Idaho Public Utilities Commission

Case No. IPC-E-10-22, Order No. 32104

November 3, 2010

Contact: Gene Fadness (208) 334-0339, 890-2712

Website: www.puc.idaho.gov

 

Idaho Power agreement with biomass project approved

 

The Idaho Public Utilities Commission has approved an energy sales agreement between Idaho Power Company and the developers of a biomass power project at an Emmett sawmill.

 

The project, called Yellowstone Power, is a biomass-fueled combined heat and power project to be co-located with the recently commissioned Emerald Forest Sawmill, which employs up to 47 workers in Gem County. Power is generated using steam created from the controlled burning of the woody biomass fuel.

 

Idaho Power and Yellowstone Power agreed on a 15-year contract under which the project would generate an average 10 megawatts per month. Projects that generate 10 megawatts or less qualify for a rate posted by the commission under the provisions of the federal Public Utility Regulatory Policies Act, or PURPA. At issue in this case was whether the project was far enough along in development that it could be “grandfathered” under an older PURPA rate that expired on March 15 and was replaced by a rate that is about 15 percent lower. Because the costs of PURPA projects are included in customer rates, the commission must ensure that customers are not paying an unreasonable rate for the power.

 

Because there was no written evidence of an agreement before the rates were lowered in March, commission staff could not recommend approval of the agreement under the older, higher rates. However, in approving the agreement, the commission, which operates separately from commission staff, said, “There is no reason to question the representations of Idaho Power and Yellowstone as to when contract negotiations of the parties occurred.” Both Idaho Power and Yellowstone maintained an agreement was essentially in place before the rates that Idaho Power must pay Yellowstone were lowered.

 

Under PURPA, regulated electric utilities are required to buy power from qualifying small-power producers or co-generators. The rate the utility pays power project developers is determined by the commission and is called the “avoided cost rate” because it is to be equal to the cost the electric utility avoids if it would have had to generate the power itself or purchase it from another source.

 

A key factor the commission uses in calculating the avoided-cost rate is a long-term natural gas forecast issued by the Northwest Power and Conservation Council. A change in the forecast automatically triggers a recalculation of the published avoided cost rates.  In March, the NPPC issued an updated forecast that resulted in a lower rate that the company must pay developers because of declining natural gas prices.

 

However, projects that were under development at the time the rates were lowered can be grandfathered under the older rate if: 1) the developer has executed a power sales agreement before the new rate became effective and 2) the developer has filed a meritorious complaint alleging the project was sufficiently mature and far enough along in the contracting process that a contract would have been signed had not the utility delayed the process.

 

Idaho Power argued the agreement should be approved because it was engaged with the developer in discussions throughout 2009. Yellowstone Power argued that the facts that the purchase of property for the project was complete and that it had been issued a permit to construct by the Idaho Department of Environmental Quality are evidence of the project’s maturity.

 

While the commission approved the agreement based “on the totality of circumstances,” commissioners said they were “troubled by the apparent lack of any written documentation” that a power purchase agreement was materially complete. The commission said it expects Idaho Power and other regulated utilities to document oral communications and to “assist the commission in its gatekeeper role of assuring that utility customers are not being asked to pay more than the company’s avoided cost,” in power purchase agreements.

 

The commission noted the cogeneration project will provide “steady, predictable generation for Idaho Power around the clock.” The biomass project is a “valuable addition to help diversify Idaho Power’s resource portfolio,” and will inject jobs and revenue into an Idaho county hit hard economically over the last 10 years, the commission said.

 

The project developer is Dick Vinson of Thompson Falls, Montana.

 

A full text of the commission’s order, along with other documents related to this case, is available on the commission’s Web site at www.puc.idaho.gov. Click on the electric icon, then on “Open Electric Cases” and scroll down to Case No. IPC-E-10-22.

 

Interested parties may petition the commission for reconsideration by no later than Nov. 23. 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.