20231208Joint Reply Comments.pdf

Avista Corp.
1411 East Mission P.O. Box 3727
Spokane, Washington 99220-0500
Telephone [phone]
Toll Free 800-727-9170

December 8, 2023

Commission Secretary
Idaho Public Utilities Commission
11331 W. Chinden Blvd. Bldg. 8, Ste. 201-A
Boise, Idaho 83714

RE: AVU-E-23-15 – Power Purchase Agreement between Avista Corporation and Clearwater
Paper Corporation

Included for filing with the Commission is the electronic copy of Avista Corporation and Clearwater
Paper Corporation’s Joint Reply Comments to Staff Comments submitted on December 5, 2023.

Should you have any questions regarding this filing, please do not hesitate to call Michael Andrea at
[phone]. Thank you in advance for your assistance.

Sincerely,

/s/ Paul Kimball

Paul Kimball
Mgr. of Compliance & Discovery

Enclosures

RECEIVED
Friday, December 8, 2023 2:25:03 PM
IDAHO PUBLIC
UTILITIES COMMISSION
MICHAEL c. ANDREA (lSB No. 8308)
Avista Corporationl4ll E. Mission Ave., MSC-23
Spokane, W A99202
Telephone: [phone]
m ichae l.andrea@av i stacorp.com
PETER RICHARDSON
Richardson Adams, PLLC
505 N. 27th Street
Boise, lD 83702
Telephone: [phone] I
IN THE MATTER OF AVISTA
CORPORATION'S AND CLEARWATER
PAPER CORPORATION'S JOINT PETITION
FOR APPROVAL OF AMENDMENT NO. I
TO POWER PURCHASE AND SALE
AGREEMENT
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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CASE NO. AVU-E-23-15
JOINT REPLY COMMENTS OF
AVISTA CORPORATION AND
CLEARWATER PAPER
CORPORATION
Avista Corporation ("Avista") and Clearwater Paper Corporation ("Clearwater")
respectfully submit the following reply comments in response to the comments of ldaho Public
Utility Commission ("Commission") Staff submitted on December 5,2023 ("Staff Comments")
on the amendment to extend the Power Purchase and Sale Agreement ("Clearwater Agreement")
between Avista and Clearwater through December 31,2026. Unless the Clearwater Agreement
is extended as requested in Avista's and Clearwater's joint petition submitted in the above-
captioned matter on October 2,2023, the Clearwater Agreement will expire on December 3 l,
2023. Accordingly, Avista and Clearwater respectfully requests expedited review of the
amendments submitted in this proceeding and that the Commission issue an order approving the
Page I of 9 JOINT REPLY COMMENTS OF AVISTA CORPORATION AND
C LEARWATER PAPER CORPORATION
Clearwater Agreement effective January 1,2024, subject to a compliance filing as further
discussed herein.
As discussed below, Avista and Clearwater appreciate Staff s diligence and are amenable
to making most of the proposed modifications to the Clearwater Agreement recommended by
Staff. Avista and Clearwater provide the following reply comments to Staff s Comments.
I. Reply Comments
On October 2,2023, Avista and Clearwater filed a joint petition for approval of
Amendment No. I to the Clearwater Agreement. The sole purpose of Amendment No. I was to
extend the term of the Clearwater Agreement, which was originally approved by the Commission
on February 27,2019,1 for an additional three years. Accordingly, Avista and Clearwater
submitted an amendment to the Clearwater Agreement ("Amendment No. l") to (i) update
Section 3(a) of the Clearwater Agreement to reflect the extended term such that the Clearwater
Agreement will terminate on December 3l ,2026, and (ii) to update section 5(a) of the
Clearwater Agreement to reflect the corresponding amendment to the related Transaction
Confirmation: Resource Contingent Bundled REC - Energy and Green Attributes ("REC
Agreement") that is Exhibit F to the Clearwater Agreement.
On November 27,2023, Avista submitted a second amendment ("Amendment No. 2") to
the Clearwater Agreement to correct some minor typographical errors. Amendment No. 2 also
provides the updated REC Agreement as Revised Exhibit F.
On December 5,2023, Staff submitted comments, including nine recommendations.
Avista and Clearwater have reviewed the Staff Comments. As discussed below, Avista and
I Order No. 34252,
Page2 of 9 JOINT REPLY COMMENTS OF AVISTA CORPORATION AND
C LEARWATER PAPER CORPORATION
Clearwater accept most of Staff s recommendations and are prepared to submit a compliance
filing consistent with the Commission's order in this matter to update the Clearwater Agreement
Avista and Clearwater provide the following responses to Stafï-s specilic
recommendations.
A.Staffs Recommendation to Modify the Delivery Schedule in the REC Agreement
from 0-96 MW to 0-80 MW Through an Amendment to the REC Agreement Should
be Rejected.
ln the Staff Comments, Staff recommends that Avista and Morgan Stanley "modify the
delivery schedule from 0-96 MW to 0-80 MW through an updated Amendment No. 2 of the
[REC Agreement]."2 Stafïs asserts that this modification to the REC Agreement is necessary
because "the capacity size of the Facility exceeds the capacity limit for PURPA QFs, which will
disqualify the Facility as a PURPA QF."l Staff is incorrect for two reasons.
First, the Facility is a "cogeneration facility" as defined by the Federal Energy Regulatory
Commission's regulations.a ln contrast to other types ol'QFs, cogeneration facilities are not
subject to the 80 MW size lirnitation.s
Second, the delivery schedule in the REC Agreement is not determinative of whether the
Facility is or is not a QF. The Facility is a QF because it satisfies the requirements for a
2 Staff Comments at 2, 3-4, I 0 ( Staff Recommendation No. I ).r Staff Comments at 3.
1 l8 c.F.R. $ 292.202(c\.
s S'ee l8 C.F.R. $ 292.203(b) (specilying the requirements for a cogeneration facility to be a QF); l8 C.F.R. g
292.101(b) (defining "qualilying facility" to rnean a cogeneration facility or a small power production facility);.ree
also Rerisir¡ns to F.orm, Proce¿lures. and Criteria.for (-ertifìcation o.l'Quali/ying Fac'ility Status.for a Small Po*er
Protluction or ('ogeneration F-acility, 130 FERC n 61,214, PP 24,33 (20 l0) (discussing requirements for small
power production or cogeneration facilities separately and clarifying that cogeneration facilities must satisfl, the
requirements in I 8 C.F.R. $ 292.203(b) to qualify as QFs); PURPA Title ll Cornpliance Manual 2.0 (2021\ aT 12
available at pubs.naruc.org (stating: "Unlike small power production flacility QFs, there is no size limitation on
cogeneration QFs.").
Page 3 of 9 JOINT REPLY COMMENTS OF AVISTA CORPORATION AND
CLEA RWATER PAPER CORPORATION
Cogeneration Facility to be a QF and Clearwater has certified it as a QF. Even assuming that the
Facility was subject to the 80 MW size limit to be a QF (which as explained above, it is not), the
delivery schedule in the REC Agreement does not, by itself,6 have any bearing on whether the
Facility is or is not a QF. Therefore, modification of the REC Agreement is not necessary.T
B. Avista and Clearwater will Amend the Clearwater Agreement to Adopt Updated
Avoided Cost Rates for the 2024-2026 and Avista will Update Schedule 25P.
As noted by Staf,f, Avista did not update the avoided cost rates for the extended contract
term (2024-2026) and, therefore, recommends that Avista and Clearwater Amend the Clearwater
Agreement to adopt avoided cost rates for 2024-2026 based on the 80 MW capacity size and the
model inputs effective on the signature date of October 2,2023.8 Staff further recommended that
Schedule 25P, which is included as Exhibit B to the Clearwater Agreement, be replaced by the
new Schedule 25P approved in Case No. AVU-E-23-01(Avista's 2023 general rate case).e
As described in the petition requesting approval of the Clearwater Agreement in Case No.
AVU-E-18-l3,underthetermsoftheClearwaterAgreement: "Avistawill selltoClearwaterall
of Clearwater's required energy and capacity at the [then-]new Schedule 25P Block 2 PURPA
rate of S24.50/MWh and would purchase all of the output from Clearwater's Generation,
including the RECs at the same PURPA rate of $24.50/MW¡."10 ¡n other words, Avista's
('To be sure, if a QF that is subject to the 80 MW size limit actually did exceed that size limit, that would irnpact that
flacility's status as a QF, but a delivery schedule in the REC Agreement does not, by itself, have any bearing on the
fäciliry's status as a QF.
7 Clearwater agrees that its Facility is a cogeneration facility that is not subject to the 80 MW size cap applicable to
other types of QFs and that the delivery schedule in the REC Agreement has no bearing on the Facilities status as a
QF. Clearwater further asserts that the Facility is a QF. See FERC Docket Nos. QF83-142, QF83-143, QF83-144,
and QF92-64. Clearwater is not a party to the REC Agreement, which is an agreement between Avista and Morgan
Stanley Capital Group ("Morgan Stanley"). Accordingly, Clearwater takes no position on any issues regarding the
REC Agreement.
8 Staff Cornments at 2-3,4-5, l0 (Staff Recommendation No.2).
" Stalf Comments at 3, 8, l0 (Staff Recommendation No.5).
l0 Joint Petition of Avista and Clearwater filed in Case No. AVU-E-18-13 on November 29,2018 ("Original
Petition") at 4.
Page 4 of 9 JOINT REPLY COMMENTS OF AVISTA CORPORATION AND
CLEARWATER PAPER CORPORATION
purchase of Clearwater's output and its sale of a commensurate amount of,energy and capacity
are at the same rate. The Clearwater Agreement expressly contemplates that Schedule 25P (and
other tariff schedules) may be amended and approved by the Commission lrom time to time and
that, notwithstanding the then-current Schedule 25P rates, the applicable rates will be the rates in
Avista's Commission-approved tariff as it may be amended and approved by the Commission
fiom time to time.ll
Avista will update Schedule 25P as recommended by Commission Stafï. Avista and
Clearwater will also further amend the Clearwater Agreement to update the avoided cost rate.
However, as discussed above, the Facility is not subject to the 80 MW size limitation and,
therefore, Staff s recommendation to update the avoided cost rates based on the 80 MW size cap
should be rejected. The updated avoided cost rate will be updated to be consistent with the
model inputs effective on October 2,2023, and the updated Schedule 25P.
Avista proposes to update the rate for energy and capacity in Schedule 25P to $39.0612
per MWh in a compliance filing. This price isthe2024-2026levelized nofthwest energy price
from the 2023 I RP. G iven forward markets are not traded for the future periods of this contract
and the uncertainty of Washington's Climate Commitment Act's future, using the forward price
curve is inappropriate.
rr Clearwater Agreement at Section 7.
r: The Block 2 PURPA rate will be grossed up for revenue related expenses associated with Commission Fees in
order to make the new agreement cost neutral for custonrers. The Commission Fee gross up results in a Block 2 rate
of $39. l4 per MWh for Schedule 25P.
Page 5 of 9 JOINT REPLY COMMENTS OF AVISTA CORPORATION AND
CLEARWATER PAPER CORPORATION
C Avista and Clearwater will Amend the Clearwater Agreement to include 90/110
Provisions.
Commission Staff recommends amending the Clearwater Agreement to include the
90/l l0 provisions.ll The original Clearwater Agreement did not include the 90/l l0 performance
standard that is generally required in ldaho PURPA agreements where the avoided cost rate is
determined based on the date of the legally enforceable obligation. Unlike other firm PURPA
agreements, Avista does not rely on the output of Clearwater's Facility to serve its load. lnstead,
the output of the Clearwater Facility is sold to a third party pursuant to the REC Agreement. As
explained in the Original Petition requesting approval of Clearwater Agreement in Case No.
AVU-E-18-13:"Sales of Clearwater-related bundled RECs by Avistato the Third Party will be
based on actual deliveries from Clearwater to Avista."la
Because Avista and Clearwater have a legally enforceable obligation, Staff recommends
amending the Clearwater Agreement to include the 90/l l0 performance standard.l5 Avista and
Clearwater will, in a compliance filing, amend the Clearwater Agreement to include the 90/ll0
performance standard.
D. Avistal6 will Work with Morgan Stanley to Update Section 2 of Amendment No. 2 of
REC Agreement to Expressly Require Commission Approval for any Change to the
Pricing Provisions in the REC Agreement.
In the Staff Comments, Staff notes that in Section 2 of Amendment 2 to the REC
Agreement, the energy price is based, in part, on the lntercontinental Exchange ("lCE") on peak
and off peak daily index followed by a parenthetical that states "or mutually agreed to
rr Staff Comments at 3, 6, l0 (Staff Recommendation No. 3).
rr Original Petition at 7.
r5 Staff Comrnents at 6.
r6 The REC Agreement is an agreement between Avista and Morgan Stanley. Clearwater is not a party to the REC
Agreement and, therefore, Clearwater does not join in the comments, and takes no position, with regard to this
Section I.D. and Staff Recornrnendation No.3.
Page 6 of 9 JOINT REPLY COMMENTS OF AVISTA CORPORATION AND
CLEARWATER PAPER CORPORATION
alternative".lT This parenthetical is included in Section 2 both forthe Powerdex Mid-Columbia
("Powerdex") index applicable to Delivery Period I (Section 2(a) of Amendmenf 2) and the ICE
indices applicable to Delivery Period 2 (Section (2Xb) of Amendment 2) and is included to
address the potential that the Powerdex and/or ICE indices could be discontinued during the term
of the REC Agreement. Staff asserts that it believes that if a mutually agreed-to alternative is
adopted, the alternative needs to be approved by the Commission and, therefore, Staff
recommends amending Section 2 to indicate that any mutually agreed to alterative is required to
be approved by the Commission.ls
As a threshold matter, the REC Agreement is a bundled energy and REC agreement with
Morgan Stanley. The REC Agreement is provided as an exhibit to the Clearwater Agreement
solely to provide the Commission visibility into the REC Agreement because the Clearwater
Agreement was contingent upon the REC Agreement. As explained in the Original Petition:
The [Clearwater] Agreement is expressly conditioned on the existence of the agreement with the
Third Party."le
Bundled energy and REC agreements such as the REC Agreement are not generally filed
with and approved by the Commission. More fundamentally, the rates paid for output of the
Facility under the Clearwater Agreement are based on Avista's Schedule 25P, not the REC
Agreement. Nevertheless, Avista is willing to amend the REC Agreement as recommended by
Staff. Avista notes, however, that such amendment will need to be agreed to by Morgan Stanley
Accordingly, Avista's ability to provide that amendment is subject to Morgan Stanley's
agreement to such amendment.
r7 In the Staff Comments, Staff points to Section 2(a) of Amendment 2 to the REC Agreement. Itappears, however,
that Staffintended to point to Section 2(b).
ì8 Staff Comnrents at 3,6-7,10 (Staff Recommendation No.4).
r" Original Petition at 7.
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CLEARWATER PAPER CORPORATION
E. Avista and Clearwater Will Update Section 24 of the Clearwater Agreement to
Reflect the Significance of Commission Approval as Recommended by Staff.
On compliance, Avista and Clearwater will amend Section 24 of the Clearwater
Agreement as recommended by Staff to indicate that any amendment to the Clearwater
Agreement requires Commission approval.20
F. Avista and Clearwater will Update the Clearwater Agreement to Address Possible
Modifications to the Facility as Recommended by Staff.
Staff recommends that Avista and Clearwater update the Clearwater Agreement to
include additional language to address potential modifìcations to the Facility in accordance with
Order No. 35705.2r Avista notes that the Clearwater Agreement is a contract to purchase the
output from the Facility as defined in the agreement. Any material modifìcation of the Facility
that, for example, changed the type of fuel for the facility or resulted in a material change in
capacity, would, therefore, require an amendment to the Clearwater Agreement. Avista and
Clearwater have no objection to addressing such modifications consistent with Order No. 35707
as recommended by Staff.
G. If Clearwater Modifies the Facility in the Future, Avista will only Include Net Power
Cost ("NPC") in the Power Cost Adjustment ("PCA") that Reflects Rates for Any
Energy Delivered Appropriate for the Facility as Modified, Regardless of the
Compensation Paid to the Seller.
Staff recommends that, if Clearwater modifies the Facility in the future, the Company
only include NPC in the PCA any energy delivered appropriate for the Facility as modified,
regardless of the compensation paid to the Seller.22 Avista agrees with this recommendation.2l
r0 Staff Comments at 3,8, I0 (Staff Recommendation No.6).rr Staff Comments at 3,9-10 (Staff Recommendation No.7).
r2 Staff Com ments at 3, I 0 ( Staff Recommendation No. 8 ).rr Avista's inclusion of NPC in its PCA is an Avista-only issue and, therefore, Clearwater does not join in this
Section I.G. and Clearwater takes no position with regard to Staff Recommendation No. 8.
Page 8 of 9 JOINT REPLY COMMENTS OF AVISTA CORPORATION AND
C LEARWATER PAPER CORPORATION
H. The Extension of the Contract Term of Any Existing PURPA Agreement be Treated
as a Renewal Agreemento Instead of an Amendment.
Staff recommends that an extension of the contract tenn of an existing PURPA
Agreement be treated as a renewal agreement, instead of an amendment.24 Avista and
Clearwater agree with this recommendation.
II. Conclusion
Avista and Clearwater appreciate the opportunity to submit these reply comments. The
parties respectfully request that the Commission approve the amendments extending the term of
the Clearwater Agreement through December 31,2026, with an effective date of January l,
2024, subject to a compliance frling. The Clearwater Agreement is currently due to expire
pursuant to its terms on December 31, 2023. Accordingly, Avista and Clearwater respectfully
request that the Commission issue an order as soon as possible, but no later than December 31,
2023, to ensure that the extension to the Clearwater Agreement will become effective upon the
expiration of the current Clearwater Agreement.
DATED this 8th day of December, 2023
MichaelG. Andrea
Attorney for Avista Corporation
Ric n
Attorney for Clearwater Paper Corporation
rr Staff Cornrnents at 3, l0 (Staff Recommendation No. 9).
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CLEA RWATER PAPER CORPORATION
/s/ Michael G. Andrea