20020614Decision Memo.doc

DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
LOU ANN WESTERFIELD
BILL EASTLAKE
TONYA CLARK
DON HOWELL
DAVE SCHUNKE
RICK STERLING
RANDY LOBB
LYNN ANDERSON
GENE FADNESS
WORKING FILE

FROM: SCOTT WOODBURY

DATE: JUNE 14, 2002

RE: CASE NO. GNR-E-02-1
ORDER NO. 29029 – QF SIZE AND CONTRACT LENGTH
IDAHO POWER/AVISTA MOTIONS TO STAY ENTITLEMENT TO RATES

On February 5, 2002, the Commission initiated generic docket No. GNR-E-02-1 soliciting comments on the continued reasonableness of current QF project size limitations for published rate eligibility (i.e., 1 MW) and restrictions on contract length (i.e., 5 years) from the PURPA QF community, from interested persons and from those regulated electric utilities (Idaho Power, Avista and PacifiCorp) required to purchase QF power pursuant to Sections 201 and 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA), and the implementing rules and regulations of the Federal Energy Regulatory Commission (FERC).
On May 21, 2002, the Commission issued Order No. 29029 in Case No. GNRE0201 increasing QF project size limitations for published rate eligibility from one megawatt to five megawatts and increasing maximum required contract length from 5 years to 20 years.

Idaho Power—Motion to Stay
On May 21, Idaho Power Company filed a Motion to Stay Entitlement to Published Rates. A critical issue raised by the Company’s Motion, it states, is the distinction between “eligibility” to published rates and “entitlement” to published rates. Idaho Power does not want to repeat what was a series of grandfathering complaints by QFs when the Commission last changed the avoided cost methodology and rates. Idaho Power contends that the published rates are much higher than the cost the Company believes it would actually incur if it were to construct a new combined cycle combustion turbine (CCCT) today or if it purchased energy generated by a new CCCT owned and operated by a third party. See Motion Attachment A. Idaho Power believes that the reason the published rates are so much higher than the Company’s estimate of today’s actual CCCT costs is that the assumptions used to compute the published levelized non-fueled rates are based on 1995 data and assumptions which have not been updated.
Idaho Power alternatively contends that it would be reasonable for the Commission to direct the utilities to continue to negotiate in good faith and enter into contracts for the purchase of power from QFs. However, the Company recommends that those QF contracts include a provision that makes the purchase price subject to the Commission’s final rate determination regarding the Company’s current avoided cost. Reference Commission Order No. 25361 (1994).
Avista—Motion to Stay
On June 11, 2002, Avista Utilities filed a Motion to Stay requesting similar relief. Avista contends that if current published avoided costs were applicable to a single 5 MW project with an online date of 2007, the net present value (2002) of acquiring the output of that project over 20 years would amount approximately to $28,580,000. This, it states, compares with a net present value (2002) cost of approximately $13,716,000 for a generic combined cycle combustion turbine project over the same 20 year term using assumptions from the Generating Resource Advisory Committee of the Pacific Northwest Electric Power and Conservation Planning Council.
Avista reminds that Commission that the issue of when an entitlement to a particular avoided cost rate arises has been a source of considerable controversy and litigation in the past. Reference Empire Lumber Company v. Washington Water Power Company, 114 Idaho 191 (1988).
J.R. Simplot—Answer to Idaho Power Motion (Petition) to Stay
J.R. Simplot Company on June 10th filed an Answer to Idaho Power’s Motion to Stay. Simplot initially notes that the Company cites no Commission rule or authority under which its “Motion” was filed. Commission Rule of Procedure 53, it states, defines any pleading seeking “modification, amendment or stay of existing orders or rules” as Petitions, not Motions. Reference IDAPA 31.01.01.053.01
Simplot contends that the Company’s Petition is a back-door attempt to reverse the Commission’s decision. Simplot notes that the Commission in its Order declared
“Although many parties recommend that we expand the proceedings in this docket to explore avoided cost methodology and other QF issues, we find no reason to expand the scope of this case beyond the issues identified for investigation, i.e., PURPA QF published rate eligibility and restrictions on contract length.”

Order No. 29029 at pp. 4-5.

If the Company is successful in obtaining a stay of entitlement of the published rates, then Simplot contends that it will have, once again, succeeded in its efforts to stymie the QF industry. This is true, it states, because if the Commission stays the entitlement to published avoided cost rates then no QF will actively pursue a project unless and until entitlement is restored.
Simplot contends that any perceived staleness in avoided cost rates is due to utility inaction. The assertion by Idaho Power that avoided cost rates are too high is not new, Simplot contends. Utilities, it states, always make false comparisons between their QF rates and short-term wholesale market prices to support their erroneous assertions that the QF industry is subsidized. Idaho Power is no different:
Market prices are a reasonable measure of the costs Idaho Power could avoid acquiring the smaller, non-dispatchable, non-firm resources offered by QF developers. Idaho Power comments filed March 15, 2002, p. 10.

Such false comparisons, Simplot contends, mislead the public as to the real value QFs provide to the ratepayers of a large slow-to-change incumbent utility. However, if the utility really believes that avoided costs are too high then Simplot contends that it should have filed a case with the Commission making its point.
Every July 1st, Simplot notes, the Commission issues a new Order approving changes to the variable portion of the avoided costs. In those Orders, the Commission makes a finding that the avoided cost rates are fair, just and reasonable. If Idaho Power really “believes” that the avoided cost rates are based on stale information and are therefore unfair, unjust and unreasonable, Simplot contends it was incumbent upon it to bring that belief to the Commission’s attention. The Company, Simplot contends, should not be permitted to passively stand by and let the Commission issue Order after Order that it “believes” contain inaccurate rates and now, at this late date, step in and seek an emergency stay of the rates contained in those Orders. Idaho Power’s passive acquiescence in the Commission’s annual avoided cost ratesetting Orders, coupled with its sudden concern with implementation of those rates, Simplot contends, is a classic case of “unclean hands” or laches.
Simplot notes that Staff’s comments contain several references to the continued accuracy and validity of the current avoided cost rates and the methodology used to set those rates. Simplot contends that Idaho Power has not made a convincing case that avoided cost rates are excessive. The Company’s avoided cost calculations are not an accurate reflection of avoided costs over 20 years, Simplot contends, because it is a snapshot in time of a versatile and robust methodology that adapts to changing circumstances. The rates reflected in Idaho Power’s calculation change each and every July 1st. Therefore, any suggestion by the Company, Simplot contends, that the current rates are static is simply wrong. Idaho Power’s Motion, Simplot contends, is akin to the ratepayers informing the Commission that wholesale prices seem to be dropping and therefore their requirement to continue to pay retail rates should be made somehow conditioned upon later findings by the Commission. Simplot requests that the Commission deny Idaho Power’s Petition to Stay the effectiveness of today’s published avoided cost rates.
Commission Staff Answer
On July 14, 2002, the Commission Staff filed an Answer to the Petitions of Idaho Power and Avista to Stay entitlement to published rates. Reference IDAPA 31.01.01.02. Staff recommends that the Commission deny the Utilities Petitions for Stay. Staff contends that the utilities have had seven years to seek changes to input variables. Staff states that it fully expected that the variables would be updated over time, but understood that to change any variable would require a filing by a utility. Avoided cost rates, Staff contends, do not suddenly become “wrong” because contracts are lengthened or because or because eligibility for the rates is expanded. If avoided cost rates are, in fact, incorrect, Staff contends they are incorrect whether contracts are five or twenty years and whether project size is 1 or 5 MW.
Staff recommends that the Commission open a new docket to consider changes in variables. Staff notes that there have been improvements in combined-cycle technology since the variables were first adopted. Each of the utilities now also has direct experience in acquiring generation from combined-cycle plants. Accurate information on combined-cycle plant costs, Staff contends, should now be readily available.
Staff does not believe the methodology to compute the avoided cost rates is flawed. Staff along with representatives from each utility and other interested parties worked collectively to develop a spread sheet that computed the costs of a combined-cycle combustion turbine. No party, Staff contends, has offered any compelling reasons to change the computation methodology. Until changed by Commission Order, Staff believes that QF contracts should continue to be made available at the published rate.
Commission Decision
Idaho Power and Avista contend that the published avoided cost rates do not reflect the utilities’ actual avoided costs. Idaho Power and Avista have both filed Petitions to Stay QF Entitlement to Published Rates, pending some change in variables and recalculation of avoided costs. Alternatively, the Companies request that the purchase rate in any QF contract executed under the published rates be subject to change. How does the Commission wish to process the utility Petitions to Stay? Should a new docket be opened to consider changes in input variables under the avoided cost methodology?

Scott Woodbury

vld/M:GNRE0201_sw

DECISION MEMORANDUM 1