20151105reconsideration_order_no_33419.pdf

Office of the Secretary
Service Date
November 5,2015
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER )
COMPANY’S PETITION TO MODIFY )CASE NO.IPC-E-15-O1
TERMS AND CONDITIONS OF PURPA )
PURCHASE AGREEMENTS )
_____________________________________________________________________________________
)
IN THE MATTER OF AVISTA )
CORPORATION’S PETITION TO MODIFY )CASE NO.AVU-E-15-O1
TERMS AND CONDITIONS OF PURPA )
PURCHASE AGREEMENTS )
_______________________________________________________________________________
)
IN THE MATTER OF ROCKY MOUNTAIN )CASE NO.PAC-E-15-03
POWER COMPANY’S PETITION TO )
MODIFY TERMS AND CONDITIONS OF )
PURPA PURCHASE AGREEMENTS )ORDER NO.33419
On September 10,2015,Clearwater Paper Corporation and J.R.Simplot Company
(the “Petitioners”)filed a Petition for Reconsideration in the above-referenced consolidated
cases.The Petitioners requested reconsideration of the Commission’s final Order No.33357 that
reduced the length of certain PURPA contracts from 20 years to two years.The Petitioners
generally raised three arguments.First,they argued that the Commission’s two-year contract is
contrary to the PURPA regulation “because it deprives the IRP-based QFs of a long-term,fixed
contract price to sell energy and capacity with prices calculated at the outset of the obligation.”
Petition at 11 (underline added).Second,they argued that the new two-year contract term fails
to provide each qualifying facility (QF)with a fixed-price for “energy and capacity calculated at
the time the QF obligates itself to sell its output to an Idaho utility....“Id.at 2.Finally,they
asserted the Commission’s “capacity adjustment”(used to determine the date when the QF
would be eligible for capacity payments)“is made up of whole cloth.”Id.at 16.They alleged
that no party discussed the capacity adjustment in its testimony.The Petitioners concluded that
the Commission’s creation of the capacity adjustment “is not supported by any evidence on the
record whatsoever.”Id.at 17.
Clearwater and Simplot requested that the Commission either retain the prior 20-year
contract term or adopt their alternative proposal for a “20-year contract with an update to energy
prices in new PURPA contracts in contract year 10....“Petition at 15.The Petitioners
maintained that either alternative would meet the minimum requirements of FERC’s regulations.
ORDER NO.33419
Id.They offered to submit further briefing,oral argument,or any further technical testimony the
Commission may request.Id.at 17.
On September 17,2015,Avista Corporation,Idaho Power Company,and Rocky
Mountain Power (collectively the “Utilities”)filed a timely joint answer urging the Commission
to deny reconsideration.The Utilities maintained that the Commission’s final Order No.33357
properly found that 20-year PURPA contracts are inconsistent with the public interest.They
argued the Commission’s decision to set the maximum standard contract term to two years more
accurately reflects true avoided costs and appropriately balances “the competing interest of
protecting utility customers and developing QF generation.”Answer at 11.They insisted that
the PURPA regulations issued by the Federal Energy Regulatory Commission (FERC)are silent
as to the length of a contract and the Commission acted within its discretion in reducing the
contract term.Id.at 6.The Utilities also asserted that the Commission’s final Order is based
upon substantial and competent evidence in the record.Id.at 11.
On October 8,2015,the Commission issued Order No.33395 granting
reconsideration on the issues raised by Clearwater and Simplot.The Commission noted that it
had compiled an extensive evidentiary record in this case and determined that further argument
and briefing was not necessary.Order No.33395 at 2.After having thoroughly reviewed the
issues raised in the Petition for Reconsideration and the record in this case,the Commission
dismisses the issues raised in the Petition for Reconsideration as discussed in greater detail
below.
BACKGROUND
A.PURPA
Congress enacted the Public Utility Regulatory Policies Act (PURPA)in 1978 in
response to a national energy crisis.“Its purpose was to lessen the country’s dependence on
foreign oil and to encourage the promotion and development of renewable energy technologies
as alternatives to fossil fuels.”Order No.32580 at 3,citing FERC v.Mississippi,456 U.S.742,
745-46 (1982).Under the Act,FERC prescribes rules for PURPA’s implementation.16 U.S.C.
§824a-3(a),(b).State regulatory authorities such as the Idaho Public Utilities Commission
implement FERC regulations,but have “discretion in determining the manner in which the rules
will be implemented.”Idaho Power Co.v.Idaho PUC,155 Idaho 780,782,316 P.3d 1278,
1280 (2013),citing FERC v.Mississippi,456 U.S.at 751.The Idaho Supreme Court has
ORDERNO.33419
observed that the Commission has the authority to implement PURPA and that this grant of
authority is broad.Idaho Power,155 Idaho at 787,316 P.3d at 1285;Rosebud Enteiprises v.
Idaho PUC (Rosebud I),128 Idaho 624,627,917 P.2d 781,784 (1996);A.W Brown v.Idaho
Power Co.,121 Idaho 812,814,828 P.2d 841,843 (1992).
To encourage the development of renewable facilities,PURPA requires that electric
utilities purchase the power produced by designated qualifying facilities (QFs).“This mandatory
purchase requirement is often referred to as the ‘must purchase’provision of PURPA.”Order
No.32697 at 7;16 U.S.C.§824a-3(b);18 C.F.R.§292.303(a)(exceptions to the “must
purchase”provision inapplicable in this case).Electric utilities are required to purchase power
from QFs at rates equivalent to a utility’s “avoided cost”and approved by this Commission.16
U.S.C.§824a-3;Idaho Power,155 Idaho at 789,316 P.3d at 1287.The purchase or avoided
cost rate represents the “incremental cost’to the purchasing utility of power which,but for the
purchase of power from the QF,such utility would either generate itself or purchase from
another source.”Order No.32580 at 3,citing Rosebud 1,128 Idaho at 627,917 P.2d at 784;18
C.F.R.§292.101(b)(6),The avoided cost rate must be ‘just and reasonable to the electric
consumers ...and in the public interest”and “shall not discriminate against [QFs].”16 U.S.C.§
824a-3(b);18 C.F.R.§292.304.In addition,utilities shall not be required to pay more than their
avoided costs when purchasing power from a QF.Rosebud Enterprises v.Idaho PUC (Rosebud
II),128 Idaho 609,614,917 P.2d 766,771 (1996),citing 16 U.S.C.§824a-3(b)(PURPA
regulations shall not “provide for a rate which exceeds the incremental cost to the electric utility
of alternative electric energy.”),Rosebud I,128 Idaho at 627,917 P.2d at 784.
This Commission has established two methods of calculating avoided cost,depending
on the size of the QF project:(1)the surrogate avoided resource (SAR)methodology,and (2)
the integrated resource plan (1RP)methodology.See Order No.32697 at 7-8.The Commission
uses the SAR methodology to establish what is commonly referred to as “published”or standard
avoided cost rates.Id.;18 C.F.R.§292.304(c).Published rates are available for wind and solar
QFs with a design capacity not to exceed 100 kilowatts (kW),and for QFs of all other resource
types with a design capacity of up to 10 average megawatts (aMW).’Order No.32697 at 7-8.
For QFs with design capacity above the published rate eligibility caps,avoided cost rates are
Other types of PURPA generating facilities include:cogeneration (such as Clearwater and Simplot);geothermal;
hydro (both year-round and seasonal);landfill gas;and bio-gas facilities.
ORDER NO.33419 3
“individually negotiated by the QF and the utility”using the IRP methodology based on the
specific characteristics of the resource.Order Nos.32697 at 2;32176 at 1.Since 2002,the
standard length for both SAR-based contracts and IRP-based contracts was set by the
Commission at 20 years.Order Nos.32697 at 24-25,33357 at 11.In that Order the
Commission also found that shorter or longer contracts would be permissible on a case-by-case
basis.Id.at 25.
At the option of each QF,the utility’s avoided cost power rate shall be calculated
either at the time of delivery or at the time the sales obligation is incurred.Rosebud II,128
Idaho at 621,971 P.2d at 778;18 C.F.R.§292.304(d).Avoided costs are generally divided into
two components:capacity rates and energy rates.See Order No.32697 at 15.Capacity rates
reflect the ability of the utility to generate electric power at any instant in time and are measured
in megawatts (MW).A QF that provides capacity to the utility allows the utility in theory to
avoid building new generation or purchasing firm power from another supplier.Energy rates
reflect the costs of supplying electricity over time and are measured in megawatt hours (MWh).
For example,one MW of capacity supplied for one hour equals one MWh of energy.
B.The Utilities’Requests to Reduce the Length of PURPA Contracts
On January 30,2015,Idaho Power Company filed a Petition asking the Commission
to reduce the length of its IRP-based PURPA contracts from 20 years to two years.Avista and
Rocky Mountain subsequently filed similar petitions and the three cases were consolidated into a
single proceeding.Order No.33250.While the Commission investigated the issue of contract
length,it granted temporary relief to the three utilities by reducing the length of new PURPA
contracts to five years.Id.at 8;see Order No.33357 at 6-7 (summarizing petitions to clarify the
scope of the case).
1.Idaho Power.The Company asserted that 20-year fixed-rate contracts are no
longer reasonable.Idaho Power insisted it has reached a point where the cumulative capacity of
the proposed PURPA projects will exceed the Company’s operational need by a large margin.
Idaho Power’s Senior Vice President of Power Supply testified that the Company does not need
the additional generation.She reported that the Company’s peak load for its system in 2014 was
about 3,184 MW while its minimum load was approximately 1,073 MW.Order No.33357 at
13;Tr.at 107-108.Idaho Power asserted it had more than 1,161 megawatts (MW)of PURPA
projects under contract and an additional 1,326 MW of new solar projects in the queue.Order
ORDER NO.33419 4
No.33357 at 3-4;Exh.1 1 at 4.The Company maintained that the recent influx of PURPA
generation places undue financial and operational risks on customers at a time when the utility
has sufficient resources to meet customer demand through 2024.Order No.33357 at 4;Tr.at
281.
The Company also asserted in its initial Petition that “the continued creation of 20-
year term [PURPA]contracts places undue risk on customers”and is contrary to the public
interest.Idaho Power Petition at 2,27-34.Idaho Power complained that if all the proposed solar
projects come on-line,it would represent a “long-term financial obligation to customers over 20
years of approximately $2.1 billion,in addition to the existing $2.6 billion obligation over the
life of the Company’s [PURPA]projects already on-line and operational.”Id.at 3.
2.Rocky Mountain Power.Rocky Mountain requested a permanent reduction in its
IRP-based PURPA contracts from 20 years to three years.The Company asserted in its Petition
that five days after the Commission granted Idaho Power interim relief,Rocky Mountain
received four requests from solar developers in Idaho Power’s service territory seeking to sell or
“wheel”130 MW of solar power to Rocky Mountain.Rocky Mountain Petition at 4-5,16.
Rocky Mountain insisted these four projects sought to wheel power to it to obtain a more
favorable 20-year contract when Idaho Power contracts were temporarily reduced to five years.
Id.,n.5.
Like Idaho Power,Rocky Mountain asserted it had no need for additional generating
resources until 2028.Id.at 3,n.4,Tr,at 429.Adding the proposed PURPA projects to the
Company’s existing PURPA contracts would total approximately 465 MW.Petition at 5.At full
nameplate capacity,this would be enough to supply 108%of Rocky Mountain’s average retail
load in 2014 and 275%of its minimum Idaho retail load in 2014.Tr.at 427.The Company also
insisted that the reduction was necessary to be “consistent with the Company’s hedging and
trading policies,”the length of its non-PURPA energy contracts,and to more closely align with
the two-year Integrated Resource Plan (IRP)cycle.Petition at 3-4.
3.Avista.If the Commission granted permanent relief to Idaho Power and Rocky
Mountain by shortening their IRP contracts,Avista requested that it be granted the same relief.
Order No.33357 at 18,citing Tr.at 404,408.Avista’s witness acknowledged that Avista had
not received any proposals for solar projects,but testified that having contract lengths in excess
of the other two utilities could cause QF developers to seek contracts with Avista simply to
ORDER NO.33419
obtain longer term contracts.Id.,Tr.at 406-07.Avista also recommended that the Commission
allow IRP contracts longer than five years if such contracts are in the best interest of ratepayers.
Id.,Tr.at 410.
FINAL ORDER NO.33357
A.20-Year Contracts are Unreasonable
In its final Order No.33357,the Commission found based upon substantial and
competent evidence that 20-year IRP contracts are unreasonable and inconsistent with the public
interest.Order No.33357 at 23.The Commission cited several reasons in support of its decision
to shorten IRP-based contracts.First,the Commission found that neither PURPA nor its
implementing regulations “specify a mandatory length for PURPA contracts.”Id at 12.The
Commission noted that no party contested that “FERC regulations do not dictate a specific
number of years or establish a time period for PURPA contracts.”Id.,citing Tr.at 589,see also
215-16,410-11,513-15.
Second,the Commission found that 20-year contracts are unreasonable because the
length exacerbates overestimations to a point that avoided cost rates are inconsistent with the
public interest.The Commission found there was general agreement among the parties that the
avoided cost rates for IRP projects are declining and will continue to decline in the future.Order
No.33357 at 22,citing Tr.at 260-6 1,372,630-3 1,642.With long-term avoided cost rates in
decline,allowing QFs to fix their avoided cost rates for 20 years when they enter into their
contract/obligation,will result in avoided cost rates which exceed or “overestimate”avoided cost
rates in the future.Id.at 23.This “overestimation’will become more significant over the
duration of the [20-year]contract.”Id.The Commission observed that when FERC issued its
initial PURPA regulations in 1980,FERC recognized that avoided costs calculated at the time
parties enter into a power contract may exceed the actual avoided costs at the time the power is
delivered in the future.45 Fed.Reg.12,214 at 12,224 (Feb.25,1980).As FERC explained in its
Order No.69,overestimations will “subsidize the [QF]at the expense of the utility’s other
ratepayers.”Order No.33357 at 22-23,citing 45 Fed.Reg.at 12,224;Tr.at 575-77.FERC
discounted the concern about long-term avoided costs exceeding actual avoided costs at the time
of delivery (i.e.,overestimations)because it theorized that over time “overestimations’and
‘underestimations’of avoided costs will balance out.”Id.However,the Commission found that
ORDERNO.33419 6
based upon the record in this proceeding 20-year IRP contracts with fixed avoided cost rates will
exceed actual avoided costs and are inconsistent with the public interest.16 U.S.C.§824a-3(b).
Third,the commission found that both Idaho Power and Rocky Mountain presented
persuasive evidence that they did not need additional generation and each currently has a
capacity surplus.Order No.33357 at 24.The commission specifically found that the two
utilities’supply of PURPA and non-PURPA power exceeds their average Idaho loads.Id.,citing
Tr.at 1 11,117,931.“The abundance of PURPA generation extends the utilities’capacity
surpluses to 2024 for Idaho Power and 2028 for [Rocky Mountain].”Id.at 24.
The Commission also rejected two similar but different proposed alternatives in lieu
of shortening the term of the contracts.More specifically,the Petitioners urged the Commission
to continue the 20-year contract but “adjust the energy component in each of the last 10 years of
the standard contract.”Order No.33357 at 23 (emphasis added),citing Tr.at 842.The other
alternative proposed by the Sierra Club was to retain the 20-year term but reset the energy rate
just once in the eleventh year of the contract,i.e.,in year 11.Tr.at 70 1-03.The Commission
rejected both of these alternatives based upon concern that an adjustable rate 20-year contract
runs the risk of undermining FERC regulations that mandate a “fixed-rate”at the time the
contract or obligation is entered.Id.,citing 18 C.F.R.§292.304(d)(2)(ii);Tr.at 213-15.The
Commission also found that the ability to ensure that avoided cost rates remain accurate can best
be accomplished through successive short-term contracts.Order No.33357 at 24.
B.The Two-Year Contract
Because neither PURPA nor FERC’s implementing regulations expressly specify a
length for PURPA contracts,the Commission found that setting an appropriate contract length is
left to its discretion.The Commission noted that the Idaho Supreme Court has stated that the
Commission has the authority to implement PURPA and that this grant of authority is broad.
Order No.33357 at 3,citing Idaho Power,155 Idaho at 787,315 P.3d at 1285;Rosebud I,128
Idaho at 627,917 P.2d at 784;A.W.Brown,121 Idaho at 814,828 P.2d at 843.The Commission
also noted that it “is up to the States,not [FERC]to determine the specific parameters of
individual QF power purchase agreements....“Order No.33357 at 12,quoting Idaho Power,
155 Idaho at 786,316 P.3d at 1284,quoting Power Resources Group v.PUC of Texas,422 F.3d
231,238 (5th Cir.2005),
ORDER NO.33419 7
Having found that the standard 20-year IRP-based contract was unreasonable and no
longer in the public interest,the Commission determined that the length of new IRP-based
contracts should be set at two years for all three utilities.Order No.33357 at 25;16 U.S.C.§
824a-3(b)(l).The commission cited several reasons to support its finding.First,the
commission found that shorter contracts have the potential to benefit both the QF and the
utility’s customers.“By adjusting avoided cost rates more frequently,avoided costs become a
truer reflection of the actual costs avoided by the utility g allow QFs and ratepayers to benefit
from normal fluctuations in the market.”Id.at 23.In other words,when avoided costs increase
or decrease,both the QF and ratepayers have the opportunity to benefit.
Second,the Commission found that reducing the contract length to two years does not
prevent a QF from selling energy to a utility over the course of 20 years —or
longer.PURPA’s “must purchase”provision requires the utility to continue to
purchase the QF’s power.[16 U.S.C.§824a-3(b);18 C.F.R.§292.303(a).]
As long as projects continue to offer power to utilities,utilities must continue
to purchase such power under PURPA.A shorter contract length merely
functions as a reset for calculation of the avoided costs in order to maintain a
more accurate reflection of the actual costs avoided by the utility over the long
term.
Order No.33357 at 23.In addition,most QFs choose to have their avoided cost rates fixed at the
time the contract/obligation is incurred for the duration of the contract.Id.at 22.
Third,the Commission determined it was reasonable and logical to set the length of
IRP contracts at two years to coincide with the two-year planning cycle for the integrated
resource planning process.“Matching IRP contracts to the IRP planning cycle provides more
accurate IRP avoided costs,reduces price risks,and provides more forecast certainty.”Id.,citing
Tr.at 486,127-28,287,902-05,915-17.The Commission also found that the two-year contract
better matches the utilities’hedging and risk management practices.
C.The Capacity Adjustment and Exceptions to Two-Year Contracts
In reducing the length of IRP-based contracts to two years,the Commission
recognized that two adjustments or exceptions were necessary.The first is referred to as the
“capacity adjustment,”and the second is the “exception”to limiting contracts to two years.
1.Capacity Adjustment.The capacity adjustment addressed concerns raised by
parties opposed to reducing the 20-year contracts because “short-term contracts will not
contribute to the avoidance of utility capacity/generation.”Order No.33357 at 26.The capacity
ORDER NO.33419 8
adjustment was intended to ensure that the QF will be compensated for providing capacity2 to the
utility when “the utility becomes capacity deficient.”Order No.33357 at 25,quoting Order No.
32697 at 21.Because each utility’s capacity deficiency date is updated and reset every two years
as part of the JRP methodology,the Commission was concerned that new two-year IRP-based
contracts “would be unlikely to reach a capacity deficiency date.”Order No.33357 at 25.In
other words,under the two-year term,a contracting QF might never reach a point where its
capacity is contributing to the utility’s system and would,therefore,never receive capacity
payments.
To remedy this concern,the Commission found it
reasonable for utilities to establish capacity deficiency at the time the initial
IRP-based contract is signed.As long as the QF renews its contract and
continuously sells power to the utility,the QF is entitled to capacity [rates]
based on the capacity deficiency date established at the time of its initial
contract.For example,if the QF comes on-line in 2017 and the utility
[becomes]capacity deficient in 2020,the QF would be eligible for capacity
payments in the second year of its second contract [(i.e.,2020)]and thereafter
if in continuous operation.This adjustment recognizes that in ensuing
contract periods,the QF is considered part of the utility’s resource stack and
will be contributing to reducing the utility’s need for capacity.
Order.No.33357 at 25-26.
2.Exceptions to Limiting Contracts to Two Years.Avista’s witness recommended
that the Commission allow IRP contracts to exceed the standard contract term of two,three or
five years “in the event a very favorable PURPA opportunity arises.”Tr.at 404,410;see also
Tr.at 908-10.The Commission adopted this recommendation and found there may be
circumstances that justify IRP-based contracts that are longer than two years.Order No.33357
at 26.In instances when the utility and the project developer believe that a contract term longer
than two years is justified,“utilities are directed as part of their standard negotiation process to
fairly evaluate such a request.”Id.The Commission also noted that approving IRP-based
contracts in excess of the standard length (i.e.,two years)“is consistent with our prior Orders.”
Order Nos.27213;26576 at 6-7;32697 at 25.
2 See supra text on page 4 explaining capacity and capacity rates/payments.
ORDERNO.33419 9
SCOPE OF RECONSIDERATION
A.Legal Standards
Reconsideration provides an opportunity for a party to bring to the Commission’s
attention any question previously determined,and thereby affords the Commission with an
opportunity to rectify any mistake or omission.Washington Water Power Co.v.Kootenai
Environmental Alliance,99 Idaho 875,879,591 P.2d 122,126 (1979).The Commission may
grant reconsideration by reviewing the existing record,by written briefs,or by evidentiary
hearing.Idaho Code §61-626;Rule 332,IDAPA 31.01.01.332.If the Commission believes its
final order “should be changed,the Commission may ...change the same.”Idaho Code §61-
626(3).An order on reconsideration that changes the original final order,shall have the same
force and effect as the original order.Id.;see also Idaho Code §61-624.
B.Underlying Facts
The scope of final Order No.33357 was limited to issues of reducing the length of
IRP-based PURPA contracts.Order No.33253 at 4.The parties proposed and the Commission
approved that the standard length for SAR-based contracts remain unchanged at 20 years.Id.,
Order No.33357 at 7.Clearwater and Simplot are the only parties or persons to seek
reconsideration of the Commissions final Order.Idaho Code §6 1-626.
Both Petitioners operate existing cogeneration facilities and both expressed an interest
in developing new cogeneration facilities at their industrial plants.Tr.at 769,771.A
cogeneration facility typically relies on a host’s industrial process to produce electricity in
conjunction with the activities of the host facility.18 C.F.R.§292.202(c).Cogeneration
projects with power output of 10 average MW (aMW)or less are eligible to receive published
SAR-based,avoided cost energy and capacity rates with 20-year contracts.Order No.33357 at
3.
Clearwater Paper operates four cogeneration facilities at its manufacturing facility
near Lewiston that are capable of generating a total of approximately 111 MW.Petition at 3;Tr.
at 769.Simplot currently operates a 15.9 MW cogeneration facility that uses waste heat to
generate electricity.Petition at 3;Tr.at 767.Although Simplot’s QF has the capability to
generate in excess of 10 aMW,it “has thus far chosen to enter into standard rate contracts for
QFs generating up to 10 aMW of generation.”Petition at 3.In other words,Simplot has not
ORDERNO.33419 10
sought IRP-based avoided cost rates but has elected to be paid the published SAR-based avoided
cost rates for small cogeneration QFs (less than 10 aMW).
At the technical hearing,the Petitioners’witness Dr.Reading was asked about the
lengths of the Petitioners’PURPA contracts.3 He deferred to the Commission’s records for the
history of contract length.Tr.at 858.Since enactment of PURPA in 1978,neither Clearwater
nor Simplot has sought a 20-year contract for their existing facilities,4 The longest PURPA
contract for Simplot’s existing facility was seven years (2006 -2013).Order No.30028.Simplot
also has had several one and two-year contracts.Order Nos.28739,29577,32790,33240.In
Clearwater’s case,its two longest PURPA contracts were each ten years.Order Nos.23858,
29418.In 2013,Clearwater agreed to sell its available power output to Avista under a non
PURPA sales contract that extends to 2018.Tr.at 858-59,93 1-32,citing Order No.32841.
Earlier this year,Clearwater and Avista requested and the Commission approved extending their
non-PURPA contract for an additional three years,until June 2021.Order No.33350;Tr.at 932,
n.1.
ISSUES IN DISPUTE
A.PURPA does notAuthorize the QFto Specify the Length of the Contract
The Petitioners raise a number of inter-related arguments generally urging the
Commission to reconsider its decision to shorten IRP-based contracts to two years.They first
insist that FERC’s PURPA regulation at 18 C.F.R.§292.304(d)(2)(ii)permits a QF to determine
the length of IRP-based contracts.They argue that this section requires that each QF “shall”be
provided with the following options:
(1)to elect to sell energy and capacity [to the utility];
(2)to elect to sell such energy and capacity over a term specified by the OF;
and
(3)to elect that the obligation contain rates for energy and capacity calculated
at the time the QF incurs that obligation.
The Commission approves all PURPA contracts and other power sales agreements by issuing final orders.Order
No.32802 at 1 1(and citations therein).Idaho Code §61-502.
The Commission’s procedural Rule 263 allows the Commission to take official notice of its own orders and
notices.IDAPA 3l.0l.0l.263.01.a.We take official notice of our prior Orders approving the length of the
Petitioners’PURPA contracts.
ORDERNO.33419 11
Petition at 9 (emphasis added).They maintain that use of the word “shall”makes it mandatory
that QFs have the authority to dictate the length of IRP contracts.
In their answer,the Utilities assert the Petitioners misrepresent the plain language of
section 292.304(d)(2)and “authorities related to a legally enforceable obligation in an
unsuccessful effort to create a requirement for long-term contractual commitments.”Joint
Answer at 3 (emphasis original).They specifically attack the Petitioners’claim that section
292.3 04(d)(2)allows a QF to specify the term of the contract.They allege that a review of the
section’s explicit language reveals that QFs do not have the authority to specify the length of
IRP-based contracts with utilities.Answer at 3,4-6.
The Utilities included Section 292.304(d)in their answer.This section states in full:
Each qualifying facility shall have the option either:
1.To provide energy as the qualifying facility determines such energy to
be available for such purchases,in which case the rates for such
purchases shall be based on the purchasing utility’s avoided costs
calculated at the time of delivery;or
2.To provide energy or capacity over a specified term,in which case the
rates for such purchase shall,at the option of the qualifying facility
exercise prior to the beginning of the specified term,be based on
either:
(i)The avoided costs calculated at the time of delivery;or
(ii)The avoided costs calculated at the time the obligation is incurred.
18 C.F.R.§292.304(d)(emphasis added).They maintained the phrase “over a specified term”
means there is “a term”or contract length —not that the QF is entitled to specify the length of the
contract.Answer at 5.
The Utilities also observed that the Commission’s Order recites that there was no
dispute among the parties regarding the fact that FERC regulations “do not dictate a specific
number of years or establish a time period for PURPA contracts.”Answer at 4,quoting Order
No.33357 at 12.The Utilities asserted that the PURPA regulations are silent as to a specific
contract length and there is nothing in the regulations that allow a QF to specify the length of a
PURPA contract.
Commission Findings:We are not persuaded that the Petitioners’(as qualifying
facilities)get to choose the length or term of IRP contracts for several reasons.First,PURPA
ORDER NO.33419 12
requires State Commissions to implement PURPA.16 U.S.C.§824a-3(f)(F);Order 69,45
Fed.Reg.at 12,216 (“The implementation of these [PURPA]rules is reserved to the State
regulatory authorities....”).This Commission has authority to implement PURPA and “has
discretion in determining the manner in which the [PURPA]rules will be implemented.”Idaho
Power.155 Idaho at 782,316 P.3d at 1280,citing FERC v.Mississippi,456 U.S.at 751.It “
up to the States,not [FERC]to determine the specific parameters of individual OF power
purchase agreements Idaho Power,155 Idaho at 786,316 P.3d at 1284,quoting Power
Resources Group v.PUC of Texas,422 F.3d 231,238 (5th Cir.2005)(emphasis added).
Since PURPA was first enacted,this Commission has set the lengths for PURPA
contracts,Over the years,the Commission has set different contract terms of 35 years,20 years,
and as short as 5 years.Order No.33357 at 11 (citations omitted).In setting contract lengths,
the Commission has “considered many factors (price risks,forecasting uncertainty,financial
needs,amortization,plant durability).”Id.at 12,citing Order No.32125.We found in Order
No.33357 and affirm in this Order that the Commission has discretion to set the length of
PURPA contracts.Order No.33357 at 12.Indeed,the parties did not contest “that PURPA,and
its implementing regulations are silent as to a specific contract length....Even Mr.Wenner
acknowledged that FERC regulations do not dictate a specific number of years or establish a
time period for PURPA contracts.Tr.at 589.”Order No.33357 at 12 (other citations omitted).
Moreover,Clearwater and Simplot have failed to identify any other State where the QF has the
unilateral authority to specify the term of a PURPA contract.
We reject the Petitioners’assertion that they may unilaterally choose the length of
their IRP contracts.As our Idaho Supreme Court has noted on many occasions,“[s]tatutory
interpretation begins with the plain meaning of the statute.If the statutory language is clear and
unambiguous,this Court need merely apply the statute without engaging in statutory
interpretation.”Herman v.Herman,136 Idaho 781,786,41 P.3d 209,215 (2002)(citations
omitted).Statutes and rules must be construed as a whole.Verska v.Saint Aiphonsus RMC,151
Idaho 889,893,265 P.3d 502,506 (2011);Idaho Power v.Idaho PUC,102 Idaho 744,754,630
P.2d 442,452 (1981)(construing PURPA statutes).
It is the Commission that is tasked with implementing PURPA.It is the Commission
that approves all PURPA contracts —including the terms of such contracts.Order No.15746,38
P.U.R.4th 352 (Idaho 1980).It is also the Commission that sets and approves the avoided cost
ORDERNO.33419 13
rates calculated at either the time of delivery or at the time the contract or obligation is incurred.
18 C.F.R.§292.304(d)(2)(i-ii).Rosebud IL 128 Idaho at 613,917 P.2d at 770.The PURPA
regulations also address factors to be considered in determining avoided costs.In setting
avoided cost rates,the Commission is to consider “the terms of any contract or other legally
enforceable obligation,including the duration of the obligation,the termination notice
requirement and sanctions for non-compliance.”18 C.F.R.§92.304(e)(2)(iii)(emphasis added).
Because the Commission must consider contract terms in calculating avoided cost rates —
especially the length of the contract —we find that setting the length of the contract is a necessary
requirement that falls to the Commission.This is not to say that all contracts must be of the
same duration.Indeed,as set out above,neither Clearwater nor Simplot has had a contract with
a 20-year term.FERC recognizes that there may be instances that would justify a contract for
the delivery of power “for a one year period.”45 Fed.Reg.at 12,226.In addition,our final
Order recognizes that there may be instances where a particular IRP-based PURPA contract is
longer than the standard two years.Order No.33357 at 26.Consequently,Clearwater and
Simplot’s attempt to paraphrase FERC regulations to their advantage is unavailing.It is the
Commission’s responsibility to set the length of IRP-based PURPA contracts.
B.The Length of IRP Contracts
1.The Length of 20-Year Contracts is Unreasonable.The Petitioners next assert that
the FERC regulations require “long-term,fixed-price contracts.”Petition at 9 (emphasis added).
They urge the Commission to continue to use the 20-year contract as the standard IRP contract,
or adopt an “alternative proposal of a 20-year contract with an update to energy prices ...in
contract year 10.”Petition at 4,5,15.
The Petitioners assert they are entitled to long-term PURPA contracts “to encourage
the sort of energy production required by PURPA.”Petition at 9.They rely on FERC’s Order
No.69 that notes QFs have a “need for certainty with regard to return on investment in new
technologies.”Id.at 9-10,quoting 45 Fed.Reg.at 12,224 (1980);Tr.at 776.Their witness Dr.
Reading testified that IRP-based PURPA contracts of five years or less would not provide a
sufficient revenue stream for QFs to finance their projects or become economically viable.Tr.at
777-79.He indicated that the length of the QF contract is related to “the ability [of the QF]to
obtain funds in order to build [the QF]project.”Tr.at 785.
ORDERNO.33419 14
The Utilities respond that there is nothing in PURPA or its implementing regulations
that specify an exact contract length.Answer at 4.They further note the Commission found it
was uncontested that “FERC regulations do not dictate a specific number of years or establish a
time period for PURPA contracts.”Id.,quoting Order No.33357 at 12;Tr.at 589.They assert
that the Commission relied upon precedents from our Supreme Court and other federal courts
that held the Commission has the discretion in implementing PURPA to set the length of such
contracts.Id.,citing Order No.33357 at 2-3,10,12,16,21-22.
Commission Findings:Based upon our review of the record,the PURPA regulations
and our prior Orders,we affirm our finding in final Order No.33357 that PURPA and its
implementing regulations do not require a specific number of years or establish a certain time
period for PURPA contracts.Order No.33357 at 12.The Petitioners have not directed our
attention to any specific contract length requirement in the PURPA regulations.In addition,our
review of Order No.69 reveals that the phrase “long-term contract”appears only twice in the 24
pages of the Federal Register and was not further defined.See 45 Fed.Reg.at 12,214.Our
findings are supported by substantial evidence.
First,we are unpersuaded by Dr.Reading’s testimony that long-term contracts are
needed to finance Clearwater’s or Simplot’s existing QF projects.Neither Clearwater nor
Simplot has had a 20-year contract for their existing facilities during the 37 years for which
PURPA has been in effect.They have provided no explanation why they need 20-year contracts
for their facilities.Moreover,their existing facilities cannot reasonably be considered “new
technologies”as referenced by FERC.
We specifically note that Clearwater recently entered into a non-PURPA agreement
for the output of its existing facilities until 2021.Thus,Clearwater’s existing facilities are
contractually bound in a non-PURPA contract until 2021 and are not subject to Order No.33357
for six years.The predecessors of Clearwater and Avista executed their first power purchase
contract in 1984 for 10 years.Order No.23858,Washington Water Power,126 P.U.R.4th1 61
(1991).Simplot began selling its power to Idaho Power in 1986 and entered its first long-term
PURPA contract (five years)with Idaho Power in 1991.Order No.23552,1991 WL 11858077
(Idaho PUC).The Petitioners did not seek 20-year contracts in the past and have not persuaded
us on reconsideration that 20-year contracts for their existing facilities are needed now.Indeed,
ORDER NO.33419 15
Rocky Mountain’s witness Mr.Clements testified that all of its cogeneration contracts are for a
period of one year.Tr.at 476-77.
Also,the Petitioners’contemplation of new PURPA projects does not persuade us to
retain 20-year contracts for several reasons.First,we find the Petitioners’interests in developing
new PURPA facilities are speculative and undefined.Other than the possible location,neither
Petitioner definitively identified any relevant characteristics of the future projects on which they
premise their argument —for example,nowhere does the record contain any information
concerning the exact size of any future QF facility nor the proposed operation date.In particular,
Clearwater and Avista have been having discussions about such a facility for more than five
years.Tr.at 771.While Simplot has asked for indicative pricing for a cogeneration facility up
to 25 MW at its new Caldwell facility,we are unaware of any subsequent progress.Tr.at 769.
While a QF is entitled to a PURPA contract or a legally enforceable obligation,its offer to sell
power to a utility must be firm,binding,and unconditional.Order No.32974;310 P.U.R.4th
304 (2014);Whitehall Wind v.Montana Public Service Commission,347 P.3d 1277 (Mont.
2015);A.W.Brown,121 Idaho 818,828 P.2d at 847.
Second,the Commission found that the standard IRP-based contract of two years was
not an absolute term.In particular,the Commission recognized there may be justification for
IRP-based contracts in excess of two years.Order No.33357 at 26.Both Avista and Idaho
Power have tariff schedules approved by this Commission (Nos.62 and 73,respectively)that
specify the PURPA negotiation process for obtaining a proposed PURPA contract.QFs are
certainly free to seek longer contracts if justified on a case-by-case basis.Consequently,at this
juncture the Petitioners are not foreclosed from seeking longer contracts for their tentative
projects.Order No.33357 at 28;citing Tr.at 876,881.
Third,the Commission found that any asserted need for 20-year contracts was
mitigated by the “must purchase”provision of PURPA.Order No.33357 at 23;16 U.S.C.§
824a-3(b);18 C.F.R.§292.303(a).“PURPA’s ‘must purchase’provision requires the utility to
continue to purchase the QF’s power.”Order No.33357 at 25.As long as the projects continue
to offer power to utilities,utilities must continue to purchase such power under PURPA.And as
long as PURPA remains the law,the ability for QFs to earn a return remains.The shortening of
contract length is not intended to inhibit a QF’s ability to recover its investment.Rather the
shortening of contract length functions as a means of ensuring that avoided costs remain “just
ORDER NO.33419 16
and reasonable to the electric consumer of the electric utility and in the public interest”(16
U.S.C.§824a-3(b)(1))and serves “to maintain a more accurate reflection of the actual costs
avoided by the utility over the long-term.”Order No.33357 at 23.
Fourth,the Commission concluded that it was unreasonable to continue 20-year IRP
based PURPA contracts when utilities have no need for additional capacity.See City of
Ketchikan,Alaska,94 FERC ¶61,293 at 62,061 (2001)(“there is no obligation under PURPA
for a utility to pay for capacity that would displace its existing capacity arrangements”and “there
is no obligation under PURPA for a utility to enter contracts to make purchases which would
result in rates which are not ‘just and reasonable to electric consumers of the electric utility and
in the public interest’or which exceed ‘the incremental cost to the electric utility of alternative
energy.”).The Commission found that both Idaho Power and PacifiCorp presented persuasive
evidence of capacity surpluses.More specifically,the Commission found that these “two
utilities have demonstrated that their supply of PURPA and non-PURPA power exceeds their
current average loads.”Order No.33357 at 24,citing Tr.at 111,117,931.Idaho Power’s senior
vice president testified that Idaho Power’s PURPA and non-PURPA renewable resources
(approximately 1,297 MW)equaled about 40%of its 2014 system peak-load and was equal to
about 120%of it 2014 minimum system load.Order No.33357 at 13,citing Tr.at 111,177;
Exh.11 at 2.She testified it was unreasonable for Idaho Power to enter into long-term,fixed-
rate contracts when the Company does not need additional generation.Id.,citing Tr.at 117,119.
Rocky Mountain’s witness also testified his company has no need for additional
generation until 2028.Order No.33357 at 16,citing Tr.at 429.The Commission found that if
all the proposed IRP-based contracts for Rocky Mountain were to become operational,then the
utility’s existing and proposed PURPA contracts would be enough to supply 108%of
PacifiCorp’s average retail load and 275%of its minimum retail load in Idaho 2014.Order No.
33357 at 16,citing Tr.at 427.The Commission found that the abundance of PURPA generation
extends the utilities’capacity surpluses to 2024 for Idaho Power and 2028 for PacifiCorp.”Id.at
24.We find these statistics persuasive that 20-year contracts are unjust and contrary to the
public interest.
Fifth,the Commission found it unreasonable to continue to authorize 20-year
contracts given the proposition that avoided cost rates for IRP projects are declining.Order No.
Avista has a capacity surplus until 2020.Order No.33014 at 3.
ORDERNO.33419 17
33357 at 22.citing Tr.at 260-61;372:630-31:642.Continuing to allow QFs to lock in fixed-
rate contracts for 20 years wi1l overestimate’future avoided cost rates collected from the
utilities’ratepavers.Because of the 20-year term of the current IRP-based contracts.this
overestimation’will become more significant over the [20-year]duration of the contract.”Id.at
23.Given the projected decline in avoided costs,the Commission found and we affirm on
reconsideration that 20-year contracts will result in unjust and unreasonable rates for utility
ratepayers and are no longer in the public interest.16 U.S.C.§824a-3(b)(1).6 Thus,substantial
and competent evidence supports our conclusions that 20-year contracts will result in long-term
avoided cost rates that exceed the utility’s incremental costs,thus running afoul of the law.Id.at
824a-3(b).
2.The Petitioners’20-Year Alternative.The Petitioners also objected to the
Commission’s rejection of their alternative proposal to maintain the 20-year contract but adjust
the energy rate.On reconsideration,they propose a different 20-year alternative where the
Commission could “re-price the energy component of new contracts in year 1 0 of the contract
while leaving the capacity rate fixed for the entire 20-year term.”Petition at 4,5.
commission Findings:First,we observe that the Petitioners’alternative proposal on
reconsideration is at odds with what they actually proposed in their testimony at hearing.At the
technical hearing,Dr.Reading recommended that:
The Commission maintain a 20-year contract length with the capacity
component of the rate fixed for the entire 20-year term.1-lowever,as a
compromise,the energy portion of the rate would only be fixed the first 10
years of the contract.After the first 10 years,the energy component would be
recalculated each year adhering to the Commission-approved method for the
remaining term of the contract.
Tr.at 842 (emphasis added);Order No.33357 at 23.In other words,the energy rate would be
adjusted annually in each of the last ten years of the contract.The Petitioners either
mischaracterizcd their alternative proposed at hearing or now on reconsideration advance a
different 20-year alternative,one offered by the Idaho Conservation League/Sierra Club’s
witness,Mr.Beach.At hearing,he suggested that the Commission “make a single adjustment in
The Petitioners’reliance on the Hidrodnainics,Cedar Creek Wind,and New York State Electric &Gas cases is
misplaced.These cases are not relevant to the issue of contract length and are factually distinguishable.
Hydrodynamics,146 ¶61,193 P.31 (2014);Cedar Creek Wind,137 FERC ¶61,006,P.32(2011);New York State
Electric &Gas Corp.,71 FERC ¶61,027,61,115-16 (1995).
ORDERNO.33419 18
the 1 1th year of a 20-year contract.”Order No.33357 at 23,citing Tr.at 702.Once reset,the
energy rate “for Years 11-20 would continue to be fixed.”Id.
We find the Petitioners’new alternative offered on reconsideration suffers from the
same defect we previously identified in Order No.33357 and outlined above.“An adjustable
rate contract runs the risk of violating FERC regulations that mandate a ‘fixed rate’at the time of
contracting.”Order No.33357 at 24.Further,as long-term avoided cost rates continue to
decline,contracts of 20 years will “overestimate [thej’future avoided costs collected from the
utilities’ratepayers.”Order No.33357 at 23.This “overestimation”of future avoided costs will
become more significant over the duration of the 20-year alternative proposed by the Petitioners
on reconsideration.Id.The Petitioners’proposed alternative to adjust energy rates a single time
at the mid-point of a 20-year contract does not mitigate our concerns.Finally,“the same result
can be accomplished through successive short-term contracts”without the risk of violating
FERC regulations or unreasonably burdening customers.Id.
Consequently,we affirm our decisions and findings set out in Order No.33357.
There is substantial and competent evidence to support our findings that two-year standard IRP
based contracts are fair and reasonable,absent circumstances that would justify an exemption to
the standard length.
C.The QF is Provided a Capacity Rate and
the Capacity Adjustment does not Bind Future Commissions
In their Petition for Reconsideration,Clearwater and Simplot insist that the two-year
contract does not provide QFs with a capacity rate,and that the Commission’s capacity
adjustment is legally defective.The Petitioners maintain these “errors”caused by the two-year
contract and the capacity adjustment justify the return to 20-year contracts or their alternative
proposal that re-prices avoided cost energy rates in the middle of the 20-year contract.Petition
at 12-15.
1.The Two-Year Contract Provides a Capacity Rate.The Petitioners acknowledge
the two-year IRP contract allows for short-term,fixed-price compensation for energy but they
argue the Order provides “no price at all for capacity and thereby deprives the QF of the right to
sell capacity.”Petition at 12 (emphasis added).They insist that a QF is deprived of a ‘fixed
contract price for its energy and capacity at the outset of its obligation’because ...a two-year
ORDER NO.33419 19
contract will not provide a price for capacity that is fixed at this time.”Id.at 12 (italics original
and citations omitted).
The Utilities offer three arguments in response.First,the Utilities assert the
Petitioners have misconstrued the Commission’s final Order No.33357.They maintain that the
Order was not intended to establish avoided cost rates.“[The Order]is limited to addressing the
maximum contract length.”Answer at 7.Actual avoided cost rates,for both avoided energy and
avoided capacity,are established in other Commission Orders and through the Commission’s
approval of individual contracts.
Second,the Utilities maintain that the Petitioners’allegation that Order No.33357
does not set a capacity rate,is really an impermissible collateral attack on the Commission’s
prior Orders that do establish avoided cost rates for both capacity and energy in IRP-based
contracts.Idaho Code §61-625 (final and conclusive orders of the Commission “shall not be
attacked collaterally”).The Utilities insist that avoided cost rates for capacity (or energy)are
simply not relevant to this proceeding.Id.at 7.
Third,the Utilities maintain that when a utility has a capacity surplus,then the
“capacity component of the avoided cost price [is]zero.The capacity price is not absent,...it is
set at zero because the utility is capacity sufficient.”Id.at 8 (emphasis added).The Utilities
explain that a QF is only entitled to capacity rates when the utility has a need for additional
generation or firm power purchases i.e.,when a QF contributes capacity to a utility with a
capacity deficiency,then the avoided cost rates for the QF “will include both avoided energy and
capacity [rates].”Id.,citing Tr.at 276.
The Utilities conclude that the Commission’s capacity adjustment was intended to
recognize that the QF will be eligible to receive capacity rates when the utility is no longer
capacity deficient.They insist this is a benefit to QFs in that it allows a QF to establish a right to
capacity payments at the time the initial IRP-based contract is signed or the obligation is
incurred.Answer at 8.They quote from the Commission’s Order:
As long as the QF renews its contract and continuously sells power to the
utility,the QF is entitled to capacity [payments]based on the capacity
deficiency date established at the time of [the QF’s]initial contract.
Order No.33357 at 25-26.They maintain the primary difference between the Commission’s
previously established 20-year term and the two-year contract term established in Order No.
ORDERNO.33419 20
33357,is that the avoided cost rates “are refreshed at each two-year contract interval,rather than
being erroneously estimated and locked-in over 20 years.”Answer at 8.
Commission Findings:We are unpersuaded by the Petitioners’capacity adjustment
arguments for several reasons.First,the capacity adjustment does not apply to Petitioners’
existing facilities.Because the existing Clearwater and Simplot facilities already contribute
capacity to Avista and Idaho Power respectively,they both currently receive,and remain eligible
to receive,capacity payments when their existing contracts are renegotiated and renewed.
Indeed,the Petitioners concede that renewal contracts for their existing QF facilities would
continue to receive compensation for capacity under the Commission’s Order No.33357.
Petition at 4.
Second,the Petitioners also misconstrue the mechanics of the capacity adjustment as
they relate to any new,unbuilt future QF projects.If the utility has a capacity surplus,then a
first-time QF entering into its initial two-year IRP contract is not eligible to receive any payment
for capacity.However,if the purchasing utility has a capacity deficit in the initial or subsequent
two-year contract,then the QF is eligible to receive capacity payments from that point forward.
Both FERC and this Commission have a long-standing practice of allowing QFs to obtain
capacity payments only when the utility is or
becomes capacity deficient.If a utility is capacity surplus,then capacity is not
being avoided by the purchase of QF power.By including a capacity payment
only when the utility becomes capacity deficient,the utilities are paying rates
that are a more accurate reflection of a true avoided cost for the QF power.
Order No.33357 at 25,quoting Order No.32697 at 21;Tr.at 586-87.Thus,if a utility has a
capacity surplus during the entire two years of an IRP-based contract,a QF is not eligible to
receive a capacity payment.In practical terms,the avoided cost capacity rate in this example is
zero.
As FERC stated in its Order No.69,avoided cost rates need not include capacity
costs unless the QF purchase will permit the utility to avoid building or buying future capacity.
Order No.69,45 Fed.Reg.at 12,225-26.“[C]apacity payments can only be required when the
availability of capacity from a [QF]actually permits the purchasing utility to reduce its need to
provide capacity by deferring the construction of new plant or commitments to firm power
purchase contracts.”Id.While the utility may have an obligation under PURPA to purchase
ORDERNO.33419 21
power from a QF.“that obligation does not require a utility to pay for capacity that it does not
need.”Cm’of Ketchikan.94 FERC ¶61.293 at *6.
2.Forecasted Capacity Rates.The Petitioners also argue that PURPKs
implementing regulations entitle them to a forecasted capacity rate when they enter into their
contact/obligation.For example,if Clearwater or Simplot enters into a contract for their unbuilt
and speculative facilities to be effective in 2015 but the utility has a capacity surplus until 2024,
the Petitioners argue they are entitled to a future capacity rate for 2024,when the utility is
capacity deficient.They allege that this lack of a forecasted capacity rate calculated at the time
they enter into their contract “is obviously not what FERC had in mind when it stated its
[PURPA regulation]provides each QF with a capacity credit’through [sic]in a ‘fixed contract
price ...at the outset of its obligation’that provides ‘certainty with regard to return on
investment.”Petition at 14,citing 45 Fed,Reg,at 12.224.They assert the capacity adjustment
does not comply with section 292.304(b)which “requires that the QF be provided a fixed price
to sell that capacity at the time of commencement of the [contract or]obligation —not a rate
calculated ...several years from now.”Petition at 14.
Commission Findings:We find the Petitioners misunderstand our Order and FERC
regulations.The regulations provide that a QF has the option to either provide energy or
capacity as available,or at avoided cost rates calculated “over [the]specified term.”18 C.F.R.§
292.304(d)(l).(2).If the QF chooses to sell power to the utility over a specified term,the QF
may have the rates calculated for the term at either “the time of delivery;or ...at the time the
obligation is incurred.”18 C.F.R.§292.304(d)(2)(1-11).In Order No.33357,we determined
that “the specified term”for new standard IRP-based contracts is two years.Thus,Clearwater
and Simplot are entitled to receive avoided cost capacity rates for the specified term calculated at
either the time of delivery or at the time they enter into their contract/obligation.
We also directed the Utilities to establish their capacity deficiency date when a QF’s
initial IRP-based contract is signed.Order No.33357 at 25-26.This capacity adjustment
mechanism recognizes that if a QF continues to provide energy to a utility through when the
utility would otherwise experience a capacity deficiency,the QF will be paid for its capacity
contribution.But until a QF enters into a contract during which that capacity deficit date occurs,
the avoided cost capacity rate is zero.
ORDER NO.33419
As Mr.Wenner opined,a QF “is entitled to receive [capacity]rates based on the
capacity cost that the utility can avoid as a result of its obtaining capacity from the [QF].”Tr.at
586,quoting 45 Fed.Reg.at 12,225.A capacity rate calculated at the start of each specified term
rather than upon a QF’s initial contract,is a truer reflection of the utility’s avoided cost for
capacity.The capacity adjustment mechanism thus ensures the QF receives the full avoided cost
of the utility,consistent with FERC regulations.
Notably,FERC comments drafted at the time it was issuing its PURPA regulations
provided:
[FERC]recognizes that the translation of the principle of avoided capacity
costs from theory into practice is an extremely difficult exercise,and is one
which,by definition,is based on estimation and forecasting of future
occurrences.
Accordingly,[FERC]supports the recommendation made in the Staff
Discussion Paper that it should leave to the States and nonregulated utilities
“flexibility for experimentation and accommodation of special circumstances”
with regard to implementation of rates for purchases.Therefore,to the extent
that a method of calculating the value of capacity from [QFs]reasonably
accounts for the utility’s avoided costs,and does not fail to provide the
required encouragement of cogeneration and small power production,it will
be considered as satisfactorily implementing the Commission’s rules.
45 Fed.Reg.at 12,226.
As set out in Order No.33357,Idaho has been very successful in encouraging the
development of renewal QF power.Our changes in this docket are simply intended to ensure the
utility is not paying more than its actual avoided costs when purchasing QF power.
3.The Capacity Adjustment does not Bind Future Commissions.Simplot and
Clearwater also argue that the Commission’s capacity adjustment suffers from legal defects.
They argue that this Commission cannot bind a future Commission to a capacity deficiency date
at any particular point in a hypothetical future PURPA contract.Petition at 13.In other words,
they allege the present Commission cannot set a future capacity deficiency date in a future 2023
contract.They insist the QFs cannot reasonably rely on the Commission’s non-binding decision
to support the QF’s right to sell its capacity in a hypothetical 2023 contract.Petition at 14.They
argue in a footnote that the “reserved powers doctrine”limits the ability of the Commission to
ORDERNO.33419 23
bind a future Commission.See Petition at footnote 1.The Utilities do not respond to this
specific argument.
commission Findings:Under the reserved powers doctrine,“a state government
may not contract away “an essential attribute of its sovereignty.”US.v.Winstar Corp.,518
U.S.839,888 (1996),citing United States Trust Co.v.New Jersey,431 U.S.1,23 (1977).Such
“essential attributes”of state sovereignty include the power of eminent domain,and the power to
police.This “power to police”is commonly referred to as a state’s police power.In Idaho,the
Commission exercises legislative police power when setting rates.Coeur d’Alene Dairy Queen
v.State Insurance Fund,154 Idaho 379,385,299 P.3d 186,192 (2013);Idaho Power &Light
Co.v.Blomquisl,26 Idaho 222,258,141 P.1083,1094 (1914).The Commission’s regulation of
utility rates set by private contract is subject to such police power.Agricultural Products Corp.
v.Utah Power &Light Co.,98 Idaho 23,29,557 P.2d 617,623 (1976).
The related doctrine of “unmistakability”provides,“absent an ‘unmistakable’
provision to the contrary,‘contractual arrangements,including those to which a sovereign itself
is a party,remain subject to subsequent legislation by the sovereign.”Winstar,518 U.S.at 877,
citing Bowen v.Public Agencies Opposed to Social Security Entrapment,477 U.S.41,52 (1986)
(internal quotations omitted).
We believe neither doctrine applies in this PURPA case.First,the Commission’s
capacity adjustment is not a “contract”where the Commission is a party to the contract.The
capacity adjustment is also not a “rate.”It is a mechanism used to determine when a new QF in
an IRP contract is eligible to receive capacity payments.It is always true that the Commission
can exercise its authority to change a ruling in a subsequent decision,just as a state legislature
can change a law.Our Supreme Court has held on numerous occasions that the Commission is
not rigorously bound by the doctrine of stare decisis.Idaho Power,155 Idaho at 1286,316 P.3d
at 788;McNeal-Idaho PUC,142 Idaho 685,690,132 P.3d 442,447 (2006).However,when the
Commission departs from a previously-established policy,it must explain its departure from
prior rulings so that a reviewing court can determine that the decision to change is not arbitrary
or capricious.Intermountain Gas Co.v.Idaho PUC,97 Idaho 113,119,540 P.2d 775,781
The Commission may only interfere with the utility’s contract if it finds that a rate is so low or so high as to
adversely affect the public interest;“where it might impair the financial ability of the public utility to continue its
service,cast upon other consumers an excessive burden,or be unduly discriminatory.”Bunker Hill Co.v.
Washington Water Power Co.,98 Idaho 249,253,561 P.2d 391,395 (1997)(quoting the elements of the Sierra-
Mobile Doctrine from Federal Power Commission v.Sierra Pac.Power Co.,350 U.S.348,355 (1956).
ORDER NO.33419 24
(1975).So long as the Commission adequately explains its departure,“orders based upon
positions substantially different than those taken in previous proceedings can be upheld.”Id.
Such authority does not diminish the “legal effect”of the Commission’s decision,
from any perspective.The determinations and rulings in a final Order are binding on the
affected utilities until they are changed or rescinded in the future.Idaho Code §61-406 (every
utility “shall obey and comply with each and every order,decision,direction,rule or regulation
“).To the extent Clearwater/Simplot mean to assert that the Commission’s decision has no
“practical effect”from a QF’s perspective,because a future Commission could enter a contrary
decision,the same could be said of any existing QF contract,any Commission decision,or
indeed any law.Thus,we reject the Petitioners claims of a legal defect.
D.The Capacity Adjustment is Supported by
Substantial Evidence in the Record
Finally,the Petitioners assert that the Commission’s capacity adjustment was not
advocated by any party and therefore falls outside the record.They allege that no party
discussed this idea in testimony and no party has had an opportunity to address it.They insist
that the “Commission’s findings and conclusions must be made upon the record developed
before it,and that when an administrative agency strays from the records its findings are not
supportable on review.”Petition at 16.
The Utilities assert that this argument is without merit.They note that the
Commission received extensive testimony from the Petitioners’witness Dr.Reading and from
the Sierra Club’s witness Mr.Wenner regarding the need to compensate QFs for capacity.
Answer at 9-10,citing Tr.at 773-79,583-601.The Utilities also argue that the Commission’s
resolution of disputed issues is not so strictly limited to relief that “was exactly proposed or
suggested by the parties.The Commission is free to act within it authority and discretion,based
on the evidence before it.”Id.
Commission Findings:Despite the Petitioners’argument to the contrary,the
Commission’s capacity adjustment was specifically designed to ensure that the reduction in the
standard-length IRP contract from 20 years to two years does not permit Utilities to avoid their
obligation to make capacity payments to QFs “in the first year the utility has an identified
[capacity]deficiency.”Tr.at 701.As Mr.Wenner explained,FERC’s PURPA regulations
require QFs to be paid for capacity when the QF is providing capacity that enables the utility to
ORDER NO.33419 25
avoid or forego the construction of new generating facilities or the purchase of firm power.Id,at
587.Quoting from FERC’s Order No.69.Mr.Wenner testified that a QF is entitled to receive
[capacity]rates based on the capacity cost that the utility can avoid as a result of its obtaining
capacity from the [QF].”Tr.at 586,quoting 45 Fed.Reg.at 12225.He insisted that if QF
contracts are limited to two years,then “that power cannot be counted on to be available after
two years Yr.at 587.The Petitioners’witness Dr.Reading also objected to the reduction
in the length of IRP contracts.He opined that if IRP-based contracts are shortened to five or
fewer years.the QF will not be able to cause the utility to avoid future capacity additions.Tr.at
777.778-79.He argued that the shortened contract length is designed to deprive capacity
payments to the QF.Id at 786.
Given these concerns about capacity and capacity payments,the Commission
fashioned its capacity adjustment to remedy these concerns expressed by the parties.Consistent
with FERC regulations and our Orders,a utility is required to pay for capacity contributed by the
QF when the utility no longer has a capacity surplus.Order No.33357 at 25-26,citing Order
No.32697 at 21.While the “must purchase”provision requires utilities to purchase capacity and
energy from a QF,that obligation does not require a utility to pay for capacity that it does not
need.”City of Ketchikan.94 FERC ¶61,293 at *6.When a QF enters into its initial
contract/obligation with the utility,the capacity adjustment entitles the QF to know the exact
date when it will be eligible to receive capacity payments as long as the QF continues to
contribute to the utility resource stack.Thus,the Commission created the adjustment in
conjunction with the standard two-year term for IRP-based contracts to prevent utilities from
circumventing their obligations to pay for capacity when the utility becomes capacity deficient.
The Commission’s capacity adjustment is based upon ample evidence in the record
offered by the Petitioners and other parties,and comports with FERC regulations requiring
utilities to make avoided cost capacity payments to the QF at times when the utility is capacity
deficient.The Idaho Supreme Court will uphold the Commission’s findings of fact if they are
supported by substantial,competent evidence.Idaho Power,755 Idaho at 787,316 P.3d at 1285;
Rosebud II,128 Idaho at 618.917 P.2d at 775.In both Order No.33357 and here,the
Commission has explained its reasoning used to reach its conclusions based on substantial and
competent evidence from the record before it.
ORDERNO.33419 26
Given the totality of the evidence in the record,we affirm our findings in final Order
No.33357 that it is reasonable and consistent with PURPA that the standard IRP contract be
reduced from 20 years to two years.It is uncontested that utilities do not need additional
generating capacity and that PURPA and non-PURPA generation exceeds Idaho Power’s and
Rocky Mountain’s minimum average loads.More importantly,given the undisputed evidence
that avoided costs are decreasing,retaining fixed rates for 20 years would violate PURPA’s
Section 210(b)mandate that avoided costs rates shall not exceed a utility’s avoided costs.We
find that the Petitioners’alternative proposal to adjust energy rates one time in the middle of a
20-year contract is not consistent with PURPA’s intent or FERC’s regulations.Consequently,
the Commission denies Simplot’s and Clearwater’s request to retain 20-year terms for IRP-based
contracts.
ORDER
IT IS HEREBY ORDERED that Clearwater’s and Simplot’s request to amend final
Order No.33357 is denied.The Commission declines their request to continue a 20-year term
for IRP-based contracts or to adopt their alternative proposal on reconsideration to adjust energy
rates one time at the mid-point of a 20-year contract.
IT IS FURTHER ORDERED that the Petitioners’other issues raised in their Petition
for Reconsideration are dismissed as set out in the body of this Order.
THIS IS A FINAL ORDER ON RECONSIDERATION.Any party aggrieved by this
final Order on Reconsideration or other final or interlocutory Orders previously issued in this
Case Nos.IPC-E-15-0l,AVU-E-15-0l,and PAC-E-15-03 may appeal to the Supreme Court of
Idaho pursuant to the Public Utilities Law and the Idaho Appellate Rules.See Idaho Code §61-
627.
ORDER NO.33419 27
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of November 2015.
-Th
/
PAUL KJELLAN 1&E ENT
Commissioner Smith did not participate in this case
MARSHA H.SMITH,COMMISSIONER
KRI INE RAPER,COMMISSIONER
ATTEST:
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Commission S&retary
O:IPC-E-I 5-OIAVUE-1 5-OIPAC-El 5-O3dh4FinaI Reconsideration
ORDER NO.33419 28