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DECISION MEMORANDUM TO: COMMISSIONER KJELLANDER COMMISSIONER SMITH COMMISSIONER HANSEN JEAN JEWELL RON LAW LOU ANN WESTERFIELD TONYA CLARK DON HOWELL DAVE SCHUNKE RICK STERLING RANDY LOBB LYNN ANDERSON GENE FADNESS WORKING FILE FROM: SCOTT WOODBURY DATE: JUNE 20, 2002 RE: CASE NO. AVU-E-02-04/IPC-E-02-06/UPL-E-02-01 ADJUSTABLE PORTION OF AVOIDED COST RATE REVISED AND UPDATED CALCULATION The Idaho Public Utilities Commission in recent Order No. 28708, Case No. GNR-E-99-01, established a new methodology for the annual adjustable rate portion of avoided costs for those QF contracts using variable costs associated with Colstrip, a coal-fied generating facility in southeast Montana. For those QF contracts with Colstrip-related fuel costs and variable O&M, future Colstrip variable cost adjustments are to be calculated by using FERC Form 1 Colstrip Unit Coal Costs per megawatt hour (MWh) and adding $2.00/MWh (the average adjustment for line loss). As computed by Commission Staff the Colstrip related adjustable rate will change from 9.72 mill/kWh to 8.52 mill/kWh. The same calculated rate revision under the avoided cost methodology is used by Avista, PacifiCorp dba UP&L and Idaho Power Company. this change in the variable rate affects existing contracts under the previous SAR methodology. The adjustable portion of the avoided cost rates under the present methodology is based on annual average gas prices indexed at Sumas, Washington. As reported by Avista in letter filing received April 8, 2002, the indexed gas prices have increased by $0.41/mmbtu. The approved gas price of $4.82/mmbtu plus the $0.41/mmbtu increase results in a gas price of $5.23/mmbtu for the 2002-2003 year. This equates to a SAR fuel cost of 38.44 mills/kWh as used in the model. The Commission Staff by letter dated May 22, 2002, prepared by Staff Engineer Rick Sterling, calculated a new schedule of rates and a detailed sheet of variables for review by respective utilities. Avista and PacifiCorp by letter response indicate that the schedule is accurate. Idaho Power accepts the computation of the revised Colstrip and Sumas variable rate calculations for existing contracts. Idaho Power refuses to accept the calculations as they translate to changes in the published rate. Idaho Power contends that the published rates no longer represent the Company's avoided costs and that the assumptions used to compute the rates are no longer fair, just and reasonable. Idaho Power renews its request to stay the effectiveness of Order No. 29029 issued May 21, 2002 in Case No. GNR-E-02-1 and convene a hearing to determine whether the existing (and proposed) published rates are equivalent to the Company's avoided costs. Commission Decision Under avoided cost methodology the adjustable portion of avoided cost rates is calculated annually for an effective date of July 1. Avista and PacifiCorp agree with Staff's proposed calculations. Idaho Power responded in the manner described above. Does the Commission agree with the proposed changes in variable rate? Scott Woodbury vld/M:AVUE0204/IPCE0206/UPLE0201_sw