2005 , PacifiCorp dba Utah Power & Light Company (PacifiCorp;
Company) filed an Application for approval of a Power Purchase Agreement (Agreement) for
the sale and purchase of electric energy between PacifiCorp and Schwendiman Wind LLC
(Schwendiman). On October 4, 2005 , the Commission in Order No. 29880 rejected the filed
Application because the Agreement did not include a "90/110 percent performance band " a
provision that defines the minimum degree of predictability required for published rate
STAFF COMMENTS MARCH 8, 2006
eligibility. In its Order the Commission found that the 90/110 performance band established in
Order No. 29632 or a similarly rigorous requirement is necessary to assure that PacifiCorp
customers will receive the generation product they are paying for. Based on the established
record, the Commission found the Agreement's "mechanical availability guarantee" (MAG) to
be an unacceptable substitute for the 90/110 performance band and one that failed to sufficiently
protect ratepayers from overpaying. An agreement without such a provision, the Commission
found, is neither reasonable nor in the public interest. The Commission provided the parties 14
days to submit an amended Agreement containing a 90/110 performance band. Pursuant to
subsequent filings the deadline for filing an amended Agreement was continued.
Amended Agreement
On January 27, 2006, PacifiCorp and Schwendiman filed a Joint Motion with the
Commission requesting approval of a 20-year amended Power Purchase Agreement (Amended
Agreement) dated January 27, 2006. Schwendiman proposes to design, construct, install, own
operate and maintain a wind generating facility with a nameplate capacity of 20 MW to
located in Bonneville County, Idaho. Pursuant to the Amended Agreement, Schwendiman will
sell and PacifiCorp will purchase approximately 7.15 aMW of electric energy generated by the
Schwendiman wind facility, a qualified small power production facility (QF) under the Public
Utility Regulatory Policies Act of 1978 (PURP A).
Amended Agreement Paragraph 2.1 conditions the Amended Agreement's effectiveness
upon a Commission determination that the prices to be paid for energy and capacity are just and
reasonable, in the public interest, and that the costs incurred by PacifiCorp for purchasing
capacity and energy from Schwendiman are legitimate expenses, all of which the Commission
will allow PacifiCorp to recover in rates in Idaho in the event other jurisdictions deny recovery
of their proportional share of said expenses.
scheduled to occur by July 31, 2007.
Schwendiman s commercial operation date is
Delivery of Energy and Capacity
Pursuant to Amended Agreement, PacifiCorp will purchase the net output of 7.15 aMW
from the eight 2.5 MW Clipper wind generators comprising the QF. In accordance with Section
4 of the Amended Agreement, Schwendiman will be required to achieve an actual monthly
STAFF COMMENTS MARCH 8 , 2006
capacity factor within 10 percent of its forecasted monthly capacity factor (bandwidth). In the
event Schwendiman is outside the bandwidth, then it will receive the energy-only price (capacity
component removed) for all non-conforming energy delivered during that month.
Under Paragraphs 2.3 and 10.4 of the Amended Agreement Schwendiman will reimburse
PacifiCorp s costs for obtaining replacement power if Schwendiman misses the scheduled
commercial operation date of the plant (up to 120 days), or PacifiCorp terminates the Agreement
in the event of a seller default (up to 12 months). The replacement power price is the average of
the Mid-C and Palo Verde firm market price over the defined period of reimbursement.
Schwendiman would be responsible for the positive difference, if any, between the contract price
and the replacement power price for the volume of replacement energy.
Schwendiman will not be compensated for delivering more than 10 aMW in any given
month. As described in Paragraph 5.4 of the Amended Agreement, if the facility delivers more
than 10 aMW on a monthly basis, PacifiCorp will accept the energy but will not purchase or pay
for the portion delivered in excess of 10 aMW.
Purchase Price
The contract purchase price to be paid Schwendiman for its wind generation are Idaho
published non-levelized avoided cost rates, as currently established by the Commission in Order
No. 29646 for QFs that deliver less than 10 aMW on a monthly basis. The Schwendiman facility
is expected to have net generation of approximately 62 700 MWh annually. Thus, PacifiCorp
average annual energy purchase obligation over the term of the Amended Agreement will be
approximately $4 million, with a total nominal cost of $72.million.All applicable
interconnection charges and monthly operation and maintenance charges under the generation
interconnection agreement with PacifiCorp transmission will be assessed to Schwendiman.
Changes to Original Agreement
As reflected in the Joint Motion description of changes to the original Agreement, the
Amended Agreement contemplates an estimated annual sale and purchase of 62 723 088 kWh
compared to the 54 882 702 kWh contemplated in the original Agreement. The difference arises
because Schwendiman proposes to add an additional turbine to the facility thereby increasing its
nameplate capacity from 17.5 MW to 20.0 MW.
STAFF COMMENTS MARCH 8, 2006
The Amended Agreement omits provisions related to guaranteed mechanical availability.
Consequently, provisions related to seller s minimum availability obligations in Sections 4 and 5
of the original Agreement have been deleted, as have the defined terms "Availability,
" "
Cut-
Speed
" "
Minimum Availability Obligation
" "
Output Shortfall " and "Sufficient Wind.
The Amended Agreement adds the term "Non-Conforming Energy" to describe energy
delivered in excess or deficit of the seller s monthly delivery obligation. As required by Order
No. 29880 the Amended Agreement requires seller to deliver between 90 and 110 percent of its
scheduled delivery on a monthly basis and provides that seller receive the energy only price for
all Non-Conforming Energy. These provisions are added to Sections 4 and 5 of the Amended
Agreement.
The Amended Agreement measures monthly performance using a Monthly Capacity
Factor. The Monthly Capacity Factor is subject to adjustment for periods of excusable non-
delivery, using a process purportedly analogous to the adjustment process contained in
Commission approved Power Purchase Agreements filed by Idaho Power Company.
In Section 6.4, the Amended Agreement clarifies the formula for calculating PacifiCorp
liquidated damages in the event of termination due to seller s default.
The Amended Agreement revises the construction milestones in Section 2., postponing
the Scheduled Commercial Operation Date from July 15 , 2006 in the original Agreement to July
, 2007 in the Amended Agreement. The cap on seller s potential liability for daily delay
damages, to be assessed in the event of unexcused delay in Commercial Operation, has been
extended from 90 days to 120 days.
In Order No. 29880 (pp. 11 , 12), the Commission stated that an acceptable published
avoided cost Power Purchase Contract should: (1) measure QF production on a monthly basis;
(2) differentiate the price paid for energy based on its reliability and predictability; and (3)
provide a similarly rigorous and reasonable equivalent to the 90/110 performance band
established in Order No. 29632. PacifiCorp and Schwendiman contend that the Amended
Agreement addresses all three of these concerns.
Grandfathering Treatment
In Order No. 29880, the Commission found that the "grandfathering" provisions set forth
in Order No. 29839 did not apply to the Application in Case No. P AC-05-9 because the
STAFF COMMENTS MARCH 8 , 2006
original Agreement was signed and dated July 19, 2005 - well before the August 4, 2005
effective date that reduced eligibility for PURP A contract rates from 10 aMW to 100 kW.
PacifiCorp and Schwendiman assert that the Amended Agreement should be accorded similar
grand fathering treatment because the Schwendiman project was sufficiently mature at the time of
Order No. 29839 and thus entitled to published rates. Additionally, the contract parties contend
that the Amended Agreement, which was negotiated to meet the Commission s objections to the
original Agreement, may properly be viewed as an extension of the original Agreement and it
should therefore be subj ect to the same rules as the original Agreement.
ST AFF ANALYSIS
90/110 Percent Performance Band
On October 4, 2005 , the Commission in Order No. 29880 rejected the filed Application
because the Agreement did not include a "90/110 percent performance band " a provision that
defines the minimum degree of predictability required for published rate eligibility. In its Order
the Commission found that the 90/110 performance band established in Order No. 29632 or a
similarly rigorous requirement is necessary to assure that PacifiCorp s customers will receive the
generation product they are paying for.
The 90/110 percent performance band has been included in the Amended Agreement.
Thus, the deficiency identified by the Commission as the basis for rejecting the original
Agreement has been corrected. Under the Amended Agreement, Schwendiman is required to
provide monthly estimates of expected generation amounts. As long as the actual monthly
generation falls within a band of 90 to 110 percent of the estimate (Conforming Energy),
PacifiCorp will pay the full published avoided cost rates for the energy in accordance with Order
No. 29646.
The Amended Agreement, however, proposes a different method for pricing energy that
falls outside of the 90/110 percent performance band (Non-Conforming Energy). In existing
contracts, the price to be paid for energy purchases outside of the performance band is equal to
85% of the Mid-C market index price for each particular month.! In the Amended Agreement
the parties have computed a set of fixed rates (Non-Conforming Energy Purchase Prices) as a
substitute for market-based rates.
I To date, all existing contracts subject to the 90/110 performance band have been signed by Idaho Power.
ST AFF COMMENTS MARCH 8 , 2006
Prices to be paid for Conforming and Non-Conforming Energy are shown below:
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
52.
53.
55.
56.
57.
58.
60.
61.
63.
64.
66.
67.
69.
70.
72.
73.
75.
77.42
79.
81.
82.
84.
Npl1cC::9I1forrning
;, ,
'0 e;";
,;$IMWB '
43.
44.
45.
46.
47.
48.
49.
51.
52.
53.
54.
55.
57.
58.43
59.
61.
62.
63.
65.45
66.
68.49
70.
The Non-Conforming Energy Prices have been derived using the same avoided cost spreadsheet
used to compute published avoided cost rates. The Non-Conforming Prices reflect
approximately a 17 percent discount from the published avoided cost rates. The discount
equal to the capital cost, plus the fixed O&M, plus a proportionate share of variable O&M costs
of a simple cycle combustion turbine (SCCT).
One way to rationalize the discount is to assume that a simple cycle combustion turbine
would be used as a backup to a wind project whenever the wind project's generation could not be
accurately predicted. One of the things a utility does not get if it accepts unpredictable energy
from a wind project is dependable capacity. It is reasonable to assume that backup capacity to a
wind project would be provided by a SCCT, the cheapest capacity available. The cost of
capacity of a SCCT is equal to its capital cost and its fixed O&M cost. In addition, to the extent
that the variable O&M costs for a SCCT are higher than for a CCCT, it is reasonable to assign
those incremental costs as SCCT capacity costs.
STAFF COMMENTS MARCH 8, 2006
The source for the capital and O&M costs of a SCCT is PacifiCorp s 2004 Integrated
Resource Plan Update. The 2004 IRP was accepted by the Commission. Reference Case No.
PAC-05-, Acceptance of Filing issued August 26, 2005. The 2004 IRP Update was
submitted in 2005 by PacifiCorp to reflect significant changes in the Company s plan. However
while the Update was submitted, the Staff did not formally review the Update nor did the
Commission issue an order accepting or acknowledging the Update. Nevertheless, Staff believes
that the revised resource costs included in the Update are reasonable, and reflect the most up-to-
date costs available for a new SCCT resource in PacifiCorp s service territory.
Over time, the Non-Conforming Energy Prices could turn out to be higher or lower than
market prices. Staff believes that the Non-Conforming Energy Prices are a reasonable proxy for
Mid-C market index prices and represent a fair price to be paid for energy that cannot be
delivered predictably. In addition, unlike market prices, they offer a fixed, known set of prices
that will be paid over the life of the contract for energy delivered outside of the 90/110 percent
performance band.
Staff does not view the Non-Conforming Energy Prices in this Agreement as necessarily
establishing a precedent to be followed in all future PacifiCorp contracts or in contracts for wind
projects that may be signed by other utilities. Staff does believe, however, that the approach
used here could provide a reasonable alternative for future wind contracts for PacifiCorp, Idaho
Power and A vista.
Other Contract Changes
Although the original Agreement was rejected by the Commission solely because it did
not contain the 90/110 percent performance band provisions, the Amended Agreement, Staff
notes, contains new and revised provisions addressing more than just the performance band. The
Amended Agreement clarifies the formula for calculating liquidated damages in the event
termination due to Seller s default. The Commission has never adopted rules requiring payment
of liquidated damages for small QF projects that are delayed or fail to materialize. However
Staff is not opposed to such provisions and believes they should be permitted.
In addition, the Amended Agreement requires Schwendiman to meet monthly estimates
of capacity factor rather than monthly estimates of generation. Because monthly capacity factor
ST AFF COMMENTS MARCH 8, 2006
and monthly energy generation are mathematical derivations of each other, this change is not
material.
The Amended Agreement contemplates an estimated annual sale and purchase of
723 088 kWh, compared to the 54 882 702 kWh contemplated in the original Agreement.
The difference arises because Schwendiman proposes to add an additional turbine to the Facility,
thereby increasing its nameplate capacity from 17.5 MW to 20.0 MW.The Amended
Agreement also revises the construction milestones, postponing the scheduled commercial
operation date from July 15 2006 to July 31 2007. Staff does not oppose these changes.
RECOMMENDATIONS
Staff believes that the Amended Agreement prices to be paid for energy and capacity are
just and reasonable, in the public interest, and that the costs incurred by PacifiCorp for
purchasing capacity and energy from Schwendiman are legitimate expenses. Staff recommends
that the Amended Agreement be approved. In the event costs associated with the Agreement
exceed the costs PacifiCorp would have otherwise incurred acquiring Comparable Resources
those costs may be assigned on a situs basis to PacifiCorp s Idaho jurisdiction in accordance with
the terms ofthe Revised Protocol adopted in Case No. P AC-02-, Order No. 29708.
Respectfully submitted this 1J. day of March 2006.
Scott oodbury .
Deputy Attorney General
Technical Staff: Rick Sterling
i :umisc :comments/paceO5 ,9SWTOS
STAFF COMMENTS MARCH 8, 2006
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 8TH DAY OF MARCH 2006
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. PAC-05-, BY MAILING A COpy THEREOF, POSTAGE PREPAID
TO THE FOLLOWING:
BRUCE GRISWOLD
MANAGER ORIGIN AnON
P ACIFCORP
825 NE MUL TNOMAH 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 ALFALFA LANE
MELBA, ID 83641
DEAN J MILLER ESQ
McDEVITT & MILLER LLP
420 W. BANNOCK
BOISE ID 83702
SECRETARY
CERTIFICATE OF SERVICE