20150422Wenner Direct.pdf

Benjamin I. Otto (ID Bar # 8292)
710 N 6'h Street
Boise,ID 83701
Ph: [phone] x12
Fax [phone]
botto @idahoconservation. org
MattVespa (CA Bar #222265)
Sierra Club
85 Second St., 2"d Floor
San Francisco, CA 94105
Ph: (als) 977-57s3
Fax [phone]
matt.vespa@sierraclub. com
Attornqr for the Idaho Conservation League and Siena Club
IN THE MATTER OF IDAHO POWER
COMPANY'S PETITION TO MODIFY TERMS
AND CONDITIONS OF PURPA PURCHASE
AGREEMENTS
IN THE MATTER OF AVISTA
CORPORATION,S PETITION TO MODIFY
TERMS AND CONDITIONS OF PURPA
PURCHASE AGREEMENTS
IN THE MATTER OF ROCKY MOUNTAIN
POWER COMPANY,S PETITION TO
MODIFY TERMS AND CONDITIONS OF
PURPA PURCHASE AGREEMENTS
Idaho Conservation League and the Sierra Club
l;;. '.-,
')l r: I D\ ,r).rt. rlrr LL
CASE NO.IPC-E-15-OI
CASE NO. AVU-E-I5-01
CASE NO. PAC-E-15-03
D:I ?i. l1l.i u' t r
-li,.',.1.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
Direct Testimony of Adam Wenner
April23,2015
1 Q. What is your name and background?
2 A. My name is Adam Wenner. I am a partner at Orrick, Herrington and Sutcliffe, LLP, and
3 work in the Washington DC office. Prior to working at Orrick, I served as an attorney in the
4 Federal Energy Regulatory Commission ("FERC") Office of the General Counsel, from 1976-
5 1981. During my term at the FERC, I worked with a staffteam that was responsible for drafting
6 and implementing regulations under the Public Utilitf Regulatory Policies Act of 1978
7 ('PURPA"). In that capacity I am listed as one of the four staffcontacts for the FERC's order
8 adopting regulations implementing section 210 of PURPA, which requires electric utilities to
9 purchase electric power from and sell electric power to qualifring cogeneration and small power
l0 production facilities ("QFs"), and to pay rates based on the utility's avoided costs. These
11 regulations require state regulatory commissions to implement the FERC regulations.
12 Since leaving FERC in 1981, I have worked as an attorney in the electric power industry
l3 and have handled many matters relating to PURPA.
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l5 a. As a staffmember, you did not vote on the rules that FERC issued, correct?
16 A. That is correct. I and the other members of the group working on PURPA
17 implementation drafted proposed rules, participated in conferences around the country,
l8 reviewed and analyzed comments filed in the rulemaking proceeding, and drafted a
19 recommended final rule that FERC voted to adopt.
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2l a. What is the purpose of your testimony?
22 A. I have been asked to provide my opinion regarding a proposal before the Idaho Public
23 Utility Commission ("Idaho PUC") in the above-styled docket regarding the PURPA and FERC
24 requirements for long-term power purchases from QFs. In this docket the Idaho PUC is
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I considering a proposal ("Petition") by Idaho Power Company ("Idaho Power") to direct that the
2 maximum required term for prospective Idaho Power PURPA energy sales agreements be
3 reduced from 20 years to two years.
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5 Q. Do you have an opinion as to whether this approach is consistent with PURPA and the
6 FERC's PURPA regulations and decisions?
7 A. Yes. In my view this approach does not satisfr the FERC's regulations and is inconsistent
8 with PURPA.
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10 a. Please explain the basis for your opinion.
I I A. There are two grounds for my opinion: (1) the PURPA legislation and the FERC
12 regulations require that QFs be paid capacity payments when their commitment to provide
13 energy to a utility enables the utility to replace new capacity with QF purchases. Capacity can
14 only be replaced when QF power is guaranteed to be available for a term that is sufficiently long,
15 in terms of the utility planning horizon - which typically involves twenty-year or longer service
16 lives for the "avoided" generating unit that is displaced by QF energy and capacity; and (2) the
17 FERC regulations provide QFs, at their option, the legal right to provide energy and capacity to a
l8 utility pursuant to a "legally enforceable obligation', over a term specified by the QF, in which
19 the QF is paid based on projections of avoided costs, determined at the time that the obligation is
20 incurred. FERC has interpreted this regulation to mean that by making a binding offer to sell its
2l power over a specified term, the QF obligates the state commission to impose a legally
22 enforceable obligation to purchase the QF's power over the specified term, at rates based on
23 projected avoided costs. An Idaho PUC policy that limits legally enforceable obligations to
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purchase from QFs to a two year period would be inconsistent with and in violation of the
FERC's regulation.
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4 a. Please elaborate on the first reason that you identifr above for concluding that Idaho's
5 proposal to limit QF contracts to two years is not appropriate.
6 A. As FERC noted in Order No. 69 in a discussion about whether avoided costs should
7 include capacity payments as well as energy payments, the Conference Report issued by Congress,
8 in conjunction with section 210 of PURPA, stated:
9 The conferees expect that the Commission in judging whether the electric10 power supplied by the cogenerator or small power producer will replace future
I I power which the utility would otherwise have to generate itself either through
12 existing capacity or additions to capacity or purchase from other sources will takel3 into account the reliability of the power supplied by the cogenerator or small14 power producer by reason of any legally enforceable obligation of such15 cogenerator or small power producer to supply firm power to the utility.
T617 Small Power Production and Cogeneration Facilities; Regulations Implementing Section 210 of the
18 Public Utility Regulatory Policies Act of 1978, Order No. 69, FERC Stats. & Regs. J 30,128 (1980),
19 45 Fed. Reg. 12,214,12,225 (Feb. 25, 1980) ("Order No. 69") (quoting Conference Report on
20 H.R.4018, Public Utility Regulatory Policies Act of 1978, H. Rep. No. I750,99,95th Cong., 2d.
2l Sess. (1978)).
22 Based on this Congressional intent of PURPA, FERC observed, in Order No. 69, that:
In order to defer or cancel the construction of new generating units, a
utility must obtain a commitment from a qualifring facility that provides
contractual or other legally enforceable assurances that capacity from alternative
sources will be available sufficiently ahead of the date on which the utility would
otherwise have to commit itself to the construction or purchase of new capacity.
If a qualifring facility provides such assurances, it is entitled to receive rates based
on the capacity costs that the utility can avoid as a result of its obtaining capacity
from the qualiffing facility.
45 Fed. Reg. at 12,225.
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a. How does this instruction by FERC apply to an Idaho QF's right to a purchase contract
of more than two years?
A. The FERC's language is straightforward. If a QF enters into a contract or provides "legally
enforceable assurance" that it will be available on the date that the utilitywould otherwise make a
commitment to construct new generating capacity, then the QF is entitled to payments based on
the avoided cost of constructing the new generating unit. A new conventional coal or gas-fired
plant has a service life in excess of 20 years, and therefore can only be replaced by power from
QFs if the QFs are obligated to provide power for a term at least that long. Conversely, if a QF
contracts or legally enforceable obligations are limited to two years, that power cannot be
counted on to be available after two years, and so a utility could not cancel planned generation
based on such a short commitment. The FERC's statement in Order No. 69 accordingly must be
read to require that sufficiently long contract terms or legally enforceable obligations are available
to enable planned generation to be canceled, a requirement that is not consistent with a two-year
term.
a. Are there other provisions of the FERC's regulations under PURPA that shed light on
this issue?
A. Yes. Section292.304(d)(2) of the FERC's rules states that a QF has the option to provide
energF or capacity on an "as-available" basis, or pursuant to a "legally enforceable obligation for
the delivery of energy or capacity over a specified term."
a. Does the QF have options with respect to the determination of its avoided cost rate, if it
chooses the second option, namely to provide energy pursuant to a "legally enforceable
obligation for the delivery of energy or capacity over a specified term"?
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A. Yes. Section292.304(d)(2) states that the QF has the option to receive avoided cost rates
calculated at the time of delivery or at the time the obligation is incurred.
a. Do the FERC rules specifr a specific number of years or other time period for the term
over which the QF which accepts a legally enforceable obligation is entitled to receive avoided
cost rates calculated at the time the obligation is incurred?
A. No. However, there are many provisions of the rules and of FERC's decisions applying its
rules that provide guidance on this topic.
a. Please describe these provisions.
A. First, FERC has explained that section 292.304(d)(2) gives a QF the right to establish a
fixed contract price for its energy and capacity at the outset of its obligation. Order No. 69,
FERC Stats. & Regs. J 30,128 at 30,880).
a. Did FERC explain that the section 292.304(d)(2) right to a fixed price contract means
that a QF has a right to a contract or legally enforceable obligation based on projected avoided
costs?
A. Yes. Section 292.304(d)(2) provides that a QF has the option to sell on an "as-available"
basis, or pursuant to a legally enforceable obligation, over a specified term. In the latter case, the
QF has the option to select rates that are calculated at the time that the obligation is incurred.
a. Are there instances in which FERC characterized the right of a QF to a fixed-rate
contract or legally enforceable obligation under section 292.304(d)(2) as gr"ing a QF the right,
at its option, to a long-term contract?
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I A. Yes. In its discussion in Order No. 69 of "levelized avoided cost payments,' FERC noted
2 that that "[a] facility which enters into a long term contractto provide energy or capacity to a
3 utility may wish to receive a greater percentage of the total purchase price during the beginning
4 of the obligation." 45 Fed. Regl2,224 (emphasis added).
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6 a. Has Idaho interpreted section 292.304(d) as granting a QF the right, under PURPA, to a
7 long-term fixed contract?
8 A. Yes. In its 1984 decision affirming an order by the Idaho PUC requiring Idaho Power
9 Company to enter into a thirty-five year contract to purchase power from a QF, the Idaho
l0 Supreme Court stated that "FERC's intent that [QFs], at their option, could enter into fixed-term
I I contracts is manifested by" the above-quoted language from Order No. 69 regarding long-term
12 contracts. Afton Energy, Inc. v. Idaho Power Co., 107 Idaho 78I,786, 693 P.zd 427, 432 ( 1984)
l3 ("AftonEnergf).
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l5 a. Did the Afton Energy decision indicate the basis for the thirty-five year contract term
16 proposed by the QF and imposed by the Idaho PUC?
17 A. Yes. The decision states "[t]he thirty-five year period corresponds to the life of Idaho
18 Power's own thermal unit that can be "avoided" by purchasing power from the [QF]." Afton
19 Energll,107 Idaho at783, 693 P.zd at 429.
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2I a. Is that reasoning consistent with the concept of avoided costs, as defined by FERC in
22 Order No.69?
23 A. Yes. The provisions that are referenced above, relating to the circumstances in which a
24 QF can receive capacity payments by enabling the purchasing utility to alter its capacity
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I expansion plans based on the obligation to provide power in the future, inherently contemplate
2 that the QF's legally enforceable obligation will be sufficiently long to accomplish this result. This
3 is consistent with the Idaho PUC's order as affirmed by the Idaho Supreme Court in Afton
4 Energy.
5 If a state commission adopts rules under which a utility is permitted to limit the purchase
6 obligation to a term that is too short to enable it to affect the utility's planning, then the state
7 commission will have failed to implement the FERC's regulations permitting capacity payments.
8
9 a. What other provisions are relevant to this issue?
10 A. Section 292.302(b)(2) requires utilities to make available the utility's plans for the
1 I addition of capacity, purchases of firm energy and capacity, and capacity retirements for each
12 year during the succeeding ten years. The ten-year horizon is consistent with the long-term
13 planning associated with utility capacity additions, and is indicative of the time frame that FERC
14 concluded was necessary in order for QFs to compute the avoided costs on which their contracts
15 or other legally enforceable obligations would be calculated.
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17 a. Are there other provisions of the FERC's rules that shed light on this topic?
18 A. Yes. Section292.304(e) identifies factors which are to be taken into account in
19 determining the avoided cost rate to which a QF is entitled. One of the factors listed is: "(iii) the
20 terms of any contract or other legally enforceable obligation, including the duration of the
2l obligation, termination notice requirement and sanctions for non-compliance."
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23 a. Did the FERC discuss this provision in its order adopting the PURPA regulations?
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A. Yes. FERC stated that clause (iii) (quoted above) "refers to the length of time during
which the qualifring facility has contractually or otherwise guaranteed that it will supply energy
or capacity to the electric utility." Order No. 69, 45 Fed. Reg. at 12,226.
A utility-owned generating unit normally will supply power for the life of the
plant, or until it is replaced by more efficient capacity. In contrast, a cogeneration
or small power production unit might cease to produce power as a result of
changes in the industry or in the industrial processes utilized. Accordingly, the
value of the service from the qualifring facility to the electric utility may be
affected by the degree to which the qualifring facility ensures by contract or other
legally enforceable obligation that it will continue to provide power. Included in
this determination, among other factors, are the term of the commitment, the
requirement for notice prior to termination of the commitment, and any penalty
provisions for breach of the obligation.
rd.
a. How is this provision relevant to the issue of the term that a state commission must
establish for QF sales?
A. The rule states that the value of the QF's power, and therefore its avoided cost payment, is
linked to the term over which it agrees, by contract or by accepting a legally enforceable
obligation, to provide power. Implicit in the rule is that the length of the term over which the QF
commits to provide power is a decision for the QF. Also, in discussing QFs'right to capacity
payments, FERC stated, in the preamble to its PURPA regulations, that "capacity payments can
only be required when the availability of capacity from a qualifying facility or facilities 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." Order No. 69, 45 Fed. Reg. at
12,225-26. FERC confirmed its position that "if a qualifring facility offers energy of sufficient
reliability and with sufficient legally enforceable guarantees of deliverability to permit the
purchasing electric utility to avoid the need to construct a generating plant, to enable it to build a
smaller, less expensive plant, or to purchase less firm power from another utility than it would
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1 otherwise have purchased, then the rates for purchases from the qualifring facility must include
2 the avoided capacity and energy costs." Id. at 12,226. A state commission PURPA
3 implementation that denies QFs the ability to enter into a contract or legally enforceable
4 obligation to provide long-term value to the utility, and thus to receive avoided cost payments
5 reflecting that value, is inconsistent with section 29nDaG)Gii).
6 a. Are you aware of orders by the Idaho PUC that discuss its view of the requirements of
7 PURPA and FERC's regulations regarding contract length?
8 A. Yes. I have reviewed Idaho PUC Order No. 33253, issued March 18, 2015. Citing Afton
9 Energy,107 Idaho at 785-86, 693 P.2d at 431-32 and Idaho Power v. Idaho PUC,l55Idaho 780,
10 782,316P.3d1278,1280 (2013) ("Idaho Powef'),that order states that "PURPA, and regulations
I I implementing the Act, are silent as to contract length; consequently, the issue is in the [Idaho
12 PUC'sl discretion." Idaho PUC Order No. 33253 at 2.
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14 a. Do the references to Afton Energlt and Idaho Power state that the issue of contract length
l5 is in the Idaho PUC's discretion?
16 A. They do not. In Afton Energy, the Idaho Supreme Court stated that the Idaho PUC "did
17 not abuse its discretion in implementing the mandates of PURPA by requiring Idaho Power to
l8 contract with Afton for the purchase of its power over a thirty-five year period." Afton Energy,
19 107Idaho at786,693P.2dat432. InldahoPower,theldahoSupremeCourtsimplynotedthat
20 "a state regulatory authority has discretion in determining the manner in which the rules will be
2l implemented, and may complyby issuing regulations, by resolving disputes on a case-by-case
22 basis, or by other action reasonably designed to give effect to FERC's rules." Idaho Power,155
23 Idaho at782,316 P.3d at 1280 (citing FERC v. Missksippi, 456 U.S. 742,751(1982)), and that the
24 Idaho PUC has "broad discretion . . . in implementing FERC's rules and in determining the
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9
I requirements for a legally enforceable obligation." 1d.,155 Idaho at787,316 P.3d at 1285.
2 Neither decision gives the Idaho PUC discretion to establish maximum QF contract terms that
3 are inconsistent with PURPA or the FERC's regulations thereunder.
4 Neither decision holds that the Idaho PUC has discretion to implement PURPA or the
5 FERC's regulations thereunder by establishing a maximum contract length for QF that, by any
6 industry standard, does not enable the QF to receive "long-term avoided cost contract or other
7 legally enforceable obligation," as mandated by Order No. 69 and confirmed by ID Wind.
8
9 a. Does Idaho Power express a position on this issue in its Petition?
l0 A. Yes. Idaho Power's Petition states, at page 10, that "[d]etermination of the proper terms
I I and conditions of a required PURPA energy sales agreement, including the authority to
12 determine the proper price, the proper term, and the authority to approve or disapprove the
l3 contract itself is soundly, and completely, within the authority and discretion of the [Idaho
14 PUC." (emphasis added). It also states, at page 35, that the require term for such a purchase "is
15 within the authority and discretion of the [Idaho PUC] to determine and set."
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17 a. In your opinion would an Idaho PUC order establishing a maximum required term of
18 two years for Idaho QF PURPA contracts be consistent with PURPA and the FERC's regulations
19 under PURPA?
20 A. Such an order would not be consistent with PURPA or the FERC's regulations
2l thereunder. As explained above, PURPA and the FERC regulations grant QFs the right to a
22 contract or legally enforceable obligation to sell energy and capacity at long-term avoided costs.
23 In the electric utility industry, and as discussed in my testimony, a two-year term fails to permit a
24 QF to estimate, with reasonable certainty, the expected return on its potential investment in a
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10
I QF, and would frustrate the requirement of section 210 of PURPA that FERC's rules, as
2 implemented by state commissions, encourage cogeneration and small power production.
3
4 a. Does this concludeyourtestimony?
5 A. Yes.
6
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CERTIFICATE OF SERVICE
I hereby certifr that on this 22nd day of April20l5,I delivered true and correct copies of
the DIRECT TESTIMONY OF ADAM WENNER, DIRECT TESTIMONY OF R. THOMAS
BEACH, and, EXHIBITS 301 - 303 on behalf of the Idaho Conservation League and the Sierra
Club the following persons via the method of service noted:
Hand Delivery:
Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
42TW.Washington St.
Boise,ID 83702-5983
(Original and nine copies provided)
Electronic Mail:
Idaho Power
Donovan E. Walker
Regulatory Dockets
Idaho Power Company
l22l West Idaho Street
P.O. Box 70
Boise,lD 83707
dwalker@idahopower. com
[e-mail]
Avista
Michael G. Andrea, Senior Counsel
Clint Kalich
Avista Corporation
1411 E. Mission Ave, MSC-23
Spokane, WA99202
[e-mail]
[e-mail]
RoclE Mountain Power
Daniel Solander
Ted Weston
Rocky Mountain Power
201 S. Main Street, Ste 2400
Salt Lake City, UT 841l1
Daniel. solander@pacifi corp.com
Ted.weston@pacifi corp.com
datareque st@pac ificorp. com
J.R. Simplot Corp & Clearwater Paper
Peter J. Richardson
Gregory M. Adams
Richardson Adams, PLLC
515 N. 27tr Street
Boise,lD 83702
peter@richardsonadams. com
[e-mail]
Dr. Don Reading
6070 Hill Road
Boise,ID 83703
dreading@mindspring. com
Carol Haugen, Clearwater Paper
[e-mail]
Twin Falls Canal, Northside Canal,
American Falls Reservoir District No 2.
C. Tom Arkoosh
Arkoosh Law Offices
802 W. Bannock St Ste. 900
P.O. Box 2900
Boise,ID 83701
Tom. [e-mail]
Erin. cecil@arkoo sh. com
Intermountain Energt P artners
Dean J. Miller
McDevitt & Miller LLP
420W. Bannock Street
PO Box 2564-83701
Boise,lD 83702
j oe @mcdevitt-miller. com
Leif Elgethun, PE, LLE AP
Intermountain Energy Partners
PO Box 7354
Boise,ID 83707
leif@sitebasedenergy. com
Idaho lrrigation Pumpers Association
Eric L. Olsen
Racine, Olson, Nye, Budge & Bailey,
Chartered
P.O. Box 1391
201E. Center
Pocatello,ID 83204
[e-mail]
Anthony Yankel
29814 Lake Road
Bay Village, OH 44140
[e-mail]
Micron Technology
Richard Malmgren
Assistant General Counsel
Micron Technology Inc.
800 South Federal Way
Boise,ID 83716
remalmgren @micron.com
Frederick J Schmidt
Pamela S Howland
Holland & Hart LLP
377 S. Nevada St.
Carson CitF, NV 89703
fschmidt@hollandhart. com
[e-mail]
Amalgamated Sugar
Scott Dale Blickenstaff
Amalgamated Sugar Co
1651 S. Saturn Way, STE 100
Boise, Idaho 83702
sblickenstaff@amalsugar. com
Renew able Energy Co aktion
Ronald L. Williams
Williams Bradbury P.C.
l0l5 W. Hays St.
Boise,Idaho 83702
ron@williamsbradbury. com
Irion Sanger
Sanger law, P.C.
1117 SW 53'd Avenue
Portland, OR 97215
irion@sinager-law. com
f',i7 fr<
Benjamin J. Otto
IPC-E-ls-or 2
Certificate of Service - Direct Testimony of Wenner and Beach
April22,2015