20231115AVU to Staff 1-7.pdf

AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION

JURISDICTION: IDAHO DATE PREPARED: 11/15/2023
CASE NO: AVU-E-23-15 WITNESS: N/A
REQUESTER: Staff RESPONDER: Chris Drake
TYPE: Production Request DEPARTMENT: Power Supply
REQUEST NO.: Staff-001 TELEPHONE: [phone]

REQUEST:

Page 1 of Amendment No. 2 to the Transaction Confirmation mentioned Amendment No. 1 dated
February 27, 2019. Please respond to the following:

a. Please provide a copy of Amendment No. 1 to the REC Agreement dated February
27, 2019;

b. Please explain why the Company did not submit Amendment No. 1 of the REC
Agreement for Commission approval; and

c. Please explain why the Company is submitting Amendment No. 2 of the REC
Agreement for Commission approval.

RESPONSE:

a. Amendment No. 1 to the REC Agreement, which is dated February 27, 2019, is attached
hereto as Exhibit A.

b. Amendment No. 1 to the REC Agreement was limited to an administrative change to the
REC Agreement to correct the scheduling section of the REC Agreement to acknowledge that,
under certain circumstances, the delivery schedule could exceed 50 MW. Amendment No. 1 did
constitute an amendment to Exhibit F to the Power Purchase and Sale Agreement (“Clearwater
Agreement”) that was filed in Case No. AVU-E-18-13. It is Avista’s practice to file all PURPA
agreements, and amendments to those agreements with the Commission for approval. It appears
that Amendment No. 1 to the REC Agreement was not filed with the Commission due to an
administrative oversight.

c. In this proceeding, Avista filed Amendment No. 1 to the Clearwater Agreement, which
extends the term of the Clearwater Agreement for three additional years so that the Clearwater
Agreement will expire on December 31, 2026. As a result of the extension of the term of the
Clearwater Agreement, the REC Agreement that is Exhibit F to that agreement needed to be
revised to continue during the extended term and to reflect the appropriate pricing for the extended
term. Because Amendment No. 2 of the REC Agreement between Avista and Morgan Stanley
Capital Group amends Exhibit F to the Clearwater Agreement, Avista submitted Amendment No.
2 of the REC Agreement to the Commission as part of the amendment to the Clearwater
Agreement. Avista seeks Commission approval of the amendment to the Clearwater Agreement in
this proceeding.

RECEIVED
Wednesday, November 15, 2023 12:57:14 PM
IDAHO PUBLIC
UTILITIES COMMISSION
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION

JURISDICTION: IDAHO DATE PREPARED: 11/15/2023
CASE NO: AVU-E-23-15 WITNESS: N/A
REQUESTER: Staff RESPONDER: Ryan Finesilver
TYPE: Production Request DEPARTMENT: Energy Supply
REQUEST NO.: Staff-002 TELEPHONE: [phone]

REQUEST:

Page 2 of the Application states that Clearwater owns and operates a generation system of
approximately 132.2 mega-volt amps ("MVA") as a Qualifying Facility under Public Utility
Regulatory Policies Act of 1978 and 18 C.F.R. Part 292. Please provide the capacity of the facility
in megawatts.

RESPONSE:

The Clearwater Paper project assumes a 100 percent capacity factor which would result in 132.2
megawatts of capacity.

DRAFT
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION

JURISDICTION: IDAHO DATE PREPARED: 11/15/2023
CASE NO: AVU-E-23-15 WITNESS: N/A
REQUESTER: Staff RESPONDER: Chris Drake
TYPE: Production Request DEPARTMENT: Power Supply
REQUEST NO.: Staff-003 TELEPHONE: [phone]

REQUEST:

Amendment No. 1 to the Power Purchase and Sale Agreement, dated October 2, 2023, states
“Amendment No. 1 to the REC Agreement is attached to this Amendment as Attachment A.”
(Emphasis added.) Please confirm that “Amendment No. l” in the quote should have been
“Amendment No. 2”.

RESPONSE:

Avista confirms that the reference to “Amendment No. 1” to the REC Agreement in Paragraph 2 of
Amendment No. 1 to the Power Purchase and Sale Agreement dated October 2, 2023 is incorrect
and should be a reference to “Amendment No. 2” to the REC Agreement. Avista intends to submit
an amendment to correct this reference and to provide an updated version of the REC Agreement
(as amended by Amendment Nos. 1 and 2 to that REC Agreement) as Revised Exhibit F to the
Power Purchase and Sale Agreement.
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION

JURISDICTION: IDAHO DATE PREPARED: 11/15/2023
CASE NO: AVU-E-23-15 WITNESS: N/A
REQUESTER: Staff RESPONDER: Ryan Finesilver
TYPE: Production Request DEPARTMENT: Energy Supply
REQUEST NO.: Staff-004 TELEPHONE: [phone]

REQUEST:

The original Power Purchase and Sale Agreement approved in Case No. AVU-E-18-13 defines
"REC Agreement" as "Transaction Confirmation between Avista and MSCG dated December 15,
2018, under which Avista is to sell and MSCG is to buy the RECs generated by the Project bundled
with energy..." Please confirm that "December 15, 2018," should have been "October 19, 2018."

RESPONSE:

Avista confirms that the “REC Agreement” as defined in the original Power Purchase and Sale
Agreement approved in Case No. AVU-E-18-13 is the Transaction Confirmation between Avista
and MSCG dated October 19, 2018, and that the “December 15, 2018” referred to in this request
should be “October 19, 2018”.

AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION

JURISDICTION: IDAHO DATE PREPARED: 11/15/2023
CASE NO: AVU-E-23-15 WITNESS: N/A
REQUESTER: Staff RESPONDER: Ryan Finesilver
TYPE: Production Request DEPARTMENT: Energy Supply
REQUEST NO.: Staff-005 TELEPHONE: [phone]

REQUEST:

Amendment No. 2 to the Transaction Confirmation uses Powerdex Mid-Columbia Hourly Price
(or mutually agreed to alternative) for Delivery Period 1 and uses Intercontinental Exchange
("ICE") Mid-Columbia Firm Prices (or mutually agreed to alternative) for Delivery Period 2.

Please respond to the following:

a. Please explain why the Parties switched to ICE Mid-Columbia Firm Prices for
Delivery Period 2; and
b. Please explain why ICE Mid-Columbia Firm Prices provide reasonable prices to
value the energy generated by Clearwater.

RESPONSE:

a. The original REC agreement (Delivery Period 1) used the Powerdex hourly index as that
was the agreed upon index. The ICE Daily Mid-Columbia On Peak and Off Peak index was
preferred for Delivery Period 2. It is the most heavily referenced market index in the
Pacific Northwest. The published ICE Daily Mid-Columbia index is well referenced
between parties and due to its timeliness and completeness it also brings administrative
efficiencies to all parties. It was mutually agreed upon and selected by Avista and Morgan
Stanley Capital Group (MSCG) due to the above reasons. This change, and the indexed
energy component of REC agreement, does not impact the value of the deal, to Avista, as it
is netted out using either index selected.

b. The energy component is netted to zero but is a physical component of the deal that must
be treated to sell the bundled, clean energy. Avista sells the energy to MSCG at the index
price and MSCG buys the energy at the index price isolating the bundled REC value. The
ICE Daily Mid-Columbia index provides a good barometer to the energy component of the
energy plus REC generated by Clearwater as Clearwater is a baseload generator which has
very little variability in generation hour to hour. The previously used index provided
pricing between hours that was not as efficient given the type of generator and schedule
that Clearwater produces.

AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION

JURISDICTION: IDAHO DATE PREPARED: 11/15/2023
CASE NO: AVU-E-23-15 WITNESS: N/A
REQUESTER: Staff RESPONDER: Ryan Finesilver
TYPE: Production Request DEPARTMENT: Energy Supply
REQUEST NO.: Staff-006 TELEPHONE: [phone]

REQUEST:

Amendment No. 2 to the Transaction Confirmation uses the Following REC Prices:

Delivery Period 1 Delivery Period 2
PCC1 RECs $9.00/MWh $27.10/MWh
PCC2 RECs $4.50/MWh $27.10/MWh

Please respond to the following:

a. Please explain how PCCl REC Prices and PCC2 REC Prices are determined for
Delivery Period 1 and Delivery Period 2;
b. Please explain why PCCl REC Prices are higher than PCC2 REC Prices in
Delivery Period 1 and why PCCl REC Prices are the same as PCC2 REC Prices
in Delivery Period 2; and
c. Please explain why REC Prices in Delivery Period 1 are much lower than REC
Prices in Delivery Period 2.

RESPONSE:

a. PCCl REC Prices and PCC2 REC Prices were negotiated between Avista and Morgan
Stanley Capital Group (MSCG) for both Delivery Period 1 and 2. PCC1 and PCC2 are
driven by California RPS requirements over time. During different time periods the level
of surplus and deficit seen in that market drives market pricing. The changes (poor hydro
conditions/slower renewable buildout/larger load growth) have mostly driven a larger
deficit in available bundled products available to the market which has in turn driven
market prices higher.

b. PCC1 and PCC2 RECs are specific categories of RECs in California. PCC1 are fully
bundled from one resource and directly delivered. PCC2 allows pairing of energy and REC
resources to accommodate the variability of some renewable resources. Due to California
compliance requirements and market conditions, PCC1 RECs have a higher value than
PCC2 RECs. In the original agreement Avista and MSCG negotiated PCCl REC and
PCC2 REC Prices based on the market at the time and the new, to MSCG, resource in
Clearwater. Clearwater generation is a baseload non-volatile generation resource. MSCG
likely estimates based on Delivery Period 1 the vast majority of the REC’s delivered in
Delivery Period 2 will be PCC1. Also, MSCG recognizes the market for both categories is
high relative to historical pricing and availability is limited. These reasons most likely
contributed to them showing a very strong bid with PCC1 and PCC2 priced at the same
level so that they could acquire this bundled product.

c. The changes in price are the result of market conditions over differing timespans. The
California market is driven by various compliance requirements as well as qualified
resource availability that has increased prices for bundled REC products which is reflected
in the price increase between the two periods. REC Prices in Delivery Period 1 reflect the
available value of bundled energy when contracted in 2018 and similarly REC Prices in
Delivery Period 2 reflect current market conditions that have significantly increased the
value.

AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION

JURISDICTION: IDAHO DATE PREPARED: 11/15/2023
CASE NO: AVU-E-23-15 WITNESS: N/A
REQUESTER: Staff RESPONDER: James Gall
TYPE: Production Request DEPARTMENT: Energy Resources
REQUEST NO.: Staff-007 TELEPHONE: [phone]

REQUEST:

Please calculate Schedule 25P Block 2 PURPA Rates for the extended three years using the same
method used in Case No. AVU-E-18-13 (i.e. a blend of IRP based avoided cost rate and forward
market prices). This should include (1) Clearwater's Generation Load Rate with Commission fees
that Clearwater pays, and (2) Clearwater's Generation and REC Rate without Commission fees
that Avista pays. In addition, please respond to the following:
a) Please provide the two rates with workpapers showing the calculations with
formula intact; and
b) Please explain why the rate Clearwater pays includes Commission fees but the
rate Avista pays does not under the current 2018 Agreement.

RESPONSE:

a) Using a 50% blend of forward prices and 2023 IRP prices yield a levelized price of
$65.55/MWh, with commission fees this is $65.68/MWh. See the attachment labeled Staff
PR_007 Attachment A.

Since the previous contract, both IRP and forward prices have risen. Prices are higher due
increases in natural gas prices and both the Washington and California’s greenhouse gas
emissions allowance programs. Avista anticipates electric market prices will fall (absent
other market fundamentals) once the two programs are linked, leading to lower carbon
prices in Washington and the elimination of the double taxation on power sold to each
region. Further, its likely a wheel through Washington price will be available that excludes
effects of the CCA for the region. This price would be available for power not being
delivered into Washington state.

Forward electric prices are only actively traded on a monthly basis for about 12 months out
in time and prices for the year 2025 and are thinly traded and are only sold as annual strips.
Further, Avista’s forward curves are only estimates based on the directional change in
pricing day to day based on trades and uses escalators when trades are not available.

Avista’s IRP prices are lower than near term forward prices due to limited Washington
Climate Commitment Act effects in its pricing due to the timing of the study whereby the
implemental rules were not yet available. Due to future uncertainty in forward markets and
state rulemaking, using the IRP based price may be justified.

b) Avista sells to Clearwater all of Clearwater’s required energy and capacity at the Block 2
PURPA rate and purchases all of the output from Clearwater’s Generation, including the
RECs at the same PURPA rate. The Block 2 energy charge Clearwater pays to Avista is
recorded as revenue to the Company and therefore subject to commission fees. In order to
make sure the Company and customers are held harmless under the terms of the agreement,
Avista grosses up the Clearwater amount for commission fees to ensure Clearwater is
paying the incremental fees associated with the agreement.