Case No. IPC-E-05-34, Order No. 30109

August 16, 2006

Contact: Gene Fadness (208) 334-0339



Commission denies Magic Wind pricing request


State utility regulators denied a request from an Idaho wind developer to amend a sales agreement it had submitted to Idaho Power Co. Magic Wind LLC, whose primary developer is Armand Eckert of Buhl, wanted to be paid for surplus energy based on an alternative pricing method than has been used for other Idaho Power wind contracts.


The Idaho Public Utilities Commission ruled that because Idaho Power did not agree to the alternative pricing method, the utility could not be forced to alter the sales agreement. The commission did grant Magic Wind’s request that it be exempted from a cap the commission placed on the size of wind projects that can qualify for a rate published by the commission.


The commission ruling was unanimous, but Commissioner Marsha Smith issued a separate concurring opinion.


Magic Wind plans to install eight 2.5-megawatt wind turbines eight miles northwest of Buhl. Last August, the commission reduced the size of projects that can qualify for the published rate from 10 average-megawatts to 100 kilowatts. But because the Magic Wind project was already well on its way toward development, the commission granted the developer’s request that the project be exempt from the size limit.


Developers of renewable, small-power projects are entitled to a rate – now about $61 per megawatt-hour – published by the commission under the requirements of the Public Utility Regulatory Policies Act of 1978, or PURPA. The federal act requires electric utilities to offer to buy power from qualifying small producers of renewable energy. The published rate to be paid developers is called an “avoided-cost rate” – equal to the cost the utility avoids if it would have had to generate the power itself or purchase it from another source.


Because wind output is not predictable, the commission in 2004 approved a “90/110 performance band.” When output from wind projects falls under 90 percent of projected output or more than 110 percent, the utility buying the wind is allowed to pay the developer less than the published avoided-cost rate. In that 2004 case, utilities argued for a lesser rate because when output is less than 90 percent, utilities must then find power from other sources that can be more expensive. When output is more than 110 percent, utilities said they might have to sell the energy in the surplus market or reduce output at a more economic generation plant.


Commissioner Marsha Smith issued a separate concurring opinion stating her continued opposition to the use of a performance band. “This case, however, is a question of which contract terms may be required, not whether the performance band is appropriate,” she said. “I find it persuasive that Magic Wind previously signed and submitted to Idaho Power a contract with the terms that Idaho Power is now offering.”


All of the Idaho Power wind contracts to date have included provisions that when energy purchases fall outside the performance band, the developer is paid 85 percent of the market price available at the time. Magic Wind submitted to Idaho Power a wind agreement including that provision. Later it asked the commission for a declaratory order requiring Idaho Power to pay Magic Wind for surplus energy under a different formula than 85 percent of market price. Instead, Magic Wind sought to be paid for surplus energy under a formula similar to one adopted in a sales agreement between PacifiCorp and the Schwendiman wind project in eastern Idaho. The price for nonconforming energy in the Schwendiman case is based on a fixed rate, not variable market rates. The fixed rate includes the use of the commission’s already published avoided-cost rate along with an approximate 14.5 percent discount that would be applied to nonconforming energy.


The commission approved the fixed-rate method in the Schwendiman case because it was reasonable and both parties agreed to the alternative formula. The Magic Wind and Idaho Power case is different, the commission said, because the parties are not in agreement. In its order approving the Schwendiman method, the commissions said, “Our decision in this case sets no precedent for future regulation of such agreements and is intended to provide no basis for the amending of existing contracts.”


Idaho Power said the Magic Wind proposal failed to acknowledge the role market prices play in determining the cost Idaho Power is likely to incur should Magic Wind fail to meet projected output. Elimination of market prices from consideration shifts costs and risks that should be borne by Magic Wind to customers of Idaho Power, the utility argued.


Magic Wind, other wind developers, the Renewable Northwest Project and the Northwest Energy Coalition, argued that the contract terms demanded by Idaho Power are inconsistent with PURPA regulations because they result in wind developers receiving less than the published rate. The unpredictability of market prices makes it difficult for financial institutions to invest in wind, they argued.


Idaho Power said the performance band is not a computation of avoided cost, but a measurement of damages. If a wind project performs as agreed, it receives the published rate. Idaho Power said its method of pricing contracts has not discouraged investment in wind. The utility has signed 14 wind contracts totaling 187 megawatts since the performance band was put in place.


Interested parties may petition the commission for reconsideration by no later than Sept. 5. Petitions for reconsideration must set forth specifically why the petitioner contends that the order is unreasonable, unlawful or erroneous. Petitions should include a statement of the nature and quantity of evidence the petitioner will offer if reconsideration is granted.


Petitions can be delivered to the commission at 472 W. Washington St. in Boise, mailed to P.O. Box 83720, Boise, ID, 83720-0074, or faxed to 208-334-3762.


A full text of the commission’s order, along with other documents related to this case, are available on the commission’s Web site at Click on “File Room” and then on “Electric Cases” and scroll down to Case No. IPC-E-05-34.