20060726Comments.pdf

CECELIA A. GASSNER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 6977
RECEIVED
2006 JUL 26 PH 2= 00
IDAHO PUBLIC
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
IN THE MATTER OF AVISTA
CORPORATION'S "REVISED" APPLICATION
TO INCORPORATE REVISIONS TO TARIFF
SCHEDULES 62 AND 70 AND THE ADDITION
OF A NEW TARIFF SCHEDULE 63.
CASE NO. A VU-06-
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission, by and through its Attorney of record
Cecelia A. Gassner, Deputy Attorney General, in response to the Notice of Application and Notice of
Modified Procedure in Order No. 30093 issued on July 7 2006, submits the following comments.
BACKGROUND
On June 19, 2006, A vista Corporation ("A vista" or "Company ) filed a revised Application
with the Commission seeking authority to incorporate certain revisions into its tariff Schedules 62 and
70 and to add a new Schedule 63. Avista has requested approval of certain modifications to its tariff
on file with the Commission. Schedule 62 of its tariff sets forth tenus and conditions related to the
Cogeneration and Small Power Production Schedule. According to the Application, the three areas of
revision of the tariff are: (1) new tarifflanguage on interconnection standards for net-metered projects
less than 25 kW; (2) new and updated definitions for small power projects; and (3) housekeeping
changes to clarify verbiage.
STAFF COMMENTS JULY 26, 2006
STAFF ANALYSIS
Daily Shape Adjustment
Probably the most significant proposed change is the introduction of a "Daily Shape
Adjustment" that would apply to the published avoided cost rates for projects smaller than 10 aMW.
The proposed Daily Shape Adjustment would create a difference between on-peak and off-peak
avoided cost rates of $5 per MWh. The Daily Shape Adjustment would be prorated based on two-
thirds of the hours in a day being on-peak and one-third being off-peak. For example, if the published
avoided cost rate is $45.15 per MWh, the on-peak rate would be $46.82 and the off-peak rate would be
$41.82 per MWh. Attachment A illustrates what the avoided cost rates would be with and without the
Daily Shape Adjustment.
The effect of the proposed change would be that projects that generate more during on-peak
hours would receive greater revenue than if no Daily Shape Adjustment was applied, and projects that
generate more during off-peak hours would generate less revenue. Projects with a flat generation
shape spread evenly throughout the day would receive the same revenue and be unaffected by the
Daily Shape Adjustment.
For many years, both Avista and Idaho Power have applied "Seasonalization Factors" to the
published rates that effectively increase avoided cost rates in some seasons of the year and decrease
them in others. Seasonalization Factors have been employed as a means of recognizing that power
delivered to the utility is more valuable or less valuable depending upon the particular time of year
when it is delivered. Generally, power delivered in the summer and winter months, for example, is
more valuable than power delivered in the spring and fall months, due mostly to water and load
conditions. The proposed Daily Shape Adjustment follows the same logic but goes a step further in
recognizing that the value of power varies not only on a seasonal basis, but on an hourly basis as well.
Under Avista s proposal, both the Daily Shape Adjustment and the existing Seasonalization Factors
would be applied.
Like the Seasonalization Factors that have been used for many years, the proposed Daily Shape
Adjustment is not a precise way to adjust avoided cost rates to reflect the value of power at the time of
delivery. Instead, both mechanisms are rather crude adjustments that mostly just acknowledge that the
value of power depends on the timing of its delivery. While neither adjustment mechanism is
particularly accurate, both adjustments produce rates that are closer to real-time rates than ifno
adjustments were made. Avista believes that the proposed Daily Shape Adjustment provides a
STAFF COMMENTS JUL Y 26, 2006
measure of protection to the Company for power purchases that are not evenly delivered across all
hours and provides incentive for power producers to deliver power during more valuable hours.
The proposed amount of $5 per MWh as a Daily Shape Adjustment is a conservative estimate
of the difference in value between on-peak and off-peak prices (the "spread"). Avista reports that
historically the spread has been in the $3 per MWh to $6 per MWh range, but that recently the spread
has increased. According to the Company, the average spread was $5.31 per MWh, $10.71 per MWh
and $9.10 per MWh in 2004 2005, and the first 5 months of2006 respectively. In its 2005 IRP
Avista assumed a spread of $8.97 per MWh for the period 2007 through 2026. The Company states
that current forward markets show an average spread of$12.99 per MWh over the next 10 years.
A vista believes that using a lower value of $5 per MWh for the Daily Shape Adjustment is
conservative and prevents the difference in avoided cost rates between off-peak spring hours and the
annual unadjusted rate from becoming excessive.
One of Staff s concerns with a Daily Shape Adjustment is that it could introduce some
uncertainty in the monthly payments a small power producer would receive because many small power
producers have no way of accurately knowing how many kilowatt-hours their project will produce in
on-peak vs. off-peak hours. A wind project, for example, is one type of proj ect that could be most
affected. Under the proposed Daily Shape Adjustment, a wind project would not only be faced with
uncertainty about its monthly generation, but its daily generation as well. Historically, project
developers have been quite opposed to anything that introduces greater uncertainty into monthly cash
flows.
Another concern of Staff is the need for hourly metering capability at all future projects. Some
existing projects, particularly if they are very small, do not have hourly metering capability. Avista
assures Staff, however, that all future projects, regardless of size, will have hourly metering capability.
In addition A vista assures Staff that the increased complexity of payment and recordkeeping for on-
peak and off-peak generation will not be problematic.
Staff s final concern is that adoption of a Daily Shape Adjustment introduces additional
complexity to an already fairly complex system of avoided cost rates. The additional complexity is
certainly manageable for Avista and the Commission Staff, but it could cause some confusion with
project developers.
Despite the concerns discussed above, Staff believes the advantages of a Daily Shape
Adjustment outweigh the disadvantages. Staff is supportive of the concept of a daily shape adjustment
because, although crude, it more closely matches avoided cost rates to the true value of power at the
STAFF COMMENTS JULY 26, 2006
time of delivery. Staff therefore recommends that the Daily Shape Adjustment be approved as
proposed, and that it be a requirement for all future qualifying cogeneration and small power
production facilities (QFs) with Avista contracts. Staff does not recommend that a Daily Shape
Adjustment be required for Idaho Power and PacifiCorp at this time.
To clarify how the Daily Shape Adjustment would be applied, Staff recommends that the
following language be added to the definition of Daily Shape Adjustment:
The "Daily Shape Adjustment" increases the on-peak rate and decreases the
off-peak rate such that the difference between the on-peak and off-peak rate is
$5/MWh and the average rate weighted by the number of on-peak and off-peak
hours is equal to the unadjusted avoided cost.
Equating the term "fueled" with "natural gas-fueled"
In its Application, A vista is also proposing to further refine the definition of the tenn "fueled"
as it relates to avoided cost rates, to mean "natural gas fueled." By way of background, in 1995 the
Commission approved two avoided cost rate methodologies for QFs. One methodology was adopted
for "non-fueled projects, e., wind, solar, hydro " and a separate methodology was approved for
pricing power generated by "fueled projects." Order No. 25884. Order No. 25884 did not provide
examples of fueled projects but did state that it was the Commission s intent to encourage the
development of non-fossil fuel generation. Both methodologies assume the costs Idaho Power would
avoid and the costs associated with a combined cycle combustion turbine (CCCT). The
methodologies, although structured differently, are presumed to be equivalent, each representing the
purchasing utility s avoided costs, i., the "incremental costs to an electric utility of electric energy or
capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, such
utility would generate itself or purchase from another source." 18 C.R. ~ 292.101(b)(6).
In Case No. IPC-01-, Idaho Power sought clarification as to whether non-fossil fuel-fired
generating facilities utilizing waste products as fuel will also qualify for non-fueled rates. In that case
Staff contended that the fueled/non-fueled designation was never intended to be descriptive of the
types ofprojects eligible for each type of rate because the rates were designed to be equivalent. The
designation, Staff believed, was only intended to refer to the manner in which each type of rate was
computed. Staff and all other commenting parties recommend that QF developers be pennitted to
choose either fueled or non-fueled rates. The Commission disagreed, however, stating
The Commission has reviewed its prior Order No. 25884 issued in Case
No. IPC-93-28. It seems clear to us that the Commission intended and
meant something more than a calculation methodology when it used the tenus
ST AFF COMMENTS JULY 26, 2006
fueled" and "non-fueled.By way of clarification, we find that the
Commission s intent in that Order was to use "non-fueled" to mean non-fossil
fueled projects and "fueled" to mean fossil fueled projects. Accordingly, we
find that projects fueled by animal or wood waste are non-fueled projects that
are eligible for non-fueled rates. Reference Order No. 28945 , Case No. IPC-
01-
One reason for further restricting the definition of "fueled" is to focus the application of the
natural gas-based adjustable component of avoided cost rates onto only projects that use natural gas as
a fuel. Avista has recently been negotiating with a coal-fueled Montana cogeneration project for a
PURPA contract (See Case No. A VU-05-7). Although the project primarily uses coal as a fuel
according to the Application in Case No. A VU- E-05- 7, it meets the requirements of a QF and is
therefore eligible to receive avoided cost rates.
The argument in favor of restricting the tenn "fueled" to mean only "natural gas fueled" is that
only natural gas fired projects have fuel costs that track natural gas prices. Coal projects, although
they are fossil fueled, have relatively stable fuel costs that are not closely tied to natural gas prices.
The argument against narrowing the definition of "fueled" is that one of the Commission s stated
intentions in adopting fueled and non-fueled rates was to encourage the development of non-fossil
fueled projects.
Staff believes that how the tenn "fueled" is precisely defined is a policy question that should
rest with the Commission. There is good rationale for either maintaining the current definition or for
narrowing it. Staff believes the implications of either choice in direction for the definition will be
minimal because extremely few fossil-fueled projects are likely to use anything other than natural gas.
Schedule 70 - Interconnection Standards
One area of revision adds "Interconnection Standards" to the Company s "rules and
Regulations" tariff sheet 70-r through 70-x, describing general conditions, requirements and technical
specifications for the safe and reliable operation of interconnected customer-owned generation
facilities. This tariff language will provide standard guidelines for interconnection as more customers
opt for or consider the addition of self-owned generation. Included in the Company s proposed
revisions is infonnation on general conditions such as applications and agreements, unauthorized
connections, dedicated distribution transfonner, metering, labeling, insurance and liability, future
modification or expansion, customer-owned equipment protection and interconnection costs. Also
included are technical specifications and interconnection requirements. The Company believes that
STAFF COMMENTS JULY 26, 2006
these interconnection standards are "industry standards" and desires to have these included in its tariffs
as customers express more interest in self-owned generation.
A vista s proposed interconnection standards are very similar to standards that Idaho Power has
included in its Schedule 72 for many years. Those standards have proven adequate and have not led to
customer complaints or confusion. Consequently, Staff believes that the proposed interconnection
standards are acceptable and recommends that they be approved.
Schedule 62
The Company has made several additions to the "Definitions" section to support tariff Schedule
62. These additions include the definitions for the following: Market Energy Rate, Daily Shape
Adjustment, Facility, In-Service Date, Interconnection Service Agreement, Network Distribution
System, Point of Common Coupling, Qualifying Facility, and Seasonal Factors. In addition, several
administrative changes have been made to reflect the change in applicability of Schedule 62 to no more
than 10 average megawatts and to clarify and/or delete verbiage under "Power Rates" to clarify the
Non-Finn Energy Rate" and the applicability of the Seasonal and Daily Shape adjustments. Staff
would characterize these changes as "housekeeping" changes as either necessary for clarification
purposes or to insure that the tariff confonns to prior Commission orders.
Schedule 63 - Net Metering
The Company has removed the "Net Metering Option" from Schedule 62 and adds this to a
new Schedule 63 to be consistent with changes made to the Company s Washington tariff. Staff has
no objection to this change.
STAFF RECOMMENDATION
Staff recommends approval of the tariffs as filed, but with one addition. Staff recommends that
the following language be added to the definition of Daily Shape Adjustment:
The "Daily Shape Adjustment" increases the on-peak rate and decreases the
off-peak rate such that the difference between the on-peak and off-peak rate is
$5/MWh and the average rate weighted by the number of on-peak and off-peak
hours is equal to the unadjusted avoided cost.
STAFF COMMENTS JULY 26, 2006
Respectfully submitted this jI,~.,e- day of July 2006.
cece
Deputy Attorney General
Technical Staff: Rick Sterling
i: umisc: commen ts/avueO6 Acgrps
STAFF COMMENTS JULY 26, 2006
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 26TH DAY OF JULY 2006
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF IN CASE
NO. AVU-06-, BY E-MAILING A COpy THEREOF AND BY MAILING A COpy
THEREOF, POSTAGE PREPAID , TO THE FOLLOWING:
DAVID J. MEYER
SR VP AND GENERAL COUNSEL
A VISTA CORPORATION
1411 EMISSION AVE, MSC-
SPOKANE W A 99220
E-mail dmeyer~avistacorp.com
KELLY NORWOOD
VICE PRESIDENT - STATE & FED. REG.
AVISTA UTILITIES
1411 EMISSION AVE, MSC-
SPOKANE W A 99220
E-mail Kelly.norwood~avistacorp.com
~:J). k~u
SECRETARY
CERTIFICATE OF SERVICE