20051118Amended answer.pdf

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David 1. Meyer
Vice President and Chief Counsel for
Regulatory & Governmental Affairs
A vista Corporation
1411 E. Mission Avenue, MSC-
PO Box 3727
Spokane, VV A 99220-3727
[phone]
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
THOMPSON RIVER CO-GEN, a
Colorado Company,
Respondent.
CASE NO. A VU-05-
Complainant
vs.
A VISTA CORPORATION, a VVashington
Corporation
AMENDED ANSVVER OF A VISTA
CORPORATION
Avista Corporation ("Avista ) answers the Complaint of Thompson River Co-Gen, LLC
(hereinafter "TRC") as follows:
SPECIFIC RESPONSES TO TRC'S COMPLAINT
VVith 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.
VVith respect to allegation 2 ofTRC's Complaint, Avista 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.
AMENDED ANSWER OF
A VISTA CORPORA nON -
VVith respect to allegation 3 of TRC's Complaint, A vista denies the same.
VVith respect to allegation 4 ofTRC's Complaint, Avista denies the same.
VVith respect to allegation 5 of TRC's Complaint, A vista is without sufficient
information to form an opinion, and therefore denies the same.
VVith respect to allegation 6 of TRC's Complaint, A vista admits the same.
VVith respect to allegation 7 of TRC's Complaint, A vista admits the same.
VVith respect to allegation 8 of TRC's Complaint, A vista admits the same.
VVith respect to allegation 9 of TRC's Complaint, A vista admits the same.
10.VVith respect to allegation 10 ofTRC's Complaint, Avista 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.VVith respect to allegation 11 of TRC's Complaint, A vista admits the same.
12.VVith respect to allegation 12 ofTRC's Complaint, Avista 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.VVith respect to allegation 13 of TRC's Complaint, A vista denies the same.
14.VVith 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.VVith respect to allegation 15 of TRC's Complaint, A vista denies the same.
16.VVith respect to allegation 16 of TRC's Complaint, A vista denies the same.
17.VVith respect to allegation 17 of TRC's Complaint, A vista is without sufficient
information to form an opinion, and therefore denies the same.
AMENDED ANSWER OF
A VISTA CORPORA nON - 2
18.VVith respect to allegation 18 of TRC's Complaint. A vista denies the same.
19.VVith respect to allegation 19 of TRC's Complaint, A vista denies the same.
20.VVith 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.VVith respect to allegation 21 of TRC's Complaint, A vista restates its answer to
allegation 20.
22.VVith 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.VVith 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.
AFFIRMATIVE DEFENSES
General Allegations 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
NorthVVestem Energy ("NorthVVestem ) for a duration often years with an option to extend for
five years, from its project near Thompson Falls. Montana. The power would be sold to
NorthVVestem at approximately $40.00 per megawatt hour for the first 13 megawatts for each
AMENDED ANSWER OF
A VISTA CORPORA nON - 3
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.
In January, 2005 , Avista received a communication from Mr. Mark Thompson
known to be an employee or representative ofNorthVVestern, a utility that provides retail electric
service in Montana, to the effect that North VV estern was assisting TRC in its efforts to sell power
from the TRC facility to a party other than North VV estern. 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 ofthe combination of the 10 megawatt amount
proposed for delivery to A vista, 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 North VV estern. Also , as part of the proposed sale of PURP A power to
Avista, Mr. Thompson indicated that electric energy output from TRC's project would be
firmed-up" by power from NorthVVestern s system.
On March 11 , 2005 , Mr. Michael Underwood, a principle ofTRC, furnished a
letter to A vista, expressing interest in obtaining a contract for the sale of power to A vista at
avoided cost rates applicable to fueled 10 megawatt or less projects.
On May 12 2005 , in a meeting with Avista, TRC proposed the following set of
energy sales arrangements:
TRC proposes wholesale electricity contracts with A vista Corp and
NorthVVestern
20 year PURPA (Qualifying Facility) contract with Avista Corp. (76% of
TRC Output.
10 MVV firm, base-load contract, delivered by NorthVVestern, as
scheduling agent.
AMENDED ANSWER OF
AVISTA CORPORATION - 4
20 year PPA with NorthVVestern for Surplus Energy (18% ofTRC Output).
NorthVVestern is the Scheduling Agent and Transmission Provider;
NorthVVestern firms, shapes and delivers energy to Avista Corp.
North VV estern purchases excess energy.
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
MVVH. (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 North VV estern was for a period of ten years, and that its proj ect would be a
twelve megawatt name-plate wood and coal-fired plant. TRC further represented that
NorthVVestern would resell that power to its own default customers.
In August 2005 , TRC represented to Avista that TRC's contract with
NorthVVestern was subject to various amendments. Via an email from Mark Thompson on
September 19 2005, NorthVVestern represented that the TRC contract with NorthVVestern 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
NorthVVestern or reports a termination or withdrawal ofTRC's FERC approved market rate
based tariff or sale obligation under the Federal Power Act. As a result, Avista is uncertain of
the legal relationship and obligations owed by TRC to NorthVVestern, except that based upon the
public record, TRC has committed to sell the output of its project to North VVestern, 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 North VVestern to serve its retail customers, can now
AMENDED ANSWER OF
A VISTA CORPORATION - 5
be sold to retail customers in Idaho at a higher price than that stated in TRC's contract with
Northwestern.
A vista reasonably determined that TRC qualified for avoided costs applicable to
larger than 10 megawatt facilities. Therefore, in July 2005, Avista 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 Avista 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 NorthVVestern. Avista s draft contract instead
proposed that North VVestern 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 A vista 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 A vista that any contract
obligation to deliver power to NorthVVestern 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
NorthVVestern s electric system in Montana with Avista s system in Idaho are unavailable
AMENDED ANSWER OF
A VISTA CORPORATION - 6
to transmit power from Montana to Idaho due to planned or unplanned operational
reasons;
TRC desired to be compensated by A vista for the output of its proj ect
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 Avista 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 VV ashington;
TRC would not agree that water would not be appropriated from the Clark
Fork River for use at its project in violation of Avista s down-stream Montana water
rights for the Noxon Dam;
TRC requires that A vista provide notice and allows Thompson River Co-
Gen a period of time in which to cure its default prior to A vista exercising its right to
terminate the agreement for failure to operate the Facility in accordance with certain
minimum critieria;
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 ofTRC's project
would be an average ten megawatts or less after subtracting station service, a sale of power to the
AMENDED ANSWER OF
A VISTA CORPORATION - 7
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
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
qualification of a project for filed rates for projects ten MVV 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 ten 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 ofTRC'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 NorthVVestern
another regional retail utility, in order to extract a windfall profit from Avista s customers.
AMENDED ANSWER OF
A VISTA CORPORATION - 8
Fourth Affirmative Defense
TRC fails to account for sales to Thompson River Lumber Company and/or
NorthVVestern 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.
Fifth Affirmative Defense
Following acquisition of the second half ofthe 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 Avista 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 of2006 is $7.875/MMBtu. The resultant
estimated "fueled" avoided cost would be approximately $77.35/MVVh.
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 ofTRC's project to be based upon Avista
Integrated Resource Plan.
III.
COMMUNICATIONS
Communications respecting this matter should be addressed to::
AMENDED ANSWER OF
A VISTA CORPORATION - 9
David J. Meyer
Vice President, Chief Counsel For Regulatory
and Governmental Affairs
A vista Corporation
O. Box 3727
1411 East Mission Avenue, MSC-
Spokane, VVashington 99220-3727
Telephone: [phone]
Facsimile: [phone]
Kelly O. Norwood
Vice President, State and Federal Regulation
A vista Corporation
O. Box 3727
1411 E. Mission Avenue, MSC-
Spokane, VV ashington 99220
Phone: [phone]
Fax: [phone]
IV.
CONCLUSION
For the foregoing reasons, Avista respectfully requests the Commission to dismiss
TRC's complaint, herein.
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RESPECTFULL Y SUBMITTED this
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y of..Oeto1J'er, 2005.
A VISTA CORPORATION
AMENDED ANSWER OF
A VISTA CORPORATION - 10
STATE OF VVASHINGTON)
: 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 VV ashington, , over the age of 18 years, not a party to this action; that on
lov
(,
, 2005, I personally caused to have served copies of AMENDED ANSVVER of
A VISTA CORPORATION as follows in the above-entitled action:
Jean Jewell """""""'U.Mail
CommissIOn Secretary Hand Delivery
4 72 W. Washington Facsimile
Boise, 10 83702-5983 Overnight Mail
Facsimile: 208-334-3762
PeterJ. Richardson, ISB# 3195 L-B.S. Mail
Richardson & O'Leary PLLC Hand Delivery
515 N. 27th Street Facsimile
Boise, 10 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
Helena, MT 59601
l3k-
R. Blair Strong
SIGNED and SVVORN TO before me this /&"day of November, 2005.
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NOT AR Y PUBLIC in and for the State of
VV ashington, residing in Spokane.
Commission Expires: 12/0112006
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AMENDED ANSWER OF
A VISTA CORPORATION -