20220929Annual Colstrip Report.pdf

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Avista Corp.
l4l I East Mission P.O. Box 3727
Spokane, rlfashington 99220 -0500
Telephone [phone]
Toll Free 800-727-9170
September 29,2022
JanNoriyuki, Secretary
Idaho Public Utilities Commission
11331 W. ChindenBlvd.
Bldg. 8, Suite 201-A
Boise,Idaho 83714
Re: Case No. AVU-E-19-01 - Avista Corporatiot2022 Annual Colstrip Report per Order
No.34814
Dear Ms. Noriyuki:
Avista Corporation, dba Avista Utilities (Avista or the Company) provides this report on
the status of its Colstip ownership interestto the Idaho Public Utilities Commission (Commission)
as required by Order No. 348 I 8 in Case No. AVU-E- 19-01 , relating to the matter of Avista's 2020
Electric Integrated Resource Plan (IRP).
I. Backeround
On February 28,2020, Avista filed its 2020 IRP, which was later acknowledged by the
Commission via Order No. 34818 iszued on October 15,2020. During the review of the IRP by
Cornmission Staff (Staff), Staff stated concerns about the Company's Colstrip analysis included
in the 2020 IRP, noting the concerns dated back to the Company's2017IRP. Concems noted by
Staff included insufficient and unclear information related to Colstrip, treatnent of Colstrip
retirement between Washington and Idaho, decommissioning costs, and potential retirement dates
modeled. As a result of the concerns raised, "Staffrecommended the Commission require Avista
to file an annual report on Colstrip with updated economic analysis, estimated retirement dates,
closure plans, a progress report on closing plans and activities, and an annual accountingfor
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decommissioning and remediation. Id. Stafffurther recommended the Commission require Avista
to notify the Commission within 30 days of partner decisions and plant issues that could materially
affect ldaho a$tomers."l In the Company's reply comments filed on September 2,2020 the
Company noted it supported StafPs recommendation. In the final Commission order
acknowledging the 2020 IRP the Commission ordered Avista to "file an annual update on its
Colstrip ownership interest, as noted above, by October I of each year. Avista also shall notify the
Commission within 30 days of Colstrip partner decisions and plant issues that may materially
affect ldaho customers.'a
[. Updated Colstrip Economic Analvsis
Avista did not conduct any updated long-term retirement related economic studies since
the202l Elechic IRP. Avista is currently working on the 2023 IRP and working with IPUC Staff
on the appropriate closure scenarios to model in the upcoming IRP. Since the filing of the 2021
IRP, the economics of continued operation of Colstrip Units 3 & 4, at least through 2025,lnve
improved. T\e202I IRP analyses concluded Avista should exit the plant as soon as possible due
to the then expected low wholesale marketprices and increasing future operating costs at the plant.
In the 2021 IRP, expected wholesale electric prices were low enough that Colstrip was struggling
to recover operating costs in the IRP model compared to the forecasted wholesale electric market.
Since completion of the 2021 IRP analysis, the realized wholesale electric prices have increased
due to higher natural gas pricing, higher regional carbon allowance pricing, and regional resource
adequacy challenges. These market changes altered the short-term economics of the Colstrip plant
as compared to the 2021Eleclrrc IRP and the plant is currently profitable for customers. Current
forward electric prices are also expected to remain high for at least the next 18 months (forward
prices are not liquid beyond this period).
Avista has conducted analysis regarding the economic value of the plant between2023 and
2025 as it evaluates repairs of equipment. Specifically, Avista evaluated projects related to the
Unit 3 exciter and the Unit 4 superheater. These analyses were conducted to evaluate specific
project decisions on the most economic choice given options to maintain short-term unit
I OrderNo. 34818 at page 9.
2 OrderNo.34818 at page14.
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operations. A biproduct of the analysis is the economic position of the plant. For example, Avista's
evaluation of the Unit 4 superheater includes an economic valuation of operating margin of the
unit with recent forward market prices as shown in Table I below. The operating margin sunmary
is for Unit 4 and is calculated by the wholesale market value net of fuel costs, variable O&M and
Washin$on State Climate Commitnent Act (CCA) Allowances (WA share). Given the fixed
operating cost for Unit 4 are approximately $7 to $8 million per year over this time period, the
plant is economic for customers to operate through 2025. While this analysis was specifically for
Unit 4, Unit 3 economic value is expected to be similar. Avista did not study plant economics
beyond 2025 nthis study.
Table 1: Unit 4 Operating Margin (System)
Year Operating
Margin
(millions)
2023 $41.3
2024 $26.3
2025 $20.1
Climate Commitment Act Impacts on Idaho
Washington is implementing a greenhouse gas cap and trade program beginning on January
1,2023. This cap-and-frade program was authorized rn the CCA (Senate Bill 5126) was signed
into law in May 2021. This act requires all emissions producing power generated within the state
or imported for use in the state to surrender greenhouse gas allowances. Washington State is
granting Avista free allowances for a period of eight years, but it is unknown how many allowances
will be granted, nor does the Company know the price of allowances at this time. Allowances in
2023 have a minimum price of $19.70 and a maximum price of $72.30 per metric ton, then will
increase by 5 percent per year plus the rate of inflation. The Washington State Department of
Commerce estimates prices will be $58.31 per metric ton. Avista will not know the actual price of
these allowance until the first auction in the first quarter of 2023. Given these allowances have
economic value for customers, Avista will be incented to reduce its Colstrip dispatch (and other
greenhouse gas emitting plants). Avista is concerned any reduction in dispatch due to CCA pricing
could impact Idaho customers as a result of the current cost allocation methodology (production
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transmission ratio), along with heat rate impacts from reduced dispatch from other Washington
owners at Colstrip requesting to lower its dispatch for their shares.
Further the CCA may have other impacts on ldaho customers due to market impacts from
liquidity and trading requirements for imported power. Any thermal power purchased from
Washington based sources to serve Avista load will be higher due to greenhouse gas pricing, but
Idaho customers may benefit from high prices when selling excess clean resources.
UI. Estimated Colstrip Exit Date
Avista intends to exit Colstrip by the end of 2025 due to the uncertainty of future economic
factors related to the power plant's ownership and operation, future dispatch imFacts due to the
CCA, as well as other factors. As part of that exit, Avista has expressed the importance of
developing a smooth transition plan for the plant that addresses the interests and needs of the co-
owners, employees, the community, and customers. [n exploring options related to an exit, Avista
continues to engage in conversations with the other owners and with other potentially interested
parties to understand whether a proposed venture could contribute to these objectives. Avista
remains committed to working with all our co-owners on a resolution of Colstrip that addresses
everyone's needs. Avista will update the Commission when a firm solution is identified. In the
meantime, Avista will continue to support operational plans to ensure that the plant remains safe,
reliable, and compliant.
IV. Colstrip Closure Plans and Activities
Avista is not aware of any current closure plans. On February 9,2021, NorlhWestern
Energy initiated arbitation to, among other things, arbitrate whether unanimous consent of all
owners is required to close some or all of Colstrip.3 At around the same time, the State of Montana
enacted legislation that purports to (i) invalidate the arbitration provision of the Ownership and
Operating Agreementa and (ii) makes an owner's failure to fund its share of the operating costs of
Colstrip or any conduct to bring about permanent closure of a unit of Colstrip a violation of the
3 On February g,2}zl,NorthWestern Energy initiated arbitration by sending the other owners of Colstrip a notice of
controversy pursuant to Section 18 of the Ownership and Operation Agreement. NorthWestern submitted its initial
arbitration demand to the other owners on March 12, 2021 and an amended arbitration demand on April 2, 2021.
4 Montana SB 265.
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Montana Unfair Trade Practices and Consumer Protection Act.s Challenges to SB 265 and SB 266
are currently pending in United States Dishict Court, Dishict of Montana.
On May 9,2022, Talen Energy Supply, LLC and certain affiliates of Talen Energy Supply,
LLC, including Talen Montana, LLC filed voluntary petitions for relief under title I I of the United
States Code ("Talen Bankruptcy Filing'). As a result of SB 265 allrd SB 266 and the Talen
Bankruptcy Filing, the arbination initiated by NorthWestern Energy was not able to proceed. On
August 25,2022, the banlauptcy court entered an order and stipulation to, among other things,
allow the arbitration to proceed. The order and stipulation also included a stipulation between the
Colstrip owners on a process for conducting arbitration.
V. Colstrio Decommissionine and Remediation
The Company's Plant Accounting deparfrnent estimates future decommissioning costs for
Colstrip and records a liability at the present value of those future payments. Asset Retirement
Obligation (ARO) accounting is used to increase this liability in order to have the full amount
recoded when the liabilities come due. The Company's Plant Accounting and Generation
departments work with the operator (Talen) to get the most current estimates of these costs. This
review is done annually and an adjustnent to the ARO accounting balances is recorded, if material.
In each Idaho general rate case, the Company builds the ARO accounting into our request for
recovery and includes the most current estimates of funre decommissioning/ARO costs for
Colstrip. This review in each general rate case will continue throughout the 30+ years as necessary,
which is the time frame that Avista is recovering these costs from customers. The Company also
pays for these costs as the work is performed, which reduces the liability. The futrue liability
included in the most recent general rate case was ldaho's share of the total liability of
approximately $37 million. Note this may change in future rate cases.
VI. Conclusion
Avista is in the midst its 2023 IRP process with plans to file the IRP on hlulie 1.,2023
Additional analysis on Colstrip will be included in the 2023 IP.P.
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s Montana SB 266.
For questions about this report please contact James Gall at 509-495-2189 or
iames.eall@.avistacorp.com or me at509495-2782 or [e-mail].
Sincerely
lolslarr,r, goil&dl
Shawn Bonlield
Sr. Manager of Regulatory Policy & Strategy
Avista Utilities
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