20071019Answer and Motion.pdf

Peter 1. Richardson ISB 3195
RICHARDSON & O'LEARY PLLC
515 N. 2ih Street
PO Box 7218
Boise, Idaho 83700
Telephone: [phone]
Fax: [phone]
peter~richrdsonandoleary. com
Attorneys for Exergy Development Group of Idaho LLC
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BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION OF
ROCKY MOUNTAIN POWER FOR AN
ORDER REVISING CERTAIN OBLIGATIONS)
TO ENTER INTO CONTRACTS TO
PURCHASE ENERGY GENERATED BY
WIND-POWERED SMALL POWER
GENERATION QUALIFYING FACILITIES
CASE NO. PAC-07-
EXERGY DEVELOPMENT GROUP
OF IDAHO LLC'S ANSWER TO
JOINT MOTION TO APPROVE
SETTLEMENT STIPULATION
COMES NOW Exergy Development Group ofldaho LLC ("Exergy ) by and through
its attorney of record, Peter J. Richardson, and lodges its Answer to the Joint Motion to Approve
Settlement Stipulation ("Settlement") by Rocky Mountain Power ("Rocky Mountain ) and
Renewable Northwest Project ("RNP") in the above captioned docket.
SUMMARY OF EXERGY'S POSITION
Exergy urges the Commission to reject the proposed Settlement as it is not supported by
an adequate record and is contrary to the public interest.
Exergy Development Group ofIdaho LLC's Answer to Joint Motion PAC-07-
LACK OF RECORD
Exergy s Comments filed on October 5 , 2007 , in this docket pointed out the need for an
evidentiary hearing in order to create an adequate record upon which a Commission decision
may be made. The Settlement provides no additional evidence remedying that defect. There
simply is an inadequate record upon which this Commission may make its ruling on the need for
and/or magnitude of a wind integration rate for Rocky Mountian.
III
LACK OF CERTAINTY FOR MAKING A DECISION
Staff s comments underscore the uncertainties surrounding any wind integration cost
number this Commission may adopt:
Workshops held to review the results of the utilities integration studies
highlighted the broad range of possible outcomes that could be achieved by
varying the assumptions for numerous variables used within the study.
Part of this imprecision and uncertainty is due to the difficulty of modeling the
intermittent nature of the wind, the generation it produces and its effect on the rest
of the electrical system. Another reason is the many assumptions that have to be
made in the analysis.
Staff believes that reasonable arguments could be made to justify combinations of
differences in assumptions that result in widely varying integration costs.
Staff Comments at p. 4.
Staff concede that "reasonable arguments could be made to justify combinations of
differences in assumptions that result in widely varying integration costs.Id. In a nutshell, this
Commission is being asked to proceed in the face of "widely" varying integration costs that are
based on a study with "minimal documentation" and using "assumptions for numerous variables
with "imprecision and uncertainty . To do so would result in a wind integration rate that is, by
definition, arbitrary.
Exergy Development Group ofIdaho ~LC's Answer to Joint Motion PAC-07-
Specifically addressing Rocky Mountain s wind integration study the Staff observed:
Because PacifiCorp conducted its studies much earlier than either Idaho Power or
Avista, the analysis lacks some of the sophistication of the later studies and may
not fully account for all components of wind integration costs. In addition, the
analysis may be a bit more outdated than others. Because PacifiCorp s study was
just one small element of the much larger exercise of developing an Integrated
Resource Plan (IRP), the wind integration study has been subjected to far less
scrutiny and peer review than either of the other two utilities' studies. PacifiCorp
has never prepared a report presenting the details and results of its wind
integration study. Instead, a description of its study and results is contained in
mere 2 Yz page appendix of its IRP. With such minimal documentation it is
difficult to judge its accuracy. .
Staff Comments at p. 7. Emphasis provided.
There is such "minimal documentation" that it is difficult to judge the accuracy of Rocky
Mountain s proposed wind integration costs. That fact, alone, should be sufficient to require a
full evidentiary hearing into the reasonableness and prudence of such rates.
LACK OF LEGAL FOUNDATION FOR SETTING RATES
It is black letter utility law that rates must be based on known and measurable costs.
This issue often arises in determination of expected additions to rate base that have yet to be
realized. The legal concept is the doctrine of "known and measurable changes
The "known and measurable changes " doctrine is a fundamental doctrine in utility law that is
commonly at issue when adjusting test year data. The Idaho Supreme Court has repeatedly
stated that test year data should be adjusted for known and measurable changes ifthe changes are
shown to be reliable and certain. In Citizens Utility Co. v. Idaho Public Utilities Commission, 99
Idaho 164, 579 P .2d 110 (1978), the Court provided the test when post-test-year events should be
considered:
The Court has stated before that test year data should be adjusted for anticipated
and known changes where the changes are shown to be reliable and certain. . . .
Exergy Development Group ofIdaho LLC's Answer to Joint Motion PAC-07-
The Commission should include in the rate base all items which are proven with a
reasonable certainty to be justifiably used in providing services. There are two
good reasons for including these items in the rate base: First, to avoid a rate base
which does not adequately demonstrate real revenue needs and second, to reduce
the necessity of a future application to adjust the rate base to represent additional
investments.
Idaho 164, 170~, 579 P.2d at 116-17.
In Utah Power & Light v. Idaho Public Utilities Commission, 102 Idaho 282, 629 P.2d 678
(1981), the Court addressed the issue of what constituted a "known and measurable change
Test year data should be adjusted for known and measurable changes where the
changes are shown to be reliable and certain. . .. The Commission should
include in the rate base all items which are proven with reasonable certainty to be
justifiably used by the utility in providing services to its customers. . . .
Idaho at 284 629 P.2d at 680.
The known and measurable doctrine is not only sound utility law; it is grounded in basic
common sense. Setting rates, whether in determining anticipated rate base additions or
determining future wind integration costs on unknown, umeliable and uncertain data is simply
irresponsible. As the examples noted above illustrate, the Joint Motion and Staff Comments are
replete with admissions to the effect that this Commission is being asked to violate that most
basic of utility doctrines
, "
known and measurable." In addition, the following laundry list of
some of the many unknown and ummeasurable assumptions that must be made provide further
evidence that it is ill-advise and impossible to set a wind integration rate at this time:
Part of this imprecision and uncertainty is due to the difficulty of (1) modeling the
intermittent nature of the wind, (2) the generation it produces and its (3) effect on
the rest of the electrical system. Another reason is the (4) many assumptions that
have to be made in this analysis. For example, assumptions have to be made
about the (5) magnitude, (6) locations and (7) timing of future wind generation
development; (8) wind forecasting effectiveness, (9) geographic diversity of wind
resources; (10) size, (11) height and (13) other characteristics of expected wind
turbines; (14) reserve requirements; (15) future electric market structures and (16)
pricing; (17) resources available to provide reserves; and (18) operating
Exergy Development Group of Idaho LLC's Answer to Joint Motion P AC-07-
constraints of existing generating plants. Staff believes that reasonable arguments
could be made to justify (19) combinations of differences in assumptions that
result in widely varying integration costs.
Staff Comments at p. 4. Numbering provided.
These nineteen assumptions can be combined to create an innumerable set of possible
outcomes. Those innumerable possible outcomes, however, are fatally flawed from the outset
because the study s starting point is an assumed level of wind penetration that is nothing more
than a fiction.
This Commission has historically taken its obligations under the known and measurable
doctrine very seriously. For example, in an Idaho Power rate case, that company sought a
ratemaking adjustment based on anticipated changes to its capital structure. The Commission
responded by observing:
The proposed financings that Dr. Morrissey has included in Idaho Power
Company s capital structure represent a substantial increase in the Company
total capitalization. Yet, at the same time these projected financings are not even
projected to occur for almost six months. Depending on the idiosyncrasies of the
capital markets, it is highly possible that an issue now programmed for release in
1979 could be deferred or postponed indefinitely. Likewise, depending upon the
prevailing financial climate, it is possible that the yields required in capital
markets will vary substantially from that estimated by Dr. Morrissey in his
projections. This Commission is reluctant to impose additional unnecessary costs
on the ratepayers of Idaho Power Company s where such costs cannot be
measured without uncertainty and speculation
Order No. 14495, Docket No. U-1006-140, Mach 1979 , at p. 16. Emphasis provided.
Rocky Mountain s assumptions about wind penetration are likewise dependent upon not just the
idiosyncrasies" of the capital markets 1, but also on the long list of seventeen uncertainties
1 Planned wind parks can be rendered uneconomic for innumerable reasons, such as
changes in capital markets, tax policy, equipment costs, and commodity prices.
Exergy Development Group ofIdaho LLC's Answer to Joint Motion PAC-07-
identified in Staff s Comments. In the above noted Idaho Power rate case, the Commission
refused to make a rate adjustment because the expected contingency was "not even projected to
occur for almost six months ! Here the contingencies that are anticipated will occur, if at all
many years into the future and not six months.
In addition, in the situation of the rate case order quoted above, even if the Commission
were to approve Idaho Power s proposed rates based on anticipated future capitalization, the
Commission always has the ability of revisiting its decision to correct the rates in the future in
the event the expected contingency did not come to fruition. In this instance the Commission
will not have that tool. The Settlement requires that the Commission set wind integration costs
and LOCK THEM IN FOR TWENTY YEARS with no safety valve in the event the rates were
significantly in error. See Staff Comments at p. 5.
The Commission ought to set Rocky Mountain s wind integration rate at zero, to reflect
what it currently is. As Rocky Mountain experiences, indeed if Rocky Mountain experiences
wind integration costs in the future it should be required to demonstrate with certainty what those
costs are and justify the basis for its calculations. New wind power purchase agreements should
be required to have a clause allowing the imposition of a fair, just and reasonable wind
integration rate that varies with actual wind integration costs. It should also be capped based on
a reasonable, and justifiable, assumption relative to an anticipated maximum wind integration
rate.
LACK OF SUPPORT FOR THE STIPULATION
Of the six parties to this docket only two signed the stipulation. Of those two, one is the
utility and one is not directly impacted by the proposed wind integration fee as it is not a
developer or potential owner of wind proj ects. The existence of a settlement with a minority of
Exergy Development Group ofIdaho LLC's Answer to Joint Motion PAC-07-
the participants to the proceeding does not support a finding that it is necessarily in the public
interest.
CONCLUSION
Exergy s October 5 , 2007, Comments urged this Commission to hold evidentiary
hearings to determine whether Rocky Mountain has wind integration costs and if so to establish
the methodology for the company s recovery of those costs. Rocky Mountain and RNP's Joint
Motion and Settlement have not changed Exergy s position. For the reasons stated above and in
its October 5, 2007, filing, Exergy respectfully urges this Commission to deny the Joint Motion
and set a schedule for all interest parties to provide evidence as to the correct calculation and
level of Rocky Mountain s wind integration costs.
MOTION TO ACCEPT ANSWER OUT OF TIME
Due to the press of other issues, including preparation for pre-filed testimony in the Idaho
Power general rate case, counsel for Exergy needed additional time in which to prepare Exergy
Answer. It has obtained the concurrence of all those who executed the stipulation as well as the
Commission Staff to file these comments two days out of time. No party will be prejudiced
thereby and Exergy therefore respectfully moves that the Commission accept and consider its
Answer.
Respectfully submitted this 19th day of October 2007.
RICHARDSON & O'LEARY PLLC
(/
Attorneys for Exergy Development Group
of Idaho
Exergy Development Group ofIdaho LLC's Answer to Joint Motion PAC-07-
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this day, October 19 2007, I caused a true and
correct copy of the foregoing EXERGY DEVELOPMENT GROUP OF IDAHO LLC'
ANSWER PAC-O7-07 to be served by the method indicated below, and addressed to the
following:
Ms. Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
POBox 83720
Boise 10 83720-0074
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Dean Brockbank
Rocky Mountain Power
201 S. Main St. Ste. 2300
Salt Lake City, Utah 84111
dean. brockbank~pacificorp. com
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Brian Dickman
Rocky Mountain Power
201 S. Main St. Ste. 2300
Salt Lake City, Utah 84111
brian. dickman~pacifi corp. com
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Scott Woodbury
Idaho Public Utilities Commission
424 W Washington Street
Boise ID 83702
scott. woodbury~puc.idaho. gov
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William Eddie
Advocates for the West
610 SW Alder St, Ste. 910
Portland, OR 97205
beddi e~ad v oc ateswest. org
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EXERGY DEVELOPMENT GROUP, LLC
CERTIFICATE OF SERVICE ANSWER PAC-07-
Glenn Ikemoto
Idaho Windfarms '
672 Blair Ave
Piedmont, CA 94611
glenni~pacbell.net
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Gary Seifert
Kurt Myers
INL Biofuels & Renewable Energy
2525 S. Fremont Ave
PO Box 1625 , MS 3810
Idaho Falls, Idaho 83415-3810
Gary.seifert~inl.gov
Kurt.myers~inl. gov
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Ken Dragoon
Renewable Northwest Project
917 SW Oak St., Ste. 303
Portland, OR 97205
ken~rnp.org
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Dean 1. Miller
PO Box 2564
Boise, Idaho 83701
j oe~mcdevitt -miller. com
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Stephen E. Martin
Intermountain Wind LLC
425 S. Homes
PO Box 3189
Idaho Falls, Idaho 83404-3189
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EXERGY DEVELOPMENT GROUP, LLC
CERTIFICATE OF SERVICE ANSWER PAC-07-
R. Blair Strong
Jerry K. Boyd
Paine, Hamblen, Coffin, Brooke & Miller LLP
717 West Sprague Avenue Ste 1200
Spokane W A 9920l-3505
r. b lair. strong~painehamb len. com
Michael G. Andrea
Staff Attorney
1411 E Mission Ave
PO Box 3727 MSC-
Spokane W A 99201
Mi chael. andrea~avistacorp. com
By W.
Peter Richardson
ISB # 3195
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EXERGY DEVELOPMENT GROUP, LLC
CERTIFICATE OF SERVICE ANSWER PAC-07-