20150717Comments.pdf

DONALD L. HOWELL, II
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO $724-0074
[phone]
IDAHO BAR NO. 3366
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
IN THE MATTER OF THE APPLICATION OF
AVISTA CORPORATION AND CLEARWATER
PAPER CORPORATION FOR APPROVAL OF
AMMENDMENT NO. 1 TO THE ELECTRIC
SERVICE AGREEMENT.
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CASE NO. AVU.E.15-06
COMMENTS OF THE
COMMISSION STATF
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
The Staff of the Idaho Public Utilities Commission, by and through its Attorney of
Record, Donald L. Howell II, Deputy Attorney General, submits the following comments in
response to Order No. 33312 issued on June 3,2015.
BACKGROUND
On May 13,2015, Avista Corporation and Clearwater Paper Corporation (collectively the
"Parties") filed a Joint Petition requesting that the Commission approve AmendmentNo. i
("Amendment") to their Electric Service Agreement ("Agreement") previously-approved by the
Commission in June 2013 . See Order No. 32841 . In their Amendment dated May 4, 2015 , the
Parties agreed to make two modifications to their Agreement outlined in greater detail below.
The Parties requested that their Petition be processed under Modified Procedure and seek an
effective date of August l, 2015.1
I The Parties had initially asked for an effective date ofJuly 7,2015, but subsequently agreed to Staffs request to
extend the proposed effective date to August 1,2015.
STAFF COMMENTS JULY 17,2OI5
Clearwater operates a paper manufacturing facility located in Lewiston, Idaho. As a part
of its manufacturing facility, Clearwater operates several generating units that are capable of
generating approximately 132 megawatts (MW). Joint Petition at2. Clearwater maintains that
its four generating units are qualifying cogeneration facilities (QFs) under the Public Utility
Regulatory Policies Act (PURP A). Id. However, the current Agreement with Avista is a non-
PURPA contract.
By its terms, the current Agreement terminates on June 30, 2018. Joint Petition at 2. The
Agreement provides that Clearwater will utilize its own generating units to serve its load and that
all electric power requirements in excess of Clearwater's self-generated power "shall be
purchased and received from Avista." Id. Avista serves Clearwater's additional power needs
under Avista's Schedule 25P rates (Extra Large General Service).
The Amendment
The Parties have agreed upon two modifications to their Agreement. First, while
Clearwater uses its own generation to meet some of its energy needs, "it has additional
generating capacity that generally is not economical given current energy rates and wholesale
market conditions. . . ." Joint Petition at 3. However, at certain times, the Parties contemplate
that wholesale energy prices may increase to a level that would make Clearwater's ability to
produce additional capacity economical. During such periods, the proposed Amendment
provides that Avista may require additional generation "in order to meet its system load
requirement, and in lieu of purchasing energy in a higher price wholesale market, would instead
purchase from Clearwater such 'Incremental Energy' at a mutually agreed upon price." Id. The
rates for the purchase of such Incremental Energy are not set out in the Amendment but will be
"a mutually agreed upon price" at the time the Parties agree to sell/purchase the Incremental
Energy. The Parties maintain that the ability to purchase incremental energy would benefit both
Clearwater and Avista by providing a lower cost alternative to making more expensive market
purchases.
In the second modification, the Parties have agreed to extend the length of their existing
Agreement by three years, to now terminate on June 30,2021. Instead of continuing the existing
Agreement on a year-to-year basis (see Section 2), the Parties maintain that the three-year
STAFF COMMENTS JULY 17,2OI5
extension allows them to plan for both generation by Clearwater and meeting customer demand
by Avista.
STAFF RB,VIEW
Incremental Energy
Staff believes that the proposed Amendment will provide mutual benefits to both Parties.
Avista will gain the opportunity to call on Clearwater to provide Incremental Energy at times
when it is needed by Avista, and Clearwater will receive additional revenue when it is able to
deliver Incremental Energy.
Incremental Energy will be generated when two conditions are met. First, Avista must
request Clearwater to generate Incremental Energy. Clearwater cannot generate and be paid for
Incremental Energy unless Avista asks for it. Second, Clearwater and Avista must agree to a
price for the Incremental Energy.
Staff expects the production of Incremental Energy to occur under only two
circumstances, perhaps in combination. First, wholesale market power prices would have to be
higher than the cost of Clearwater's additional generation so that Avista's customers and
Clearwater both benefit from the deal. This may occur during periods of high customer load due
to very cold or very hot weather and/or a combination of high loads and significant plant outages
in the Northwest. For example, a sustained Northwest heat wave, in conjunction with the loss of
one or more Colstrip generating units, could lead to wholesale power prices that are above the
marginal cost of generation for Clearwater. (Response to Staff Request No. 2). Second,
extremely low natural gas or biomass fuel prices would probably have to exist. Staff believes
this combination of circumstances would rarely occur; consequently, the production of
Incremental Energy would likely be minimal and infrequent.
Excess Energy
Under the terms of the existing Agreement, Clearwater is permitted to generate "Excess
Energy." Excess Energy is the condition where Clearwater generates more electric power than is
required to meet its own obligations. Under the terms of the Agreement, Avista credits
Clearwater for any excess kWhs generated during a billing period in a manner consistent with
Schedule 63 (net metering). In other words, Excess Energy offsets Clearwater's load. Excess
STAFF COMMENTS JULY 17,2OI5
Energy differs from Incremental Energy in that Incremental Energy can only be produced at
Avista's request. Excess Energy, on the other hand, can be produced by Clearwater at its own
discretion. The generation of Excess Energy is effectively limited because, while Clearwater can
camy over Excess Generation from month to month, it cannot carry over any Excess Energy at
the end of the year. Because any Excess Energy balance remaining at the end of the year is
eliminated or forfeited to Avista, Clearwater has no incentive to generate more energy than it can
use over the course of the year. Avista reports that for Clearwater, there has not been a single
hour of Excess Energy between 2005 and present (Response to Staff Request No. 4).
Extension of Contract Term
The second modification to the existing Agreement extends the contract by three years, to
now terminate on June 30, 2021. Instead of continuing the existing Agreement on a year-to-year
basis (see Section 2),the Parties maintain that the three-year extension allows them to plan for
both generation by Clearwater and meeting customer demand by Avista. With the exception of
the new provisions relating to Incremental Energy previously discussed, all other rates, terms and
conditions under the Agreement will remain the same. Consequently, Staff believes that a three-
year extension of the Agreement is reasonable and in the public interest.
STAFF RE,COMMENDATION
Staff recommends approval of Amendment No. 1 to the Electric Service Agreement
between Avista and Clearwater without change or conditions.
Respectfully submitted this
t -rlhI ( day ofJuly 2015.
Technical Staff: Rick Sterling
i:umisc/comments/avuel5.6dhrps comments
STAFF COMMENTS 4 JULY 17,2OI5
I HEREBY CERTIFY THAT I
THE FOREGOING COMMENTS OF
NO. AVU-E-15.06, BY MAILING A
FOLLOWING:
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
PETER RICHARDSON
RICHARDSON ADAMS PLLC
505 N 27TH STREET
BOISE ID 83702
CERTIFICATE OF SERVICE
HAVE THIS 17ft DAY OF ruLY 20T5, SERVED
THE COMMISSION STAFF, IN CASE
COPY THEREOF, POSTAGE PREPAID, TO THE
MICHAEL S GADD
SR VP & GEN COUNSEL
CLEARWATER PAPER CORP
601 W RIVERSIDE AVE STE 11OO
SPOKANE WA 99201
CERTIFICATE OF SERVICE