20190227final_order_no_34252.pdf

Office of the Secretary
Service Date
February 27,2019
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE JOINT )CASE NO.AVU-E-18-13
APPLICATION OF AVISTA AND )
CLEARWATER PAPER FOR APPROVAL )OF A POWER PURCHASE AND SALE )ORDER NO.34252
AGREEMENT )
On November 29,2018,Avista Corporation ("Avista"or "Company")filed an
Application seeking approval of a Power Purchase and Sale Agreement ("2018 Agreement")
between Avista and the Clearwater Paper Corporation ("Clearwater").Clearwater owns and
operates four thermal electric generatingunits rated at 132.2 MW.See Application at 2.The units
are cogenerationqualifying facilities ("QFs")under the Public Utility Regulatory Policies Act of
1978 ("PURPA").Id.
BACKGROUND
A.Public UtilityRegulatoryPolicies Act of l978.
Under PURPA,electric utilities must purchase electric energy from QFs at rates
approved by this Commission.16 U.S.C.§824a-3;Idaho Power Co.v.Idaho PUC,155 Idaho
780,789,316 P.3d 1278,1287 (2013).The 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 utilitywould either generate itself or purchase from another source."Order No.32697
at 7,citing Rosebud Enterprises v.Idaho PUC,128 Idaho 624,917 P.2d 781 (1996);18 C.F.R.§
292.101(b)(6)(defining "avoided cost").The Commission has established two methods of
calculating avoided cost,depending on whether the QF's output is under or over the project
eligibility cap:(1)the surrogate avoided resource ("SAR")methodology,which establishes
published avoided cost rates for QFs under the applicable project eligibility cap,and (2)the
integrated resource plan ("IRP")methodology for QFs over the applicable project eligibilitycap.
See Order No.32697 at 7-8.
The project eligibility cap for cogeneration facilities,such as Clearwater's,is 10
average megawatts ("aMW").Order No.32697 at 14.The Facility is therefore eligible for IRP
methodology rates.The Commission has found that the IRP methodology "recognizes the
individual generation characteristics of each project by assessing when the QF is capable of
ORDER NO.34252 1
delivering its resources against when the utility is most in need of such resources.We find that
the resultant pricing is reflective of the value of the QF energy being delivered by the utility."
Order No.32697 at 20.While SAR rates are strictly fixed,IRP rates are negotiable."The avoided
cost rates for purchases from QFs larger than the eligibilitycap ...must be individuallynegotiated
by the QF and the public utility.In a negotiated contract,the utility's avoided cost is the starting
point for rate negotiations."Order No.32176 at 1.
B.Renewable Energy Credits ("RECs").
The Commission has stated,"PURPA does not control RECs -RECs are controlled by
the state.RECs exist outside the confines of PURPA."Order No.32697 at 45.Furthermore,the
Commission has acknowledged that avoided cost rates "are not intendedto compensate the QF for
[RECs]."Order Nos.32697 at 45,32580 at 3,29840 at 9.Although PURPA and RECs are
separate legal frameworks,both are often involved in the same transaction.The Commission has
found that splitting RECs 50/50 between the QF and the utility is presumptively reasonable for
IRP methodology avoided cost rates.Order No.32697 at 46.Under the SAR methodology,RECs
are assigned solely to the QF.Id.
C.Previous Agreements Between Clearwater and Avista.
On January 1,1992,Avista and Clearwater entered into a 10-year Electric Service and
Purchase Agreement,which was approved by Commission Order No.23858.On July 1,2003,
Avista and Clearwater entered into a 10-year Power Purchase and Sale Agreement,which was
approvedby Commission Order No.29418.On July 1,2013,Avista and Clearwater Paper entered
into an Electric Service Agreement ("2013 Agreement"),which was approved by Commission
Order No.32841.The 2013 Agreement was for a 5-year term,which was extended to June 30,
2021,by Commission Order No.33350.Upon the effective date of the 2018 Agreement,the 2013
Agreement will be superseded in its entirety by the 2018 Agreement.Id
THE APPLICATION
The parties stated that the "underlyingfoundation of the 2018 Agreement is to allow
Clearwater the flexibilityto optimize the value of its [g]eneration and the associated REC value,
while at the same time ensuring that ...Avista and its customers are held 'neutral'as to whether
Clearwater generates into its own load or sells its full energy requirements to Avista."Application
at 4.To capture the value of the bundled RECs while maintaining ratepayer neutralitycompared
to the previous agreement,the parties created a new compensation structure.
ORDER NO.34252 2
Under the 2013 Agreement,Clearwater generated into its own load and purchased the
remainder of its electricity from Avista at the Schedule 25P rates for Extra Large General Service
to Clearwater Paper's Facility -Idaho.Generating into its own load does not allow Clearwater
Paper to sell bundled RECs because the electricity and the environmental attributes are separated.
Under the 2018 Agreement,Clearwater will sell the electricityit generates and the corresponding
RECs to Avista at a rate of $24.50 per MWh.Avista conducted an IRP model run and blended
price forecasts to arrive at this rate.Avista will also sell to Clearwater an equivalent amount of
energy as Clearwater produces at the rate of $24.56 per MWh,which is the $24.50 per MWh rate
adjusted for Commission fees.Avista refers to this rate as the Block 2 PURPA rate.Because
Avista will buy and sell an equivalent amount of energy at near equivalent prices,the 2018
Agreement will provide the same benefit to Clearwater as allowing Clearwater to generate into its
own load.
Parties and ratepayers also will benefit from Avista selling bundled RECs under the
new agreement.Bundled RECs generally command a higher price than unbundled RECs.Avista
has agreed to sell the bundled RECs to Morgan Stanley Capital Group ("MSCG")at $9.00 per
REC (equivalent to 1 MWh of energy produced)for scheduled deliveries,and $4.50 per REC for
unscheduled deliveries.MSCG will buy the corresponding amount of energy from Avista at
market price,determined by the Powerdex Mid-Columbia hourly price per MWh.Net revenue
from REC sales will be split between Avista (10%)and Clearwater (90%).Avista will pass its
portion of net revenue to customers through Avista's Power Cost Adjustment ("PCA")mechanism.
Idaho will receive 100%jurisdictionalallocation of the revenue from the sale of Clearwater RECs
by Avista.
THE COMMENTS
Staff filed the only comments,and recommended the Commission approve the
Application.Staff's recommendation was based on a comparison of net benefits between the 2013
Agreement and the 2018 Agreement.Staff determined the 2018 Agreement is functionally the
same as the 2013 Agreement and that Idaho customers will see an incremental benefit from the
2018 Agreement because Idaho customers will share in the proceeds from the sale of bundled
RECs through the PCA.
Staff also determinedthat the 2018 Agreement complies with PURPA.Staff noted that
parts of the Agreement deviate from the baseline PURPA implementation in Idaho,but that each
ORDER NO.34252 3
deviation is within the parameters of prior Commission orders.Atypical PURPA provisions
identified by Staff include the REC split,the contract length,and the Block 2 rate.In each instance,
the Commission has stated that parties may agree to terms that differ from the presumptively
reasonable terms.
COMMISSION FINDINGS AND DECISION
The Commission has jurisdiction over this matter under Idaho Code §§61-502 and
61-503.The Commission is empowered to investigate rates,charges,rules,regulations,practices,
and contracts of public utilities and to determine whether they are just,reasonable,preferential,
discriminatory,or in violation of any provision of law,and to fix the same by order.Idaho Code §§
61-502 and 61-503.In addition,the Commission has authority under PURPA and Federal Energy
Regulatory Commission ("FERC")regulations to implement PURPA in Idaho,including the
authority to set project eligibility caps at 100 kW or above,set the length of PURPA contracts,
establish pricing methodologies,and dictate other terms of contracts between utilities and QFs.
The Commission may implement PURPA on either a programmatic or case-by-case basis.FERC
v.Mississippi,456 U.S.742,760 (1982).The Commission may enter any final order consistent
with its authorityunder Title 61 and PURPA.
The Commission has reviewed the record,including the Application,the 2018
Agreement,and the comments of Commission Staff.Based on our review,we find it reasonable
to approve the 2018 Agreement.The 2018 Agreement is at least ratepayer neutral,and at best
provides an incremental benefit to Idaho customers compared to the 2013 Agreement,which we
found to be justand reasonable and in the public interest.
We also agree with Commission Staff that all deviations in the contract from the
presumptive requirements we have established under PURPA are permissible and reasonable.For
IRP methodology contracts,the default is that parties split RECs 50/50.However,the Commission
has recognized that the parties may allocate the RECs differentlyby agreement.Order No.32697
at page 46.Similarly,the default contract length for IRP methodology contracts is two years,but
the Commission has recognized that the parties can vary the length beyond two years by
agreement.Order No.33357 at 26.We approve these individually negotiated contract provisions
based on the specific facts of this case,and our approval here does nothing to alter the PURPA
implementation framework in the state of Idaho.
ORDER NO.34252 4
The two blocks of prices for Clearwater's purchase of energy is also atypical.We find
this arrangement results in prices that are just and reasonable,in the public interest,and are non-
discriminatory.Therefore,we find that the rates that Clearwater pays Avista for its electricity
comply with 18 CFR §292.305.Likewise,we find that the rates to be paid by Avista for
Clearwater's generation comply with 18 CFR §292.304 and Idaho Commission Orders
implementing the federal regulation.The parties negotiated an avoided cost rate using an IRP
model run as the basis for negotiation,as directed by Commission Order.See Order No.32697 at
2.We further note that 18 C.F.R.§292.301 states that nothing in FERC's regulations limits the
authority of an electric utility and a QF to agree to rates or terms that differ from the rates or terms
otherwise required by FERC's regulations.In sum,we find that the 2018 Agreement,as an
individually negotiated contract,does not run afoul of this Commission's implementation of
PURPA.Therefore,the 2018 Agreement is approved.
ORDER
IT IS HEREBY ORDERED that the 2018 Agreement between Avista and Clearwater
is approved,effective on the date of this order as set forth below.
IT IS FURTHER ORDERED that Avista payments for purchases of energy and
capacity under the 2018 Agreement will be directlyassigned to the Idahojurisdiction and excluded
from the system PCA calculation.
IT IS FURTHER ORDERED that any monthly difference between the actual
Clearwater power purchase expense and the amount embedded in the development of base retail
rates developed in a general rate case will be tracked at 100%through the PCA,and that any
change in Clearwater's retail revenue,based on kilowatt-hour sales equivalent to the level of
Clearwater generation,will also be tracked at 100%similar to the accounting treatment under the
2003 and 2013 Agreements.
IT IS FURTHER ORDERED that Avista file a revised Schedule 25P,substantially in
the form of that included in Exhibit B to the 2018 Agreement.
THIS IS A FINAL ORDER.Any person interested in this Order may petition for
reconsideration within twenty-one(21)days of the service date of this Order with regard to any
matter decided in this Order.Within seven (7)days after any person has petitioned for
reconsideration,any other person may cross-petition for reconsideration.See Idaho Code §61-
626.
ORDER NO.34252 5
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of February 2019.
PAUL K LLAN R,PRESIDENT
KRIS INE RAPER,CO MISŠIONER
ERIC ANDERSON,COMMISSIONER
Diane M.Hanian
Commission Secretary
1:\Legal\ELECTRIC\AVU-E-18-13\AVUE1813 _final order_ej
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