Plummer Forest Product..pdf

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Chas. F. McDevitt
Dean J. (Joe) Miller
March 15 2002
Ms. Jean Jewell, Secretary
Idaho Public Utilities Commission
+72 W. Washington
Boise, Idaho 83702
Re:Case No. GNR-E-O2-01
Dear Ms. Jewell:
Enclosed for filing in the above-referenced matter, please find the original and seven copies of
Comments of Plummer Forest Product Inc. Also enclosed is an additional copy for return, '"vith yom
file stamp thereon, to this office.
Thank you for your assistance.
V ery truly yours
llif:LP
Dean 1. Miller
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ORIGIN,l\L
Dean J. Miller (ISB No. 1968)
MCDEVITT & MILLER LLP
537 West Bannock, Suite 215
O. Box 2564-83701
Boise, Idaho 83702
208-343- 7500
208-336-6912 (fax)
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE INVESTIGATION
OF THE CONTINUED REASONABLENESS
OF CURRENT SIZE LIMITATIONS FOR
PURP A QF PUBLISHED RATE ELIGIBILITY
(i.e., 1 MW) AND RESTRICTIONS ON
CONTRACT LENGTH (i.e., 5 YEARS).
) CASE NO. GNR-O2-
) COMMENTS OF PLUMMER
) FOREST PRODUCTS INc.
INTRODUCTION
Plummer Forest Products Inc.
, ("
Plummer" or "PFP") applauds and supports the
Commission s willingness to re-examine policies regarding the threshold for availability of
published Qualifying Facility (QF) Rates and contract terms and conditions. By these comments
Plummer urges that the threshold for availability be increased to OMW and that contracts with a
20-year length be authorized.
PLUMMER FOREST PRODUCTS-AN OVERVIEW
Plummer Forest Products Inc. is a privately held Idaho corporation formed in 1999 to build
and operate a small log sawmill in Plummer Idaho. In July of 1998 a fire destroyed the sawmill
portion of the facility in Plummer and the then owner, Rayonier Corporation of Stamford
Connecticut, elected not to rebuild the sawmill and put it up for sale. The Coeur D' Alene Indian
COMMENTS OF PLUMMER FOREST PRODUCTS INC.Page 1
.--,
Tribe did not want to loose industrial jobs in the community. The Tribe and PFP negotiated a
lease whereby the tribe purchased the mill site and PFP agreed to build a new small log sawmill in
Plummer. PFP will own the site at the end of the 10-year lease term.
When operating at full capacity, the mill produces Sixty Five Million board feet of lumber
annually (using logs that previously became chip wood fiber or were burned in slash piles in the
woods) and has over 80 full time employees. The sawmill operation generates 44 000 bon dry tons
of bark, sawdust and shavings annually. An electric cogeneration plant with a rated capacity of
6 MW is located within the mill and is fueled by the wood waste generated by the mill and by
waste purchased from other sources. Wood waste from the sawmill is used to fire a single boiler
rated at 70 000 pounds per hour of 420 PSIG, 750 deg. F. steam. Steam will drive a 6 250-
turbine generator, with 25 000 pounds per hour of turbine extraction steam being routed through
the sawmill's lumber kilns. The facility is expected to produce 33 000 kWh of electricity
annually.
The Facility was originally self-certified on May 4, 1983 , as a Qualifying Cogeneration
Facility by its original owner, Wood Power, Inc. The facility was subsequently re-self-certified by
a second owner, Rayonier Corporation, on February 19 , 1997. On September 20 1999 , Rayonier
Corporation transferred ownership ofthe facility to the Coeur d'Alene Tribe. The Coeur d'Alene
Tribe leased the facility on May 31 , 2000, to Plummer which in turn subleased the facility to
Haleywest LLC.
Currently, the output ofthe plant is being sold into the regional spot (non-firm or surplus)
markets. Revenues from these sales are not sufficient to cover variable operating costs. Fixed
costs such as depreciation and capital costs are not recovered at all . In the absence of a long-term
COMMENTS OF PLUMMER FOREST PRODUCTS INC.Page 2
contract with rates sufficient to cover costs and reduce market volatility, PFP may be compelled to
discontinue operation of the cogeneration plant in the near future and layoff employees.
In short, the Plummer cogeneration facility is precisely the type of facility PURP A was
intended to promote. It reduces dependence on a single fuel source (natural gas) and is fueled by a
renewable energy source. Additionally, this kind of plant mitigates environmental problems
associated with disposal of wood waste.
THE FACTUAL PREDICTION SUPPORTING
REDUCTION OF PUBLISHED RATE ELIGIBILITY AND THE SHORTENING OF
CONTRACT LENGTH HAS NOT MATERIALIZED
From the inception of PURP A implementation efforts in Idaho in the early 1980s through
1994, projects with capacity of 10MW received rates for their generation that were published from
time to time by the utilities and publicly available. Cogeneration projects obtained sales contracts
with a term of 20 years.
In January of 1995 the Commission, sensing that long-term PURP A obligations might be
incompatible with perceived emerging competition in the electric industry, reduced the eligibly for
published rates to projects of 1 MW or smaller. In Order No. 258842 the rationale for this change
was explained by the Commission as follows:
There is a widely held expectation that there will be increasing competition within the
electric utility industry. In light of that, we believe it is especially important that the QF
industry be able to demonstrate that the energy resources it offers are as cost effective as
those that a utility could construct.. ...We believe that lowering the threshold, along with
adopting a least cost planning based methodology as discussed later, will help to ensure
that a greater number of QF projects are cost effective by market standards before they are
acquired by our utilities.
1 In the earliest phases of PURPA
implementation eontracts of 35 years were authorized. See Case No. U-1500- I 70Order No. 21630 (I 987).2 In The Matter of the Application of Idaho Power Company for Approval of Prices for the Purehase
of Eleetrieityfrom Cogenerators and Small Power Producers qualifying under seetion 210 of the Public Utility Regulatory Poliees
Aet of 1978. Case No. IPC-93-28.
COMMENTS OF PLUMMER FOREST PRODUCTS INC.Page 3
In 1996, in Case No. IPC-95-, Order No. 26576 , the Commission shortened
cogeneration contract terms from 20 to 5 years. The rationale for this change was much the same
as for reduced eligibility for published rates. The Commission explained:
Significant changes have swept through the electric industry since we last
examined the issue of contract length. The FERC has mandated open access to the
transmission system, thermal technologies have improved, gas prices are low, there
is a considerable surplus of energy available in this region resulting in very low
spot market prices for electricity and, finally, even the continued existence of
PURPA is being called into question. We find that as the industry as a whole
continues to transform to a more free market model, we cannot justify obligating
utilities to 20-year contracts for PURP A power. As the utilities in this case note
such an obligation does not reflect the manner in which they are currently acquiring
power to meet new load; through short-term (five years or less) purchases.
While Plummer recognizes this case is not the forum to debate the issue of electric utility
re-structuring, the reality is that competition has not materialized in Idaho. And, as discussed
below, contrary to the expectations reflected in Order No. 26576, wholesale market prices for
energy reached unprecedented levels never expected in a competitive market for energy, and Idaho
utilities are currently acquiring or building long term generating resources.
Moreover, the policy of the state ofIdaho, as reflected by activities of the Idaho
Legislature, is hostile to competition or industry restructuring. The Legislature s special
Committee on Electric Utility Restructuring, created in 1996 4 issued two reports. In the first
published in 1997, the Committee s recommendations, in part were:
1. Our congressional delegation vigorously oppose further deregulation at the
federal level;
2. No state legislative actions be taken at this time that would encourage retail
electric power restructuring.
3 In the Matter of the Application of Idaho Power Company for an Order Approving the Methodology for A
voidedCost Rate Negotiations with Qualifying Facilities Larger than I Megawatt.4 HCR No.2 Authorizing the Legislative Council to Appoint a Committee to Study Electric Utility Restrueturing,
First Regular Session of the 54th Idaho Legislature.
s Interim Committee Report, 1997 (Bold in Original).
COMMENTS OF PLUMMER FOREST PRODUCTS INC.Page 4
In its Final Report, the Committee referred back to its earlier recommendations and said:
Given the crisis that has occurred in California and the lack of positive results found in
other states following the deregulation pathway, this seems to be a very wise
recommendation.. ..The current system of regulated electrical utility service with cost-
based power rates should be preserved to protect Idaho rate payers. Electrical deregulation
will expose ratepayers to higher market-based power rates.
Further, in 2001 the Legislature adopted significant amendments to the Electric Supplier
Stabilization Act 7 the effect of which is to make competition legally impracticable, if not
impossible, in Idaho.
In 1995 , based on information then available, there could have been a legitimate worry that
utilities needed to be shielded from PURP A obligations in the face of emerging competition. As
events have unfolded, however, it is now apparent that competition has not and will not pose a
threat to the utilities ' monopoly control of generation and distribution of electricity in Idaho.
ACQUISITION OF ENERGY AND CAPACITY FROM DIVERSE SOURCES
IS NOW IN THE PUBLIC INTEREST
The practical effect of Order Nos. 25884 and 26576 has been to bring to a halt the
development ofPURPA resources in Idaho.8 Recent events compel the conclusion that it is now
time to adopt policies that would make independent power projects economically feasible.
In April of 200 1 , A vista filed with the Commission its most recent Integrated Resource
Plan (IRP). In its order accepting the IRP, the Commission summarized the Staffs analysis of the
plan and noted Staffs conclusion that "Avista s IRP...confirms an immediate need for new
generation resources and demonstrates additional needs in the not too distant future." 9
6 Final Report Legislative Council Interim Committee, 2001.7 Idaho Code 61-332 et seq.; S.L. 2001 , Ch. 29.
See Letter Comments of John 1. Straubbar, P., February 27, 2002; Letter Comments of David O. Day, P., Mareh2002; Letter Comments of J-B Engineers, March 1 2002; E-Mail Comments of Christopher Seott Harriman
February 7, 2002.9 In the Matter of the Filing by Avista Corporation DBA Avista Utilities-Washington Water Power Division (Idaho)of its 2001 Eleetric Integrated Resource Plan (IRP); Order No. 28884, Case No. A VU-O 1-, Oetober 24, 2001.
COMMENTS OF PLUMMER FOREST PRODUCTS INC.Page 5
To the best ofPFP's knowledge, Avista has not acquired any QF resources since 1995.
Rather, it has relied on market purchases and construction of its own generation to serve its
customer s needs. Each of these has its own set of problems which were manifest in Avista s most
recent Power Cost Adjustment Proceeding.1O There, the Company sought and obtained a 19.4%
increase ($23m) contending that "a combination of the worst hydroelectric conditions in 73 years
and unprecedented high wholesale market prices and volatility have created the necessity for
prompt rate relief..." A vista s application and testimony in that case clearly illustrates the risks of
a hydro-based utility relying on short-term wholesale markets. Acquisition oflonger term QF
capacity would mitigate those kinds of risks and would provide greater price/rate stability.
In the same case it was disclosed that without immediate rate relief the Company did not
have the financial ability to complete construction of Coyote Springs II, a 280 MW natural gas
generating station needed to meet the deficits identified in the Company s IRP. Notwithstanding
the acknowledged hardship to customers, the Commission had little choice but to approve the
surcharge and to , in one sense, require ratepayer pre-funding of that investment. A reasonable
program of PURP A acquisitions would help prevent recurrence of that unpleasant experience and
offer smaller cogeneration projects the same opportunity for financing and development.
OTHER DESIRABLE REFORMS
Although the issues identified for consideration in the proceeding are limited to eligibility
for published rates and contract length, the Commission should consider expanding the scope of
the proceeding to consider other related changes. These would include:
Jettison the IRP Methodology for Larger Projects. Currently, there are two methodologies
for determining avoided cost rates. Smaller projects receive rates based on a Surrogate Avoided
Order No. 28884, Case No. A VU-01-, October 24 2001.
COMMENTS OF PLUMMER FOREST PRODUCTS INC.Page 6
Resource which, for the present, is a gas fired, combined cycle combustion turbine. I I For larger
projects that avoided cost of a QF project is determined as the cost which the utility would avoid if
it purchased power from the QF, rather than acquiring the same power from the resources selected
in its base case IRP resource plan.
The IRP methodology has proven to be exceedingly cumbersome as it is dependent on
multiple computer runs ofIRP models, the results of which are largely inscrutable to a third party.
Moreover, both Idaho Power Company13 and A vista have recently constructed gas turbine
generating facilities. There is now, therefore, direct and relatively easily obtainable information
about the cost of utility generation that could be avoided by QF purchases. The actual cost of the
utilities' own addition of new generating capacity is the best evidence of avoided cost.
Simplify the SAR Methodology. In Order No. 25884 the Commission approved two SAR
methodologies, one for "fueled" projects and one for "non-fueled" projects. The Commission has
recently clarified the original intent of Order No. 25884, stating, "By way of clarification, we find
that the Commission s intent in that Order was to use 'non-fueled' to mean non-fossil fueled
projects and 'fueled' to mean fossil fueled projects."14 While Order No. 28945 clarified the
Commission s intent as it existed in 1995 , it did not preclude a fresh look at whether the
distinction between fueled and non-fueled is sensible today.
Parity of Cost Recovery for non-utility generation. A vista has recently proposed that costs
associated with its Coyote Springs II generating facility be recovered through its Power Cost
In the Matter of the Application of Avista Corporation DBA Avista Utilities-Washington Water Power Division
(Idaho) for Authority to Revise Eleetric Tariff Sehedule 66- Temporary Power Cost Adjustment-Idaho and to
Implement a Related Sureharge; Order No. 25884 , Case No IPC-93-28.12 Order No. 26576, Case No. IPC-95-
13 In the Matter of the Applieation of Idaho Power Company for an Aeeounting Order Authorizing the Inclusion of
Power Supply Expenses Associated with the Purehase of Capaeity and Energy from Gamet Energy LLC, in theCompanys Power Cost Adjustment, Case No. IPC-OI-42.14 Order No. 28945. In the Matter of the Petition of Idaho Power Company for a Deelaratory Order Coneerning
Entitlement to Published Rates for Non-fueled Small Power Production Faeilities, Case No. IPC-OI-37.
COMMENTS OF PLUMMER FOREST PRODUCTS INc.Page 7
Adjustment Mechanism.Is Although the Commission deferred decision on this request until the
plant is completed, what ever cost recovery method is approved for utility owned generation
should also be afforded non-utility generation
Consideration of these additional topics should not, however, delay implementation of the
primary reforms. Changing eligibility for published rates and contract length are positive, straight-
forward steps that should be taken now in view of the growing uncertainty regarding reliable
supplies of energy at reasonable costs.
CONCLUSION
Plummer again thanks the Commission for its willingness to examine these issues and
Plummer urges the Commission to adopt the suggestions set forth above.
Dated this 15th day of March, 2002.
McDevitt & Miller LLP
ill \UL
Dean 1. ill r ~
15 In the Matter of the Petition of Avista Corporation DBA Avista Utilities-Washington Water Power Division(Idaho) for Proposed Modifications to the Power Cost Adjustment Methodology, Case NO. A VU-OI-, Order No.28775.
COMMENTS OF PLUMMER FOREST PRODUCTS INC.Page 8
CERTIFICATE OF SERVICE
I hereby certify that on the 15th day of March, 2002, true and correct copies of the foregoing
COMMENTS OF PLUMMER FOREST PRODUCTS INC. were forwarded, by u.s. Mail, postage
prepaid, to the following:
Robert J. Lafferty
BLAIR STRONG
Post Office Box 3727
Spokane, Washington 99220
John M. Eriksson
UTAH POWER &: LIGHT COMPANY
1407 West North Temple
Salt Lake City, Utah 84140
Gregory N. Duvall, Jim Fell
ACIFICORP
825 Northeast Multnomah
Portland, Oregon 97201
Barton L Kline, Senior Attorney
IDAHO POWER COMPANY
Post Office Box 70
Boise, Idaho 83707~0070
COMMENTS OF PLUMMER FOREST PRODUCTS INC.Page 9