20140515Comments.pdf

KRISTINE A. SASSER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-03s7
BAR NO. 6618
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, TDAHO 83702-5918
Attorney for the Commission Staff
IN THE MATTER OF THE APPLICATION OF
AVISTA CORPORATION FOR APPROVAL OF
PROPOSED REVISIONS TO SCHEDULE 62.
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. AVU-E.14-03
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Kristine A. Sasser, Deputy Attorney General, and in response to the Notice
of Application and Notice of Modified Procedure issued in Order No. 33028 on April 24,2014,
in Case No. AVU-E-14-03, submits the following comments.
BACKGROUND
On March 28,2014, Avista Corporation filed an Application proposing revisions to its
tariff Schedule 62, Cogeneration and Small Power Production. The Application was submitted
in response to workshops held between parties to the GNR-E-I1-03 case. Avista maintains that
its proposed tariff revisions provide procedures to be used by Avista and Qualiffing Facility
("QF") developers in negotiating and entering into power purchase agreements for the sale of the
electrical output of QFs to Avista under PURPA at avoided cost rates.
Avista asserts that the proposed procedures generally (1) detail the information QF
developers are to provide to the Company; (2) provide timelines for both QF developers and
STAFF COMMENTS MAY I5,2OI4
Avista to following the process for negotiating and entering into a power purchase agreement;
and (3) provide a dispute resolution process in the event the parties are unable to agree on one or
more terms of a power purchase agreement.
In addition to proposing procedures for negotiating and entering into PURPA contracts,
Avista proposes to change the definition of "Market Energy Rate" to reference the PowerDex
hourly Mid-Columbia ("Mid-C") index instead of the Intercontinental Exchange ("ICE") non-
firm energy index.
STAFF ANALYSIS
Staff and Avista both actively participated in workshops conducted as part of the GNR-E-
l1-03 case. The purpose of the workshops in that phase of the case was to attempt to reach
consensus between QF developers, the utilities, and Staff on procedures to be used by utilities
and QF developers in negotiating and entering into PURPA power purchase agreements.
Although the workshops were productive, the parties failed to reach full consensus on all issues.
Avista's Application accurately reflects the outcome of the workshops on all issues where
consensus could be reached. Staff s comments will focus primarily on those outstanding issues
where consensus could not be reached.
Conditions for Indicative Pricing to be Binding on the Parties
Section D(ii)b of the "Contracting Procedures" section of Schedule 62 requires that as
one condition for making indicative pricing binding on the parties, in the event the parties do not
agree to execute a contract, the QF must file a meritorious complaint with the Commission
alleging a "legally enforceable obligation" has arisen and be able to deliver its electrical output
within 180 days of such determination. This issue was the subject of much debate during the
workshops, and workshop participants were unable to agree. Most parties agreed that it was
reasonable to place a limit on the length of time a utility's indicative price offer should stand.
The disagreement was over how long that time period should be.
Generally, two contrasting views have been expressed on this issue. One view is that
indicative prices developed by the utility have a reasonable "shelf life" and that if too much time
elapses before a QF commits to signing a contract, the prices become stale and are no longer an
accurate representation of the real value of power. Utilities contend that avoided costs can
STAFF COMMENTS MAY 15,2014
change considerably, sometimes within a relatively short period of time; therefore, the utilities
should not be required to preserve an offer of specific rates indefinitely.
The counter argument expressed by the QFs is that they need price assurance for a
reasonable period of time following contract execution in order to secure financing, complete
final project designs, procure equipment, complete construction, and bring the plant on line. The
QFs maintain that securing a power sales agreement is normally one of the first steps in the
development process rather than one of the last. Without a signed power sales contract, they
argue, they are unable to even begin the f,rnancing and construction phases of the project. They
also argue that utilities themselves typically seek some type of price or cost recovery assurance
in advance of committing to a major project, and that utility projects require a reasonable length
of time for financing and construction. Therefore, they contend, QFs should be entitled to
similar treatment as utilities.
Staff recognizes merit in both arguments. Consequently, Staff believes it is necessary to
try to balance both views. Staff believes a price offer must be maintained for a reasonable period
to enable projects to obtain financing and complete construction, but that the price offer not be
required to be maintained for any longer than necessary such that the prices become stale.
In order to determine what a reasonable time period might be, Staff reviewed all past
Idaho PURPA contracts. All PURPA contracts contain both a signature date and a "scheduled
operation date." The scheduled operation date is intended to represent the date on which the
project expects to achieve commercial operation and begin delivering energy to the utility on an
ongoing basis. The time difference between when the contract is signed and the scheduled
operation date presumably represents the length of time the project developer believes is
necessary to perform all the tasks required to bring a project online, including obtaining
financing and completing construction. A summary of Staff s analysis is depicted below.
STAFF COMMENTS MAY T5,2OI4
Days From Contract $ignature to Scheduled online Date
1S2 5
1460
1095
73CI
365
0
0.00 0.r0 0.20 0.30 0.40 0.50 0.60 0.7f) 0.80 0.$0 r.00
% Rank
The analysis shows that approximately 50 percent of projects specify an online date
within 365 days (one year) of contract signing. Approximately 90 percent specify an online date
within two years. Based on this analysis, and trying to balance competing interests of rate
staleness vs. rate certainty, Staff proposes 18 months rather than the 180 days proposed by
Avista. Staff believes that a I 80 day period is unrealistically short, but that an 18 month period
is a fair compromise between rate staleness and rate certainty. An l8 month period would have
accommodated almost 75 percent of past PURPA contracts.
Definition of Market Rate
In the definitions section of Schedule 62,"Market Rate" is defined as "85 percent (85%)
of the weighted average of the Intercontinental Exchange ("ICE") daily On- and Off-Peak Non-
Firm energy Index prices for electricity at the Mid-Columbia hub ("Mid-C")." Avista proposes
to change this definition because an ICE non-firm index does not exist. Consequently, Avista
proposes that the definition of Market Rate be changed to "85 percent (85%) of the PowerDex
hourly Mid-Columbia ("Mid-C") index."
The purpose of defining a Market Energy Rate is to establish a price for energy delivered
on a non-firm basis, i.e., delivered if and when it is available. Staff is not aware of any price
index that currently exists for non-firm energy. On the other hand, there are several indexes
currently reported for firm energy. Most are daily indexes that report prices and volumes based
on reported transactions.
It(3
STAFF COMMENTS MAY 15,2014
The PowerDex hourly index, however, reports volume-weighted prices based on actual
transactions in the WECC for each hour of every day. Although the PowerDex hourly index is
still not a non-firm index, it comes closer than any daily index to fairly pricing energy delivered
with very little advance notice. A firm hour ahead transaction obligates the seller to deliver,
whereas a non-firm hour ahead transaction only requires delivery if the energy is actually
available. While the value of each energy product differs, the difference is likely small.
Because no non-firm index exists, Staff believes there are only two reasonable options.
First, a daily index such as ICE or Platts could be used, but it would have to be discounted
somehow to reflect the difference in value between firm and non-firm energy. Alternatively, the
PowerDex hourly index could be used as a proxy to represent the value of non-firm energy.
Staff believes either option is reasonable; therefore, Staff is not opposed to Avista's proposal to
use the PowerDex hourly index.
The definition of "Market Rate" was not raised as an issue in the workshops to consider
contracting procedures. However, Staff believes that this is an appropriate time to correct the
definition because of Avista's Application to make other changes to Schedde 62. Avista
currently has no customers being paid for energy deliveries at the Market Rate.
RECOMMENDATIONS
Staff recommends that Section D(ii)b of the "Contracting Procedures" portion of
Schedule 62be changed to require that the Qualifying Facility deliver its electrical output within
18 months in order for indicative pricing to be considered final and binding on either party. Staff
also recommends that the definition of "Market Rate" in Schedule 62be changed to oo85 percent
(85%) of the PowerDex hourly Mid-Columbia ("Mid-C") index" as proposed by Avista. Staff
believes that all other changes to Schedule 62 as proposed by Avista are reasonable and should
be approved. Staff recommends an effective date of June 1,2074.
STAFF COMMENTS MAY t5,2014
Respecttully submitted this I 6Qa* of May 2014.
Deputy Attonrey General
Technical Staff: Rick Sterling
i:umisc:comrncntVavuel4. lksrps commonts
STAFF COMMENTS MAY 15,2014
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS I5TH DAY oF MAY 2014,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU.E-I4-03, BY E-MAILING AND MAILING A COPY THEREOF,
POSTAGE PREPAID, TO THE FOLLOWING:
LINDA GERVAIS
MGR REGULATORY POLICY
AVISTA CORPORATION
PO BOX3727
SPoKANE W A 99220-3727
E-MAIL : Iinda. [e-mail]
MICHAEL G ANDREA
SENIOR COUNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE W A99220-3727
E-MAIL: michael.andrea@,avistacorp.com
CERTIFICATE OF SERVICE