20200323Final_Order_No_34606.pdf

Office of the Secretary
Service Date
March 23,2020
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF AVISTA'S )CASE NO.AVU-E-20-01
APPLICATION FOR AN ORDER )
AUTHORIZING ACCOUNTING AND RATE )ORDER NO.34606
MAKING TREATMENT OF COSTS )
ASSOCIATED WITH THE ENERGY )
IMBALANCE MARKET )
On January 10,2020,Avista Corporation ("Company")applied to the Commission for
an order allowing the Company to defer its Idaho jurisdictional incremental operation and
maintenance ("O&M")costs associated with joining the California Independent System
Operator's ("CAISO")Western Energy Imbalance Market ("EIM").The Company seeks to defer
those costs until they can be included in base rates through a general rate case proceeding.The
Company signed an EIM implementation agreement with the CAISO on April 25,2019.The
Company requested that its Application be processed by Modified Procedure.
On February 7,2020,the Commission issued a Notice of Application and Notice of
Modified Procedure setting public comment and Company reply deadlines.Order No.34550.Staff
filed the only comments and supported the Company's Application.The Company did not reply.
With this Order,we approve the Company's Application.
BACKGROUND
An energy imbalance market pools generation of interconnected electricity providers
within a region and dispatches those resources with the goal of more accurately matching actual
production with actual demand.See Order No.33706.An energy imbalance market operates on a
nearly real-time basis with multiple participants,as opposed to more conventional long-term,
bilateral contracts which deliver energy in hourlyblocks.
In November 2014,the CAISO and PacifiCorp formed the EIM.The EIM is a five-
minute market administeredby the CAISO.The market utilizes an automatic model to identify the
least-cost energy resources to serve real-time customer demand.EIM participants bid resources
into the market,and the operator dispatches those resources based on the marginal price for energy
imbalances factoring in load and available generation.The Company has been actively monitoring
the operation and expansion of the EIM.The Company also regularly participates in regional
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meetings and dialogue associated with the EIM,includingthe potential expansionof the EIM to a
day ahead market.
THE APPLICATION
The Company expects to "go live"with the EIM by April 1,2022.The Company's
decision stems from the risk associated with being a non-EIM participant'and the changing
resource portfolio in its Balancing Authority Area ("BAA").
The Company recently signed two renewable energy power purchase agreementS2and
expects to integrate more projects as state clean energy policies evolve and renewables prices
continue to drop.3 The Company stated that the ability to balance and regulate load and renewable
resources by leveraging EIM resources,instead of relying solely on Company resources for
regulation and flexible ramping,provides operational benefits.
According to the Company's Application,over 75 percent of the western
interconnection's load has committed to joining the EIM by 2022,and non-participation will cause
growing liquidity risk,forcing those non-participating utilities to hold more reserves to minimize
in-hour fluctuations.*
Based on a third-partyconsultant's assessment,the Company estimates it will cost
$21.4 million to $26.7 million,on a system basis,to prepare for market entry.These costs,which
the Company seeks to defer for later recovery in rates,are primarily related to developing the
network model per the CAISO's requirements,includingEMS/SCADA integration,developing a
generation resource bid strategy and master file for the population of the generation resource,
requesting proposals and selecting new market related software applications completing modeling
into the CAISO test environment,and employee training.
The Company expects to incur $3.5 million to $4.0 million in system costs per year to
operate in the EIM.These ongoing,annual costs will include maintenance costs for software
1 Recently,Idaho Power and Powerex have integrated into the EIM.In addition,Seattle City Light,Northwestern Energy,andBonnevillePowerAdministrationwillalljointhemarketinthenexttwoyears.
2 The Company has recently signed power purchase agreements for 20 Megawatts ("MW")of Solar that came online in December
2018 and 145 MWs of wind that will come online in late 2020.
3 As additional variable resources are integrated into the Company's BAA and the EIM grows,it will become more efficient and
cost-effective for the Company to rely on the EIM to help meet the in-hour variability,instead of holding back and dispatchingCompany-owned resources to meet the flexible ramping requirements,according to the Company's Application.
4 The Company cites "EIM participants are less likely to conduct bilateral transactions close to the operating hour,due to the need
to pass EIM sufficiency and flexible ramping tests and meet other market transactions closing times that occur well before the
operating hour.Holding additional reserves will lead to higher overall power supply costs since excess available resources can't befullyoptimizedoradditionalresourcesmayneedtobepurchased,"according to the Company.
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licenses and communication networks,adding about 12 new employees to facilitate market
operations and settlements,a new five-person 24x7 hour EIM operating desk,and CAISO EIM
fees.
The Company retained a different third-party consultant to assess potential EIM
benefits.The assessment estimated the Company could see $2 million to $12 million in annual
system benefits.The assessment used four main assumptions:(1)the amount of flexible hydro bid
into the market;(2)the amount of transmission that is made available for market transactions;(3)
the amount of renewable generation integrated into the Company's BAA,and (4)data sources
from other EIM participants estimated benefits.The assessment produced 24 scenarios that the
Company used to estimate annual benefits of $5.8 million.
Using the cost and benefit assessments,the Company performed a breakeven analysis.
To break even in ten years with integration costs of $21.4 million,the Company must realize
annual system benefits averaging about $5.0 million.If the integration costs increase to $26.7
million,the Company must realize annual system benefits averaging about $6.0 million.
THE COMMENTS
Staff reviewed the Company's Application,Attachments,workpapers,and responses
to Staff's production requests.Staff's review focused on (1)analyses of the estimated costs and
benefits associated with joiningthe EIM,and (2)the Company's proposed accounting treatment.
Based on its review,Staff recommends the Commission approve the Company's Application.
Staff indicated the Company's estimated costs were reasonable.Staff cited the
Company's selection of an experienced consultant to prepare its estimated EIM entry costs,and
comparisons to Portland General Electric ("PGE")and Idaho Power Company's actual EIM entry
costs,as reasons for supporting the Company's estimates.Staff inquired about the differences
between the Company's estimated costs to enter the EIM and PGE and Idaho Power's actual costs.
Staff noted the Company's estimated costs primarily differed from the other companies'costs
because the Company must upgrade its infrastructure.Staff also supported the Company's
estimated costs because the Company's estimates included certain costs that other utilities incurred
but realized after implementation.Staff believed that the Company and its consultant provided a
reasonably accurate estimate of the Company's expected costs.Staff mentioned it was concerned
with the amount of operational labor in the estimate,but noted it plans to investigate the amount's
accuracy after the Company files a rate case.
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Staff reviewed the Company's estimated benefits from joiningthe EIM and indicated
the estimates were also reasonable.Staff suggested the estimates were reasonable in part due to
the experience of the consultant selected to perform the analysis.Staff mentioned that the
consultant had performed this analysis for other utilities before they joined the EIM and could
refine its model for calculating estimated benefits.With the selected consultant's experience and
the ability incorporate actual market conditions into its assumptions,Staff believed the estimates
were reasonably accurate.
Staff supported the Company's request to defer its Idaho jurisdictional incremental
O&M costs associated with joining the EIM.Staff noted that while it is not a common accounting
practice to defer O&M costs beyond the year they are incurred,deferring those costs would help
better align costs and benefits because the benefits would not begin flowing to customers until the
Company begins operating in the EIM in 2022.
Finally,Staff observed that the Company did not have to notify customers about this
case because the Company's Application would not affect rates.Staff mentioned the Company
created a webpage to provide general information about joining the EIM,including information
about the Company's ultimate decision to join,relevant dates,and how the Company will balance
its resources going forward.
COMMISSION DECISION AND DISCUSSION
The Commission has jurisdiction over this matter under Title 61 of the Idaho Code.
Specifically,Idaho Code §61-501 gives the Commission the power to "supervise and regulate
public utilities in the state."The Company is an electrical corporation under Idaho Code §61-119
and a public utility under Idaho Code §61-129.After reviewing the record,including the
Application,Attachments,Staff's comments,and the Company's production responses we
approve the Company's Application.
The formation and expansion of the EIM has garnered a great deal of attention.As the
EIM has expanded and more utilities in the west have joined it is certainly no surprise to see the
Company begin the process of joiningthe EIM.Based on the assessments provided by various
consulting firms,we are confident the Company has done adequate due diligence as a basis for its
decision-sufficientlystudying the question of whether to join the EIM or not under both
operational and cost-benefit lenses.We recognize that much work must still be done and
investments must be made to comply with the CAISO's requirements.We believe that the
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Company's use of reputable and experienced consultants to estimate costs will ensure the actual
deferred expenses reconcile with estimates when the Company begins to make its investments.
Our confidence in the estimates provided in the Application only increases because the Company
and its consultants had data available from similarlysituated utilities already operatingin the EIM.
It is reasonable to permit the Company to defer the Idaho jurisdictional share of its
incremental O&M costs.We find it proper,where the Company expects a stream of future benefits
based on its present investment,to defer recovery of the present investment costs until later.
Deferral allows the costs and future benefits to be more aligned and helps minimize the potential
impacts to rates before benefits can be realized.While the Company may defer its O&M expenses
associated with joiningthe EIM,this deferral will end on its go-live date.A prudency review of
the deferred expenses will occur before the Company is allowed to recover any Idahojurisdictional
incremental O&M costs associated with joiningthe EIM.Further,we find it appropriate to require
the Company to file,after one year of its operation in the EIM,a report detailing any additional
expenditure and informing the Commission of ongoing costs and benefits derived from EIM
participation.
ORDER
IT IS HEREBY ORDERED that the Company is authorized to track its Idaho
jurisdictional incremental O&M expenses associated with joiningthe EIM in a deferral account,
with no carrying charge.The Company is directed to cease booking costs to the deferral account
at the go-live date.
IT IS FURTHER ORDERED that the Commission will conduct a prudency review
after the Company's go-live date to determine the reasonableness of recovering the deferred
expenses associated with joiningthe EIM from the Company's Idaho electric customers.
IT IS FURTHER ORDERED that after the Company has participated in the EIM for
one-year,it will file a report with the Commission describing the costs and benefits of participation
as of the date,in addition to any other relevant information.The Company is directed to include
in this report any available benefit and cost information,includingbut not limited to the CAISO's
quarterly Western EIM Benefits Report.
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
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matter decided in this Order.Within seven (7)days after any person has petitioned for
reconsideration,any person may cross-petition for reconsideration.See Idaho Code §61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this 6 *
day of March 2020.
ÁUL K$EI DER,PRESIDENT
KRI$TINERAPER,COMMISSIONER
ERIC ANDERSON,COMMISSIONER
ATTEST
Diane M.Ham
Commission Secretary
1:\Legal\ELECTRIC\AVU-E-20-0l\Orders\AVUE2001_final_dh.docx
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