20030310_403.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
CO MMISSI 0 NER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:MARCH 5, 2003
RE:CASE NO. IPC-03-1 (Idaho Power)
PURPA QF CONTRACT W/TIBER MONTANA LLC
On February 20, 2003 , Idaho Power Company (Idaho Power; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) requesting approval of a
Finn Energy Sales Agreement (Agreement) between Idaho Power Company and Tiber Montana
LLC (Tiber).
Tiber proposes to design, construct, install, own, operate and maintain a 7.5 MW
hydroelectric generating facility (project) located on the outlet works of the existing Tiber Darn.
The Tiber Darn is located 15 miles South of the City of Chester in Liberty County, Montana.
Tiber warrants that the project is a "qualifying facility" (QF), as that tenn is used and defined in
the Public Utilities Regulatory Policies Act of 1978 (PURP A).
Idaho Power represents that the February 3 , 2003 , Agreement with Tiber.is pursuant
to rates, tenns and conditions approved by the Commission. Reference Case No. GNR-02-
Order Nos. 29069 and 29124. The Agreement is for a 20-year term and commits Tiber to deliver
energy to the Company only during the months of May, June, July, August, September and
October of each contract year. Tiber s project is located outside of Idaho Power s service
territory. The entity transmitting the project's power to Idaho Power s transmission system
(transmitting entity), Northwestern Energy, has purportedly agreed to "firm all energy
deliveries from Tiber to Idaho Power. Reference Agreement Section 9. This arrangement will
result in flat monthly firm energy being scheduled into the Idaho Power system.
DECISION MEMORANDUM
Idaho Power states that certain tenns and conditions of the submitted Agreement
reflect updated and/or revised contract language in confonnance with (1) current IPUC Orders
(2) current technologies and (3) current utility energy standards. The included changes can be
briefly described as follows:
I. Measurement of the 10 MW rating
In lieu of a reference to narneplate rating, Idaho Power and Tiber have agreed to
include the concept of "optional energy.Optional energy is defined as energy which is
produced by the QF, scheduled by the transmitting entity and delivered to the point of delivery in
an arnount that exceeds 10 000 kWh in any single hour. The Agreement provides that Idaho
Power is not obligated to purchase optional energy. Idaho Power contends that this arrangement
allows Tiber to install generating capacity with a narneplate rating of 10 MW or more while still
qualifying to be paid at the posted rates that the Commission has established for projects smaller
than 10 MW.
2. Encouraging increased "firmness" of QF contracts.
Although contracts between Idaho Power and QFs have been denominated as "Finn
Energy Sales Agreements , Idaho Power contends that the energy purchased under these
contracts is not finn energy as that term is commonly defined by the electric energy industry.
Firm energy purchases Idaho Power makes from non-QF suppliers specify the arnounts to be
delivered during heavy load or light load hours for the tenn of the contract. If the energy is not
delivered in the specified arnounts, at the specified times, liquidated darnage provisions in the
purchase agreement allow Idaho Power to acquire the energy from other sources and receive
reimbursement from the defaulting supplier for all the Company s costs.
In Tiber s case, Idaho Power contends that the arrangement with Northwestern
Energy to fum Tiber s generation makes the Agreement more like a true firm energy purchase.
In an effort to bring QF perfonnance more in line with actual firm energy production and to
provide an opportunity for QFs using various generating technologies to receive the posted finn
rates based on a QF's actual performance, Idaho Power and Tiber have included in the
Agreement provisions which encourage Tiber to provide energy with a greater degree of
firmness while at the same time allowing a reasonable arnount of flexibility to Tiber in operating
its facility. Reference Agreement Section I. IS-Surplus Energy and Section 7.1.2-Adjustment
to Net Finn Energy Purchase Price.
DECISION MEMORANDUM
Under Agreement Section 1.15, each month the actual net kW hours of Tiber
generation will be compared to the monthly kW hours of generation estimated by Tiber (Section
2). If Tiber s actual k W hours of generation exceeds 110% of a month's estimated k W hours
of generation, the energy in excess of 110% is valued at the surplus energy price. Reference
Agreement Section 7.2. The surplus energy price is a market-based price.
Under Agreement Section 7., Tiber s actual net monthly kW hours of generation is
compared to the estimated monthly kW hours of generation as described in Section 6.2. If the
arnount of net finn energy is 90% or less ofthe month's estimated kilowatt hours of generation
all of that month's generation will be deemed to be surplus energy for which Idaho Power will
pay Tiber the surplus energy price.
Under the Agreement, Tiber can reset the monthly estimated generation arnounts to
reflect its increased operating experience and to allow Tiber to respond to changes in water
supplies, etc. The only limitation placed on Tiber by the Company is that the net finn energy
estimated for each month cannot exceed the nameplate rating of the generation equipment.
3. Seasonality.
Idaho Power notes that previous Commission Orders and QF Agreements have
recognized that the value of energy generated differs in accordance with the season in which it is
actually delivered to Idaho Power. As an incentive for a QF to deliver energy to the Company
during times when it is of greater value to the Company, the posted rates have historically "been
seasonalized." To better align the seasons with the months in which Idaho Power has identified
actual energy needs, the Agreement modifies the months within each historical "season" to
account for those periods of higher demand. The months of August and September have been
moved to season 3 and the months of November and December have been moved to season 2.
The seasonal rates are identified in Section 7 .1 of the Agreement.This adjustment, the
Company contends, does not change the overall annual average payment-the average payment
continues to be the posted rate.
Section 19 of the Agreement provides that the Agreement will not become effective
until the Commission has approved all of the Agreement's terms and conditions and declare that
all payments Idaho Power makes for purchases of energy to Tiber will be allowed as prudently
incurred expenses for ratemaking purposes.
DECISION MEMORANDUM
Tiber has elected an operation date of May 15 2004. Idaho Power recommends that
the Application be processed under Modified Procedure, i., by written submission rather than
by an evidentiary hearing. Reference Rule 201 , Commission Rules of Procedure.
Commission Decision
Idaho Power and Staff recommend that the Company s Application in Case
No. IPC-03-01 be processed pursuant to Modified Procedure. Does the Commission find the
procedure acceptable?
Scott Woodbury
VldJM:IPCEO301
DECISION MEMORANDUM