20061006Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 1895
RECEIVED
200G OCT - 6 AM II:
10l,j-lO ~)JjLiC
UTILITIES COMMISSION
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
THOMPSON RIVER CO-GEN, LLC, a ColoradoCompany, CASE NO. AVU-O5-
COMPLAINANT
vs.
COMMENTS OF THE
COMMISSION STAFF
A VISTA CORPORATION dba A VISTA
UTILITIES, a Washington Corporation,
RESPONDENT.
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Contract Filing, Notice of Modified Procedure and Notice of Comment/Protest Deadline issued
on September 7, 2006, submits the following comments.
BACKGROUND
Beginning in January 2005, Avista Utilities (Avista; Company) and Thompson River Co-
gen, LLC (Thompson River; TRC) began communications regarding a possible sale of power
from TRC to Avista. TRC is a cogeneration facility located in Thompson Falls, Montana. TRC
STAFF COMMENTS OCTOBER 6, 2006
represents itself to be a self-certified qualifying facility (QF) as defined by the Public Utility
Regulatory Policies Act of 1978 (PURP A).
After months of discussions, the parties found themselves unable to reach agreement on a
power purchase and sale agreement. On August 30 2005, TRC filed a Complaint against Avista
with the Idaho Public Utilities Commission (Commission). TRC requested an Order requiring
Avista to immediately complete the purchase of TRC's energy at the published non-levelized
rate for fueled projects that under normal and average design conditions generate no more than
10 aMW in any given month.
After the Complaint was filed, settlement discussions ensued. On March 13, 2006, the
Commission was apprised by Staff that Avista and Thompson River had reached an agreement in
principle on the substantive terms of a power purchase contract. A scheduled technical hearing
was vacated. On August 31 , 2006, Avista and Thompson River filed a Joint Petition in Case No.
A VU-05- 7 requesting approval of a negotiated 20-year Power Purchase and Sale Agreement
(Agreement) dated August 25, 2006.
ANALYSIS
TRC is a Montana corporation that operates a thermal wood waste/coal generation
facility power plant located at Thompson Falls, Montana. The TRC facility is capable of
generating up to approximately 13 MW of power. Avista will be the sole purchaser of TRC'
generation except in exceptional circumstances where transmission is not available from the
Facility to Avista s service territory. The maximum annual amount of energy that Avista is
obligated to purchase under the Agreement is 105 000 MWh (11.99 aMW per year). The facility
is located outside of Avista s service territory in Montana; consequently, TRC has entered into
an interconnection agreement with NorthWestern Energy to provide firm transmission of power
to Avista s Burke substation in Idaho.
Although the parties were in dispute over numerous contractual issues, the primary
disagreement seemed to be whether the TRC project capacity exceeded 10 MW, thus making it
ineligible for the published avoided cost rates. TRC contended that the facility, while capable of
generating more than 10 MW at times, would never be consistently operated over this capacity.
Consequently, TRC contended that it was eligible for the published avoided cost rate for non-
STAFF COMMENTS OCTOBER 6, 2006
fueled projects. The current non-fueled levelized rate for Avista for a 20-year contract is $61.66
per MWh for a 2006 online date.
A vista, on the other hand, alleged that the facility already had demonstrated its ability to
generate consistently at a capacity of approximately 13 MW. Because the project had a capacity
greater than lO MW, Avista believed TRC did not qualify for published avoided cost rates and
that the Company was obligated to offer a rate for energy purchases that was determined in
accordance with the IRP methodology adopted in Case No. IPC-95-, Order No. 26576.
Under that methodology, a project-specific rate is computed by the utility s power supply model
using assumptions and data consistent with the utility s Integrated Resource Plan. Using that
methodology, A vista computed a 20- year levelized rate of approximately $49 per MWh.
Under the negotiated terms ofthe Agreement, Avista has agreed to pay $58.50 per MWh
for all generation (Net Delivered Output) that is not Surplus Energy. Surplus Energy is energy
that falls outside of the 90-110 percent band established in Commission Order No. 29632 (Us.
Geothermal et al v. Idaho Power). For all Surplus Energy, Avista shall pay the current month'
Market Energy Cost per MWh or $58.50 per MWh, whichever is less. The $58.50 rate is fixed
for the life of the Agreement and therefore does not escalate.
The power purchase rate was negotiated as a compromise to resolve the contract dispute
between the parties. Staff believes that the negotiated rate is reasonable, and represents a fair
compromise. The rate is less than the published avoided cost rate, but greater than the rate
computed by the Company under the IRP-based methodology.
Because the mutually negotiated rates do not represent a levelized rate calculated from
published avoided cost rates, the parties have also agreed that there shall be no overpayment
obligation. Normally, contracts containing levelized rates require posting of liquid security or
other things in lieu of liquid security to mitigate the overpayment liability. Overpayment
liability occurs under a levelized contract when a utility pays more than the actual value of the
power in the early years of the contract, and less is the later years. Given the nature of the
negotiated rate, Staff believes it is reasonable to agree that no overpayment liability shall be
incurred.
Other terms of the Agreement represent a settlement of "other potential issues of
dispute." Staff has reviewed the Agreement and believes that the contract terms are reasonable
STAFF COMMENTS OCTOBER 6, 2006
within the scope of items Staff believes should be negotiable, and not in violation of any prior
Commission orders.
The contract operation date of the TRC project will be established once the contract is
approved. A vista may, however, terminate the Agreement should the operation date not be
achieved on or before October 31 , 2007.
RECOMMENDATION
Staff recommends that the 20-year Power Purchase and Sale Agreement between
Thompson River Co-gen, LLC and Avista be approved with an effective date of August 25
2006. Further, Staff concurs with the request of A vista and TRC that the following provisions be
included in the Comission s Order:
(1)approving the Agreement as a settlement of all known existing disputes between
the Parties raised in this case; and
(2)authorizing deferral and recovery ofTRC's power purchase costs in accordance
with Commission approved jurisdictional allocation and Power Cost Adjustment
PCA") methodology, and declaring that prices to be paid for energy and
capacity are just and reasonable, in the public interest, and that the cost incurred
by A vista for purchasing capacity and energy from TRC are legitimate expenses;
and
approving the Agreement as satisfaction of the entirety of Avista obligations(3)
under PURP A with regard to the Facility.
Dated at Boise, Idaho, this 721
&,
day of October 2006.
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Scott Woodbury
Deputy Attorney General
Technical Staff: Rick Sterling
i :/umisc/ commen ts/avueO5. 7 swrps
STAFF COMMENTS OCTOBER 6, 2006
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 6th DAY OF OCTOBER 2006
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-05-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
DAVID J. MEYER
SR VP AND GENERAL COUNSEL
A VISTA CORPORATION
PO BOX 3727
SPOKANE W A 99220-3727
E-mail dmeyer~avistacorp.com
KELLY NORWOOD
VICE PRESIDENT - STATE & FED. REG.
AVIS T A UTILITIES
PO BOX 3727
SPOKANE W A 99220-3727
E-mail Kelly.norwood~avistacorp.com
PETER J. RICHARDSON
RICHARDSON & O'LEARY PLLC
515 N 27TH ST
BOISE ID 83702
E-mail peter~richardsonandoleary.com
MIKE UDA
DONEY CROWLEY BLUMQUIST
PAYNE & UDA
SUITE 200
DIAMOND BLOCK
HELENA MT 59601
E-mail muda~doneylaw.com
1~,-
SECRET
CERTIFICATE OF SERVICE