20051005Answer.pdf

CE1\/ED
... ..' /
:;\j o.
- -.
-- to',; i
j' . .. ' . ,:.. :
'; 'i"BEFORE THE IDAHO PUBLIC UTILITIES COMMISSIOljrij \'ir~\~
~/~~
f~;
. ,,_.
11.._
- "".,
Ld....",Iii
Respondent.
CASE NO. A VU-O5-
THOMPSON RIVER CO-OEN, a
Colorado Company,
Complainant,
vs.
ANSWER OF A VISTA CORPORATION
VISTA CORPORATION, a Washington
Corporation,
A vista Corporation ("A vista ") answers the Complaint of Thompson River Co-Oen, LLC,
(hereinafter "TRC") as follows:
SPECIFIC RESPONSES TO TRC'S COMPLAINT
With respect to allegation 1 of TRC's Complaint, A vista admits that a facility
owned by TRC is located at Thompson Falls , Montana, and such facility may be operated as a
cogeneration facility in conjunction with a neighboring lumber mill owned by Thompson River
Lumber Company.
With respect to allegation 2 of TRC's Complaint, A vista admits that TRC has
filed a notice of self-certification with the Federal Energy Regulatory Commission ("FERC"
the contents of which are a matter of public record.
With respect to allegation 3 of TRC's Complaint, A vista denies the same.
With respect to allegation 4 of TRC's Complaint, A vista denies the same.
ANSWER OF
VISTA CORPORATION -
With respect to allegation 5 of TRC's Complaint, A vista is without sufficient
information to form an opinion, and therefore denies the same.
With respect to allegation 6 of TRC's Complaint, A vista admits the same.
With respect to allegation 7 of TRC's Complaint, A vista admits the same.
With respect to allegation 8 of TRC's Complaint, A vista admits the same.
With respect to allegation 9 of TRC's Complaint, A vista admits the same.
10.With respect to allegation 10 of TRC's Complaint, A vista admits that TRC has
contended that it has a right to a contract with A vista at the published avoided cost rates
applicable to ten megawatt or less projects.
11.With respect to allegation 11 of TRC's Complaint, A vista admits the same.
12.With respect to allegation 12 of TRC's Complaint, A vista admits that it believes
that TRC's project does not qualify for the published avoided cost rates applicable to ten
megawatt or less projects.
13.With respect to allegation 13 of TRC's Complaint, A vista denies the same.
14.With respect to allegation 14 of TRC's Complaint, A vista denies that it has
disregarded orders of this Commission. A vista also denies TRC's characterization of prior orders
of the Commission.
15.With respect to allegation 15 of TRC's Complaint, A vista denies the same.
16.With respect to allegation 16 of TRC's Complaint, A vista denies the same.
17.With respect to allegation 17 of TRC's Complaint, A vista is without sufficient
information to form an opinion, and therefore denies the same.
18.With respect to allegation 18 of TRC's Complaint. A vista denies the same.
19.With respect to allegation 19 of TRC's Complaint, A vista denies the same.
ANSWER OF
A VIST A CORPORATION - 2
20.With respect to allegation 20 of TRC's Complaint, A vista admits that TRC and
A vista disagree about the qualification of TRC for published avoided cost rates applicable to ten
megawatt or less projects.
21.With respect to allegation 21 of TRC's Complaint, A vista restates its answer to
allegation 20.
22.With respect to allegation 22 of TRC's Complaint, A vista admits that it informed
TRC the week of August 22, 2005 of its understanding based upon the facts that TRC's project
did not qualify for published avoided cost rates applicable to ten megawatt or less projects.
23.With respect to allegation 23 of TRC's Complaint, A vista restates its answer to
allegation 20, but denies giving specific advice to TRC as to how a resolution of disputed issues
might be accomplished.
24.A vista denies all allegations or portions thereof, not admitted herein.
II.
AFFIRMA TIVE DEFENSES
General Allee:ations of all Affirmative Defenses
In 2002 and 2003, TRC filed for approval with the Federal Energy Regulatory
Commission ("FERC") a power sales contract under which TRC agreed to sell power to
NorthWestern Energy ("NorthWestern ) for a duration of ten years with an option to extend for
five years, from its project near Thompson Falls. Montana. The power would be sold to
NorthWestern at approximately $40.00 per megawatt hour for the first 13 megawatts for each
hour and the Mid-Columbia index price minus $3.00 per megawatt for amounts in excess of
megawatts for each hour. The project was characterized as a 16 megawatt project.
ANSWER OF
VISTA CORPORATION - 3
In January, 2005, Avista received a communication from Mr. Mark Thompson,
known to be an employee or representative of NorthWestern, a utility that provides retail electric
service in Montana, to the effect that NorthWestern was assisting TRC in its efforts to sell power
from the TRC facility to a party other than NorthWestern. Mr. Thompson represented that he
was acting as a consultant for TRC. In more recent discussions, TRC has been represented by
persons other than Mr. Thompson.
TRC initially represented to A vista that the project was a 13 megawatt facility and
that power generated by the project in excess of the combination of the 10 megawatt amount
proposed for delivery to Avista, station service load, power to serve the Thompson River Lumber
Company load, and transmission losses associated with delivery of power to A vista in the state
of Idaho, would be sold to NorthWestern. Also, as part of the proposed sale of PURP A power to
A vista, Mr. Thompson indicated that electric energy output from TRC's project would be
firmed-up" by power from NorthWestern s system.
On March 11 , 2005, Mr. Michael Underwood, a principle of TRC, furnished a
letter to A vista, expressing interest in obtaining a contract for the sale of power to A vista
avoided cost rates applicable to fueled 10 megawatt or less projects.
On May 12, 2005, in a meeting with A vista, TRC proposed the following set of
energy sales arrangements:
TRC proposes wholesale electricity contracts with A vista Corp and
North W estern
20 year PURPA (Qualifying Facility) contract with Avista Corp. (76% of
TRC Output.)
10 MW firm, base-load contract, delivered by NorthWestern, as
scheduling agent.
20 year PPA with NorthWestern for Surplus Energy (18% ofTRC Output).
NorthWestern is the Scheduling Agent and Transmission Provider;
NorthWestern firms, shapes and delivers energy to Avista Corp.
NorthWestern purchases excess energy.
ANSWER OF
VISTA CORPORATION - 4
Thermal and Electric Sales to Thompson River Lumber
TRC has a 45-year agreement with Thompson River Lumber (TRL) to
provide the mills electric requirements. Average busbar netback of $40.00 per
MWH. (6% ofTRC Output).
In a response to a Compliance Order issued by FERC on May 31,2005, TRC
filed with FERC an updated market analysis dated July 22, 2005 (FERC Docket No. ER02-298-
003). In its filing TRC represented to FERC that it operated in the Montana market, that its
contract to sell to NorthWestern was for a period often years, and that its project would be a
twelve megawatt name-plate wood and coal-fired plant. TRC further represented that
NorthWestern would resell that power to its own default customers.
In August 2005, TRC represented to A vista that TRC's contract with
NorthWestern was subject to various amendments. Via an email from Mark Thompson on
September 19,2005, NorthWestern represented that the TRC contract with NorthWestern is no
longer in effect having terminated under its own terms in May 2004, because of the failure of the
facility to achieve certain milestones. However, upon due diligence, A vista has been unable to
discover on file with FERC any filing that reports amendments to the TRC contract with
NorthWestern or reports a termination or withdrawal of TRC's FERC approved market rate
based tariff or sale obligation under the Federal Power Act. As a result, A vista is uncertain of
the legal relationship and obligations owed by TRC to NorthWestern, except that based upon the
public record, TRC has committed to sell the output of its project to NorthWestern, pursuant to a
contract that is subject to the jurisdiction of FERC. A vista has not received assurances that
TRC's power, that is currently being used by NorthWestern to serve its retail customers, can now
be sold to retail customers in Idaho at a higher price than that stated in TRC's contract with
Northwestern.
ANSWER OF
VISTA CORPORATION - 5
A vista reasonably determined that TRC qualified for avoided costs applicable to
larger than 10 megawatt facilities. Therefore, in July 2005, A vista provided TRC with a draft
term sheet, including proposed pricing based upon Avista s Integrated Resource Plan. In early
August 2005 , A vista prepared and extended a written draft contract for consideration to TRC, in
which the purchase rates were again based upon A vista s Integrated Resource Plan.
A vista s draft contract excluded the long-term firming and shaping service that
Mark Thompson had proposed to be provided by NorthWestern. Avista s draft contract instead
proposed that NorthWestern provide an hourly schedule firming and near-term balancing service.
10.In response to A vista s draft contract, TRC produced and delivered to A vista its
own contract draft. In addition to proposing that the contract rates be based upon the "fueled"
published avoided cost rates applicable to ten megawatt or less projects, various other material
changes from Avista s draft were proposed. There are many issues unresolved between the
Parties. Among the more serious issues are the following:
TRC would not give contract assurances to Avista that any contract
obligation to deliver power to NorthWestern had ceased or would cease;
TRC would not agree to A vista s proposals for insurance and second lien
provIsIons;
TRC would not agree to transmitting its power to alternative delivery
points in the event that the transmission lines near Burke, Idaho that connect
NorthWestern s electric system in Montana with Avista s system in Idaho are unavailable
to transmit power from Montana to Idaho due to planned or unplanned operational
reasons;
ANSWER OF
VISTA CORPORATION - 6
TRC desired to be compensated by A vista for the output of its project at
those times that Avista was unable to receive the output from the project due to planned
or unplanned operational problems with the transmission lines near Burke, Idaho;
TRC would not agree to undertake proceedings before the Idaho Public
Utilities Commission to have all costs of the purchase contract attributed to A vista s retail
rates in Idaho, in the event that such costs were not approved to be a part of A vista s retail
rates in the state of Washington;
TRC would not agree that water would not be appropriated from the Clark
Fork River for use at its project in violation of A vista s down-stream Montana water
rights for the Noxon Dam;
TRC would not agree to an A vista right to terminate the agreement for
failure to achieve minimum delivery requirements;
TRC would not agree to an A vista right to terminate the agreement for
failure to maintain a firm transmission path to a primary delivery point; and
TRC limited its liability for losses that it might owe to third party
transmission providers to 4%, which would have the effect of displacing part of its
liability for transmission losses to A vista s customers.
11.In addition, at various times, TRC represented that the output of TRC's project
would be an average ten megawatts or less after subtracting station service, a sale of power to the
Thompson River Lumber Company (a separately owned neighboring company) and transmission
losses associated with delivery of power to Avista s system in Idaho. However, the "net output"
rule of FERC defines net output of a PURP A project to be determined at a point prior to the
interconnection with loads that are not associated with the production of the power. TRC's offer
ANSWER OF
A VIST A CORPORATION - 7
fails to provide for the measurement of net power output prior to the delivery point at which
TRC serves the load of the Thompson River Lumber Company. The determination of
qualification of a project for filed rates for projects ten MW and less should be made on a
consistent basis that utilizes the FERC "net output" standard. The failure of TRC to
appropriately measure the "net output" as required by FERC would allow its project, in effect, to
produce greater than megawatts, even if measured on an average monthly basis, while claiming
an entitlement to be paid for its power as though it were a ten megawatt or less project.
First Affirmative Defense
TRC's project is a larger than ten megawatt facility, and therefore is not entitled to
avoided cost rates applicable to ten megawatt and less projects.
Second Affirmative Defense
The output of TRC's project is committed by contract and/or FERC tariff to the sale to a
retail serving utility in Montana. Therefore, TRC is not ready or able to commit to supply power
to a retail serving utility in Idaho.
Third Affirmative Defense
It is against the public interest to apply Idaho s published avoided cost rates in a manner
that provides an incentive to TRC to discontinue sales at a favorable rate to NorthWestern
another regional retail utility, in order to extract a windfall profit from A vista s customers.
Fourth Affirmative Defense
TRC fails to account for sales to Thompson River Lumber Company and/or
NorthWestern when determining the net output of its project. Therefore, even if measured on an
average monthly basis, the output of its project will likely exceed ten average megawatts when
measured at the appropriate point.
ANSWER OF
A VISTA CORPORATION - 8
Fifth Affirmative Defense
Following acquisition of the second half of the Coyote Springs 2 project in January 2005
Avista no longer has natural gas-fired combined cycle combustion turbines in its resource
acquisition plans. The avoided cost rates requested by TRC are based upon a natural gas-fired
combined cycle combustion turbine project, which is not representative of A vista s next resource
or avoided resource.
Natural gas prices are unusually high, which has a significant impact on the current and
projected immediate future "fueled" avoided cost rates. Based upon a combination of year-to-
date and forward market natural gas prices for 2005, the projected gas price that would become
the basis for the "fueled" avoided cost in July of 2006 is $7.875/MMBtu. The resultant
estimated "fueled" avoided cost would be approximately $77.35/MWh.
It is not in the public interest for Avista to pay high prices for TRC's coal-fired/wood-
fired generation that are driven by the current extraordinary natural gas market conditions,
because natural gas-fired generation is no longer Avista s avoided resource. Therefore, the
Commission should require pricing for the purchase of TRC's project to be based upon A vista
Integrated Resource Plan.
III.
COMMUNICA TIONS
Communications respecting this matter should be addressed to::
David J. Meyer
Vice President, Chief Counsel For Regulatory
and Governmental Affairs
A vista Corporation
O. Box 3727
1411 East Mission Avenue, MSC-
Spokane, Washington 99220-3727
Telephone: [phone]
Facsimile: [phone]
ANSWER OF
VISTA CORPORATION - 9
Kelly O. Norwood
Vice President, State and Federal Regulation
A vista Corporation
O. Box 3727
1411 E. Mission Avenue, MSC-
Spokane, Washington 99220
Phone: [phone]
Fax: [phone]
IV.
CONCLUSION
For the foregoing reasons, A vista respectfully requests the Commission to dismiss
TRC's complaint, herein.
RESPECTFULLY SUBMITTED this
~~
ay of September, 2005.
AVISTA CORPORATION
By:
?~
r:.. C1 r;;J
Kelly O. ~orwood
Vice President, State and Federal Regulation
I:\Spodocs\11150\O4137\plead\answer\OO3491O5.DOC
ANSWER OF
AVISTACORPORATION - 10
ST ATE OF WASHINGTON)
: ss.
County of Spokane
R. BLAIR STRONG, being first duly sworn on oath, deposes and says:
That I am now and at all times herein mentioned was a citizen of the United States and a
resident of the State of Washington, , over the age of 18 years, not a party to this action; that on
September 28, 2005, I personally caused to have served a copy of ANSWER OF A VISTA
CORPORATION as follows in the above-entitled action:
Jean Jewell S. Mail
Commission Secretary Hand Delivery
472 W. Washington Facsimile
Boise, ill 83702-5983 Overnight Mail
Facsimile: 208-334-3762
Peter J. Richardson, ISB# 3195 X'.S. Mail
Richardson & O'Leary PLLC Hand Delivery
515 N. 27th Street Facsimile
Boise, ill 83702 Overnight Mail
Facsimile: 208-938-7904
Mike Uda S. Mail
Doney, Crowley, Blumquist, Payne & Uda Hand Delivery
Suite 200 Facsimile
Diamond Block Overnight Mail
Helema, MT 59601
15
R. Blair Strong
SIGNED and SWORN TO before me this 28th day of September, 2005.
Pri'!~e
NOT AR Y PUBLIC in and for the State of
Washington, residing in Spokane.
Commission Expires: 12/01/2006
ANSWER OF
VISTA CORPORATION -