20171027Decision Memo.pdf

DECISION MEMORANDI'M
TO:COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
COMMISSION STAFF
FROM:DAP}INE HUAN6
DEPUTY ATTONNEY GENERAL
DATE: OCTOBER 25,2017
SUBIECT:AVISTA'S AIi{NUAL UPDATE TO LOAD AND GAS FORECASTS IN
THE IRP AVOIDED COST MODEL AI\D TO ESTABLISH CAPACITY
DEFICIENCY PERIOD FOR AVOIDED COST CALCULATIONS, CASE
NO. AW-E-r7-r0.
On October 12,2017, Avista Corporation, dba Avista Utilities, filed its annual update to
certain components of its avoided cost rate calculation for quali$ing facilities (QF) under the
Public Utility Regulatory Policies Act of 1978 (PURPA). Specifically, Avista updated the load
forecast, natural gas forecast, and conbact information components of the incremental cost
Integrated Resource Plan (lRP) avoided cost methodology. Application at l. The Company also
seeks approval of the capacity deficiency period to be used for avoided cost calculations. Id.
Avista asks that its Application be processed by Modified Procedure. Id. at 5.
BACKGROUND
Under PURPA, electric utilities must purchase electric energy from QFs at rates
approved by the applicable state agency-in ldaho, this Commission. 16 U.S.C. $ 824a-3; Idaho
Power Co. v. Idaho PUC,155 ldaho 780, 780, 316 P.3d 1278, 1287 (2013). Thc purchase or
"avoided cost" rate shall not exceed the "'incremental cost' to the purchasing utility of power
which, but for the purchase of power from the QF, such utility would either generate itself or
purchase from another source." Order No. 32697 at7, citing Rosebud Enterprises v. Idaha PUC,
128 ldaho 6?4,917 P.2d 781 (1996); 18 C.F.R. $ 292.101(b)(6xdefinine "avoided cost').
The Commission has established two methods of calculating avoided cost, depending on
the size of the QF project: (l) the surrogate avoided resource (SAR) methodology, and (2) the
integrated resource plan (lRP) methodology. ,See Order No. 32597 at 7-8. The Commission uses
DECISION MEMORANDUM I
the SAR methodology to establish what is commonly refened to as "published" avoided cost
rates. Id. Published rates are available for wind and solar QFsl with a design capacity of up to
100 kilowans (k!V), and for QFs of all other resource types with a design capacity of up to 10
average megawatts (aMW). For QFs with a design capacity above the published rate eligibility
caps, avoided cost rates ar€ "individually negotiated by the QF and the utility using the IRP
methodologyJ." Id. at2; OrderNo.32176. The IRP meilrodology "takes into account many
different variables and produces a[n avoided cost] result based on each individual utility's need
for energy." Order No. 3269? at 17.
In calculating avoided cost, the Commission found it "reasonable, appropriate and in the
public interest to compensate QFs separately bascd on a calculation of not only the energy they
produce, but the capacity that &ey can provide to the purchasing utility." Order No. 32697 at 16.
As to the capacity calculation for the SAR methodology, the Commission found it appropriate
'to identi$ each utility's capacity deficiency based on load and resource balances found in each
utility's IRP." /d. With respect to the IRP methodology, the Commission similarly stated
ln calculating a QF's ability to contribute to a utility's need for capacity, we find
it reasonable for the utilities to only begin payments for capacity at such time that
the utility becomes capacity defieient, If a utility is capacity surplus, then
capacity is not being avoided by the purchase of QF power. By including a
capacity payment only when the utility becomes capacity deficient, the utilities
are paying rales that are a more accurate reflection of a true avoided cost for the
QF power.
Id. at2l,
The Commission directed that "when a utility submits its [RP] to the Commission, a
case shall be initiated to determine the capacity deficiency to be utilized in the SAR
Methodology [used for calculating published avoided cost rates]." Id. at 23. The Commission
further stated, "utilities must update fuel price forecasts and load forecasts annually-between
IRP filings. . . . We find it reasonable that all other variables and assumptions utilized within the
IRP Methodology rernain fixed between IRP filings (every two years)." Id. at 22. The
Commission directed that the update to fuel price forecasts and load forecasts should occur on
October 15 of each year. Order No. 32802 at 3. The Commission also found it appropriate to
consider long-term contract commitments, as well as PURPA contraets lhat have terminated or
expired, in the utility's load and resource balance. Order No.32697 at22.
I See Order No. 33785 (regarding battery storage faciliries).
7DECISION MEMORANDUM
THE APPLICATION
Avista explains that it has combined the capacity deficiency date filing with the annual
update to thc load and fuel price forecast due to the timing of its filing of its 2017 Elecric IRP,
which occurred on August 31,2017. Application at 2. Avista indicates that it consulted with
Staffprior to combining thesc filings. /d.
Avista provides an updated load and fuel (natural gas) price forecast for each of years
2018 th,rough 2040. Id. at 7-3. For the load forecast, Avista provides the forecasted energy
(average megawatt) and one-hour peak (megawat$ for each of the years. Id, Avista explains
that the energy forecast escalates at an annual average growth rate of 0.43 percent, and that the
peak forecast growth rate is 0.38 percent. Id. atz.
Regarding its updated natural gas price forecast, Avista states that the forecast was
developed using the blend of a national price forecasting consultant's most recent forecasts and
fonrard market prices as of September 28, 2A17. Id. at 3. Avista provides forecasted prices at
Henry Hub and Stanfield. Id. at34.
Regarding contract additions and terminations, Avista explains that it has signed three
new long-term PURPA contrasts since the last annual update, one of which is in ldaho, and no
new Power Purchase AgreemenG (PPAs). ld. al4. The Idaho PUFJA agreernent is a two-year
agreement with Stimson Lumber. Id. The other tl,vo are Washinglon agreements with Dcep
Creek Energy and are extensions of a prior agreement. /d.
Finally, regarding the capacity defrciency period, Avista indicates that its 2017 IRP
identifies a first deficit at the end of 2026. Id. Avista states that it "has since updated its load
forecasts and the first sustained capacity deficit begins in December 2026 and October 2026 for
energy based on the updated information. These dcficits are a direct result of the expiration of
the Lancaster PPA." Id.
STAFF RECOMMENDATION
Staff notes that the Company has not previously combined the update to the capacity
deliciency date with the annual update to the load forecast, natural gas forecasl and contract
information. The Commission has previously processed Company's application to approve an
updated capacity deficiency date via Modified Procedure with a deadline for comments. ,See e.g.
Case No. AVU-E-13-10. On the other hand, the Commission has previously considered and
issued orders on the annual updates to the load forecast, nahral gas forecast, and contract
3DECISION MEMOI{ANDUM
information without providing a specific deadline for cornments. See e.g. Case Nos. AVU-E-I6-
07, AVU-E-15-09. Because the two updates are combined here, Staff recommends that the
Commission issue a Notice of Application and Notice of Modified Procedure, with comments
due December 5, 2017, and reply comments, if any, due December 19, 2017.
COMMISSION DECTSION
Does the Commission wish to issue a Notice of Application and a Notice of Modified
Procedure, with comments due December 5,2017, and reply comments, if any, due Decernber
19,2017?
Deputy Attomey Ceneral
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4DECISION MEMORANDUM