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Home My WebLink About20260629Staff Comments.pdf RECEIVED June 29, 2026 ERIKA K. MELANSON IDAHO PUBLIC DEPUTY ATTORNEY GENERAL UTILITIES COMMISSION IDAHO PUBLIC UTILITIES COMMISSION PO BOX 83720 BOISE, IDAHO 83702 (208) 334-0320 IDAHO BAR NO. 11560 Attorney for the Commission Staff BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MATTER OF IDAHO POWER ) COMPANY'S APPLICATION FOR ITS ) CASE NO. IPC-E-26-08 ANNUAL UPDATE TO MARGINAL PRICING ) USED IN CERTAIN SCHEDULES ) COMMENTS OF THE COMMISSION STAFF COMMISSION STAFF ("STAFF") OF the Idaho Public Utilities Commission ("Commission"), by and through its attorney of record, Erika K. Melanson, Deputy Attorney General, submits the following comments. BACKGROUND On April 1, 2026, Idaho Power Company ("Company") applied to the Commission requesting acknowledgement that the updated marginal cost rates provided in the Attachment 3 were correctly calculated and a finding that the Company complied with Order No. 36619 ("Application"). Additionally, due to the calculation of this year's forecasted marginal cost rates being lower than forecasted embedded cost rates, the Company has proposed to maintain the currently in-effect 1 marginal cost rates of Schedule 20, Speculative High-Density Load and Schedule 34, Lamb Weston Special Contract. Application at 1. 1 Since the effective period of marginal cost rates has been June 1 of each year through May 31 of next year, the "currently in-effect marginal cost rates"have expired as of May 31, 2026. For clarification, Staff referred to these rates as"last year's marginal cost rates"in its comments. STAFF COMMENTS 1 JUNE 29, 2026 STAFF ANALYSIS Staff verified that the Company correctly calculated the updated marginal cost rates using the approved method and that the updated marginal cost energy rates are lower than the embedded cost rate. In its Application,the Company has proposed to maintain last year's marginal cost rates instead of using the updated rates calculated under the approved method,because the updated rates this year are lower than the embedded cost rate for the same period. Id. Due to this unexpected result, Staff believes there are likely issues with the current approved methodology for calculating the marginal cost rates. Thus, Staff recommends that the Commission order the Company to open a new docket to reevaluate the methodology used to determine marginal cost rates and that the timing of the case should be coordinated with the cost-of-service/New Large Load methodology case (Case No. IPC-E-26-07). Staff also recommends that the Commission extend last year's marginal cost rates until new rates can be calculated under an updated methodology approved by the Commission in the new docket. Lastly, Staff concludes that the Company has complied with Order No. 36619. Issues with the Current Method In calculating marginal cost rates for this year's annual update, the Company discovered that the forecasted marginal cost rates are lower than the forecasted embedded cost rate for the same period. Staff believes that marginal cost rates should always be higher than embedded cost rates and that the opposite result indicates issues with the current methodology. Order No. 36619 requires that"[a]ny changes to the methods used to calculate the marginal cost-based energy prices need to occur in a separate docket or general rate case." Order No. 36619 at 4. Therefore, Staff recommends that the Commission require the Company to reevaluate the marginal cost methodology in a new docket.2 Since marginal cost rates are likely to be part of solutions to allocate the cost of New Large Loads, Staff recommends that the timing be coordinated with the cost-of-service/New Large Load methodology case (Case No. IPC-E-26-07). 'In Case No. IPC-E-24-44, parties raised concerns about the approved methodology of determining marginal cost rates. As a result, the Company proposed that the Commission direct an evaluation of the methodology issues in a separate marginal cost docket, independent of the annual update case, to conduct a transparent and appropriately scoped analysis. On March 30,2026,the Company had a meeting with Staff and expressed its expectation that a new docket will be initiated by the Commission, and the methodology will be reevaluated outside the annual update case. However, the Final Order (Order No. 37039) in Case No. IPC-E-24-44 issued on May 8, 2026, was silent on the Company's proposal. STAFF COMMENTS 2 JUNE 29, 2026 Marginal cost rates are determined by the cost of a dispatchable, marginal resource,while embedded power supply cost rates are based on total power supply costs divided by total sales. Response to Staff Production Request No. 3. Therefore, it is common that embedded cost rates are lower than marginal cost rates. For example, in last year's annual update, the Company's embedded cost rate was $34.73 per megawatt hour ("MWh") and the Company's marginal cost rates were $40.84 per MWh (Single-Run) and $42.64 (Two-Run). However, for the April 2026 through March 2027 test year, the Company's forecasted marginal cost rates are lower than the forecasted embedded cost rates. Table No. 1. Table No. 1: Comparison of Forecasted Marginal Cost Rates and Forecasted Embedded Cost Rates Forecasted Marginal Cost Rates Forecasted Embedded Cost Rate ($/MWh) ($/MWh) Single-Run Two-Run 31.63 32.83 38.85 The forecasted marginal cost rates are determined by the AURORA model, while the forecasted embedded cost rate is determined by the Company's Operating Plan. Response to Staff Production Request No. 4. The simulations used in both methods use similar inputs, including expected hydro generation and natural gas prices, which were developed in March 2026. Id. Therefore, assumptions of hydro conditions and gas prices are generally aligned between the two simulations. Id. However, marginal cost rates are more responsive to gas price changes, while the embedded cost rates are more responsive to hydro generation changes. Response to Staff Production Request No. 3. For the April 2026 through March 2027 future test year, the Company forecasts below-normal hydro generation and low gas prices,which drives up embedded cost rates and lowers marginal cost rates. Id. Staff believes that the Company's response only explains why the embedded cost rates are relatively high and the marginal cost rates are relatively low, but it does not necessarily explain why the embedded cost rates are higher than the marginal cost rates, especially since the assumptions of hydro and gas prices should be generally aligned between the two modeling processes. Staff believes this issue can be caused by a variety of reasons, such as STAFF COMMENTS 3 JUNE 29, 2026 high inflation, intensive capital build, or model flaws, which warrants a comprehensive, in-depth analysis. Staff believes it is inappropriate to develop a new method in an annual update case and that the methodology should be thoroughly reevaluated in a separate docket where it can be appropriately noticed and all interested parties can participate to develop a full record. This is consistent with Order No. 36619, which requires that "[a]ny changes to the methods used to calculate the marginal cost-based energy prices need to occur in a separate docket or general rate case." Oder No. 36619 at 4. In addition, since marginal cost rates are likely to be part of solutions to allocate the cost of New Large Loads,which is currently being investigated in the existing cost- of-service/New Large Load methodology case (Case No. IPC-E-26-07), the parties in that case should be encouraged to participate in the new case,and the new docket should be opened to allow coordination with Case No. IPC-E-26-07. Updated Marginal Cost Rates Staff reviewed the updated marginal cost rates provided in Attachment 3 of the Application and verified that the updated rates were calculated correctly under the approved method. Staff recommends Commission's acknowledgement that the updated marginal cost rates provided in Attachment 3 of the Application are correct. However, given the issues with the current methodology, Staff maintains its recommendation to not approve the updated rates. Compliance with Order No. 36619 In last year's annual update to marginal pricing case (Case No. IPC-E-25-17), the Commission required the Company to work with Staff to "evaluate methods to verify the current marginal cost forecasting methods against the Company's actual marginal costs prior to the next annual update to marginal pricing." Id. Staff believes that the Company has sufficiently met this requirement by meeting with Staff to evaluate methods prior to this annual update and showing the results in this annual update. Therefore, Staff recommends Commission's acknowledgement that the Company has complied with Order No. 36619. On January 7, 2026, the Company met with Staff and explained that actual marginal cost rates are not directly observable or measurable. This is because determining the actual marginal STAFF COMMENTS 4 JUNE 29, 2026 cost rates (i.e., the cost of serving one more megawatt hour) requires developing and tracking hourly, counterfactual data, and the Company currently does not engage in such practice.3 Despite the current unavailability of actual marginal cost information, the Company developed several proxies for comparison. The Company included four proxies in this year's filing: Day-Ahead Mid-C Price, Hourly Energy Load Aggregation Point (`SLAP") Price, Actual Gas Dispatch Rate, and AURORA Backcast Price, and compared the forecasted marginal cost rates against these proxies. Staff believes that a comparison based on these proxies provides some validation, although limited, given the unavailability of actual marginal cost rates. Table No. 2. Table No. 2: Forecasted Marginal Cost Rates vs. Proxy Marginal Cost Rates Forecasted Marginal Proxy Marginal Cost Rates Cost Rates ($/MWh) ($/MWh) AURORA AURORA Day- Hourly Gas AURORA AURORA Two-Run Single-Run Ahead ELAP Dispatch Backcast Backcast (4.1.2025- (4.1.2025- Mid-C Price Rate Single-Run Single-Run 3.31.2026) 3.31.2026) Price (4.1.2025- (1.1.2025- (1.1.2025- (4.1.2025- (4.1.2025- 3.24.2026) 12.31.2025) 12.31.2025) 3.31.2026) 3.25.2026) 42.64 40.84 35.68 29.55 33.76 30.86 29.71 Data Sources: Application Attachment 2 and Response to Staff Production Request No. 1. The comparison shows that the forecasted marginal cost rates are consistently higher than all the proxies from similar periods. A specific comparison between an AURORA single-run and an AURORA backcast single-run of the same period shows the forecasted marginal cost rate is 37% higher than its proxy. The Company explains that the significant difference is primarily driven by the gas price difference between the two model runs. Response to Staff Production Request No. 2. The gas prices used to determine forecasted marginal cost rates are derived from forward market prices at relevant trading hubs including Sumas, Stanfield, and Rockies,while the backcast gas prices are based on the actual costs across all procurement hubs. Id. 3 PowerPoint slides for the January 7 meeting. STAFF COMMENTS 5 JUNE 29, 2026 STAFF RECOMMENDATION Staff recommends that the Commission order the Company to open a new docket to reevaluate the methodology used to determine marginal cost rates and that the timing of the case should be coordinated with the cost-of-service/New Large Load methodology case (Case No. IPC-E-26-07). Staff also recommends that the Commission extend last year's marginal cost rates until new rates can be calculated under an updated methodology approved by the Commission in the new docket. Lastly, Staff recommends Commission's acknowledgement that the updated marginal cost rates provided in Attachment 3 of the Application are correct and that the Company has complied with Order No. 36619. Respectfully submitted this 29th day of June 2026. Erika K. Melanson Deputy Attorney General Technical Staff. Yao Yin I:\Utility\UMISC\COMMENTS\IPC-E-26-08 Comments.docx STAFF COMMENTS 6 JUNE 29, 2026 CERTIFICATE OF SERVICE I HEREBY CERTIFY THAT I HAVE THIS 29th DAY OF JUNE 2026, SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE NO. IPC- E-26-08, BY E-MAILING A COPY THEREOF, TO THE FOLLOWING: MEGAN GOICOECHEA ALLEN GRANT T. ANDERSON DONOVAN WALKER AUSTEN APPERSON IPC DOCKETS JESSI BRADY IDAHO POWER COMPANY IDAHO POWER COMPANY PO BOX 70 PO BOX 70 BOISE ID 83707 BOISE ID 83707 E-MAIL: E-MAIL: mgoicoecheaallengidahopower.com ganderson(&idahopower.com dwalkergidahopower.com aapperson(a idahopower.com docketsg,idahopower.com jbrady(&,,idahopower.com Intervenor: Intervenor: Idaho Irrigation Pumpers Association (IIPA) Micron Austin Rueschhoff ERIC L. OLSEN Thorvald A. Nelson ECHO HAWK& OLSEN, PLLC Richard A. Arnett P.O. BOX 6119 Holland& Hart, LLP 505 PERSHING AVE, STE 100 555 17th St., Ste. 3200 POCATELLO, ID 83205 Denver, CO 80202 E-MAIL: E-MAIL: elogechohawk.com darueschhoftkhollandhart.com taysha(cr�,echohawk.com tnelsonga,hollandhart.com raarnettghollandhart.com LANCE KAUFMAN, Ph.D. acleeghollandhart.com DEBORAH GLOSSER, Ph. D. tlfrielghollandhart.com 2623 NW BLUEBELL PLACE CORVALLIS, OR 97330 E-MAIL: lancegae ism h deborah. log sserggmail.com 41 04�-- e-1,47 PATRICIA JORD , SECRETARY CERTIFICATE OF SERVICE