20181128Comments.pdf

EDWARD JEWELL
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 10446
IN THE MATTER OF THE AI\NUAL
COMPLIANCE FILING OF AVISTA TO
UPDATE INPUTS IN THE INCREMENTAL
COST INTEGRATED RESOURCE PLAN
AVOIDED COST MODEL
RECETVED
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Street Address for Express Mail
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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cAsE NO. AVII-E-18-11
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Edward Jewell, Deputy Attomey General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 34188 on November 8, 2018,
in Case No. AVU-E-I8-l l, submits the following comments.
OVERVIEW OF COMPANY APPLICATION
On October 25,2018, Avista Corporation ("Company") filed its annual update to certain
components of its Integrated Resource Plan ("IRP") methodology for calculating avoided cost
rates for qualifying facilities ("QFs") under the Public Utility Regulatory Policies Act of 1978
("PURP4"). Specifically, the Company proposes updates to its load forecast, natural gas price
forecast, and contract information components of its QF IRP avoided cost methodology.
Under PURPA, state utilities commissions are grven broad discretion to determine the
avoided cost rates that utilities must pay for the energy or capacity generated by QFs. See
ISTAFF COMMENTS NOVEMBER 28,2018
Rosebud Enterprises v. Idaho PUC,128 Idaho 624,627,917 P.2d781,784 (1996). 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 IRP
methodology. See Order No. 32697 at7-8. The Commission uses the SAR methodology to
establish what is commonly referred to as "published" avoided cost rates. /d. Published rates are
available for wind and solar QFs with a design capacity of up to 100 kW and for QFs of all other
resource types with a design capacity of up to 10 aMW. For QFs with a design capacity above
the published rate eligibility caps, avoided cost rates are "individually negotiated by the QF and
the utility using the [IRP methodology)." Id. at2.
The QF IRP methodology "takes into account many different variables and produces a
result based on each individual utility's need for energy. More specifically, the QF IRP method
assesses the value of each QF project in terms of its capability to deliver resources in relation to
the timing and magnitude of the utility's need of such resources." Id. at 17. The Commission
has directed electric utilities to submit annual updates to specific variables used in the QF IRP
methodology. "We find that, in order to maintain the most accurate and upto-date reflection
of a utility's true avoided cost, utilities must update fuel price forecasts and load forecasts
annually - between IRP filings. . . . In addition, it is appropriate to consider long-term contract
commitments because of the potential effect that such commitments have on a utility's load and
resource balance." Id. at22.
STAFF REVIEW
Staff has reviewed the Company's Application and recommends approval of the updated
load forecast, natural gas price forecast, and long-term contracts to be used in the QF IRP
methodology. Staff finds that the difference between this year's forecast and last year's forecast
is reasonable for both load and natural gas prices and that the contract information is accurate.
Therefore, Staff recommends approval of the updated load forecast, natural gas price forecast,
and long-term contracts to be used in the Company's QF IRP methodology with an effective date
of October 15,2018.
Load Forecast
Staff has compared the Company's annual system load forecast in this filing to last year's
filing in Case No. AVU-E-17 -10 and finds the new forecast is reasonable based on the
STAFF COMMENTS 2 NOVEMBER 28,2018
comparison. First, the economic conditions in Avista's service territory have not changed
significantly from the previous year. Second, the comparison shows that the Company's 2018
forecast decreases by 1.67% for energy (aMW) and2.650/o for 1-hour peak (MW). The effect
of this decrease in load from last year should not result in any significant change in the QF
IRP-based avoided cost rates.
Natural Gas Price Forecast
Staff believes that the Company's natural gas price forecast for Henry Hub and the
Stanfield Hub is reasonable for purposes of determining avoided cost in IRP-based PURPA
contracts. Staff s conclusion is based on two types of analysis: a comparison of the Company's
proposed price forecast to last year's forecast in Case No. AVU-E-17-10 and by comparing the
Company's forecast to EIA's natural gas price forecasts and to Idaho's other two regulated
electric utility price forecasts.
The comparison between the 2018 forecasts and the2017 forecasts showed annual
differences that range from -10.92o/oto 6.35oh for Henry Hub prices (see Figure l) and
from -20.54oA to 9 .05yo for Stanfield Hub prices (see Figure 2) from years 20 I 9 through 2040.
On average, the overall 2018 price forecast is lower than the overall 2017 price forecast with a
few exceptions in the 2030s. Staff believes this can be attributed to increased natural gas
production from continued development of shale gas and tight oil plays, which is projected to
outpace gas consumption.l Because natural gas market conditions are predicted to continue to be
favorable, Staff believes that the change in the Company's price forecast over the long term is
acceptable.
I U.S. Erergy Information Administration, Annual Energy Outlook 2018 with projections to 2050, Feb.6,2018 at
62 available ar https://www.eia.gov/outlooks/aeo/pdf/AEO20l8.pdf (last visited Nov. 28, 2018).
JSTAFF COMMENTS NOVEMBER 28, 2018
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Figure 1 Avista's 2018 Forecast and 2017 Forecast for Henry Hub Prices
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Figure 2 Avista's 2018 Forecast and 2017 Forecast for Stanfield Prices
Staff also compared Avista's Henry Hub price forecast to Idaho Power's, Rocky
Mountain Power's, and two of the U.S. Energy lnformation Administration (EIA)'s Henry Hub
price forecasts (see Figure 3). Although all the natural gas price forecasts reflect a similar trend
and show natural gas prices at Henry Hub increasing over time, it conelates heavily with Rocky
Mountain Power's natural gas price forecast, which uses futures market pricing during the first
two to three years. This is important because IRP-based PURPA contracts are capped at a two-
year contract length, and the avoided costs in any new contract will reflect this early pricing. In
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4STAFF COMMENTS NOVEMBER 28, 2OI8
this case, futures market prices reflect continued strong nafural gas market fundamentals with
low near-term natural gas prices, which Staff finds reasonable.
Henry Hub Natural Gas Price Forecasts by Three Utilities
Compared to EIA Price Forecasts
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Reference Case
- - EIA High Ol and Gas Resource and Technology Case
Figure 3 Comparing Three Utilities' Henry Hub Price Forecasts to EIA's Henry Hub Price Forecasts
Contract Terminations, Expirations, and Additions
Staff has verified the contract information and finds it accurate. Avista has signed three
new PURPA contracts and two Power Purchase Agreements since the20l7 filing.
STAFF RECOMMENDATIONS
Staffbelieves the load forecast, the natural gas price forecast, and the contract
information submitted by Avista reflect their most recent estimates and comply with Order Nos.
32697 and32802. Staff recommends approval of the updated load forecast, natural gas price
5STAFF COMMENTS NOVEMBER 28, 2OI8
L
forecast, and long-term contracts to be used to calculate avoided cost rates in the Company's QF
IRP methodology rate calculation with an effective date of October 15, 2018.
Respectfully submitted this Z8r- day of November 2018.
((
Deputy General
Technical Staff: Yao
Famsworth
i:umisc:comments/avuel 8. I I ejyyrf
6STAFF COMMENTS NOVEMBER 28,20I8
CERTIFICATE OF SERVICE
T HEREBY CERTIFY THAT I HAVE THIS 28TH DAY OF NOVEMBER 2018,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-E-18-11, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
LINDA GERVAIS
MGR REGULATORY POLICY
AVISTA CORPORATION
PO BOX 3727
SPOKANE W A 99220-3727
E-MAIL: lir:rda. servais(g),avistacom.com
avi stadockets(!avistaccirp. corn
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX 3727
SPOKANE W A 99220-3727
E-MAIL: david.n"reyer(0avistacorp.conr
. L, //,n-u,SECffTAfr'/--./
CERTIFICATE OF SERVICE