20200615Final_Order_No_34692.pdf

ORDER NO. 34692 1

Office of the Secretary
Service Date
June 15, 2020
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE JOINT PETITION
OF AVISTA CORPORATION AND STIMSON
LUMBER COMPANY FOR APPROVAL OF
POWER PURCHASE AND SALE
AGREEMENT
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CASE NO. AVU-E-19-16

ORDER NO. 34692

On December 31, 2019, Avista Corporation (“Company”) filed a Joint Petition
(“Petition”) seeking approval of a proposed Power Purchase Agreement (“Agreement”) with
Stimson Lumber (“Seller”) for the energy generated by a thermal wood waste small power electric
generation plant operated by the Seller in Plummer, Idaho (“Facility”). The Facility is a qualifying
facility (“QF”) under the Public Utility Regulatory Policies Act of 1978 (“PURPA”).
On February 14, 2020, the Company filed proposed amendments to the Agreement
(collectively the “Amended Agreement”). The Amended Agreement, if approved, would replace
the parties’ prior power purchase and sale agreement that expired on December 31, 2019. The
Company requested that its Petition be processed by modified procedure. 1
On January 31, 2020, the Commission issued its Notice of Petition and Notice of
Modified Procedure setting comment and reply comment deadlines. Order No. 34538. Staff filed
comments on February 7, 2020.
On February 25, 2020, the Commission issued an Amended Notice of Petition
providing the parties with an opportunity to submit comments on the Amended Agreement. See
Order No. 34559. Staff filed amended comments on March 10, 2020. The Company filed reply
comments on March 16, 2020.
Having reviewed the record, the Commission enters this Order approving the
Company’s Petition and Amended Agreement as modified by our findings and decision set forth
below.
BACKGROUND
On December 31, 2019, the Company filed the Agreement, which had a proposed one-
year term. Under the Agreement, Seller would sell the electric energy generated by the Facility to
the Company at the On-Peak or Off-Peak Avoided Cost Rates for Non-Fueled Projects Smaller

1 The Company originally requested an effective date of January 1, 2020.
ORDER NO. 34692 2

than Ten Average Megawatts per month-Non-Levelized as set forth in Exhibit E to the Agreement.
Id. at 3. The Facility "is capable of generating up to approximately 6.5 megawatts of energy." Id.
at 2.
In response to Staff Comments discussed below, the Company submitted the Amended
Agreement that: 1) extended the term to two years; 2) corrected the definition of Market Energy
Cost; 3) removed provisions that require the Commission approve the Agreement by February 21,
2020; and 4) replaced Exhibit E to include rates for the period from January 1, 2020, through
December 31, 2021. See Amended Agreement at 1-2 and Amended Exhibit E to the Amendment.
The Company did not address Staff’s recommendation in its comments to modify the prices that
should be paid for capacity and energy deliveries between January 1, 2020, and the day before the
service date of a Commission order approving the Amended Agreement (“Lapse Period”).
COMMENTS
1. Staff Comments and Amended Comments.
a. Pricing for Lapse Period.
Staff asserted a lapsed or expired contract period is avoidable and the Commission
should not encourage the operation of a QF without a contract. Id. at 7; see also Staff’s Amended
Comments at 2. Staff alleged during the Lapse Period there is no obligation created by the
Commission or Federal Energy Regulatory Commission (“FERC”) to guarantee a specific rate.
Id. Staff believed there is value in the generation but not to the level of a guaranteed contract price
inclusive of contractual obligations that accompany it. Id. Staff recommended that the
Commission use the lesser of the avoided cost proposed by Staff (without capacity payments) or
85% of the non-firm market energy price for each month for Lapse Period capacity and energy
deliveries. Id.
b. Pricing for Second Year of the Term.
Staff asserted because the Facility was receiving capacity payments at the end of the
expired contract, and the proposed Amended Agreement has a two-year term, the Facility can
account for avoided capacity through the Company's resource planning cycles. Staff Amended
Comments at 3. Staff thus confirmed Seller should receive capacity payments for the proposed
two-year term. Id. However, Staff noted the Agreement was filed with the Commission on
December 31, 2019, but the Amended Agreement was filed on February 14, 2020. Based on the
different dates for commitments, Staff asserted the Company should pay for capacity and energy
ORDER NO. 34692 3

delivered in the Amended Agreement’s first year (except for the Lapse Period) at the rates effective
on June 1, 2019, as approved by Commission Order No. 34350. Staff also argued that in the
Amended Agreement’s second year the Company should pay for capacity and energy delivered at
the published avoided cost rates, effective on February 7, 2020, as established by Commission
Order No. 34547.
2. Avista Reply Comments.
a. Pricing for Lapse Period.
The Company argued that applying a different avoided cost rate for the Lapse Period
is unprecedented and inconsistent with its Schedule 62 and FERC regulations. Reply Comments
at 3-4. The Company asserted a QF has the option to provide energy or capacity pursuant to a
legally enforceable obligation (“LEO”), exercised before a specified term has begun based on
“[t]he avoided costs calculated at the time the obligation is incurred.” Id. at 4; citing 18 C.F.R. §
292.304(d)(2)(ii). The Company also alleged FERC requires standard rates for small QFs. Id.
The Company further contended the Commission requires standard rates for QFs, other than wind
and solar QFs, up to 10 aMWs and the Facility is eligible for standard rates. Id.
The Company asserted under its Schedule 62, the avoided cost rates in the Amended
Agreement bound the Company when the original Agreement was filed on December 31, 2019.
Id. The Company agreed that contracts should generally be finalized and submitted to the
Commission in time for the Commission to approve them before they expire. Id. However, the
Company believed if the parties are out of contract, Schedule 62 does not allow for a reduced rate
between the time a contract is executed and when the Commission approves it. Id. Rather, the
Company must provide the applicable published avoided cost rate under Schedule 62. Id. The
Company requested that the Commission use the standard avoided cost rate in effect during the
Lapse Period. Id. at 5.
b. Pricing for the Second Year of the Term.
The Company asserted the Seller should not be penalized for responding to Staff’s
concerns about the one-year term of the proposed Agreement as originally filed. Id. The Company
generally agreed with Staff that the commitment to sell to the utility occurs when there is a fully
executed power purchase and sale agreement. Id. However, the Company believed Staff’s
recommendation that the Commission establish a new policy that a QF that renews for a one-year
term would not receive a capacity payment is not appropriate. Id. at 6. The Company asserted the
ORDER NO. 34692 4

Seller acted reasonably in choosing to extend the term to two years instead of risking that the
Commission would adopt Staff’s recommendation. Id.
The Company also asserted Staff’s recommendation represents a change in the
Commission’s PURPA policy and such proposals should only be considered in a generic
proceeding where utilities and QFs can participate. Id.
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. The Commission also has authority under PURPA and FERC regulations to
set avoided cost rates, to order electric utilities to enter fixed-term obligations for the purchase of
energy from QFs, and to implement FERC rules. The Commission may enter any final order
consistent with its authority under Title 61 and PURPA.
The Commission has reviewed the record, including the Petition, Agreement, Amended
Agreement, the comments and amended comments of Staff, and the reply comments of the
Company. The Commission finds it fair, just, and reasonable to approve the Amended Agreement
because the Amended Agreement contains Commission-approved terms for which the Facility is
eligible based on the Facility’s characteristics, such as fuel source, project size, generation output
profile, and renewal contract status. However, the Commission’s approval is contingent on the
following modifications to the Amended Agreement.
The Commission finds it appropriate for the Company to pay the Seller for capacity
and energy deliveries during the Lapse Period—the time between the prior power purchase
agreement’s December 31, 2019 expiration and the day before the service date of this Order—at
the published avoided cost rates in effect on June 1, 2019. See Order No. 34350. This treatment
is consistent with prior Commission decisions. However, at some point after a contract expires,
the lack of further contractual commitment could create uncertainty for the Company’s resource
planning. Moreover, payment of capacity relies on continuous operation under a valid power
purchase agreement. See Order 33357 at 25-26. The Commission notes that in a previous contract,
the Company and Seller asked the Commission to approve a short extension to the 2006 Agreement
so it would not expire while the parties were negotiating the terms of a new power purchase
ORDER NO. 34692 5

agreement. See Order No. 32382 at 1. The Commission believes this prior action was prudent
and could have been requested again here as a means to avoid a time gap between contracts.
Ideally, the Company should file any renewal QF contract with the Commission well before the
prior QF contract expires.
When the parties’ one-year contract was executed and the initial Application and
Agreement was filed with the Commission, the Seller was eligible for published avoided cost rates
set by Order No. 34350. At the time the parties amended the Agreement, new published avoided
cost rates had taken effect. See Order No. 34547. The Commission thus finds it reasonable that
the Company pays the Seller for capacity and energy deliveries during the Amended Agreement’s
first year at the published avoided cost rates established by Order No. 34350. For the second year
of the Amended Agreement, it is appropriate for the Company to pay the Seller for capacity and
energy deliveries at the published avoided cost rates set by Order No. 34547. This compensation
structure prevents unjust enrichment while also avoiding what would amount to a penalty if
inflated rates or reduced rates were used for the duration of the two-year contract. We find this
approach fair and balanced.
The Commission also finds it fair, just, and reasonable to allow the Company’s
payments for energy and capacity under the Amended Agreement, as modified by this Order, as
prudently incurred expenses for ratemaking purposes.
Last, the Commission finds the term of the Amended Agreement shall begin on the
service date of this Order.
O R D E R
IT IS HEREBY ORDERED that the Amended Agreement, as modified by this Order,
is approved.
IT IS FURTHER ORDERED that the Company shall pay Seller for capacity and energy
deliveries during the Lapse Period (between January 1, 2020, until the day before the service date
of this Order) using published avoided cost rates that were effective on June 1, 2019. See Order
No. 34350.
IT IS FURTHER ORDERED that the term of the Amended Agreement shall begin on
the service date of this Order.
IT IS FURTHER ORDERED that for the first year of the Amended Agreement, the
Company shall pay the Seller for capacity and energy deliveries using the published avoided cost
ORDER NO. 34692 6

rates established by Order No. 34350. For the Amended Agreement’s second year, the Company
shall pay the Seller for capacity and energy deliveries using the published avoided cost rates set
by Order No. 34547.
IT IS FURTHER ORDERED that the Company’s payments for energy and capacity
under the Amended Agreement are allowed as prudently incurred expenses for ratemaking
purposes.
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 about 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.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 12th
day of June 2020.

PAUL KJELLANDER, PRESIDENT

KRISTINE RAPER, COMMISSIONER

ERIC ANDERSON, COMMISSIONER

ATTEST:

Diane M. Hanian
Commission Secretary

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