IDAHO PUBLIC UTILITIES COMMISSION

Case No. PAC-E-05-09, Order No. 29880

October 4, 2005

Contact: Gene Fadness (208) 334-0339 office; (208) 841-1107 cell

Website: www.puc.idaho.gov

 

Commission requires performance provisions in wind contract

 

A contract between PacifiCorp (Utah Power) and developers of a wind farm 11 miles northeast of Idaho Falls will not be approved by state regulators until the two parties insert performance provisions that come closer to assuring the predictability of the output from the project.

 

The Idaho Public Utilities Commission gave the developer, Schwendiman Wind LLC, and PacifiCorp 14 days to put provisions in the contract “to assure that PacifiCorp’s customers will receive the generation product they are paying for.” The provision, called a “90/110 percent performance band,” is included in similar wind contracts already approved by the commission.

 

Renewable energy projects can qualify for a published rate set by state utility commissions under a federal program called PURPA*. Wind projects in Idaho are new to the mix of renewable projects that qualify for PURPA rates. Because wind output is considered less predictable and intermittent than other energy sources, developers and commissioners have been grappling with the value that should be attached to wind generation. Intermittent, or non-firm, wind can be more costly to ratepayers, because when the projected output falls short the utility must find replacement or back-up power. Because the published rate utilities must pay small-power producers is recovered from ratepayers, the commission’s role is to ensure customers receive full value for their rates.

 

Small-wind contracts negotiated in recent months have included the 90/110 performance band. Under the performance band, the wind producer is required to make monthly production estimates. Energy produced below 90 percent or above 110 percent of the estimate is priced at a discount that is 85 percent of the wholesale market price for wind or the contract price, whichever is less. The discounted pricing scheme serves both as an incentive for the producer to make the most reliable estimates possible as well as a means for compensating the utility when the producer delivers less reliable, or non-firm, energy.

 

PacifiCorp argued that the commission, when it established the performance band a year ago, did not require all utilities to implement it and that it was more specific to Idaho Power contracts. Further, PacifiCorp said it developed its own performance measure, the Mechanical Availability Guarantee (MAG), which it claims is a more accurate predictor of energy delivery. The MAG is based on the annual availability of wind turbines rather than a monthly output standard the commission adopted last year. Under the MAG, annual availability must equal or exceed 75 percent the first contract year, 85 percent for contract years two through 10 and 80 percent for contract years 11 through 20. When an output shortfall occurs, Schwendiman must pay PacifiCorp the difference between the contract price and the price PacifiCorp would have to pay for replacement power.

 

Commissioners Paul Kjellander and Dennis Hansen said the MAG is an “unacceptable substitute for the 90/110 performance band and fails to sufficiently protect the ratepayers from overpaying.”

 

Commissioner Marsha Smith dissented from the majority, stating that the previous order establishing the performance band should not be interpreted as a requirement for all PURPA contracts. Utilities and small-power producers “are free to negotiate terms and conditions they see fit, subject to commission approval,” Commissioner Smith said. After the order was issued, Smith expressed disappointment with the “majority’s failure to recognize that developers get paid only when they deliver energy to the utility, so there is no chance ratepayers will be asked to pay for more than they receive.”

 

Kjellander and Hansen said there is no valid reason for differentiating this project from other intermittent wind projects. “Absent a valid reason for differentiation, the commission concludes that it must enforce the same obligations on Schwendiman as it does other intermittent wind” projects. Further, it is reasonable for developers to expect that all contract requirements of Idaho’s regulated utilities be similar so that a developer isn’t disadvantaged by choosing to sell to one utility over another, the commission said.

 

PacifiCorp supported the performance band concept when it was established during a hearing two years ago, the commission said. “The commission finds it puzzling that PacifiCorp would argue that the 90/110 performance band is not directly applicable to PacifiCorp given PacifiCorp’s active participation,” in previous proceedings. PacifiCorp did not explain its MAG concept when it applied for approval of the contract, the commission said. “We put PacifiCorp on notice that the commission expects a utility’s inclusion of substitute germane contract provisions in a PURPA power purchase agreement to be specifically mentioned in an application for contract approval.”

 

The commission said it is willing to consider equivalent alternatives to the 90/110 performance band, but that the MAG concept is “substantially less rigorous” than the 90/110 performance band primarily because it is based on annual rather than monthly projections.

 

“We continue to be supportive of wind generation,” the commission said. “We believe that wind is a proven technology that can be an important addition to utility resource portfolios when properly integrated,” the commission said.

 

The commission received 41 comments in the case, the vast majority supporting the project, citing support for wind power in general. Schwendiman Wind also argued that the agreement should be approved despite the absence of the performance band and stated its belief that parties could negotiate their own means for addressing the firmness issue.

 

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 www.puc.idaho.gov. Click on “File Room” and then on “Electric Cases” and scroll down to Case No. PAC-E-05-09, Order No. 29880.

 

Interested parties may petition the commission for reconsideration by no later than Oct. 25. 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.

 

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*PURPA -- The Public Utility Regulatory Policies Act, was passed by Congress during the energy crisis of the late 1970s. Its purpose is to encourage development of renewable energy technologies as alternatives to burning fossil fuels or constructing new power plants. The federal act requires that electric utilities offer to buy power produced by small power producers or cogenerators who obtain Qualifying Facility (QF) status. The published rate to be paid project developers is set by state commissions and 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.