20231205Comments of Commission Staff.pdf

MICHAEL DUVAL
DEPUTY ATTORNEY GENERAL c0IDAHOPUBLICUTILITIESCOMMISSION
PO BOX 83720
BOISE,IDAHO 83720-0074 SS!ON
[phone]
IDAHO BAR NO.11714
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 OF AVISTA )CORPORATION'S AND CLEARWATER )CASE NO.AVU-E-23-15
PAPER COPRORATION'S JOINT PETITION )FOR APPROVAL OF AMENDMENT NO.1 )TO POWER PURCHASE AND SALE )COMMENTS OF THE
AGREEMENT )COMMISSION STAFF
COMMISSION STAFF ("STAFF")OF the Idaho Public Utilities Commission,by and
through its Attorneyof record,Michael Duval,Deputy AttorneyGeneral,submits the following
comments.
BACKGROUND
On October 2,2023,Avista Corporation ("Avista"or "Company")and Clearwater Paper
Corporation ("Clearwater")filed Amendment No.1 to the 2018 Power Purchase and Sale
Agreement ("Clearwater Agreement")to extend the contract term by three years through
December 31,2026.Under the current Clearwater Agreement,Clearwater is taking energy from
Avista as a retail customer under Schedule 25P,while selling energy to Avista as a qualifying
facility ("QF")under Public Utility Regulatory Policies Act of 1978 ("PURPA").The
Commission approvedthe Clearwater Agreement in Order No.34252,which is set to expire on
December 31,2023.
STAFF COMMENTS 1 DECEMBER 5,2023
Concurrently,the Company also filed Amendment No.2 to the Renewable Energy
Certificates ("REC")Agreement ("Morgan Stanley Agreement")to modify the energy prices and
the REC prices defined in the contract and agreed to by the Company and Morgan Stanley
Capital Group Inc.("Morgan Stanley").The Morgan StanleyAgreement was contained in the
Clearwater Agreement as Exhibit F.
The Clearwater Agreement was designed to optimize the value of Clearwater's
generation and the value of its RECs while having a neutral effect upon Avista's customers.To
accomplish this,under the Clearwater Agreement,Avista supplies Clearwater with the energy
that matches the Clearwater facility's ("Facility")generation amount at $24.56/MWh,while the
Facility's generationis sold to Avista at a similar rate of $24.50/MWh.'
On November 27,2023,the Company and Clearwater filed Amendment No.2 to the
Clearwater Agreement to correct some typological errors in Amendment No.1 of the Clearwater
Agreement,revise the original Morgan Stanley Agreement2,and correct the definition of "REC
Agreement".
STAFF ANALYSIS
Staff has reviewed Amendment No.1 to the Clearwater Agreement and Amendment No.
2 to the Morgan Stanley Agreement focusing on the capacity size of the Facility,the avoided
cost rates,the contract term,the 90/110 rule,the appropriateness of the change in the market
index,the REC prices,Exhibit B,the definition of "REC Agreement,"Section 24,and provisions
addressing potential modifications to the Facility.Staff recommends the following:
1.The Company and Morgan Stanley modify the deliveryschedule from 0-96 MW
to 0-80 MW through an updated Amendment No.2 of the Morgan Stanley
Agreement;
2.The Company and Clearwater update Amendment No.1 of the Clearwater
Agreement to adopt updated avoided cost rates for the additional three years
i The small difference between $24.56/MWh and $$24.50/MWh is due to revenue-related gross up for Commission
fees on the rate Clearwater pays Avista.
2 The revised Morgan Stanley includes the originalMorganStanley Agreement,Amendment No.1 of the original
Morgan Stanley Agreement,and Amendment No.2 of the originalMorgan Stanley Agreement.
STAFF COMMENTS 2 DECEMBER 5,2023
(2024,2025,and 2026)based on the 80-MW capacity size and the model inputs
effective on the signature date of October 2,2023;
3.The Company and Clearwater update Amendment No.1 of the Clearwater
Agreement to include 90/110 provisions;
4.The Company and Morgan Stanley update Section 2 (a)of Amendment No.2 of
Morgan Stanley Agreement to reflect the significance of Commission approval.
5.The Company and Clearwater update Exhibit B of the Clearwater Agreement to
correct the typographical errors and to update Schedule 25P with the currently
approved version;
6.The Company and Clearwater update Section 24 of the Clearwater Agreement to
reflect the significance of the Commission approval;
7.The Company and Clearwater update Amendment No.1 of the Clearwater
Agreement to include additional language to address potential modifications to
the Facility in accordance with Order No.35705;
8.That if Clearwater modifies the Facility in the future,the Company 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;and
9.That an extension of the contract term of any existing PURPA agreement be
treated as a renewal agreement,instead of an amendment.
Capacity Size
Currently,the capacity size of the Facility exceeds the capacity limit for PURPA QFs,
which will disqualifythe Facility as a PURPA QF.Staff recommends that the Company and
Morgan Stanleymodify the deliveryschedule in the Morgan Stanley Agreement to 0-80 MW to
continue operating as a QF.
The Facility has a capacity size of 132.2 MW.See Response to Staff Production Request
No.2.When the Morgan StanleyAgreement was originally approved in Order No.34252,the
deliveryschedule was set at 0-50 MW in the contract.Morgan Stanley Agreement at 4.This
STAFF COMMENTS 3 DECEMBER 5,2023
effectivelycapped the generation amount up to 50 MW,which complied with the PURPA
capacity limit requirement of 80 MW.3
However,on February 27,2019,the Company and Morgan Stanley modified the delivery
schedule from 0-50 MW to 0-96 MW through Amendment No.1 to the Morgan Stanley
Agreement.However,the Company did not file the amendment with the Commission for
approval due to a lack of administrative oversight.See Response to Staff Production Request
No.1 (a)and (b).This change practicallyallowed Clearwater to generate above 80 MW,which
violated the PURPA capacity limit requirement.Althoughthe impacts on customers may be
positive due to higher revenues from increased sales of RECs,4 Staff recommends that the
Company and Morgan Stanley modify the delivery schedule from 0-96 MW to 0-80 MW
through an updated Amendment No.2 to the Morgan Stanley Agreement to comply with
PURPA.
Avoided Cost Rates
The Company did not update the avoided cost rates for the extended contract term.Staff
recommends that the Company and Clearwater adopt updated avoided cost rates for the
additional three years (2024,2025,and 2026)based on the 80-MW capacity size discussed
earlier and the model inputs effective on the signature date of October 2,2023,in Amendment
No.1 of the Clearwater Agreement.
The original Clearwater Agreement used a blend of Integrated Resource Plan ("IRP")
based rates and forward market prices.While Staff believes the blended prices approximated
Avista's avoided costs,Staff recommends that the Company and Clearwater use the model inputs
effective on the signature date of October 2,2023.Staff's recommendation of using the
signature date is based on the Idaho Supreme Court case resulting from appeals taken under Case
Nos.IPC-E-IO-61 and IPC-E-10-62.See Idaho Power Co.v.Idaho Public Utilities Com'n,155
Idaho 780,316P.3d 1278 (2013).In the Idaho Power Co.case refenced above,the Idaho
Supreme Court upheld the Commission's finding that when there is a signed agreement,the date
of the Legally Enforceable Obligation ("LEO")should be the same date that the agreement was
signed by both parties.Therefore,Staff recommends the Company and Clearwater adopt
3 18 CFR §292.204(a)(l)
4 REC revenues split between Avista (10%)and Clearwater (90%).
STAFF COMMENTS 4 DECEMBER 5,2023
updated avoided cost rates for the additional three years based on the 80-MW capacity size and
the model inputs based on the signature date of October 2,2023,includingbut not limited to:
Load forecast approvedin Order No.35639 in Case No.AVU-E-22-15;
The first capacity deficiency date used in the original Clearwater Agreement,
which should be based on the authorized first capacity deficiency date when the
original Clearwater Agreement was executed.Order No.333576 at 25;
The base assumptions and preferred portfolio in the 2023 IRP.Order No.326976
at 22;
The contracts in the PURPA queue'as of October 2,2023.Order No.32697 at
22 and Order No.33357 at 28;
The capital structure and capital cost approved in Order No.359098 in Case No.
AVU-E-23-01;and
The exclusion of Washington's Climate Commitment Act ("CCA")costs.
Contract Term
The Company and Clearwater extended the original Clearwater Agreement by three years
throughDecember 31,2023.The Commission allowed IRP-based contracts to be more than two
years if a longer contract term is justified.Order No.33357 at 26.One major reason why IRP-
based PURPA contracts are limited to two years is that avoided cost rates can reflect a utility's
true avoided cost rates when being adjusted more frequently.Order No.33357 at 23.Because
the avoided cost rates used in this case are offset by the rates Clearwater pays Avista,Staff
believes a less frequent adjustment is acceptable.
Order No.33357 required utilities to use the capacity deficiency date established when an initial contract is signed.
6 Order No.32697 required that all variables and assumptions,except for load,natural gas,and contract information,utilized within the IRP Methodologyremain fixed between IRP filings.The 2023 IRP was filed on May 31,2023,
in Case No.AVU-E-23-05.
7 Originally,Order No.32697 required utilities to include long-term contract considerations in an IRP Methodology
"at such time as the QF and utilityhave entered into a signed contract for the sale and purchase of QF power."
Order No.32697 at 22.Later,Order No.33357 allowed utilities to include prior queued QFs as well as signed
contracts in the queue when determining indictivepricing.Order No 33357 at 28.
8 The Commission issued Order No 35909 on August 31,2023,updating the Company's capital structure and capital
cost.
The Commission had not made a determination regarding the recovery of the CCA costs from Idaho ratepayers asofOctober2,2023.On December 1,2023,the Commission issued Order No.36015,which "rejects the costs
associated with the CCA in its entirety."Order No.36015 at 7.
STAFF COMMENTS 5 DECEMBER 5,2023
90/110 Rule
The Clearwater Agreement and its Amendment No.1 do not contain 90/110 provisions.
Staff recommends that the Company and Clearwater update Amendment No.1 of the Clearwater
Agreement to include 90/110 provisions.Order No.29632 states:
In Order No.15746 we equated firm with pursuant to a "legally enforceable
obligation";non-firm we equated to "as available."...It is the Commission's belief
that a legally enforceable obligation translates into reciprocal contractual
obligations for both parties,a quid pro quo.It is not justa lock-in of avoided cost
rates but is also an obligation to deliver...The Commission finds it reasonable to
define firmness as predictability on a monthlybasis...the Commission finds that a
legallyenforceableobligation translates into contractual obligations ofboth parties.
For a QF it translates into an obligation or commitment to deliver its monthly
estimated production.Idaho Power propose that this deliveryof committed energy
fall within a 90/110band.Staff proposes that the band be expanded to 80/120.We
find 90/110 to be reasonable.
Order No.29632 at 12-14,20.
Because the Company and Clearwater have a LEO,Staff believes that 90/110 provisions
should be adopted.
Market Index
The Company and Clearwater used Powerdex Hourly Index to price the energy Avista
sold to Morgan Stanley in the original Morgan Stanley Agreement.Amendment No.2 of
Morgan Stanley Agreement proposes to use the Intercontinental Exchange ("ICE")Daily Mid-
Columbia Index or mutuallyagreed-to alternative in the extended period.Staff believes it is
reasonable to use the ICE Index to price the energy.However,if mutuallyagreed-to alternative
is adopted,Staff believes the alternative needs to be approved to reflect the significance of
Commission approval.
First,the ICE Index is the most heavilyreferenced market index in the Pacific Northwest.
See Response to Staff Production Request No.5 (a).Second,Clearwater is a baseload generator
with little variability in hour-to-hour generation.See Response to Staff Production Request No.
5 (b).Compared to the Powerdex Hourly Index,ICE's On-Peak/Off-Peak prices will increase
administrative efficiencies by using block prices instead of hourly prices.See Response to Staff
Production Request No.5 (a).Therefore,Staff believes it is reasonable to use the ICE Index to
price the energy Avista will sell to Morgan Stanley.
STAFF COMMENTS 6 DECEMBER 5,2023
Besides the ICE Index,the Company and Morgan Stanley propose prices that are
mutuallyagreed-to in Section 2 (a)of Amendment No.2 of Morgan Stanley Agreement.Staff
believes this neglects the significance of Commission approval and recommends that this option
is modified to reflect the need for Commission approval before any change.For example,the
statement can be updated as follows:"...equal the Intercontinental Exchange (ICE)Mid-
Columbia Firm On Peak (DAILY)and ICE Mid-Columbia Firm Off Peak (DAILY)(or mutually
agreed to alternative approved by the Commission)."
REC Prices
The original Morgan Stanley Agreement priced PCCl-Resource Contingent Bundled
RECs'°("PCCl RECs")and PCC2-Resource Contingent Bundled RECs!("PCC2 RECs")at
$9.00/MWh and $4.50/MWh,respectively.Amendment No.2 of the Morgan Stanley
Agreementproposes to price both PCC1 RECs and PCC2 RECs at the same rate of $27.10/MWh
for the extended period.Staff believes this rate is reasonable.
The REC prices are determined through negotiations between the Company and Morgan
Stanley based on the surplus and deficit of RECs in the market.See Response to Staff
Production Request No.6 (a).Due to a larger deficit in available bundled products in the
market,the proposed REC prices are higher than those in the original Morgan Stanley
Agreement.See Response to Staff Production Request No.6 (a).In the original Morgan Stanley
Agreement,PCCl RECs have higher prices than PCC2 RECs.However,Amendment No.2 of
10 Morgan Stanley Agreement defmed "PCCl-ResourceContingent Bundled RECs"as "[electricity produced by the
Project(s)("Project Energy")bundled with the associated Renewable Energy Certificates ("RECs")deliveredon anhourlybasis,without substituting Energy from another source to the DeliveryPoint ("BundledGreen Energy")that
qualifies as Resource Contingent Bundled REC as described in WSPP Agreement,Schedule R,Section R-2.3.4."
Morgan Stanley Agreement at 1."Such transactions are eligible to meet the RPS compliance requirements forPortfolioContentCategory1assetforthinPUCCode399.16(b)(l)(A)and CaliforniaPublic Utilities Commission("CPUC")Decision 11-12-052 ("PCCI Regulations")if scheduled from the Project into a Californiabalancing
authority area withoutsubstituting electricity from another source.Buyer shall be responsible for scheduling the
Product from the Delivery Point to a Californiabalancing authority area.Buyer shall pay Seller the applicable
Energy Price and PCCl REC price for Bundled Green Energy delivered to Buyer at the DeliveryPoint."Morgan
Stanley Agreement at 1.
"Morgan Stanley Agreement defined "PCC2-Resource Contingent Bundled RECs"as "Renewable Energy
Certificates ("RECs")that are generated but not schedule to a Californiabalancing authority."Morgan StanleyAgreementat2."In hours where Seller schedules Energy from the Project to the Delivery Point that is less than thehourlymeteredProjectEnergygeneratedbytheProject,the RECs associated with such metered Project Energy that
is in excess of the scheduled Energy ("Excess Energy")shall be deemed "PCC2 Bundled RECs.The Parties hereby
acknowledge and agree that (a)Seller shall retain such Excess Energy;and (b)the PCC2 Bundled RECS shall be
transferred to the Buyer in accordance with Settlements and Payments section below.Buyer shall pay Seller the
PCC2 REC price for such PCC2 Bundled RECs."Morgan Stanley Agreement at 2.
STAFF COMMENTS 7 DECEMBER 5,2023
the Morgan StanleyAgreement proposes to set both types of RECs at the same price,because the
current demand for both types of RECs is elevated.See Response to Staff Production Request
No.6 (b).
Exhibit B
Staff discovered two issues with Exhibit B of the Clearwater Agreement and recommends
that the Company and Clearwater update Exhibit B accordingly.First,Exhibit B mistakenly
references Section 5(a)and Section 5(d)when describing the Schedule 25P energy rate,the rate
Clearwater pays Avista for the remaining load separated from the Facility's generation load.
Staff believes that Exhibit B may have intended to reference Section 7.Second,Schedule 25P,
included in Exhibit B,should be replaced by the new Schedule 25P approved in the Company's
recent general rate case,Case No.AVU-E-23-01.The new Schedule 25P became effective on
September 1,2023.
Definition of REC Agreement
The Clearwater Agreement defined "REC Agreement"as "the Transaction Confirmation
between Avista and MSCG dated December 15,2018,under which Avista is to sell and MSCG
is to buy the RECs generated by the Project bundled with energy,..."Clearwater Agreement at
5.However,the date should have been October 19,2018.The Company and Clearwater
corrected this mistake in Amendment No.2 of the Clearwater Agreement filed on November 27,
2023.
Section 24 of Clearwater Agreement
Section 24 of the Clearwater Agreement states that "[n]o change,amendment or
modification of any provision of this Agreement shall be valid unless set forth in a written
amendment to this Agreement signed by both Parties."Clearwater Agreement at 20.Staff
believes that this statement neglects the significance of Commission approval and recommends
that the statement be updated to reflect the need for Commission approval before any change
becomes valid.For example,the statement can be updated as follows:"No change,amendment
or modification of any provision of this Agreement shall be valid unless set forth in a written
STAFF COMMENTS 8 DECEMBER 5,2023
amendment to this Agreement signed by both Parties and subsequently approved by the
Commission."
Provisions Addressing Modifications to Facility
The original Clearwater Agreement and the proposed Amendment No.1 do not contain
provisions that address potential futuremodifications to the Facility.Staff recommends that the
Company and Clearwater include language as directed by the Commission in Order No.35705.12
In that order,the Commission required the followingbe included in a contract:
Requirement 1:"Language that restricts the Seller from modifyingthe Facility
from the as built description of the Facility...withoutpromptlynotifying the
Company of that intent."Order No.35705 at 3;
Requirement 2:"Language that requires the Seller to provide notification of
planned modifications (such as fuel change or capacity size change)to the as-built
description."Id at 3;
Requirement 3:Language that requires parties to "amend the contract reflecting
the facility as actuallymodified."Id at 4;and
Requirement 4:Language that ensures that the payment structure allows payment
for only the proper authorized rates of the facility as actually modified and as of
the date when energy is first delivered as a modified facility.Id at 4.
In addition,if a facility is modified,the Commission required the utility to only include
NPC in the PCA that reflect rates for any energy delivered appropriate for the facility as
modified,regardless of the compensation paid to the facility.Id at 4.
Staff believes these requirements and additional amendments are appropriate because the
Commission previouslyfound it reasonable to include them in any new PURPA contract or
contract renewal.Order No.35254 at 4,Order No.35255 at 4,Order No.35256 at 6,Order No.
35259 at 3,and Order No.35267 at 4.In the past,the Commission has not allowed the facility
modification language to be added to PURPA contract throughan amendment.Id.However,the
main purpose of proposed Amendment No.1 of the Clearwater Agreement is to extend the term
12 See examples in cases IPC-E-22-28,IPC-E-23-02,IPC-23-15,and IPC-E-23-22 that followedthe direction of
Order No.35705.
STAFF COMMENTS 9 DECEMBER 5,2023
of the contract for an additional three years.Staff believes that Amendment No.1 should be
classified as a renewal contract and recommends that similar extensions be treated as renewal
contracts in the future.
STAFF RECOMMENDATION
Staff recommends the following:
1.The Company and Morgan Stanleymodify the delivery schedule from 0-96 MW
to 0-80 MW through an updated Amendment No.2 of Morgan Stanley
Agreement;
2.The Company and Clearwater update Amendment No.1 of the Clearwater
Agreement to adopt updated avoided cost rates for the additional three years
(2024,2025,and 2026)based on the 80-MW capacity size and the model inputs
effective on the signature date of October 2,2023;
3.The Company and Clearwater update Amendment No.1 of the Clearwater
Agreement to include 90/110 provisions;
4.The Company and Morgan Stanley update Section 2 (a)of Amendment No.2 of
the Morgan Stanley Agreement to reflect the significance of Commission
approval;
5.The Company and Clearwater update Exhibit B of the Clearwater Agreement to
correct the typographical errors and to update Schedule 25P with the currently
approvedversion;
6.The Company and Clearwater update Section 24 of the Clearwater Agreement to
reflect the significance of the Commission approval;
7.The Company and Clearwater update Amendment No.1 of the Clearwater
Agreement to include additional language to address potential modifications to
the Facility in accordance with Order No.35705;
8.That if Clearwater modifies the Facility in the future,the Company 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;and
STAFF COMMENTS 10 DECEMBER 5,2023
9.That an extensionof the contract term of any existing PURPA agreement be
treated as a renewal agreement,instead of an amendment.
Respectfullysubmitted this 5th day of December 2023.
Michael Duval
Deputy AttorneyGeneral
Technical Staff:Yao Yin
i:umisc/comments/AVU-E-23-15 Comments
STAFF COMMENTS 11 DECEMBER 5,2023
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 5*DAY OF DECEMBER 2023,SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF TOAVISTACORPORATION,IN CASE NO.AVU-E-23-15,BY MAILING A COPYTHEREOF,POSTAGE PREPAID,TO THE FOLLOWING:
MICHAEL G.ANDREA MICHAEL S GADDSENIORCOUNSELCLEARWATERPAPER CORPAVISTACORPORATION601WRIVERSIDEAVE
PO BOX 3727 STE 1100
SPOKANE WA 99220-3727 SPOKANE WA 99201
E-mail:[e-mail]
PETER RICHARDSON
RICHARDSONADAMS PLLC
505 N 27TH ST
BOISE ID 83702
E-mail:[e-mail]
Ida Elmasian
CERTIFICATE OF SERVICE