20040217_753.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:FEBRUARY 9, 2004
SUBJECT:CASE NO. IPC-04-1 (Idaho Power)
AGREEMENT FOR SALE AND PURCHASE OF ELECTRIC ENERGY
IDAHO POWER/UNITED MATERIALS OF GREAT FALLS, INc.
On February 4, 2004, Idaho Power Company (Idaho Power; Company) filed an
Application with the Idaho Public Utilities Commission (Commission; IPUC) requesting
approval of an Energy Sales Agreement (Agreement) between Idaho Power and United Materials
of Great Falls, Inc. (United Materials) dated January 6, 2004.
United Materials proposes to design, construction, install, own, operate and maintain
a 9 MW wind generating facility (the Horseshoe Bend Wind Park or the Project) located at the
United Materials industrial facility near Great Falls, Montana. The Project will be a qualified
small power production facility (QF) under the Public Utilities Regulatory Policy Act of 1978
(PURP A).
As represented by Idaho Power, the Agreement includes purchase prices consistent
with the "posted rates" approved by the Commission in Order No. 29391. United Materials has
elected to contract with Idaho Power for a 20-year term and has agreed to arrange for delivery of
energy to the Idaho Power electrical system across the system of another utility.
The submitted Agreement is the first wind energy generation energy sales agreement
to be executed by Idaho Power. Idaho Power reports that it has developed a cogeneration small
power producer (CSPP; QF) agreement concept that is consistent for all QF projects regardless
of their energy resource (wind, hydro, geothermal, wood waste, etc.) that incorporates (1) current
IPUC Orders, (2) current technologies, and (3) current utility industry standards. The submitted
DECISION MEMORANDUM
Agreement, the Company states, contains many of these concepts as well as several unique
provisions since the project is not directly connected to the Idaho Power system. The following
is a brief description of some of these concepts and unique provisions:
A. Opportunity for QFs to Participate in the Firm Energy Sales
Agreement: In order to eliminate the need to predetermine the firm or
non-firm status of a Qualifying Facility (QF) resource (i., wind, hydro
biomass) and, instead, to provide an opportunity for QF resources to
receive the Firm Published Avoided Cost Rate based upon the QF'
actual performance, Idaho Power has included the concepts of "Shortfall
Energy" and "Surplus Energy." Reference Agreement Sections 1.21 and
1.24.
Surplus Energy: Under the concept of "Surplus Energy," the QF is
required to estimate its monthly kWh generation (Agreement Section
6.2). Each month, the actual net kWh of generation will be compared to
the monthly kWh of generation estimated by the QF developer. If a
project'actual kWh of generation exceeds 110% of a month's estimated
kWh of generation, the energy in excess of 110% is valued at the Surplus
Energy Price as described in Agreement Section 7.3. The Surplus Energy
Price is a market-based price.
Shortfall Energy: Under this concept, a project's actual net monthly
kWh of generation is compared to the estimated monthly kWh of
generation. In accordance with Agreement Section 1.21 , if the amount of
Net Energy is less than ninety percent (90%) of the month's estimated
kWh of generation, the difference between the actual net monthly kWh of
generation and 90% of the estimated monthly kWh of generation is
defined as "Shortfall Energy." If the market energy cost as defined in
Agreement Section 1.13 is greater than the Agreement's price for energy
in the month that shortfall energy occurs, then a "Shortfall Energy
payment" is off-set against the project's energy payment. If the market
energy cost is less than the Agreement's price for energy for the month in
which Shortfall Energy occurs, no Shortfall Energy payment is
calculated.
Whether a QFs energy production is Surplus Energy, Shortfall Energy or
qualifies for the firm published avoided cost, the Company states, is at
the sole discretion of the developer since the developer sets the monthly
estimated generation levels. The only limitation placed upon the
developer by the Company is that the Net Energy estimated for each
month cannot exceed the nameplate rating of the generation equipment
and/or the capacity rating of the interconnection equipment. The Project
has chosen to make use of non-firm transmission capacity to deliver the
Project's energy to Idaho Power. United Materials must therefore
consider the risk of energy delivery reductions due to transmission
DECISION MEMORANDUM
capacity interruptions in setting its estimated Monthly Net Energy
amounts.
B. Seasonality: As an incentive for United Materials to deliver energy to
the Company during times when it is of greater value to Idaho Power, the
published avoided cost rate is "seasonalized.The seasons generally
correspond to the months in which Idaho Power has identified actual
energy needs and periods of higher demand. Reference Agreement
Sections 6.2 and 7.
C. Firm Energy Deliveries: The United Materials Project is located outsideof Idaho Power service territory. Northwestern Energy, the
Transmitting Entity for this project, has agreed, on an hourly basis, to
firm all energy deliveries from United Materials to Idaho Power and to
other scheduling requirements as specified in Agreement Section 10.
D. Environmental Attributes: As reflected in Agreement Article 8, Idaho
Power notes its intention to file a Petition for Declaratory Order with the
Commission in regards to the "Environmental Attributes.Reference
Case No. IPC-04-2. Idaho Power is seeking a Commission ruling
concerning whether the Environmental Attributes associated with a QF
project are owned by the project or the utility at the time a utility
purchases electricity from a QF project. The Commission s final Order
will be included and become an integral part of the Agreement. United
Materials reserves the right to cancel the Agreement within 30 days of the
Commission s final Order regarding Idaho Power s Petition.
Agreement Section 22 provides that the Agreement will not become effective
until the Commission has approved all of the Agreement's terms and conditions and declared
that all payments Idaho Power makes for purchases of energy to United Materials will be
allowed as prudently incurred expenses for ratemaking purposes. Should the Commission
approve the Agreement, Idaho Power intends to consider the effective date of the Agreement to
be January 6, 2004. United Materials has estimated an operation date of December 31 , 2004. As
reflected in the Company s Application, the Agreement contains non-Ievelized published
avoided cost rates in conformity with applicable Commission Orders. Because the project is
located outside the Idaho Power service territory, no interconnection charges or monthly
operation and maintenance charges under Schedule 72 will be assessed.
As reflected in Agreement Section 21.3 United Materials may terminate the
Agreement on 60 days prior written notice if (1) the Federal Production Tax Credit or other
similar economic incentive is not renewed, modified or created in a manner that enables United
DECISION MEMORANDUM
Materials to participate in these economic incentives in the same manner as if the Project was
commercially online as of the date of the Agreement, (2) and United Materials has not begun
construction of the Project. Once construction of the Project has begun, United Materials may
not terminate the Agreement as specified in Section 21.
Pursuant to Agreement Section 21., Idaho Power may terminate the Agreement on
60 days prior written notice if (1) existing Idaho law is modified to allow persons or entities
other than Idaho Power to sell electric capacity or energy at retail in Idaho Power s exclusive
service territory, and (2) such change in law results in Idaho Power being unable to fully recover
in its retail revenue requirement all costs attributed to this Agreement.
COMMISSION DECISION:
Staff recommends that the Company s Application in Case No. IPC-04-1 be
processed pursuant to Modified Procedure, i., by written submission rather than by hearing.
Reference Commission Rules of Procedure, IDAPA 31.01.01.201-204. Does the Commission
agree?
Scott D. Woodbury
bls/M:IPCEO401 sw
DECISION MEMORANDUM