20090522Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KEMPTON
COMMISSIONER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL

DATE: MAY 21, 2009

SUBJECT: CASE NO. AVU-E-09-04 (Avista)
PETITION FOR DECLARATORY ORDER – OWNERSHIP OF RECs
ASSOCIATED WITH QF PURPA CONTRACTS
PETITION FOR STAY – OF ANY REQUIREMENT TO AWARD RECs
TO QF REQUESTING A PURPA CONTRACT

On May 6, 2009, Avista Corporation (Avista) filed a Petition with the Idaho Public
Utilities Commission (Commission; IPUC) for a declaratory order determining the ownership of
the marketable environmental attributes (renewable energy credits or RECs) associated with
wholesale sales of energy by a qualifying facility (QF) under the Public Utility Regulatory
Policies Act of 1978 (PURPA) to a utility within the State of Idaho. IDAPA 31.01.01.101
(Petition for Declaratory Order).
Avista also petitions the Commission for a stay of “any requirement to award RECs
to any PURPA developer” that has tendered or may tender a PURPA project to Avista pending
issuance by the Commission of the requested declaratory order. IDAPA 31.01.01.053.01 (Stay
of Existing Orders or Rules).
Avista in its Petition and in the testimony of Clint Kalich, Manager of Resource
Planning and Power Supply Analyses in Avista’s Energy Resources Department, sets forth its
argument for a Commission Order declaring that the ownership of environmental attributes
associated with PURPA projects are to be assigned to the utilities that purchased the energy from
such projects. Avista does not believe that an evidentiary hearing is necessary to consider the
issues presented in its Petition and requests that the matter be processed under Modified
DECISION MEMORANDUM 2
Procedure, i.e., by written submission rather than by hearing. Reference Commission Rules of
Procedure, IDAPA 31.01.01.201-204.
BACKGROUND
In support of its Petition, Avista recites that in a petition for declaratory order seeking
an interpretation of Section 210 of PURPA, the Federal Energy Regulatory Commission
(FERC) determined that the ownership of environmental attributes (sometimes referred to
as RECs) is not controlled by PURPA. American Ref-Fuel Co., et al., 105 FERC ¶ 61,004,
p. 23 (2003), Order on Reh’g, 107 FERC 61,016, p. 12 (2004). FERC further held that
“States, in creating RECs, have the power to determine who owns the REC in the initial instance,
and how they may be sold or traded.” Id. Accordingly, Avista states, the Idaho Public
Utilities Commission has the authority to determine the ownership of environmental
attributes associated with a wholesale sale of energy by a QF to a utility under PURPA.
In 2004, Avista recites that Idaho Power Company filed a petition for declaratory
order from the IPUC “determining ownership of the marketable environmental attributes
associated with a PURPA Qualifying Facility when the [utility] enters into a long-term, fixed
rate contract for the purchase of the energy produced by that QF.” Case No. IPC-E-04-02, Order
No. 29480. Idaho Power recommended that the Commission determine that the qualifying
developers of new renewable resources receive full ownership rights in any green tags issued to
them conditioned upon the requirement that the QF developers who qualify for green tags and
from whom Idaho Power purchases energy grant the utility a “right of first refusal” to purchase
those tags.
As reflected in the Commission’s Order No. 29480:
All commenters recommend for different reasons that the ultimate relief
requested by Idaho Power, i.e., that the Company be provided a “right of first
refusal” to purchase the environmental attributes or green tags associated with
required QF purchases, be denied. PacifiCorp and Avista maintain that the
environmental attributes or green tags associated with renewable resources are
the property of the purchasing utility. The Bonneville Environmental
Foundation, Northwest Energy Coalition and Advocates for the West
recommend that the Commission confirm that QF developers own the
environmental attributes associated with their projects, free from rights of first
refusal. Exergy Corporation, Bob Lewandowski and Mark Schroeder and
Commission Staff contend that the Commission has no jurisdiction or
authority stemming from either PURPA, FERC implementing regulations or
Idaho state law to grant the requested relief.
DECISION MEMORANDUM 3
The Commission made the following findings:
We find that the issue presented by Idaho Power in its Petition does not
present an actual or justiciable controversy in Idaho and is not ripe for a
declaratory judgment by this Commission. Declaratory rulings are
appropriate regarding the applicability of any statutory provision or of any
rule or order of this Commission. See IDAPA 31.01.01.101; Uniform
Declaratory Judgment Act Idaho Code § 10-1201 et seq. A declaratory ruling
contemplates the resolution of prospective problems. The rights sought to be
protected by a declaratory judgment may invoke either remedial or preventive
relief; it may relate to a right that is only yet in dispute or a status undisturbed
but threatened or endangered; but in either event it must involve actual and
existing facts. Idaho Code Supreme Court in Harris v. Cassia County, 106
Idaho 513, 516-517, 618 P.2d 988 (1984). We find that none of the predicates
are present in this case. In making this finding, the Commission notes that
FERC on April 15, 2004 (Docket EL03-133-001, 107 FERC ¶ 61,016) denied
rehearing of its earlier October 1, 2003 Order (105 FERC ¶ 61 004). We note
also that the State of Idaho has not created a green tag program, has not
established a trading market for green tags, nor does it require a renewable
resource portfolio standard.

While this Commission will not permit the Company in its contracting
practice to condition QF contracts on inclusion of such a right-of- first refusal
term, neither do we preclude the parties from voluntarily negotiating the sale
and purchase of such a green tag should it be perceived to have value. The
price of same we find, however, is not a PURPA cost and is not recoverable as
such by the Company. Recovery of those expenses will be reviewed as are all
other non-PURPA costs.

The Commission in Order No. 29480 denied Idaho Power’s Petition for a Declaratory Order and
any all other relief requested by the commenting parties as may be related to the “environmental
attributes” associated with QF renewable energy.
Avista contends that since the Commission’s Order in Case No. IPC-E-04-02,
circumstances have substantially changed. Specifically:
1. PURPA rates have increased substantially.
The current avoided cost rates in the State of Idaho that Avista is required
to pay for energy generated by PURPA wind projects is $84.30/MWh (i.e.,
the 2010 levelized rate is $90.64/MWh which is reduced by 7% for wind
integration).

2. Interest in PURPA contracts has increased.
Avista is currently negotiating new PURPA contracts for five proposed
projects.
DECISION MEMORANDUM 4
3. States have adopted renewable portfolio standards.
The State of Washington has adopted renewable portfolio standards (RPS)
that require utilities, including Avista, to meet certain targets by 2012,
2016, and 2020. See RCW 19.285.010 et seq. Utilities can meet such
targets by acquiring equivalent renewable energy credits. RCW
19.285.040.

4. A robust market for RECs has emerged.
Avista is currently marketing RECs from its Spokane River projects, its
Kettle Falls biomass project, and its contracted interest in the Stateline
Wind Farm to other states that already have requirements. Kalich, p. 15.

5. The value of RECs has increased dramatically.
Recent market activity indicates that $15/MWh is a reasonable forward
price for RECs. Kalich, p. 5.

Avista contends that the rates Avista customers are required to pay for energy from
wind QF resources are substantially higher than the avoided costs associated with a similar
project that is developed, owned and operated by Avista or the contract price that Avista would
expect to pay for renewable energy acquired through a competitive process. The Northwest
Power and Conservation Council estimates for wind generation project development,
construction and operation result in an avoided cost of $64/MWh when levelized over 20 years.
Transferring the environmental attributes associated with a QF to the utility purchasing the
energy produced by that QF, Avista states, would reduce this disparity. Commission action is
now necessary, Avista contends, to ensure that “the rates for [purchases of electric energy] from
QFs [are] just and reasonable to the ratepayers of the utility, in the public interest, and [do] not
discriminate against cogenerators or small power producers [and do] not exceed the incremental
cost to the electric utility of alternative electric energy. . . .” Reference 18 C.F.R. §
292.101(b)(6) Definition – Avoided Costs and 292.304(a)(1)(i)(ii) Rates for Purchases.
COMMISSION DECISION
Avista requests a Commission Order declaring that the ownership of environmental
attributes associated with PURPA projects is to be assigned to the utilities that purchase the
energy from such projects. IDAPA 31.01.01.101. Pending issuance of a declaratory order,
Avista requests a stay of any requirement to award RECs to PURPA developers. IDAPA
31.01.01.053.01.
DECISION MEMORANDUM 5
Avista recommends that its Petitions be processed under Modified Procedure.
IDAPA 31.01.01.201-204. Staff notes that Petitions for Intervention have been filed by Idaho
Power, PacifiCorp, Idaho Forest Group, Sagebrush Energy, Exergy Development Group of Idaho
and Sorenson Engineering. Staff recommends that a Notice of Petitions for Declaratory Order
and Stay be issued, that an intervention deadline be established, and that a deadline be
established for initial written comments regarding the Petitions filed by Avista. How does the
Commission wish to process the Company’s Petitions?

Scott Woodbury
Deputy Attorney General

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