20011207IPC to Staff 1-4.pdf

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PO'I'ER
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Ms. Jean D. Jewell, Secretary
ldaho Public Utilities Commission
472 W . Washington Street
P.O. Box 83720
Boise, ldaho 83720-0074
Case No. IPC-E-01-40
ldaho Power Company's Response To First
Production Request of Commission Statf
Dear Ms. Jewell:
Enclosed herewith for filing with the Commission are three (3) copies of
ldaho Power Company's Response to the First Production Request of Commission
Staff regarding the above-entitled case.
! would appreciate it if you would return a stamped copy of this transmittal
letter for our files.
IS,
Re
BARTON L. KLINE
Senior Attorney
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Enclosures
Barton L. Kline
Telephone [phone], FAX [phone], E-Mail bkline @ idahopower.com
BARTON L. KL]NE lSB #1526
ldaho Power Company
P. O. Box 70
Boise, ldaho 83707
Telephone: [phone]
FAX Telephone: [phone]
Attorney for ldaho Power Company
Street Address for Exoress Mail:
1221 West ldaho Street
Boise, ldaho 83702
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY TO
AMEND SCHEDULE 86 --
COGENERATION AND SMALL POWER
PRODUCTION .. NON.FIRM ENERGY.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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CASE NO. rPC-E-o1-40
IDAHO POWER COMPANY'S
RESPONSE TO FIRST
PRODUCTION REQUEST
OF COMMISSION STAFF
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COMES NOW, ldaho Power Company ("ldaho Powef' or "the Company''),
and in response to the First Production Request of the Commission Staff dated
November 20,2001, herewith submits the following information:
REOUEST NO. 1: Please explain the statement on page 3 of the
Application that states, in part " . . . but Qualifying Facilities larger than one megawatt
are required to negotiate contracts with ldaho Power and to negotiate appropriate power
purchase prices as part of that contracting process." Explain how this comports with
Order No. 25884 that describes the methodology to be used in establishing rates for
projects one megawatt and greater. Could the process established to calculate rates for
IDAHO POWER COMPANY'S RESPONSE TO FIRST
PRODUCTION REQUEST OF COMMISSION STAFF, Page 1
one megawatt and greater projects be successfully utilized for non-firm energy
purchases?
Response to Request No. 1: From the earliest days of its
implementation of PURPA in ldaho, the Commission has directed utilities and large
Qualifying Facilities to negotiate power purchase prices. lnitially the Commission
established the starting point for those purchase price negotiations as the rates
published by the Commission. Order No. 25884 changed the starting point for
negotiations from a fixed published rate to an amount based on a long-run incrementa!
cost planning analysis. At al! times the starting point concept was only applicable to
longterm purchases of firm energy. ldaho Power does not believe it would be either
feasible or accurate to utilize the long-run cost methodology described in Order No.
25884 to set prices for non-firm energy purchases which can be of very short duration.
The Response to this Request was prepared by Randy Allphin, Contract
Administrator, ldaho Power Company, in consultation with counsel, Barton L. Kline.
REQUEST NO.2: Please explain why it is inappropriate to continue using
Schedule 86 as it is now written to set rates for non-firm energy purchases for projects
one megawatt or greater. Also, please explain why it is inappropriate to use Schedule
86, assuming the Commission agrees to 85% of Mid-C as the basis for rates, for non-
firm energy purchases for projects one megawatt or greater.
Response to Request No. 2: Schedule 86 was developed and has
historically been utilized to provide the small, unsophisticated QF projects a simple
contracting option with ldaho Power with no fixed term or delivery requirements.
Schedule 86 allows potential sellers to increase, decrease or eliminate their deliveries of
IDAHO POWER COMPANY'S RESPONSE TO FIRST
PRODUCTION REQUEST OF COMMISSION STAFF, Page 2
energy at their complete discretion. When limited to QF projects smaller than one
megawatt, handling these potentially rapid changes in resource availability is not likely
to pose an unreasonable burden on the Company's resource planning process.
However, if the tariff is open to larger projects on an unlimited basis, there is a potential
for large projects to impose an unreasonable burden on ldaho Power. As wholesale
market prices have become more volatile, we have seen a notable increase in interest
from large, professional project developers (greater than 1 MW) interested in making
use of Schedule 86. Resource planning and operational decision-making under those
circumstances would be much more difficult. For example, having to acquire or dispose
of potentially large amounts of energy on short notice at times of transmission
congestion could present significant transmission acquisition and other operating
problems for ldaho Power.
The Response to this Request was prepared by Randy Allphin, Contract
Administrator, ldaho Power Company, in consultation with counsel, Barton L. Kline.
REQUEST NO. 3: What is the basis for 85% of market price (as opposed
to some other percentage)? Why should the percentage negotiated in prior non-firm
contracts with Schedule 19 or special contract customers serve as the basis for rates to
be paid for allfuture contracts?
Response to Request No. 3: The decision to propose a purchase price
equal to 85% of market price is based on three primary considerations. First, the
proposed pricing mechanism is consistent with recent arms-length negotiations between
ldaho Power and several customers knowledgeable in the wholesale markets and
experienced in the sale of QF power to ldaho Power. As such, it represents a pricing
IDAHO POWER COMPANY'S RESPONSE TO FIRST
PRODUCTION REQUEST OF COMMISSION STAFF, Page 3
mechanism that is apparently acceptable to sophisticated sellers in today's wholesale
market. Second, the proposed pricing methodology is sufficiently flexible to cover
changing transmission costs, losses, and transactions costs associated with the
disposition of non-firm energy that might surplus to ldaho Power's needs at the time the
seller decides to deliver it to ldaho Power. Third, it should allow ldaho Power's
customers to obtain a reasonable price if the resource can displace or avoid market
purchases when non-firm energy is needed by ldaho Power.
The Response to this Request was prepared by Randy Allphin, Contract
Administrator, Idaho Power Company, in consultation with counsel, Barton L. Kline.
REQUEST NO.4: What are ldaho Power's transmission costs and other
transaction costs for non-firm energy purchases from the market? Please list and
quantify all costs associated with reselling non-firm energy purchased from customer
generators?
Response to Request No. 4: The quantification of transmission costs
and transactions costs for non-firm energy purchases and sales from and to the
wholesale markets must take into account numerous variables. Each transaction must
utilize an established transmission path owned by a particular transmission
owner/provider. Each transmission owner/provider operates under separate, FERC-
approved transmission tariffs covering rates and loss compensation. Transmission loss
compensation associated with a transaction is computed as a percentage of the amount
transferred. As a result, the compensation cost for transmission losses varies with the
sales price of the energy. Addition of resources from QF's also requires ldaho Power to
adjust its resources to meet reserve requirements. Attached is a worksheet that
IDAHO POWER COMPANY'S RESPONSE TO F!RS]
PRODUCTION REQUEST OF COMMISSION STAFF, Page 4
describes some of the current costs and expenses associated with transmission
transactions between ldaho Power's system and Mid-C. The worksheet does not take
into consideration times of transmission congestion that can require the use of multiple,
alternate paths at even higher costs.
The Response to this Request was prepared by Vernon Porter, Manager,
Grid Operations, ldaho Power Company, in consultation with counsel, Barton L. Kline.
REOUEST NO. 5: Please explain how setting the purchase price for non-
firm energy at an amount equalto 85% of Mid-C fairly reflects ldaho Power's avoided
cost as defined by PURPA.
Response to Request No. 5: One of the concepts that provides the
foundation for Section 21O of PURPA is the concept of utility customer neutrality.
Utilities'customers are not supposed to be unreasonably benefited or harmed by QF
purchases. ln the case of non-firm, take and pay, power purchases under Schedule 86,
ldaho Power believes that compliance with PURPA contemplates that ldaho Power will
be able to purchase non-firm energy at a price that ensures that it will be able to accept
that energy without increasing customers'costs. This includes the ability to resellthat
energy on the wholesale market at prices that do not result in customers being
disadvantaged. Setting the purchase price at 85% of the Mid-C index price is
reasonably calculated to accomplish that goal. Non-firm energy, by definition, cannot
be relied upon in a resource plan to permit the deferral or avoidance of generation or
third-party pu rchases.
The Response to this Request was prepared by Randy Allphin, Contract
Administrator, ldaho Power Company, in consultation with counsel, Barton L. Kline.
IDAHO POWER COMPANY'S RESPONSE TO FIRST
PRODUCTION REQUEST OF COMMISSION STAFF, Page 5
DATED at Boise, ldaho, this 7th day of December,2001
L. KLINE
Attorney for ldaho Power Company
>
IDAHO POWER COMPANY'S RESPONSE TO FIRST
PRODUCTION HEQUEST OF COMMISSION STAFF, Page 6
ATTACHMENT TO RESPONSE TO REQUEST NO. 4
For Idaho Power Company - Power Supply to sell excess energy off-system, the cost to transport
the energy to market must be paid, and the cost associated with reserves and other associated
ancillary services must be subtracted.
Transportation to Market
Wheeling energy from Southern Idaho to the Mid-Columbia market in Washington state requires
purchasing transmission from the generator to the Idaho Power Company control area border,
and then from the IPC border to Mid-C through either Avista, PacifiCorp, or BPA. For purposes
of this example, the transmission rates and losses of Avista, PacifiCorp, and BPA will be
averaged to produce the IPC border to Mid-C charge.
Path Annual Charge $/NIWH (l00%o Utilization) Losses
Generator to IPC Border $l1.67 per kW $1.33 3.60Vo
Avista to Mid-C
PacifiCorp to Mid-C
$16.79 per kW
$24.30 per kW
$1.92
$2.77
3.00vo
4.48Vo
4 2
Ave IPC Border to Mid-C $18.67 per kW $2.t3 3.137o
Total Transmission Charge
Generator to Mid-C $30.34 per kW $3.46 6.73Vo
$4.07 @ .857o CapFactor
Ancillary Services
Ready Reserves - 57o of hydro andTVo of thermal resources
(Spin and Non-Spin) $6.53 per kW-month of reserve requirement
Other ChargeslEffects
l. Mid-C Index is separately defined for heavy and light load periods while the generator
reserves are only effective for a one-hour period. Hence there is some price discount to
index for'unit-contingent' service.
2. Energy imbalance due to generator deviation from schedule does cost something to
correct in spite of the t2 IvtW dead-band in the OATT. This cost is may be captured in
general overheads and operating costs - but can be appreciable for some generators.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 7th day of December,2OOl, I served a
true and correct copy of the within and foregoing RESPONSE OF IDAHO POWER
COMPANY TO FIRST PRODUCTION REQUEST OF COMMISSION STAFF upon the
following named parties by the method indicated below, and addressed to the following:
Scott Woodbury
Deputy Attorney General
ldaho Public Utilities Commission
472 W . Washington Street
P.O. Box 83720
Boise, ldaho 83720-0074
Y Hand Delivered
U.S. Mai!
Overnight Mail
FAX
a--
BARTON KLINE
CERTIFICATE OF SERVICE