20110608final_order_no_32260.pdf

Office of the Secretary
Service Date
June 8,2011
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
PACIFICORP DBA ROCKY MOUNTAIN )CASE NO.PAC-E-l1-O1
POWER FOR A DETERMINATION )
REGARDING A FIRM ENERGY SALES )
AGREEMENT BETWEEN ROCKY MOUNTAIN )
POWER AND CEDAR CREEK WIND,LLC )
(RATTLESNAKE CANYON PROJECT))
_______________________________________________________________________________________
)
IN THE MATTER OF THE APPLICATION OF )
PACIFICORP DBA ROCKY MOUNTAIN )CASE NO.PAC-E-1l-02
POWER FOR A DETERMINATION )
REGARDING A FIRM ENERGY SALES )
AGREEMENT BETWEEN ROCKY MOUNTAIN )
POWER AND CEDAR CREEK WIND,LLC )
(COYOTE HILL PROJECT))
_________________________________________________________________________________
)
IN THE MATTER OF THE APPLICATION OF )
PACIFICORP DBA ROCKY MOUNTAIN )CASE NO.PAC-E-ll-03
POWER FOR A DETERMINATION )
REGARDING A FIRM ENERGY SALES )
AGREEMENT BETWEEN ROCKY MOUNTAIN )
POWER AND CEDAR CREEK WIND,LLC )
(NORTH POINT PROJECT))
_______________________________________________________________________________________
)
IN THE MATTER OF THE APPLICATION OF )
PACIFICORP DBA ROCKY MOUNTAIN )CASE NO PAC-E-11-04
POWER FOR A DETERMINATION )
REGARDING A FIRM ENERGY SALES )
AGREEMENT BETWEEN ROCKY MOUNTAIN )
POWER AND CEDAR CREEK WIND,LLC )
(STEEP RIDGE PROJECT))
_______________________________________________________________________________________
)
IN THE MATTER OF THE APPLICATION OF )
PACIFICORP DBA ROCKY MOUNTAIN )CASE NO.PAC-E-l1-05
POWER FOR A DETERMINATION )
REGARDING A FIRM ENERGY SALES )
AGREEMENT BETWEEN ROCKY MOUNTAIN )ORDER NO.32260
POWER AND CEDAR CREEK WIND,LLC )
(FIVE PINE PROJECT))
On January 10,2011,PacifiCorp dba Rocky Mountain Power filed five Applications
each requesting acceptance or rejection of a 20-year Firm Energy Sales Agreement
ORDER NO.32260 1
(‘Agreements”)between Rocky Mountain Power and Cedar Creek Wind,LLC for its
Rattlesnake Canyon,Coyote Hill,North Point,Steep Ridge and Five Pine wind projects.All
five projects are located near Bingham County,Idaho,and are managed by Cedar Creek Wind,
LLC.The Projects have self-certified as “qualifying facilities”(QFs)under the applicable
provisions of the federal Public Utility Regulatory Policies Act of 1978 (PURPA).Rocky
Mountain Power requested that its Applications be processed by Modified Procedure.
On February 24,2011,the Commission issued a Notice of Application and Notice of
Modified Procedure setting a March 24,2011,comment deadline and a March 31,2011,deadline
for reply comments.Comments were filed by the Commission Staff,the Company,and Cedar
Creek Wind on behalf of the five projects.’Numerous public comments were also received by
the Commission.As set out in greater detail below,the Commission declines to approve the
Firm Energy Sales Agreements.
BACKGROUND
On November 5,2010,Idaho Power,Avista Corporation,and PacifiCorp dba Rocky
Mountain Power filed a Joint Petition requesting that the Commission initiate an investigation to
address various avoided cost issues related to the Commission’s implementation of PURPA.
Section 210 of PURPA generally requires electric utilities to purchase power produced by QFs at
‘avoided cost”rates set by the Commission.“Avoided costs”are those costs which a public
utility would otherwise incur for electric power,whether that power was purchased from another
source or generated by the utility itself.”18 C.F.R.§292.101(b)(6).Order No.32176 at 1.
While the Commission pursues its investigation,the utilities also moved the
Commission to “lower the published avoided cost rate eligibility cap from 10 aMW to 100 kW
toi be effective immediately....“Id.citing Joint Petition at 7.Under PURPA regulations
issued by the Federal Energy Regulatory Commission (FERC),the Commission must “publish”
avoided cost rates for small QFs with a design capacity of 100 kW or less.Order No.32176 at 1.
However,the Commission has the discretion to set the published avoided cost rate at a higher
capacity amount —commonly referred to as the “eligibility cap.”18 C.F.R.§292.304(c)(1-2).
When a QF project is larger than the published eligibility cap the avoided cost rate for the project
The parties in these five cases have all filed consolidated comments because the relevant facts for each of these
five projects are substantially similar,Consequently,the Commission finds it reasonable and appropriate to
consolidate these cases and issue this consolidated final Order.Rule 247,IDAPA 31.01.01.247.
ORDER NO.32260
must be individually negotiated by the QF and the utility using the Integrated Resource Plan
(IRP)Methodology.Order No.32176.
The purpose of utilizing the IRP Methodology for large QF projects is to more
precisely value the energy being delivered.Id.at 10.The IRP Methodology recognizes the
individual generation characteristics of each project by assessing when the QF is capable of
delivering its resources against when the utility is most in need of such resources.The resultant
pricing is reflective of the value of QF energy to the utility.Utilization of the IRP Methodology
does not negate the requirement under PURPA that the utility purchase the QF energy.
On December 3,2010,the Commission issued Order No.32131 declining the
utilities’motion to immediately reduce the published avoided cost rate eligibility cap from 10
aMW to 100 kW.Order No.32131 at 5.However,the Order did notify parties that the
Commission’s decision regarding the motion to reduce the published avoided cost eligibility cap
would become effective on December 14,2010.Id.at 5-6,9.
Based upon the record in the GNR-E-10-04 case,the Commission subsequently found
that a “convincing case has been made to temporarily reduce the eligibility cap for published
avoided cost rates from 10 aMW to 100 kW for wind and solar only while the Commission
further investigates”other avoided cost issues.Order No.32176 at 9 (emphasis original).On
reconsideration,the Commission affirmed its decision to temporarily reduce the eligibility cap
for published avoided cost rates from 10 aMW to 100 kW.Order No.32212.Thus,the
eligibility cap for the published avoided cost rate for wind and solar QF projects was set at 100
kW effective December 14,2010.
THE AGREEMENTS
On December 22,2010,Rocky Mountain Power and each of the five wind projects
entered into their respective Agreements.Under the terms of the Agreements,each wind project
agrees to sell electric energy to Rocky Mountain Power for a 20-year term using the 10 aMW
non-levelized published avoided cost rates.Applications at 8-9.The Applications recite that
Rattlesnake Canyon,Coyote Hill and North Point will each have a maximum capacity amount of
27.6 MW,and Steep Ridge and Five Pine will each have a maximum capacity of 25.2 MW.
Under normal and/or average conditions,each QF will not generate more than 10 aMW on a
monthly basis.Rocky Mountain Power warrants that the Agreements comport with the terms
ORDER NO.32260 3
and conditions of the various Commission Orders applicable to PURPA agreements for a wind
resource.Id.atJ6 citing Order Nos.30415,30488,30738 and 31025.
The projects have all selected October 1,2012,as the Scheduled Commercial
Operation Date.Applications at 9.Rocky Mountain Power asserts that various requirements
have been placed upon the Facilities in order for Rocky Mountain Power to accept the Facilities’
energy deliveries.Rocky Mountain Power states that it will monitor each Facilitys compliance
with initial and ongoing requirements through the term of the Agreements.Rocky Mountain
Power asserts that it has advised each Facility of the Facility’s responsibility to work with Rocky
Mountain Power’s transmission unit to ensure that sufficient time and resources will be available
for delivery to construct the interconnection facilities,and transmission upgrades if required,in
time to allow each Facility to achieve its October 1,2012,Scheduled Commercial Operation
Date.
Rocky Mountain Power asserts that each Facility has been advised that delays in the
interconnection or transmission process do not constitute excusable delays and if a Facility fails
to achieve its Scheduled Commercial Operation Date delay damages will be assessed.Id.at II.
The Applications further maintain that each Facility has acknowledged and accepted the risk
inherent in proceeding with its Agreement without knowledge of the requirements of
interconnection and possible transmission upgrades.Id.The parties have each agreed to delay
liquidated damages and security provisions.Agreements ¶J 2.5.1,11 .1.2.Rocky Mountain
Power states that each Facility has also been made aware of and accepted the provisions in each
Agreement regarding curtailment or disconnection of its Facility should certain operating
conditions develop on Rocky Mountain Power’s system.Agreements ¶6.3.
By their own terms,the Agreements will not become effective until the Commission
has approved all of the terms and conditions and declares that all payments made by Rocky
Mountain Power to the Facilities for purchases of energy “are just and reasonable,in the public
interest,and that the costs incurred by [Rocky Mountain Power]for purchases of capacity and
energy from [Cedar Creek]are legitimate expenses,all of which the Commission will allow
[Rocky Mountain Power]to recover in rates in Idaho in the event other jurisdictions deny
recovery of their proportionate share of said expenses.”Agreements ¶2.1.
ORDER NO.32260 4
THE COMMENTS
A.Staff Comments
Staff observed that the five Agreements are nearly identical.All five of the projects
are proposed to be built in the same general vicinity.Staff calculated that the five projects
collectively are expected to generate 375,503 MWh annually.Under the non-levelized rates in
the Agreements,the annual energy payments by Rocky Mountain Power for the expected
generation will be approximately $23.6 million in 2013 increasing to approximately $45.2
million in 2031,or a cumulative total of $685.4 million over the 20-year term of the Agreements.
The collective net present value of the energy payments over the life of the Agreements will be
approximately $265.2 million.
The five Agreements were signed by the project developer on December 13,2010,
and signed by Rocky Mountain Power on December 22,2010.The Agreements were filed with
the Commission on January 10,2011.The Agreements contain the published avoided cost rates
from Order No.31025.However,Staff observed that Order No.32176 lowered the availability
of published avoided cost rates for wind and solar QF projects to 100 kW,effective December
14.2010.As a matter of law,Staff considers the effective date of the contract to be the date
upon which both parties signed the agreement.A signature by only one party,Staff believes,
does not create an enforceable contract nor establish the effective date of the Agreement.
Consequently,Staff considers the effective date for the five Agreements to be December 22,
2010.
Staff acknowledged the comments submitted by Cedar Creek in support of the
Agreements,as well as the affidavit of Dana Zentz,filed with the Commission on January 26,
2011.The comments and affidavit allege that the parties had reached full agreement as to the
rates,terms and conditions of a PPA for the projects on November 29,2010,and that Cedar
Creek signed and delivered copies of the Agreements to Rocky Mountain Power on December
13,2010.Nevertheless,the effective date of each Agreement is shown as December 22,2010,
on page 1 of each Agreement,clearly after the December 14,2010,effective date established by
Order No.32176.
Because the Agreements were executed after the date upon which the 100 kW
eligibility cap became effective for wind and solar projects and because the size of each
proposed wind project clearly exceeds 100 kW,Staff maintains that approval of the Agreements
ORDER NO.32260 5
is prohibited by Order No.32176.Staff believes that the avoided cost rate for these Agreements
must be negotiated using the IRP methodology.Consequently,Staff recommended denial of the
Agreements as submitted.
B.Cedar Creek Wind Comments and Reply
Cedar Creek states that after it unsuccessfully bid in Rocky Mountain Power’s
2008/2009 Request for Proposal (RFP),Cedar Creek and Rocky Mountain Power discussed the
possibility of two 78 MW PURPA wind projects.Cedar Creek determined that the avoided cost
calculated by Rocky Mountain Power’s integrated resource model was “uneconomic and un
financeable for purposes of developing the Cedar Creek”wind projects.Comments at 2.Cedar
Creek subsequently decided to “reduce the amount of gross generation and sacrifice the
economies of scale associated with two 78 W wind projects and reconfigure into five separate
PURPA projects not greater than 10 aMW,in order to qualify for Surrogate Avoided Resource
(“SAR”)based avoided cost rates.”Id.at 2,3.
Cedar Creek argued that each of its five Agreements were mature contracts with a
meeting of the minds between the parties prior to December 14,2010.The Projects maintain
that they had fully perfected their right to a published avoided cost rate power purchase
agreement with Rocky Mountain Power prior to the Commission’s reduction of the eligibility
threshold for wind and solar projects.
On April 5,2011,Cedar Creek filed reply comments.2 Cedar Creek asserted that
“[tjhe standard articulated by Staff—that December 14,2010 is an ‘absolute’cut-off date —is
both a misreading of the Commission Order 32176 in Case No.GNR-E-l0-4 and is contrary to
established law regarding PURPA rates and contract requirements.”Reply at 4.Cedar Creek
argues that the Commission does not require,or even speak to,December 14 as the date by
which both counterparties must have signed an agreement.Id.Cedar Creek maintained that,
because Rocky Mountain Power and Cedar Creek agreed that the five projects were eligible for
published rates prior to December 14,2010,and both parties agreed that all contract terms and
conditions,including price,had been agreed to prior to that date,Cedar Creek has proven
entitlement to published avoided cost rates.Id.
Cedar Creek states that Staff’s recommendation is wrong,misguided,bad public
policy and “contrary to PURPA’s federal mandate that utilities execute power purchase
2 Pursuant to Commission Order No.32192,reply comments were to be filed no later than March 31,2011
ORDER NO.32260 6
agreements with QF projects that are mature and are ready,willing and able to deliver qualifying
power to the utility at the avoided cost applicable at that time.”Id.at 6.
C.Rocky Mountain Power Reply
Rocky Mountain Power filed reply comments on April 11,20ll.Rocky Mountain
Power acknowledged that it had completed negotiation of all terms of the Agreements for Cedar
Creek’s five projects prior to December 14,2010.Reply at 2,Rocky Mountain explained that
the Company’s review and execution procedures must comply with Sarbanes Oxley (‘SOX’)
regulatory requirements.“Once the parties agree to a final draft,the final draft then undergoes a
detailed review and sign-off by management,merchant transmission,accounting,financial
reporting (FAS 133,Fin 46,etc.),credit,legal,billing,and delegation of signing authority by the
appropriate Company executive for execution of the agreement.”Id.at 3.Rocky Mountain
Power asserted that it acted “with reasonable speed to execute the PPAs given the number of
documents and complexity of review of the multiple transactions requested by Cedar Creek
Wind.”Id.
Rocky Mountain Power stated that Cedar Creek returned signed Agreements to
Rocky Mountain’s Portland office “late on the afternoon of December 13,2010.Cedar Creek
did not deliver final conformed exhibits for each PPA until December 14,2010....During the
review,the Company identified discrepancies in several of the PPA exhibits which were
corrected and confirmed by Cedar Creek Wind on December 16,2010.”Id.at 3,4.Rocky
Mountain completed its final review and received executive approval of the Agreements on
December 22,2010.Id.“It is unlikely that Rocky Mountain Power could have completed its
review in a timelier manner and in no event could the Company have been diligent and still
executed the contracts prior to December 14,having received signed PPAs with no conformed
exhibits from Cedar Creek Wind at the end of the business day on December 13,2010.”Id.
Rocky Mountain notes that,by their own terms,the Agreements are not effective
until approved by the Commission.Id.at 6.Rocky Mountain also maintains that,although
Cedar Creek argues for “grandfathering”treatment,the Projects do not meet the bright line rule
for grandfathering —a fully executed PPA by December 14 or a meritorious complaint filed with
Rocky Mountain acknowledged that its reply,as well as Cedar Creek’s reply,was untimely.As a result,Rocky
Mountain requested that the Commission either strike both replies or accept both replies.
ORDER NO.32260 7
the Commission by December 14.Id.at 7.Rocky Mountain concedes that the parties reached
agreement on all terms of their Agreements prior to December 14,2010.“This fact alone does
not,however,compel the Commission to approve those contracts.”Id.at 8.
D.Public Comments
More than 40 public comments were received regarding the Cedar Creek projects.
Approximately 36 comments supported approval of the 5 wind projects.The majority of
commenters who support approval believe that the projects would stimulate the local economy
and provide economic growth at a time when jobs and industry is greatly needed.Several
commenters stressed the need for Idaho to capture and develop its natural resources.A few
commenters believed that utilizing wind energy would reduce the cost of electricity to Idahoans.
Approximately seven comments opposed the five wind projects.Commenters in
opposition stated that utility customers cannot afford another increase in electricity rates.
Several commenters cited the intermittent nature of wind as being an unreliable resource that is
heavily subsidized to make it economically feasible.
DISCUSSION AND FINDINGS
The Commission has jurisdiction over Rocky Mountain Power,an electric utility,and
the issues raised in this matter 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
Commission has authority under PURPA and the implementing regulations of the Federal
Energy Regulatory Commission (FERC)to set avoided cost rates,to order electric utilities to
enter into fixed-term obligations for the purchase of energy from qualified facilities (QFs)and to
implement FERC rules.Rosebud Enterprises,Inc.,v.Idaho Public Utilities Commission,128
Idaho 609,612,917 P.2d 766,769 (1996).
The Commission has reviewed the record in this case,including the Applications,the
Firm Energy Sales Agreements,and the comments of Commission Staff,Rocky Mountain
Power,the wind projects,and the public.It is clear from the record that extensive review of
PPAs is conducted by both parties prior to signing an agreement.From the Commission’s
perspective,a thorough review is appropriate and necessary prior to signing Agreements that
obligate ratepayers to payments in excess of $685 million over the 20-year term of these
Agreements.Indeed,the Commission has directed the utilities to assist the Commission in its
gatekeeper role when reviewing QF contracts.
ORDER NO.32260 8
The primary issue to be determined in these cases is whether the Agreements —which
utilize the published avoided cost rate —were executed before the eligibility cap for published
rates was lowered to 100 kW on December 14,2010,for wind and solar projects.“According to
the FERC,it is up to the States,not [FERC]to determine the specific parameters of individual
QF power purchase agreements,including the date at which a legally enforceable obligation is
incurred under State law.”Rosebud Enterprises,128 Idaho at 780-78 1,917 P.2d at 623-624,
citing West Penn Power Co.,71 FERC ¶61,153 (1995).We find that the Agreements were not
fully executed (signed by both parties)prior to December 14,2010.More specifically,each
Firm Energy Sales Agreement states that the ‘Effective Date”of the Agreement is “after
execution by both Parties and after approval by the Commission.”Agreements ¶I 1.13,2.1.The
opening paragraph is dated “this 22’day of December,2010.”Agreements at 1.It is not
disputed that the projects signed the Agreements on December 13,and Rocky Mountain Power
signed on December 22,2010.Thus,on the date the five Agreements became effective,
published avoided cost rates were available only to wind and solar projects with a design
capacity of 100 kW or less.
The proposed change in the eligibility cap was clearly noticed in our Order No.
32131 issued on December 3,2010.As we observed in Order No.32176:“One need look no
further than the abundance of firm energy sales agreements filed with the Commission [between
the notice and December 14]to realize that the parties took the Commission’s notice of its
effective date seriously.”Order No.32176 at 11.The Commission does not consider a utility
and its ratepayers obligated until both parties have completed their final reviews and signed the
agreement.In other words,in order for the 10 aMW eligibility cap to be available to wind and
solar QFs,the agreement must have been effective prior to December 14,2010.The Idaho
Supreme Court has recognized that “a balance must be struck between the local public interest of
a utility’s electric consumers and the national public interest in development of alternative
energy sources.”Rosebud Enterprises,128 Idaho at 613,917 P.2d at 770.We find that it is not
in the public interest to allow parties with contracts executed on or after December 14,2010,to
avail themselves of an eligibility cap that is no longer applicable.
The published avoided cost rates established in Order No.31025 have not changed.
What has changed is the size at which wind and solar projects can avail themselves of the
published avoided cost rates.Consistent with FERC regulations,and as set out in Order No.
ORDER NO.32260 9
32176,published rates are available to wind and solar QFs with a design capacity of 100 kW or
less.18 C.F.R.§292.304(c)(l-2).Wind and solar projects larger than 100 kW are still entitled
to PURPA contracts at avoided cost rates calculated using the IRP Methodology.Because
published avoided cost rates remain unchanged and only the eligibility size has changed,
grandfathering criteria applied to rate changes are not applicable here.Regarding the application
of a change in the eligibility cap,we adopt a bright line rule:a Firm Energy Sales
Agreement/Power Purchase Agreement must be executed,i.e.,signed by both parties to the
agreement,prior to the effective date of the change in eligibility criteria.
The Firm Energy Sales Agreements between Rocky Mountain Power and the five
projects were executed on December 22,2010.The Agreements recite that Rattlesnake Canyon,
Coyote Hill and North Point will each have a maximum capacity amount of 27.6 MW,and Steep
Ridge and Five Pine will each have a maximum capacity of 25.2 MW.Because the size of each
of these wind projects exceeds 100 kW,they are not eligible to receive published rate contracts.
Simply put,the rates contained in the Agreements do not comply with Order No.32176.
Therefore,we disapprove the five Firm Energy Sales Agreements.
ORDER
IT IS HEREBY ORDERED that the five December 22,2010,Firm Energy Sales
Agreements between Idaho Power and Cedar Creek Wind,LLC (for its Rattlesnake Canyon,
Coyote Hill,North Point,Steep Ridge and Five Pine projects)are disapproved.
THIS IS A FINAL ORDER.Any person interested in this Order may petition for
reconsideration within twenty-one (21)days of the service date of this Order.Within seven (7)
days afier any person has petitioned for reconsideration,any other person may cross-petition for
reconsideration.See Idaho Code §61-626.
ORDER NO.32260 10
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this 8’
day of June 2011.
-
MACK A.REDFORD,COMMISSIONER
ATTEST:
4L L
Jan D Jewell
Cbmmission Secretary
MARSHA H.SMITH,COMMISSIONER
O:PAC-E-I 1-O1PACE-1 I -02 PAC-E-1 I -03 PAC-E-I I -04 PAC-E-II -05ks2
PAUL PRESIDENT
ORDER NO.32260 11