20090220Decision Memo.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER RED FO RD
COMMISSIONER SMITH
CO MMISSI 0 NER KEMPTON
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
DATE:FEBRUARY 20, 2009
SUBJECT:CASE NO. GNR-08-02 (Idaho Power, PacifiCorp, Avista)
ACIFICORP MOTION TO CONTINUE DECISION IMPLEMENTING
STIPULATION (CHANGING NON-FUEL RELATED SAR COSTS)
On November 5, 2008, a joint Petition was filed by Idaho Power Company (Idaho Power)
on behalf of itself, the Staff of the Idaho Public Utilities Commission (Staff), A vista Corporation
(A vista), PacifiCorp (PacifiCorp), U.S. Geothermal, Inc. (U.S. Geothermal), Exergy Development
Group of Idaho LLC (Exergy), Tuana Springs Energy LLC (Tuana), and Idaho Windfarms LLC
(IWF). Collectively, Petitioners seek Commission approval of a Stipulation proposing changes in non-
fuel related Surrogate A voided Resource (SAR) costs and request modification of published avoided
cost rates.
Background
On September 10, 2007, Idaho Power filed a Petition with the Idaho Public Utilities
Commission (Commission) to modify the methodology for determining fuel costs used to establish
published rates for PURPA qualifying facilities (QFs). On December 28, 2007, the Commission, in
Order No. 30480, stated as follows:
. . . we find it reasonable, based on the written record developed in this case, to
adopt Staffs proposed change for calculating the fuel cost component and published
avoided cost rates. We further find that the proposed change in the methodology to
calculate the fuel cost component and published avoided cost rates can be made
independently (and in advance) of a review of the entire list of non-fuel
methodology variables.
DECISION MEMORANDUM
The Commission agrees that a periodic review ofthe other methodology variables is
advisable, and accepts and encourages Idaho Power s offer to conduct a 2008
workshop to review the other non-fuel methodology variables. We also deem it
advisable that PacifiCorp and Avista participate. We direct the Company to report
its workshop findings to the Commission.
Order No. 30480, p. 11.
In accordance with Order No. 30480, Idaho Power hosted workshops on April 4, 2008, and
July 23, 2008. At the conclusion of the July 23 workshop, the participants agreed to continue their
discussions bye-mail with the goal of reaching a consensus on changes that should be made to the
non-fuel related costs of the SAR.
Non-fuel variables consist of two general categories - utility-specific variables and generic
variables. Utility-specific variables relate to each utility's cost of capital. Because they are a direct
outcome of general rate cases, the Petitioners agree that they are not an issue in this case. Generic
variables relate to the (SAR), whose costs set the basis from which Idaho s published avoided cost
rates are determined. Adjustment of the non-fuel related generic variables is the subject of this case
and the Stipulation.
As a result of their continuing settlement discussions , the Petitioners agreed on interim
values derived from using a "base year" of 2008 in the model for the non-fuel related costs of the SAR.
Those values are depicted below and are set out in Paragraph 4 of the Stipulation:
Non-Fuel Related SAR Costs Current Proposed
Heat Rate 100 100
Equivalent Availability Factor 92%86.
Capital Cost $802/kW 100/kW
Variable O&M $3.47/MWh $3.86/MWh
O&M Escalation Rate
SAR Escalation Rate 1.4%
Fixed O&M $13.24 $14.
General Inflation
Published avoided cost rates are adjusted as new fuel-related SAR values become available
from the Northwest Power and Conservation Council (Council) or the Council's general advisory
committees. A new Council natural gas price forecast was released on December 29, 2008.
Petitioners in their filing with the Commission on November 5, 2008 recommended that the non-fuel
related values of published rates be implemented at the same time the Commission approved new fuel-
related avoided cost components based on the Council's median forecast of natural gas prices.
DECISION MEMORANDUM
On November 26, 2008, the Commission issued a Notice of Petition and Modified
Procedure in Case No. GNR-08-02 and established a December 17 , 2008 deadline for filing written
comments or protests. No comments or protests were filed by the deadline.
On January 23 2009, the Council released its planning assumptions for advanced combined
cycle power plants.
Capital Cost
Fixed O&M
Variable O&M
313 per kW ($1 207 + $106 adder for AFUDC)
$14.57 per kW
$1.77 per MWh
The Commission Staff computed revised avoided cost rates that incorporated the Council's gas
forecast and its combined cycle planning assumptions, and, on January 26, 2009, circulated those
computations for review by the utilities. A vista, Idaho Power and PacifiCorp all submitted electronic
reply comments to Staff. The comments received by Staff clearly indicate that, despite all parties
signing a Stipulation agreeing to adopt Council assumptions, there is no longer a meeting of the minds
with regard to interpretation of the Stipulation. See attached comments.
On February 5 , 2008, PacifiCorp filed a Motion to Continue Decision Implementing
Stipulation. PacifiCorp is concerned that the overall avoided cost price that the SAR methodology
yields is too high. PacifiCorp contends that the Council's January 26, 2009 planning assumptions are
representative of elevated pricing and bullish economic perceptions that are not representative of the
dramatic recessionary environment that is forecast by most experts to be deep and long. PacifiCorp
notes that the impact of using the draft medium NPCC fuel curve is approximately two-thirds of the
27% increase in avoided costs. PacifiCorp believes that the Council's medium natural gas price curve
(December 29 2008 draft) yields an avoided cost that is too high, and is not a true reflection of current
forward natural gas prices and projections. PacifiCorp believes that the low and medium-low NPCC
price forecasts are a better indicator of current and projected market conditions than the medium case.
PacifiCorp requests that the Commission (l) stay the implementation of the Stipulation
until the parties have had a chance to discuss the effects that the current economic downturn will have
on the avoided cost price in Idaho and (2) re-evaluate its use under the SAR avoided cost methodology
of the medium NPCC draft price curve. . . so that Idaho customers are not impacted by potentially
above market QF prices. At a minimum, PacifiCorp recommends that the Commission postpone
approval of the gas curve component until the draft fuel prices for the Council's Sixth Power Plan are
final. Alternatively, should the Commission determine it necessary to change avoided costs based on
DECISION MEMORANDUM
the current Northwest Planning and Conservation Council's forecast, PacifiCorp requests that these
avoided cost rates apply only to small non-fuel projects of 1 MW or less.
On February 10 2009, Black Canyon LLC, a wind power developer in Bonneville County,
Idaho petitioned for intervention. Black Canyon states it has made substantial progress in project
development including among other things: completion of (a) a System Impact Study, (b) a Facilities
Study, and (c) an Interconnection Agreement. Black Canyon intends to seek a power purchase
agreement from PacifiCorp and has been awaiting the establishment of new published rates.
COMMISSION DECISION
A Stipulation was filed in this case proposing interim changes to non-fuel related SAR
costs. The Petitioners recommended that implementation coincide with the anticipated change in
NPCC's forecast of natural gas prices.
PacifiCorp believes that use of the Council's January 23 , 2009 planning assumptions and
December 29, 2008 medium price natural gas forecast results in published avoided cost rates that are
too high. PacifiCorp has filed a Motion recommending
1. That the Commission stay implementation of any change in avoided cost rates
pending further review of the Council's forward price curves and planning
assumptions for advanced combined cycle power plants.
2. That the Commission re-evaluate its use in the SAR avoided cost methodology
of the medium NPCC draft price curve. At a minimum, PacifiCorp recommends
that the Commission postpone approval of the medium gas curve until the draft
becomes final.
3. Alternatively, PacifiCorp recommends that the 10 MW eligibility cap for
published avoided cost rates be reduced to 1 MW.
Staff has initiated a separate case (GNR-09-01) to implement a change in the avoided
cost rates under existing methodology. The change proposed is adoption of the Council's December
2008 medium case natural gas price forecast. (Draft Fuel Prices for the Sixth Power Plan.
Scott Woodbury
Deputy Attorney General
bls/M:GNR-O8-02 sw2
DECISION MEMORANDUM
fi I e:1 I IC: /Docwnents%20and%20Settingsl sw oodbuiLocal %20Setti ng...
From:
Sent:
To:
Cc:
Subject:
Allphin, Randy (RAliphin(9)idahopower.com)
Friday, January 30, 2009 12:13 PM
Rick Sterling
Kline, Bart; Gale, Ric; Walker, Donovan; Bokenkamp, Karl; Stokes, Mark
RE: Idaho draft avoided cost rates
Rick
In regards to your request for Idaho Power to review your previous email, data and calculations of a new
avoided cost rate.
Thank you for pulling this data together.
Idaho Power has reviewed the mathematical calculations of your spread sheets and finds them to be
accurate and consistent with previously used calculations.
We have compared the Natural Gas Fuel forecast included in your calculations with the draft Natural Gas
Fuel forecast from the NWPCC that they appear to be planning to use in 6th plan and find it to be accurate.
We have compared the values from the recent avoided cost stipulation that you have used in the
calculations and find them to be accurate.
Capital Cost, Fixed 0 & M, and Variable 0 & M we compared the values to an Oct 2008 presentation that the
NWPCC (Jeff King) made and found these values to be accurate.
In reviewing the recent avoided cost stipulation , our interpretation is that the parties agreed to move
forward with the revised avoided cost calculation at the time final NWPCC Natural Gas Fuel forecast values
were published and at that time any other NWPCC values that were finalized (Le. Capital cost, fixed 0 & M
variable 0 & M, etc) values would be included in the calculation.
The NWPCC Natural Gas Fuel forecast has been reviewed in numerous meetings and committees, but it is
our understanding it is still in draft form. Our information from the NWPCC is that they assume their
Natural Gas Fuel forecast is final and have submitted it for use in the most recent draft of the NWPCC's 6
plan.
It is our understanding the Capital cost, Fixed 0 & M, and variable 0 & M values came from an Oct 2008
NWPCC presentation. The information we have heard is that the NWPCC is planning to review these values
in more detail prior to submitting them for inclusion in the draft 6th plan.
As you noted in your e-mail, some of the Idaho Power values are dependent upon the outcome of the
currently pending general rate case. In your e-mail you mentioned that the order in this case may be
coming out shortly, we agree it would be prudent to wait for this final order and include the revised Idaho
Power values in this calculation.
In summary -In the spirit of moving this avoided cost calculation forward without any further delays, Idaho
Power can accept your proposed values and calculations at this time, contingent upon the following:
1) The input values being used are draft input values and at the time these draft values are finalized
the finalized values will be input into the model and if the final values materially alter the calculated
avoided cost values the avoided cost would be revised at that time.
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2) All contracts signed will contain the avoided cost values as published by the IPUC at the time the
contract is signed and not be subject to change. (Le. if use of the final input values materially alters
the avoided cost, the revised avoided cost will not be available for projects that have previously
signed contracts using the avoided cost that was based upon the draft values)
Use of the daft values at this time will not set precedence or alter the process identified in the
stipulation for future processing of this calculation. In the future, the avoided cost calculation will
be revised at the time the NWPCC publishes a final revised Natural Gas Fuel forecast and at that
time any of the other identified values that the NWPCC has published in final form will be included
in the calculation.
If you have any questions or if would like the information contained within in this e-mail put in a different
form please contact me.
Randy Allphin
Idaho Power Company
[phone]
From: Rick Sterling (mailto:Rick.Sterling(Q)puc.idaho.gov)
Sent: Monday, January 26 2009 1:18 PM
To: clintkalich(Q)avistacorp.com; michael.andrea(Q)avistacorp.com; Kline, Bart; Walker, Donovan; Allphin
Randy; Stokes, Mark; daniel.solander(Q)pacificorp.com; laren.hale(fj)pacificorp.com;
pa ul.clements(Q)pacificorp.com; bruce .griswold(Q)pacificorp.com; peter(Q)richa rdsona ndolea ry .com;
joe(Q)mcdevitt-miller.com; glenni(Q)pacbell.net; dreading(Q)mindspring.com
Cc: Randy Lobb; Scott Woodbury; Rick Sterling
Subject: Idaho draft avoided cost rates
Attached for your review are draft avoided cost rates. These rates have been computed in accordance with
the Stipulation signed by parties in Case No. GNR-08-02. The computations are based on the following
assumptions:
1. Northwest Power and Conservation Council, Draft Fuel Prices for the Sixth Power Plan, December 29,
2008, Appendix A: Medium Case Fuel Price Forecast Tables; Table A-1: Natural Gas Prices at Key Hubs and
Northwest Generators; Medium Case; East-Side Delivered prices (See attached).
2. Northwest Power and Conservation Council, Advanced Combined Cycle Power Plant Planning
Assumptions, January 23, 2009. All costs are in 2008 dollars. (See attached).
Capital Cost
Fixed 0& M
Variable O&M
313 per kW ($1 207 +$106 adder for AFUDC)
$14.57 per kW
$1.77 per MWh
3. Cost and performance assumptions agreed to in the Stipulation in GNR-08-02.
Heat Rate
O&M Escalation Rate
SAR Escalation Rate
SAR Plant Life
Equivalent Availability Factor
7100 Btu/kWh
1.4%
30 years
86.
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General Inflation
As a consequence of Idaho Power s ongoing general rate case (IPC-08-10) and anticipated
changes to the Company s weighted average cost of capital, Idaho Power s draft rates will be further
adjusted before being finalized. An order in Idaho Power s general rate case is expected to be issued on or
before January 30, 2009.
Please review the draft rates for consistency with the Stipulation , accuracy in incorporating fuel
price and CCCT assumptions of the Council, and computational accuracy. The Commission would like to
make the new rates effective as soon as possible. We would appreciate receiving any comments you have
no later than January 30, 2009. Contact Rick Sterling of the Commission Staff with any questions or to
obtain a copy of the avoided cost spreadsheet (208-334-0351; rick.sterling(Wpuc.idaho.gov
Rick Sterling
Idaho Public Utilities Commission
208-334-0351
rick.sterling(W puc. ida ho.gov
An IDACORP COmpany
This transmission may contain inf0ll11ation that is privileged,confidential and/or exempt from disclosure under applicable law. If you are not the intended recipient, you
are hereby notifIed that any disclosure, copying, distribution, or use of the infonnation contained herein (including any reliance thereon) is STRICTLY PROHIBITED. If
you received this transmission in error, please immediately contact the sender and destroy the material in its entirety, whether in electronic or hard copy fonnat. Thank
you.
.......................................................................................................-.--.........-.......................--.....-...........................................-......-............-..................................................................................-.....
3 of3 2/20/2009 9:00 AM
Avista Corp.
1411 East Missicn PO Box 3727
Spokane. Washington 99220,3727
Telephone 5G9~0500
Toll Free BCJO.727.9170
illS orll.
February 4, 2009
Via EmaiJ Only
Rick Sterling
Idaho Public Utilities Commission
472 W. Washington
Boise, ID 83702
Email: ricksterling0)pucoidaho.gov
Re: Idaho .Draft Avoided Cost Rates
Dear Rick:
On January 26 2009, you forwarded for review and comment Idaho s draft avoided cost
rates. I have reviewed the draft avoided cost rates for Avista Corporation ("Avista ) and believe
that you have properly calculated costs given your assumptions. That said, Avista has some
concems with those assumptions and provides the folJowing comments on the draft avoided cost
rates.
NWPCC Assumptions are Not Y c1 Final
According to the stipulation agreed by the parties late last year in IPUC Docket No.
GNR-08-, Surrogate Avoided Resource ("SAR") assumptions are to be updated as they
become available from the Northwest Power and Conservation Council ("NWPCC" or
Council"). Although draft values are now available from the Council, it has not released even
its Draft Sixth Power Plan. The final plan is not anticipated until late this year. The values
included in the proposed PURr A rate appear to be based on current draft documents and not
final values. It is very likely that this info11l1ation will not change; however, A vista understands
that under the stipulation final values will be used. At a minimum, the WUC should make clear
that, once final values are available, the avoided cost rates will be revised to reflect such final
va1ues.
The SAR Assumption for EAF Was Not Updated
Notwithstanding the above comment regarding the use of final values issued by the
NWPCC, the WUC has not updated all SAR assumptions identified in the stipulation.
Specifically, the equivalent availability factor ("EAF") was not increased to 92% per the
NWPCC draft. The stipulation is clear that the listed SAR values will all be updated, including
EAF. Adjusting the EAF to 92% based on Council data lowers the 20-year levelized rate by
approximately $2/MWh
Capital Costs Arc Overstated
In reviewing the capital cost assumption, it appears that the (PUC selected the highest
capital cost value from the NWPCC forecast, both from a historical and projected basis. The
NWPCC is forecasting a dramatic fall in gas plant capital costs, from approximately $1 200 per
kW presently to $850 per kW. It is inappropriate to set long-te1m PURr A rates for projects built
years into the future at today s inflated (and falling) prices. Another method should be
employed.
One approach would be to calculate an avoided cost for each online year, using the
NWPCC capacity cost estimate in that year. Another approach would be to accept the long-tem1
cost trend ($852 per kW in 2006 dollars) by averaging prices over the 20-year hOlizon of2010 to
2029. A vista is open to other ideas, so long as they reflect anticipated expected long-tem1
project costs. Lowering the capital cost from $1 300IkW in 2008 to $900/kW in 2008 lowers the
20-year levcltzed rate by approximately $7/MWh.
The WOC Should Make Clear that the Use of Draft Data in this Circumstance Does Not Set Any
Precedent
Assuming the IPUe must proceed with implementing rates based on draft NPCC data in
this case, Avista would hope that in the future adjustments are made based on infonnation
contained in final documents.
Grandfathering
There is a long history of grandfathering projects due to changing circumstances. To
prevent this, Avista would like it made clear to all parties ahead of time that contracts signed
based on these rates will not be adjusted in the future, up or down, based on new infom1ation.
Contracts signed under then-cUlTent terms should stand.
ifonllity with Other State PURPA Rates
Idaho PURPA rates arc now significantly above rates available to developers located outside of
Idaho. The discrepancies are large enough that it would be reasonable to expect these developers
to wheel their power from locations outside ofIdaho (but potentially within the service tclTitories
of multi-jllrisdictionailitilities) to locations inside simply to acquire the higher PUR? A ratc.
Even with the cost of transmission the economics would appear to support this activity.
Although IPUC staIThave indicated that they do not believe this would be aJlowcd, Avista is
unable to locate any law or order that would prevent this occulTing.
Ovcral1 PURP A Rate Appears High
Paying nearly $90 per MWh for wind generation when A vista docs not obtain the green tag value
seems very high. A vista believes there is the potential for it to build wind projects at this cost
and retain the green tag value. One solution the company has considered is moving to a Wind
SAR where a proceeding could be used to define generic wind costs rather than forcing a wind
facility to look like a gas plant.
Avista appreciates the opportunity to comment on the draft avoided cost rates. Please
contact me if you have any questions regarding any of Avista s comments.
Respectful1y submitted
Clint Kalich
Manager ofResolirce Planning and Analysis
~ ~l~,~oUNT AIN 1407 West North Temple
Salt Lake City, Utah 84116
February 2, 2009
VIA ELECTRONIC MAlL
AND OVERNIGHT DELIVERY
Rick Sterling
Idaho Public Service Commission
472 W. Washington Street
O. Box 83720
Boise, Idaho 83720-0074
rick. ster ling~puc .idaho. gov
RE:Case No. GNR-08-02 - In the Matter of the Joint Petition to Approve a Stipulation
Adjust Published Avoided Cost Rates.
Rocky Mountain Power (the "Company ) would like to provide you and the Idaho Commission
with our comments regarding the draft avoided cost rates for small non-fuel projects less than ten
megawatts that you circulated on January 26, 2009. Although the Company agreed with the
stipulation s logic for computing and updating capital costs, heat rate, and O&M Costs in the
SAR methodology, the Company is concerned that the overall Qualifying Facility ("QF"
avoided cost price that the SAR methodology yields is too high. The assumptions underlying the
avoided cost prices in the January 26 2009 draft paper are representative of elevated pricing and
bullish economic perceptions in the first half of 2008 and are not representative of costs that
reflect the dramatic recessionary environment that is forecast by most experts to be deep and
long. The primary, but not sole driver to the high QF avoided costs in the January 26, 2009 draft
paper is the result of using the Northwest Planning and Conservation Council's ("NPCC") Draft
Fuel Prices for the Sixth Power Plan, December 29, 2008.
The NPCC price forecast includes five different levels to capture a range of possible outcomes
(low, medium low, medium, medium-high, and high). When the NPCC price forecast was first
used in the SAR methodology, the Commission expressed confidence that the medium forecast
had the highest probability of being right (Order No. 29124, pg. 10). Given the rapid pace of
decline in global economic conditions in recent months, the Company feels the medium NPCC
gas price forecast is, at present, not the most accurate representation of current market
conditions. The NPCC Draft Fuel Prices for the Sixth Power Plan states:
The low case assumes slow world economic growth which reduces the pressure on
energy supplies. It is a future where world supplies of natural gas are made available
through aggressive development of LNG capacity, favorable nonconventional supplies
and the technologies to develop them, and low world oil prices providing an alternative to
natural gas use. The low case would also be consistent with a scenario of more rapid
progress in renewable electric generating technologies, thus reducing the demand for
natural gas. .
. "
Idaho Public Utilities Commission
February 2, 2009
Page 2
The intermediate cases are variations on the medium case that are considered reasonably
likely to occur. The medium-high case would contain elements of the high scenario
however, not to the same degree. Similarly, the medium-low case would contain some of
the more optimistic factors described for the low case.
There are a number of market "sign posts" that align well with NWPPC's description of their
low case:
World economic growth has slowed and reduced pressure on energy supplies.
There are a number of significant liquefaction projects coming online in 2009 and
2010, with projects in Indonesia, Qatar, Russia, and Yemen expected to contribute
nearly 7 BCF/d of new capacity to the global market.
In 2008, there was more LNG regassification capacity added than in the four prior
years combined, with even larger growth expected for 2009.
Technological advancements in horizontal drilling and hydraulic fracturing have
enabled growth in nonconventional natural gas supplies to outpace declines in
conventional production and imports.
Despite OPEC's efforts to cut production, oil prices remain much lower than the
recent highs experienced this past summer. As of January 30, 2009, prompt month
WTI crude settled below $42 per barrel.
At the time the NPCC medium gas price forecast was first adopted, there was very little liquidity
in the forward markets beyond 12 to 18 months, and thus the ability to test which of the NPCC
five forecast levels was most reflective of then current market conditions was limited. However
since 2002, the forward markets have become more liquid, and NYMEX now offers physical
contracts for Henry Hub through 2021. The figure below shows how the medium, medium-low
and low NPCC price forecasts compare to NYMEX forwards as of market close on January 30
2008.
Intentionally left blank
Idaho Public Utilities Commission
February 2, 2009
Page 3
Comparison of Henry Hub Natural Gas Prices (Nominal)
------------
$14
513
$12
$11
$10
$9
-~---- -------------------- - -------------
$6 -----
~-------- -------
200920102011 2012 2013 201420152016201720182019202020212022202320242025 2026 2027 2028 2029 2030
--NPCC Medium -o-NPCC Medium-Low ""'-NPCC Low -B-NYMEX (01130/2009)
The average NYMEX price from March 2009 through December 2009 is $4.99 per mmBtu. Because this is a
partial year average, it is not shown as a comparison against the NPCC forecasts in the figure above. The NPCC
forecasts were converted from 2006 dollars to nominal using a 2% per year escalation rate.
While not shown in the figure above, market forward prices for the balance of 2009 are
considerably lower than even the low NPCC price forecast. Market forward prices in 2010 are
most closely aligned with the low NPCC price forecast. Beyond 2010, the medium-low NPCC
price forecast begins to align reasonably well with current market forward prices. Over the
entire NYMEX strip, the NPCC medium case projection is considerably higher than current
market. Given the NPCC's description of their low case forecasts, current market "sign posts
and current market forwards, the Company believes that the low and medium-low NPCC price
forecasts are a better indicator of current market conditions than the medium case.
Just as the rapid decline in global economic conditions has influenced the natural gas market, the
current recessionary climate has led to extraordinary commodity price declines. With declining
raw material prices, lower demand for electricity, and the potential for falling construction
market premiums, the Company is concerned that the SAR capital cost assumptions may be also
contributing to avoided cost prices that are too high. Presentation materials from the NPCC'
Generating Resources Advisory Committee (GRAC) meeting on January 22, 2009 , indicate that
combined cycle plant costs are expected to decline in real terms over the entirety of their forecast
horizon ("Uncertainty in the Regional Portfolio Model", slide 5). Further, the Company would
like to note that conversion of the overnight SAR capital cost figures from 2006 dollars to 2008
Idaho Public Utilities Commission
February 2, 2009
Page 4
dollars as applied in the draft avoided cost rates appears to have been done at an annual
escalation rate of 2.0% per year. It is the Company s understanding that the SAR annual
escalation rate is 1.4%.
According to the methodology circulated on January 26 2009, the draft avoided cost rate will be
a nominal levelized $87.42 per MWh for a twenty year contract for projects on-line in 2009.
This rate is 27% higher than current Idaho avoided cost of $68.66 and 15% higher than any
avoided cost price Rocky Mountain Power has experienced in other states, where QF avoided
cost prices for the same length of contract range from approximately $55 to $74 per MWh
nominallevelized. This rate also exceeds those included in the Company s current IRP and that
of recently acquired renewable resources. Even if the SAR methodology utilizes the NPCC gas
curve for the low reference case, it still puts Idaho on the high end of published avoided cost
prices realized in other states served by the Company and at the high end of any renewable
resource the Company has contracted with or built. Based on the Revised Protocol agreement, if
other states determine that costs associated with new QF contracts exceed the costs PacifiCorp
would have otherwise incurred acquiring comparable resources, then the excess costs will be
assigned directly to the state approving those contracts. The Company is concerned with the
impact that establishing an avoided cost of $87.42 per MWh could have on its Idaho customers.
The Company realizes that the gas forecasts used by the Commission are not directly at issue in
this Stipulation. However, the Company believes that the medium natural gas price curve from
NPCC yields a price that is too high, and is not a true reflection of current gas costs. The impact
of using the draft medium NPCC fuel curve is approximately two-thirds of the 27% increase in
the avoided costs and the Company feels that warrants, at a minimum, postponing Commission
approval of the gas curve component until the NPCC fuel prices are final. The Company is also
requesting that additional time in order to more thorougWy review all of the assumptions used in
the NPCC forecast. Given the dramatic global economic downturn and extraordinary downward
impact on commodity costs that has occurred in the last few months, the Company questions the
timing of an update that does not appear to reflect current market conditions and suggests the
Commission consider updating the price forecast after conditions have become more stable.
Accordingly, the Company requests that the Commission reevaluate its use of this draft price
curve before QF prices are established using these inflated costs so that Idaho customers are not
impacted by potentially above market QF prices.
As an alternative if the Commission determines it necessary to approve avoided costs rates based
on the current NPCC forecast Rocky Mountain Power requests that these rates apply only to
small non-fuel projects of one megawatt or less.
The Company also wants to bring to your attention a possible error in the fuel price applied in
the SAR methodology. The NPCC forecast is in 2006 dollars. The 2006 dollars are converted to
nominal dollars by using a Commission approved 2% fuel inflation factor. We noted the factor
was not applied in 2007 and 2008. The fuel escalation rate is also incorrectly listed as 2.70% in
the circulated draft paper issued January 26, 2009, instead of the 2.0% Commission approved
fuel inflation factor.
Idaho Public Utilities Commission
February 2, 2009
Page 5
Please let me know if you have any further questions.
Rocky Mountain Power