20230801Comments of the Commission Staff.pdf

CLAIRE SHARP
DEPUTY ATTORNEY GENERAL !;:i lIDAHOPUBLICUTILITIESCOMMISSION
PO BOX 83720
BOISE,IDAHO 83720-0074
[phone]
IDAHO BAR NO.8026
Street Address for Express Mail:
11331 W CHINDEN BLVD,BLDG 8,SUITE 201-A
BOISE,ID 83714
Attorneyfor the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF AVISTA'S )APPLICATION FOR AN ACCOUNTING )CASE NO.AVU-E-23-04ORDERTOMODIFYITSPOWERCOST)ADJUSTMENT MECHANISM TO ACCOUNT )FOR COSTS ASSOCIATED WITH )COMMENTS OF THE
WASHINGTON'S CLIMATE COMMITMENT )COMMISSION STAFFACTALLOWANCES)
COMMISSION STAFF ("STAFF")OF the Idaho Public Utilities Commission,by and
through its Attorneyof record,Claire Sharp,Deputy AttorneyGeneral,submits the following
comments.
BACKGROUND
On March 31,2023,Avista Corporation,d/b/a Avista Utilities ("Avista"or "Company")
applied for authorityto modify its power cost adjustment ("PCA")mechanism to account for
costs associated with Washington's Climate Commitment Act ("CCA")allowances.Application
at 1.The Company proposed to include (1)"the costs of purchasing carbon allowances pursuant
to the [CCA]to cover Idaho's share of the Company's Boulder Park natural gas generationplant
dedicated to serving its Idaho customers,"and (2)"the costs of purchasing carbon allowances for
Idaho's share of surplus sales delivered to Mid-Columbia ("Mid-C")trading hub that require an
STAFF COMMENTS 1 AUGUST 1,2023
associated carbon allowance"in its PCA mechanism to be recorded in Federal Energy
Regulatory Commission ("FERC")Account 509.Id.
STAFF ANALYSIS
The Washington CCA became effective on January 1,2023.The Company has proposed
that the cost of allowances attributed to Idaho necessary to comply with Washington's CCA be
accounted for in FERC Account 509 and included in the Company's PCA.As a result of its
review,Staff recommends FERC Account 509 be included in the PCA with an ongoing annual
review.The PCA review will be utilized to determine the actual prudent recovery of each
separate sub-account for FERC Account 509.For FERC Account 509,Staff recommends:
1.The Commission accept Idaho's portion of emission expenses associated with
surplus thermal generation imported into Washington and subsequently sold to the
market as off-system sales,contingent on the overall sales remaining cost
effective;
2.The cost of allowances for Idaho's share of Boulder Park generation not be
included in the PCA deferral for recovery and not be included in Boulder Park's
dispatch price used in the PCA,when dispatching Boulder Park will benefit
Washington ratepayers,the Company's system,or both at the expense of Idaho
ratepayers.For the cost of allowances to be included in Idaho customer's rates
the Company must show that dispatching Boulder Park will result in overall net
benefits from Boulder Park generation to Idaho ratepayers;and
3.The allowance expenses be based on the value of allowances retired.
CCA Expense Appropriatefor Recovery
In general,Staff believes that its only recourse is to accept Idaho's portion of emission
expenses that are prudentlyincurred to Idaho ratepayers as the Company's cost of doing
business,unless the State of Idaho initiates legal procedures to challenge the legality of the CCA.
The CCA requires electric utilities to have allowances to cover (1)carbon emissions associated
with surplus thermal generationimported into Washington and subsequently sold in the market
as off-system sales;and (2)carbon emissions generated by Washington situs-based thermal
STAFF COMMENTS 2 AUGUST 1,2023
plants that emit over 25,000 metric tons of carbon annually.Kalich,Di,Case No.AVU-E-23-01
at 8-10.
Emission Cost of Imported Thermal Generation Sold into Market
Althoughthe surplus thermal generationimported into Washington and subsequently sold
into the market as off-system sales is a benefit to Idaho customers,the amount of these benefits
will be reduced due to the cost of allowances required by the CCA.The Company proposes that
Idaho ratepayers pay for Idaho's portion of these emission expenses based on the
Production/Transmission Ratio ("PT Ratio").Id.at 10.Staff believes that because the
incentives with off-system sales are aligned between Idaho and Washington,the Company will
minimize the cost impact of these allowances in the Company's system to ensure overall net
power costs ("NPC")are prudentlyincurred in both states.
The Washington Department of Ecology has indicated that no-cost allowances for
Washington's portion of emission expenses associated with the off-system sales will not be
provided.Response to Staff Production Request No.11(d).Thus,both Washington ratepayers
and Idaho ratepayers will need to pay for these emission expenses.In order for the Company to
obtain full recovery of prudentlyincurred system NPC,the Company's actions related to
dispatching its plants and purchasing and selling power would be no different from either state's
perspective.
Emission Cost of Washington Thermal Plants
Allowance expenses associated with Boulder Park generation create a dilemma for Idaho
ratepayers.Dispatching Boulder Park and allowingrecovery of allowance expenses may
disadvantage Idaho ratepayers compared to Washington ratepayers.It is also possible for it to be
a benefit to both.
Unlike aligned incentives for emissions cost of off-system sales,the cost of thermal
generation for Washington in-state thermal generation over 25,000 tons is not always aligned
between Idaho and Washington.This is because the State of Washington is believed to provide
no-cost allowances to serve Washington's load from its share of this generation while requiring
the Company to purchase allowances for Idaho's share.Because of this misalignment,Staff
believes that the Boulder Park facility,Washington's only situs-based thermal plant exceeding
STAFF COMMENTS 3 AUGUST 1,2023
25,000 tons,can be dispatched benefiting Washington ratepayers,or the Company's system,or
both,at the expense of Idaho ratepayers.However,disallowing Boulder Park's allowance
expenses in all circumstances without considering the all-in cost and benefits may affect Idaho's
opportunityto receive least-cost generationif a higher-cost resource is dispatched for Idaho by
the Company.To ensure the incentives to optimize the dispatch of Boulder Park are aligned for
both states and Idaho ratepayers are not unfairly disadvantaged,Staff recommends that the cost
of allowances for Idaho's share of Boulder Park generationnot be included in the PCA deferral
for recovery and not be included in Boulder Park's dispatch price in the PCA,when dispatching
Boulder Park will benefit Washington ratepayers,the Company's system,or both at the expense
of Idaho ratepayers.For the cost of allowances to be included in Idaho customer's rates,the
Company must show that dispatching Boulder Park will result in overall net benefits from
Boulder Park generation to Idaho ratepayers.
The Boulder Park facility serves both Idaho and Washington load.The Washington
Department of Ecology has indicated that it will only provide no-cost allowances to cover the
Company's emissions associated with its Washington retail electric load.Id.But the Company
believes Boulder Park's emission expense associated with the generation for Washington will be
covered by no-cost allowances.Response to Staff Production Request No.5.If the Company's
assumption is correct,the Company will need to purchase allowances for the generation
allocated to Idahobased on PT Ratio.Id.
The unfairness stems from the dispatch price the Company will use to minimize NPC.
Assuming Washington will receive no-cost allowances for Boulder Park generation,the optimal
dispatch price from a Washington perspective will only include the facility's variable cost of
generation.However,Idaho's optimal dispatch price will include,not only the variable cost of
generation,but will also include the cost of allowances.If the Company uses Washington's
optimal dispatch price,the Company will dispatch the facility more than it would if optimizing
NPC for Idaho,forcing Idaho to uneconomically pay for Boulder Park generation and the
associated cost of allowances for this additional generation.
To illustrate the impact using an example,the followinggeneration amounts and dispatch
prices for Boulder Park are assumed:
STAFF COMMENTS 4 AUGUST 1,2023
Boulder Park Washington Idaho System
(w/no-cost (w/allowance cost)
allowance)
Generation 65.64 MWh 34.36 MWh 100 MWh
Optimal Dispatch Price $20/MWh $47.05/MWh $29.29/MWh
Total Cost $1313 $1617 $2929
Because dispatch decisions are made by comparing a generationresource's optimal
dispatch price primarily to market prices,who benefits can be determined based on the
difference between the optimal dispatch price for each state and market prices.Using the above
assumptions and an example of market prices,who benefits can be determined as illustrated in
the table below.Included is a determination of whether there is a system benefit;however,
because of unequaljurisdictionalallocations,dispatch decisions that benefit the system may not
be beneficial to Idaho.
Who Benefits when DispatchingBoulder Park vs.Purchasingfrom Market
(X =net benefit)
Scenario Market Washington Idaho System
1 Mkt <$20/MWh ---
2 $20/MWh <Mkt <$29.29/MWh X --
3 $29.29/MWh <Mkt <$47.05/MWh X -X
4 $47.05/MWh <Mkt X X X
Scenario 1:Boulder Park would not be dispatched because the market price is less expensive
than optimal dispatch prices for Washington,Idaho,and the Company's system.Therefore,
everyonebenefits when Boulder Park is not dispatched.
Scenario 2:Washington would benefit from dispatching Boulder Park,because the market price
is greater than Washington's optimal dispatch price of $20/MWh;however,this would be at the
expense of Idaho and the Company's system,neither of which would benefit.
Scenario 3:Washington and the Company's system would benefit from dispatching Boulder
Park at the expense of Idaho.
Scenario 4:Washington,Idaho,and the Company's system would all benefit;however,the
amount of benefit would be unequal,with Idaho receiving less benefit than Washington or the
system.
As shown above,Washington ratepayers,the Company's system,and Idaho ratepayers
are not always aligned with regard to the benefits of dispatching Boulder Park.Because of the
STAFF COMMENTS 5 AUGUST 1,2023
dilemma,Staff recommends that the cost of allowances for Idaho's share of Boulder Park
generation not be included in the PCA deferral for recovery and not be included in Boulder
Park's dispatch price used in the PCA,when dispatching Boulder Park will benefit Washington
ratepayers,the Company's system,or both at the expense of Idaho ratepayers.For the cost of
allowances to be included in Idaho customer's rates the Company must show that dispatching
Boulder Park will result in overall net benefits from Boulder Park generationto Idaho ratepayers.
Accounting Treatment of CCA Expenses
The Company is requesting that the expenses resulting from the CCA,which will be
recorded in FERC Account 509,be included in the PCA.The Company references a "Notice of
Public Rulemaking"(Docket No.RM21-11-000)issued by FERC.In this notice,FERC
provides accounting guidance for emission allowances and recommends these expenses be
accounted for in FERC Account 509.Staff agrees that CCA credits are emissions allowances
and FERC Account 509 is the proper account to record the associated expenses.However,Staff
recommends that only CCA expenses which are prudentlyincurred to Idaho ratepayers and
known and measurable,be accounted for using FERC Account 509.Staff also recommends that
this account be included in the PCA.
The Company is currentlytracking overall CCA expenses by totaling the sum of four
components as the "Total LiabilityAccrued".The first component is the value of allowances
purchased,which is the product of the number of allowances purchased by Avista and allocated
to Idaho and the weighted average price of allowances in the inventory.Response to Staff
Production Request Nos.1 and 3.The second component is the value of allowances to be
purchased.This is calculated as the product of the number of allowances to be purchased to
meet the allowance needs and the end-of-month market price of allowances.Id.The third
component is the value of allowances retired,which will offset the first two components.This is
calculated as the product of the number of allowances retired already to meet the allowance
needs and the weighted average price of allowances in the inventory.Response to Staff
Production Request No.3.Under the CCA,a minimum of 30%of allowances to cover 2023
emissions is not required until November 1,2024.Therefore,Avista has not retired any
allowance for compliance.Revised Response to Staff Production Request No.10.The fourth
STAFF COMMENTS 6 AUGUST 1,2023
component is an adjustment that is not captured by the first three components.Response to Staff
Production Request No.3.
Staff believes only the third component (the value of allowances retired)should be
allowed in the PCA,because it represents known and measurable allowance expenses used to
comply with the CCA and not for other purposes,such as arbitrage.In addition,the third
component should only include Idaho's portion of emission expenses associated with surplus
thermal generation imported into Washington and subsequently sold to the market as off-system
sales,not Idaho's portion of emission expenses associated with Boulder Park's generation,when
dispatching Boulder Park will benefit Washington ratepayers,the Company's system,or both at
the expense of Idaho ratepayers.For the cost of allowances to be included in Idaho customer's
rates,the Company must show that dispatching Boulder Park will result in overall net benefits
from Boulder Park generation to Idaho ratepayers.
STAFF RECOMMENDATION
Staff recommends FERC Account 509 be included in the PCA with an ongoing annual
review.The PCA review will be utilized to determine the actual prudent recovery of each
separate sub-account for FERC Account 509.For FERC Account 509,Staff recommends:
1.The Commission accept Idaho's portion of emission expenses associated with surplus
thermal generation imported into Washington and subsequently sold to the market as off-
system sales,contingent on the overall sales remaining cost effective;
2.The cost of allowances for Idaho's share of Boulder Park generationnot be included in
the PCA deferral for recovery and not be included in Boulder Park's dispatch price used
in the PCA,when dispatching Boulder Park will benefit Washington ratepayers,the
Company's'system,or both at the expense of Idaho ratepayers.For the cost of
allowances to be included in Idaho customer's rates the Company must show that
dispatching Boulder Park will result in overall net benefits from Boulder Park generation
to Idaho ratepayers;and
3.The allowance expenses be based on the value of allowances retired.
STAFF COMMENTS 7 AUGUST 1,2023
Respectfullysubmitted this I day of August 2023.
Claire Sharp
Deputy AttorneyGeneral
Technical Staff:Yao Yin
James Chandler
i:umisc/comments/avue23.4csyyjcmsetcomments
STAFF COMMENTS 8 AUGUST 1,2023
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 1sT DAY OF AUGUST 2023,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF,IN
CASE NO.AVU-E-23-04,BY E-MAILING A COPY THEREOF TO THE FOLLOWING:
PATRICK EHRBAR DAVID J MEYER
DIR OF REGULATORY AFFAIRS VP &CHIEF COUNSEL
AVISTA CORPORATION AVISTA CORPORATION
PO BOX 3727 PO BOX 3727
SPOKANE WA 99220-3727 SPOKANE WA 99220-3727
E-mail:[e-mail] E-mail:[e-mail]
[e-mail]
SECRETARY
CERTIFICATE OF SERVICE