Order No 28542.pdf

Office of the Secretary
Service Date
October 10, 2000
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE FILING BY
AVISTA CORPORATION DBA AVISTA
UTILITIESWASHINGTON WATER
POWER DIVISION OF AN UPDATE TO
AVISTA’S 1997 ELECTRIC INTEGRATED
RESOURCE PLAN (IRP) AND DRAFT
REQUEST FOR PROPOSALS (RFP).
)
)
)
)
)
)
)

CASE NO. AVU-E-00-8

ORDER NO. 28542

On July 13, 2000, Avista Corporation dba Avista Utilities—Washington Water
Power Division—Idaho (Avista; Company) filed an update to its 1997 Integrated Resource Plan
(IRP) and a draft Request For Proposals (RFP) with the Idaho Public Utilities Commission
(Commission).
The RFP is an “all source” competitive bid based on the Company’s identified need
for 300 MW of new electric power starting in 2004. The IRP update describes the Company’s
loads and resources, overview of technically available resource options, and demonstrated need
for resources.
The Company in its filing states that it will consider any offer of resources including
but not limited to, energy and capacity, energy efficiency, turnkey plans, construction—for
Avista—of a generating plant on a site provided by the bidder, and construction by a bidder on a
site furnished by Avista. As described in the RFP and IRP update, the Company’s resource need
suggests that customers would benefit by a new resource with operational flexibility.
The Company states that it is also examining other options for service provision
including expanded use of customer load interruptibility agreements and time of use rates.
Based on informal conversations with Avista, the Commission is apprised that the
Company’s intention is to issue its RFP by August 24, 2000, and to file its 2000 electric
Integrated Resource Plan later this year. The Company solicits comments on its filings from the
Commission, the Commission Staff and the public.

On July 21, 2000, the Commission issued a Notice of Filing in Case
No. AVU-E-00-8 and established an August 11, deadline for the filing of written comments. The
Commission Staff was the only party to file comments.

ORDER NO. 28542 1
As reflected in Staff comments, Avista’s updated 1997 IRP serves as a basis for the
planned RFP. Staff notes that by prior Commission Order No. 22299, electric utilities are
required to submit IRPs every two years. The Company in 1998 requested and by Commission
Order No. 27636 issued July 23, 1998, the Commission granted Avista a one-year extension of
its 1999 IRP filing requirement to August 2000.
The Company’s updated load forecast was prepared in the summer of 1999. The
electric energy forecast shows an annual average load of 1,013 aMW in 2001 increasing to 1159
aMW in 2009. The peak forecast shows 1,594 MW in 2001 with 1851 MW in the year 2009.
The sale of the Centralia coal-fired plant, Staff notes, resulted in a loss of 201 MW
of capacity and 177 aMW of annual energy from Avista’s resource portfolio. A short-term
contract to replace the majority of lost generation started in July 2000 and extends through
December 2003. Most of Avista’s existing purchase and sales agreements terminate by the year
2003.
In examining the Company’s load-resource balance, Staff notes that the deficits
appearing throughout the planning horizon are the same general magnitude as the purchase
contracts which are expiring. Avista does not believe that its expiring contracts can be renewed
or replaced by similar contracts. The Company does not believe that the need to acquire new
resources can be eliminated by future contract purchases.
The new load-resource balance for Avista shows that the Company is deficit, both
for energy and capacity, beginning now and extending through the entire planning horizon.
Deficits in 2000 are 395 MW of peak capacity and 237 aMW of energy. Deficits dropped to a
low of 30 MW peak capacity and 149 aMW of energy in 2003 primarily due to the expiration of
sales contracts. However, they quickly increase again to 430 MW of peak capacity and 370
aMW of energy in 2006, because of the ending of the contract hydro from the mid-Columbia
PUD projects (Priest Rapids and Upper Wanapum). Avista is hopeful that contract extensions
can be negotiated, but cannot include these resources in its planning without certainty of the
contracts.
Staff notes that Avista’s IRP includes both operating and planning reserves.
Operating reserves are 5% of hydro generation and 7% of thermal generation, which are amounts
required by the Western Systems Coordinating Council. Planning reserves are also included to
account for cold weather, generator-forced outages and contingencies such as river freeze-up at

ORDER NO. 28542 2
hydroelectric plants. This provides the Company with about 15% reserves based on forecasted
peak loads.
Besides examining a simple load-resource balance, Staff states that Avista also
performed extensive hourly modeling of its existing loads and resources. Both critical and
normal hydro conditions were examined. New resources are expected to have an impact on the
resource dispatch sequence because of the fuel supply and marginal cost. Both Staff and the
Company recognize that natural gas prices are critical in a “buy or build” decision, and that
future prices for new electric generation will be heavily influenced by the cost of gas. Avista
forecasted electricity prices using a method that bases the price of electricity on forecasted gas
prices and electric generation efficiencies using gas as fuel.
The Company’s 1997 updated IRP identifies several resource options. Some of the
options that the Company has discussed and that are under consideration are the following:
Build a generating resource
Purchase existing or new generation assets
Complete system upgrades at generating facilities
Negotiate a long-term power purchase agreement
Buy in the short-term wholesale market
Purchase the output of a generating or cogeneration facility
Develop additional energy efficiency and demand side management (DSM)
programs
Buy energy efficiency through third-party developers

Customer load shedding is also being considered, although it is not generally
considered a firm resource. Retail load that can be interrupted or curtailed under specific
circumstances can free-up temporary capacity and energy. The Company plans to explore those
possibilities through contract negotiations through large customers.
Avista reports that it is constantly assessing the markets in order to buy and sell
power on an hourly and daily basis. Most marketers and utilities, however, do not want to
commit to long-term sales due to uncertainty in the markets. Avista states that it needs a
resource that can provide additional benefits in support of the existing generation system. What
is needed, the Company states, is a resource that can be dispatched, follow load, and provides a
capacity component. Avista points out that a natural gas fired electric generation plant is one
example of a resource that could meet the Company’s needs. The Northwest Planning Council
projects costs for natural gas-fired projects ranging from 41 to 43 mills.

ORDER NO. 28542 3
The Company reports that at this point in time the following resources will not pass
the initial screening. The following costs are nominal life-cycle, levelized costs.
Nuclear: Costs are over the 100 mills per kilowatt-hour range. The total
cost and the lack of public acceptance make this resource option
unacceptable.

Coal: Costs are 80 to 90 mills. The total cost and cost uncertainty in air
quality issues make this resource option unacceptable.

Wind: Costs are 60 to 80 mills. There are indications that costs are
declining but Avista studies show there are no favorable sites in its service
territory so transmission costs would have to be added. Because wind is
intermittent, the resource would also have to be discounted for lack of
capacity component. This would make this resource option unacceptable.

Geothermal: Costs are 80 to 100 mills making this resource option
unacceptable.

Solar: Costs are over 240 mills making this resource option unacceptable.

While the Company’s preliminary screening is helpful in making general
comparisons between various alternatives, Staff believes that the true test of whether they are
viable will come once Avista receives and evaluates responses to its RFP. Although proposals
for new generation may seem most likely, Staff believes the RFP should encourage innovation
and creativity. Staff believes that DSM renewables, distributed generation, load management,
voluntary curtailment and various other alternatives should be eligible to bid under the RFP and
that should they be bid that they be fairly compared against new generation as well as against
each other. All of Staff’s recommendations, both written and verbal, were addressed by the
Company in a preparation of the final draft of the RFP. Staff, after thoroughly reviewing the
Company’s updated 1997 IRP, believes that the release of the RFP seeking proposals for up to
300 MW of new power in 2004 is an appropriate action.

Staff recommends that the filings of record and comments in Case No. AVU-E-00-8
be acknowledged and that the docket be closed.
Staff apprises the Commission that the Company’s deadline for submitting proposals
in response to its RFP was September 18, 2000. The Company received 32 proposals from 23
different parties. A total of 2900 MW were bid in response to the Company’s request for 300

ORDER NO. 28542 4

ORDER NO. 28542 5
MW. Avista plans to determine a preliminary short list by October 6, select a short list for
negotiation by October 24, and make a final selection by November 3. The Company also plans
to submit a final evaluation report to the Commission by January 15, 2001.
COMMISSION FINDINGS
The Commission notes that the Company’s filings in Case No. AVU-E-00-8 were
informational and were not required by statute or Commission Order. The Company solicited
only comment. Approval therefore is not necessary. The Company is commended for soliciting
public input into its RFP process. The comment period having expired, the Commission finds it
reasonable to close the docket in this case.
O R D E R
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED and the Commission does hereby close the docket in Case No. AVU-E-
00-8.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code § 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of October 2000.

DENNIS S. HANSEN, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

PAUL KJELLANDER, COMMISSIONER
ATTEST:

Jean D. Jewell
Commission Secretary

vld/O:AVU-E-00-8_sw