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Idaho Power Co. v. Idaho Public Utilities Com'n

Supreme Court of Idaho

December 18, 2013

IDAHO POWER COMPANY, Petitioner-Respondent,
IDAHO PUBLIC UTILITIES COMMISSION, Respondent, and Grouse Creek Wind Park, LLC, and Grouse Creek Wind Park II, LLC, Appellants.

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Ronald L. Williams, Williams Bradbury P.C., Boise, argued for appellants.

Kristine A. Sasser, Deputy Attorney General, Boise, argued for respondent Public Utilities Commission.

Donovan E. Walker, Idaho Power Company, Boise, argued for respondent Idaho Power Company.

EISMANN, Justice.

This is an appeal from an order of the Idaho Public Utilities Commission denying approval of contracts between an electric utility and two wind farms on the ground that the contract rate for purchasing the power was contrary to public policy because it exceeded the utility's avoided costs. We affirm.


Factual Background.

The Public Utility Regulatory Policies Act of 1978 (PURPA) was enacted to require electric utilities to purchase electricity from qualifying small power production facilities and from qualifying cogeneration facilities. " A ‘ small power production facility’ is one that has a production capacity of no more than 80 megawatts and uses biomass, waste, or renewable resources (such as wind, water, or solar energy) to produce electric power." F.E.R.C. v. Mississippi, 456 U.S. 742, 750 n. 11, 102 S.Ct. 2126, 2132 n. 11, 72 L.Ed.2d 532, 540-41 n. 11 (1982). " A ‘ cogeneration facility’ is one that produces both electric energy and steam or some other form of useful energy, such as heat." Id. The legislation required the Federal Energy Regulatory Commission (FERC) to prescribe rules to encourage cogeneration and small power production and to require electric utilities to offer to purchase electric energy from qualifying facilities. 16 U.S.C. § 824a-3(a) & (b).

PURPA " directs FERC, in consultation with state regulatory authorities, to promulgate ‘ such rules as it determines necessary to encourage cogeneration and small power production,’ including rules requiring utilities to offer to sell electricity to, and purchase electricity from, qualifying cogeneration and small power production facilities." F.E.R.C., 456 U.S. at 751, 102 S.Ct. at 2133, 72 L.Ed.2d at 541-42; 16 U.S.C. § 824a-3(b). However, PURPA provides that no such rule " shall provide for a rate which exceeds the incremental cost to the electric utility of alternative electric energy." 16 U.S.C. § 824a-3(b). The incremental cost is defined as " the cost to the electric utility of the electric energy which, but for the purchase from such cogenerator or small power producer, such utility would generate or purchase from another source." 16 U.S.C. § 824a-3(d). FERC's

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rules use the term " avoided costs" to mean the incremental cost. 18 C.F.R. § 292.101(a)(6).

If a state chooses to regulate electric utilities, it must implement FERC rules. F.E.R.C., 456 U.S. at 751, 102 S.Ct. at 2133, 72 L.Ed.2d at 541-42; 16 USC § 824a-3(f)(1). However, a state regulatory authority has discretion in determining the manner in which the rules will be implemented, and may comply by issuing regulations, by resolving disputes on a case-by-case basis, or by other action reasonably designed to give effect to FERC's rules. F.E.R.C., 456 U.S. at 751, 102 S.Ct. at 2133, 72 L.Ed.2d at 541-42. The " ‘ Act establishes a program of cooperative federalism that allows the States, within limits established by federal minimum standards, to enact and administer their own regulatory programs, structured to meet their own particular needs.’ " Id. at 767, 102 S.Ct. at 2141, 72 L.Ed.2d at 552.

FERC's rules acknowledge two ways in which a qualifying facility can establish a right to sell power to an electric utility. The utility and the facility can negotiate a rate at which the utility will purchase the electric power, 18 C.F.R. § 292.301(b)(1), or the facility can establish the right to require the utility to purchase the power " pursuant to a legally enforceable obligation for the delivery of energy or capacity over a specified term," 18 C.F.R. § 292.304(d)(2). When it adopted the latter rule, FERC explained its purpose as follows:

Paragraph (d)(2) permits a qualifying facility to enter into a contract or other legally enforceable obligation to provide energy or capacity over a specified term. Use of the term " legally enforceable obligation" is intended to prevent a utility from circumventing the requirement that provides capacity credit for an eligible qualifying facility merely by refusing to enter into a contract with the qualifying facility.

45 Fed.Reg. 12214, 12224 (February 25, 1980).

FERC requires that there be a standard avoided-cost rate at which electric utilities are required to purchase power from qualifying facilities with a design capacity of up to 100 kilowatts. 18 CFR § 292.304(c)(1). The standard avoided-cost rate is called the " published rate" by IPUC. The limit on the size of the qualifying facility that is eligible for the published rate is commonly referred to as the " eligibility cap." Qualifying facilities within the eligibility cap are entitled to sell power at the published rate, while the rate at which those above the eligibility cap are entitled to sell power is determined on a case-by-case basis.

IPUC initially set the eligibility cap at one megawatt, but it later increased it for wind projects to an average of ten megawatts (10 aMW) on a monthly basis. Because wind projects do not generate power all of the time, a qualified wind facility that is capable of producing more than ten megawatts of power would qualify for the published rate if the power produced during a month averaged ten megawatts.

In late 2007, Wasatch Wind Intermountain, LLC (Wasatch Wind), began investigating the feasibility of a wind power project located near Lynn, Utah, close to the Idaho-Utah border. It initially considered constructing a wind farm that would generate 150 megawatts of power, but later decided to reduce the size of the project. It desired to sell the power to Idaho Power Company (Idaho Power). On June 29, 2009, Wasatch Wind incorporated Grouse Creek Wind Park, LLC (Grouse Creek I).

Wasatch Wind first contacted Idaho Power in late February 2010. On February 26, 2010, Wasatch Wind sent Idaho Power an e-mail stating, " Wasatch Wind Intermountain would like to request that Idaho Power commence Power Purchase Agreement negotiations with our subsidiary, Grouse Creek Wind Park, LLC for either a 10 Average MW or something less than 80 MW Qualifying Facility under PURPA." Because the project site was outside of Idaho Power's service area, Wasatch Wind needed to find a way to connect with the Idaho Power system. Wasatch Wind stated in the e-mail, " [W]e

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understand that in order for you to view our project as serious and tender the Power Purchase Agreement and to make the necessary Network Service request for this Qualifying Facility, Idaho Power needs to be sure that we have the necessary transmission rights secured." The parties subsequently had various conversations and exchanged various e-mails regarding the proposed project and the requirements for obtaining a power purchase agreement and the prices at which Idaho Power would purchase the power.

Wasatch Wind planned to transmit energy to Idaho Power's Minidoka substation by connecting to a power line that was owned by the Raft River Electric Cooperative and leased to Bonneville Power Administration (BPA). Wasatch Wind had submitted the necessary applications to BPA on June 30, 2010, but to obtain approval Wasatch Wind was required to provide BPA with performance assurance of $794,376 by August 18, 2010. The projected online date was June 2012. Wasatch Wind decided not to provide the required performance assurance, and on August 19, 2010, it submitted a transmission service request to BPA with a new online date of June 2013.

During the parties' discussions, the size of the project changed. In March 2010, Wasatch Wind had requested the price at which Idaho Power would purchase energy from a 60 MW project. Ultimately, Wasatch Wind decided to reduce the size of the project to two, 10 aMW projects. On August 17, 2010, Wasatch Wind sent Idaho Power an e-mail in which Wasatch Wind stated, " First please consider this a formal request for two separate, standard, non-levelized, under-ten-average monthly-megawatt, twenty year power purchase agreements." On August 27, 2010, Wasatch Wind incorporated Grouse Creek Wind Park II, LLC (Grouse Creek II).

The parties continued negotiating and discussing the terms of a power purchase agreement. They disagreed regarding two material terms. Idaho Power required that Wasatch Wind have a firm transmission reservation with BPA to transmit power from the proposed projects to Idaho Power's system and that Wasatch Wind post security for the payment of liquidated damages if the projects did not begin delivering power within 90 days of their estimated online date.

On October 1, 2010, counsel for Wasatch Wind delivered two letters to Idaho Power to clarify Wasatch Wind's position on several matters. One letter was in regard to Grouse Creek I and the other in regard to Grouse Creek II. In the letter, counsel blamed Idaho Power's unjustified actions for Wasatch Wind's decision not to post the performance assurance required by BPA and stated that Wasatch Wind had renewed its efforts with BPA. Counsel asserted that Idaho Power's requirement for delay security was unenforceable and that Wasatch Wind would not sign a power purchase agreement containing a requirement that it post any delay security unless it was required by IPUC. Counsel also stated in the letter that the size of the Grouse Creek I project was being reduced from 30 MW to 21 MW and that the size of Grouse Creek II would be 21 MW, but that they would be regulated to stay within the 10 aMW eligibility cap in order to qualify for the published rates. Finally, the letter stated that the proposed online date for both projects would be December 31, 2012. Idaho Power responded by letter dated November 1, 2010. The letter disputed various factual assertions in the October 1st letters and stated that IPUC had approved the posting of security in power purchase agreements since at least 2007. The letter also stated that because the projects were not within Idaho Power's service territory, " it is required that each project complete the interconnection process with the host utility and also secure firm transmission capacity across all required transmission paths to deliver energy to a point of delivery on the Idaho Power electrical system." Finally, the letter enclosed a generic draft power purchase agreement for Wasatch Wind to fill out and return to Idaho Power.

On November 5, 2010, Idaho Power and two other electric utilities filed a joint petition asking IPUC to investigate various

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avoided-cost issues and to immediately lower the eligibility for the standard avoided-cost rate from ten megawatts to 100 kilowatts. Based upon the information presented, IPUC issued an order on February 7, 2010, temporarily lowering the eligibility cap to 100 kilowatts (kW) for wind and solar qualifying facilities effective on December 14, 2010, in order to further study standard avoided-cost rates for those types of facilities. IPUC's concern was that wind and solar projects that were too large to qualify for the utilities' published rate could obtain a rate that was not an accurate reflection of the utilities' actual avoided cost by disaggregating into smaller projects, each of which would be entitled to the published rate.

On November 8, 2010, Grouse Creek I and Grouse Creek II filed complaints against Idaho Power with the IPUC seeking to establish that they had legally enforceable obligations with Idaho Power requiring it to purchase power under PURPA. On November 19, 2010, the parties met and resolved the two issues that were still in dispute. Wasatch Wind agreed to the requirement of delay security in the power purchase agreements, and Idaho Power agreed not to require a firm interconnection agreement before signing a power purchase agreement. The letter from Idaho Power memorializing the agreement concluded by asking Wasatch Wind to review the previously provided draft contracts, fill in or correct any of the required information, and return them to Idaho Power so it could generate drafts to be signed. Grouse Creek I and Grouse Creek II asked that IPUC not serve the complaints they had filed on Idaho Power because the parties were negotiating and had tentatively reached an agreement.

On December 2, 2010, Wasatch Wind submitted the proposed power purchase agreements to Idaho Power, and on December 6, 2010, it submitted additional information for Idaho Power to initiate the process of determining that Idaho Power had sufficient transmission capacity within its system for the projects. On December 7, 2010, Idaho Power sent updated draft agreements to Wasatch Wind and stated in an e-mail that one piece of key information was missing from the information provided by Wasatch Wind, which was the precise location of each project to ensure that they were at least one mile apart. On December 9, 2010, Wasatch Wind asked that the online date for both projects be extended by one year to December 2013. On December 14, 2010, Idaho Power sent an e-mail to Wasatch Wind stating that to complete the contracts it needed the name of the transmission entity and the complete legal description of the location of each project. The draft agreements submitted by Wasatch Wind on December 2, 2010 had listed PacifiCorp as the transmitting entity. On December 15, 2010, Idaho Power sent an e-mail to Wasatch Wind agreeing to the extension of the online date for both projects and asking again for the information it had requested. In an e-mail to Idaho Power later that day, Wasatch Wind provided the complete legal descriptions of the two projects and stated that BPA would be the transmission provider.

Idaho Power completed the draft power purchase agreements on December 16, 2010, and Wasatch Power picked them up the same day for its review. It signed them on December 21, 2010, and Idaho Power signed them on December 28, 2010 and inserted that date in the agreements as their effective dates.

Pursuant to the order issued by IPUC on February 7, 2010, the eligibility cap for the published rates for wind and solar qualifying facilities was reduced to 100 kilowatts effective on December 14, 2010. The agreements provided that Idaho Power would purchase power from Grouse Creek I and Grouse Creek II according to the published rates. Both agreements included a provision stating, " This Agreement shall become finally effective upon the Commission's approval of all terms and provisions hereof without change or condition and declaration that all payments to be made to Seller hereunder shall be allowed as prudently incurred expenses for ratemaking purposes."

On December 29, 2010, Idaho Power filed applications with IPUC requesting acceptance

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or rejection of the agreements. On February 24, 2011, IPUC issued a written notice permitting interested persons to file comments by March 24, 2011. On that date, Grouse Creek I and Grouse Creek II filed motions to intervene and written comments supporting approval of the agreements. IPUC denied the motions to intervene on the ground that the motions were unnecessary because Grouse Creek I and Grouse Creek II were parties to the agreements. As parties to the agreements, they were interested persons who could file comments without intervening. On June 8, 2011, IPUC issued its order disapproving the two power purchase agreements because the agreements were signed and included effective dates after December 14, 2010. The projects did not qualify for the published rates because they were no longer within the eligibility cap.

On June 29, 2011, Grouse Creek I and Grouse Creek II filed a joint petition for reconsideration. They argued that they were entitled to the published rate that was in effect prior to December 14 for several reasons including that they had legally enforceable obligations with Idaho Power prior to that date even if the contracts were not executed until after that date. IPUC held that the parties executed contracts stating that their effective dates were December 28, 2010, and that was the date upon which they had a legally enforceable obligation.

Grouse Creek I and Grouse Creek II timely appealed. While the appeal was pending, FERC issued a declaratory order involving Cedar Creek Wind, LLC, which had entered into agreements with another electric utility in Idaho. Under the agreements, each of five wind projects would sell electricity to the utility using the 10 aMW non-levelized published avoided-cost rates. Cedar Creek Wind signed the agreements on December 13, 2010, and on the same date it returned them to the utility for its signature. The utility did not sign them until December 22, 2010, after the effective date on which the eligibility cap for published rates was lowered to 100 kilowatts for wind and solar projects. IPUC disapproved the agreements, holding that they did not become effective until signed by both parties and that they were therefore not eligible for the published rates in existence before December 14, 2010. Cedar Creek Wind sought a declaratory order from FERC, and it issued an order stating that IPUC erred by not considering that a legally enforceable obligation could have been created before the utility signed the contracts. In its order, FERC interpreted IPUC as holding that " a legally enforceable obligation can result from only a fully-executed contract."

At the request of all parties, we suspended the appeal and remanded this case back to IPUC to reconsider its decision in light of the declaratory order in the Cedar Creek Wind case. On remand, IPUC solicited additional briefing from the parties and held oral argument on the matter. On September 7, 2012, it issued its order again refusing to approve the power purchase agreements because the rates in them were no longer available as published rates when the contracts were executed and became effective.

In reaching its decision, IPUC stated that it " did not and has never made a determination that the creation of a legally enforceable obligation only occurs when a QF [qualifying facility] and a utility enter into a written and signed agreement." It noted that it had previously ruled that a qualifying facility could obtain an avoided-cost rate: " (1) by entering into a signed contract with the utility; or (2) by filing a meritorious complaint alleging that a ‘ legally enforceable obligation’ has arisen and, but for the conduct of the utility, there would be a contract." It held that where Grouse Creek I and Grouse Creek II had negotiated agreements with Idaho Power that specifically set forth the terms and conditions of the agreements, including their effective date, IPUC " recognized and chose to enforce the terms of the Agreements that the parties entered into voluntarily." Even ...

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