20190204Comments.pdf

EDWARD JEWELL
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 10446
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i'i:I -ti PFI tr: 30
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIBS COMMISSION
IN THE MATTER OF THE JOINT
APPLICATION OF AVISTA AND
CLEARWATER PAPER FOR APPROVAL OF A
POWER PURCHASE AND SALE AGREEMENT
CASE NO. AVU.E.18-13
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 Attorney General, and in response to the Notice
of Application and Notice of Modified Procedure issued in Order No. 34223 on
December 20,2018, in Case No. AVU-E-18-13, submits the following comments.
BACKGROUND
On November 29,2018, Avista Corporation ("Avista") and Clearwater Paper Corporation
("Clearwater Paper") jointly applied to the Commission for an order approving a Power Purchase
and Sale Agreement (2018 Agreement"). Clearwater Paper owns and operates four thermal
electric generating units with a combined total nameplate capacity of 132.2 mega-volt amps
(MVA). Applicationat2. The units are qualifying facilities under the Public Utility Regulatory
Policies Act of 1978 ("PURPA"). Id.
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ISTAFF COMMENTS FEBRUARY 4,2019
Avista has serviced Clearwater's electric service needs while purchasing Clearwater
generation from 1992 through June 2013 through two separate agreements: (l) a 10-year
Electric Service and Purchase Agreement authorizedin 1992 through Order No. 23858, and(2)
a 1O-year Agreement authorized it2004 through Order No. 29418. Id. at 3. The current
Agreement authorized in June 2013 through Order No. 32841 and extended by Commission
Order No. 33350 (2013 Agreement) was structured differently than the two previous agreements.
The 2013 Agreement allows Clearwater to generate into its own load requirements while
purchasing the balance of its electricity needs from Avista. If approved, the parties'2018
Agreement would supersede the 2013 Agreement.
The Application states, "The underlying foundation of the 2018 Agreement is to allow
Clearwater the flexibility to optimize the value of its Generation and the associated REC value,
while at the same time ensuring that the 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. Avista and Clearwater Paper have contracted with a third-party buyer, Morgan
Stanley Capital Group (MSCG), to purchase bundled RECs from Avista generated by Clearwater
Paper. Id. The 201 8 Agreement is conditioned on the existence of the REC contract with
MSCG. Id at7. If the 2018 Agreement should take effect but then be suspended or terminated,
the applicants would revert to the 2013 Agreement. Id. at 5.
STAFF REVIEW
Staff reviewed the Company's Application and recommends that the Commission
approve the 2018 Agreement. Staff s recommendation is based on a comparison of net benefits
between the current 2013 Agreement and the proposed 2018 Agreement, while maintaining
adherence to PURPA. Although there are provisions in the contract that are atypical in
comparison to other PURPA contracts, Staff believes they are reasonable and fall within
flexibility allowed through past Commission orders and Federal Energy Regulatory Commission
(FERC) regulations. From its comparison, Staff determined that the 201 8 Agreement is
functionally the same as the 2013 Agreement resulting in no cost difference to customers and
Avista's Idaho customers will see an incremental benefit through shared proceeds from the sale
of bundled RECs. Therefore, Staff believes the Agreement is reasonable and in the public
interest.
2STAFF COMME,NTS FEBRUARY 4,2019
Structure of Agreement
Under the current 2013 Agreement, Clearwater generates into its own load and purchases
the balance of its load requirements from Avista under the existing "Extra Large General Service
to Clearwater Paper's Facility" Schedule 25P retail rates. Clearwater privately aranges for the
sale of its unbundled RECs and retains all proceeds.
The main feature of the proposed 2018 Agreement is that it is structured as if Clearwater
is generating into its own load, but it allows Clearwater's generation to be bundled with RECs to
create an additional market value that will be shared with Idaho customers. Avista will sell
energy bundled with RECs from Clearwater generation to Morgan Stanley. The bundled product
will be more valuable and provide a larger profit than Clearwater would receive under the 2013
Agreement. Avista will receive market price for the energy it sells to Morgan Stanley. Staff
believes this may provide additional benefits to customers, beyond the additional REC value,
because the cost of energy that Avista provides in the transaction will be at market price or less.
Net revenue associated with REC sales will be split between Avista (10%) and
Clearwater (90%). The Avista portion will be passed through the Company's Power Cost
Adjustment (PCA) Mechanism. As a result, Staff believes the 2018 Agreement will provide
benefit to Clearwater and Avista's Idaho customers by sharing the proceeds of REC sales. Idaho
receives L}}%jurisdictional allocation of the revenue from the sale of Clearwater RECs.
Staff initially was concerned that Section 10(d) of the Agreement would entitle
Clearwater to receive 90o/o of the revenue from sales of RECs and energy to MSCG. Avista
confirmed that it is the intent of the parties that under Section 10(d) Clearwater will receive 90o/o
of the revenues from REC sales to MSCG only, not 90%o of revenues from energy sold to
MSCG,
In order for Clearwater's generation to be bundled with its RECs to increase market
value, the RECs must be coupled with energy at the time it is produced. To accomplish this, the
Parties propose the rate structure as shown in Table 1 below:
JSTAFF COMMENTS FEBRUARY 4,2019
Table 1: 2018 Agreement
Block I Block 2
Retail Rate
Avista sells energy to Clearwater at
$4s.24lMWh
Clearwater Net Load Purchase
Clearwater Generation Load Rate
Avista sells energy to Clearwater at
$24.s6lMWh
Clearwater Generation and REC Rate
Avista buys Clearwater Generation at
$24.50/MWh
Avista will purchase all of Clearwater's generation bundled with RECs at arate of
$24.50/MWh. This price is a blend of a five-year IRP-based avoided cost rate and forward
market prices.l Clearwater will purchase energy from Avista at two rates: the Block 1
Schedule 25P Retail Rate of $45.241MWh for its Net Load, and the Block 2 Generation Load
Rate of $24.56iMWh for the load that corresponds to Clearwater's generation amount. The
revenue from Clearwater's purchase at the Block 2 Generation Load Rate and Avista's purchase
of Clearwater's generation effectively nets to zero because the Generation and REC Rate and
Block 2 Generation Load Rate is the same for the same amount of energy (the difference
between the Generation and REC purchase price of $24.50/MWh and the Block 2 Generation
Load Rate of $24.56lMWh is due to Commission fees).2 This leaves only the net revenue Avista
receives from Clearwater's purchase of energy at the Block 1 energy rate.
When the Joint Petition was filed, the then-current Schedule 25P retail rate was
$44.52/MWh. However, the current retail rate of $45.24lN4Wh became effective
January 1,2019, as approved in the most recent general rate case (Case No. AVU-E-17-01).
Staff recommends that if the Commission approves the2018 Agreement, the Company should
file an updated Schedule 25P tariff to reflect the change.
I Avista described this IRP-based avoided cost rate in supplemental response to production request StaflPR_03, 05.
2 Through Staff PR-06, Avista noted that the small difference between the Block 2 rates is related to revenue-related
gross up for Commission fees on the Generation Load Rate Clearwater pays Avista for energy at $24.56/MWh.
4STAFF COMMENTS FEBRUARY 4,2019
Adherence to PURPA
The contract contains numerous terms that Staff determined to be atypical of Idaho
PURPA contracts. Issues of concern include: (1) the sharing of RECs between Avista and
Clearwater; (2) the rate structure used to purchase Clearwater generation; and (3) the contract
length. Through its review, Staff determined that all the variations from a typical PURPA
contract are reasonable and within the parameters of prior Commission orders and FERC
regulations.
For IRP-based contracts, the default is that parties split RECs 50/50. However, the
Commission has recognized that the parties may allocate the RECs differently by agreement.
Order No. 32697 atpage 46. In this case, the parties have agreed to Clearwater receiving9}o/o of
the REC proceeds and Avista receiving the remaining amounts. Staff believes this is reasonable
because Avista will be receiving 10% of bundled REC proceeds. Customers will also receive a
share of the benefit through the PCA. This is an incremental benefit to customers compared to
the current agreement.
The proposed rate structure using the Generation and REC Rate for Avista's purchase of
energy is also atypical. The parties negotiated the Generation and REC rate using an IRP model
run as the basis for negotiation (as directed by Commission Order) to arrive at a blend of avoided
cost and forward market prices. See Order No. 32697 at 2. Staff has determined that this
arrangement results in prices approximating Avista's avoided cost. Since the amount of
generation Avista purchases from Clearwater and the amount of energy Avista sells back to
Clearwater at the Generation and REC rate are essentially equal, the amount of net revenue
received by both parties under the generation structure will net to zero regardless of the rate.
The default contract length for IRP-based contracts is two years, yet the proposed
Agreement contract term is almost five years beginning February 1,2019, and ending
December 31,2023.3 In addition, the Parties propose that upon suspension or early termination
of the 2018 Agreement, the Parties would revert back to the 2013 Agreement, but would
maintain the 2018 contract end date of December 3 1, 2023 (or until Parties enter into a new
agreement). The Commission has recognized that the parties can vary the contract length
beyond two years by agreement. Order No. 33357 at26. Staff believes a longer contract length
3 The Agreement states that the start date of the contract is December 15, 2018 or such other date set by the
Commission Order ("Effective Date"). . . Through Staff PR-09, the Parties requested a more reasonable date of
February 1,2019.
5STAFF COMMENTS FEBRUARY 4,2019
is reasonable in this case, whether operating under the 2018 Agreement or the 2013 Agreement.
Under either contract, the Block 1 Schedule 25P retail rate is the primary rate affecting net
revenue the Company receives and it will continue to be updated by Commission Order with
every new rate case. Application at 6.
STAFF RECOMMENDATIONS
Staff recommends that the Commission approve the 201 8 Agreement. Staff also
recommends the Petitioners file an updated Schedule 25P tariff to reflect the changes in the 2018
Agreement.
Respectfully submitted this q day ofFebruary 2019
nr
Deputy General
Technical Staff: Rachelle Famsworth
Bentley Erdwurm
Yao Yin
i :umisc:comments/avue I 8. I 3ejrfuybe comments
6STAFF COMMENTS FEBRUARY 4,2019
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 4TH DAY oF FEBRUARY 2019,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-E-18-I3, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
MICHAEL G ANDREA
SENIOR COUNSEL
AVISTA CORPORATION
1411 E. MISSION AVENUE-MSC-17
SPOKANE WA992O2
E-MAIL : rnichael. andrea(r)avistacorp. corn
avi stadockets (0avi stac orp. corn
PETER RICHARDSON
RICHARDSON ADAMS, PLLC
P. O. BOX 7218
BOISE TD 83702
E-MAIL: [e-mail]
MICHAEL S GADD
SENIOR VP & GENERAL COI-INSEL
CLEARWATER PAPER CORP
60I W RIVERSIDE AVE, SUITE I IOO
SPOKANE WA 99201
SECRETAR
CERTIFICATE OF SERVICE
L,42",*