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HomeMy WebLinkAbout20090918PacifiCorp Comments.pdf~~:OUNTAIN RECEI D 2009 SfP l 8 AM 10: 29 201 South Main, Suite 230 Salt Lake City, Utah 84111 September 18,2009 VI OVERNIGHT DELIVERY IDAHO PUEc.L UTILITIES CO¡\i!l¡,î Jean D. Jewell Commission Secret Idaho Public Utilities Commssion 472 W. Washigton Boise,ID 83702 RE: Rocky Mountain Power's Comments in Case No. GNR-E-09-03 Notice of Review of Avoided Cost Methodology Dear Ms. Jewell: Pursuat to the Commssion's notice of review of the Surogate Avoidable Resources (SAR) methodology for calculating published Avoided Cost Rates. PacifiCorp, dba Rocky Mounta Power, hereby submits for fiing an original and seven (7) copies ofthe Company's comments. The Company's comments are responsive to the directives contained in Order No. 30873 issued August 6, 2009 by the Commssion for consideration; does the present SAR methodology for published avoided cost rates need to be modified. Any informal inquiries related to ths application should be directed to: Ted Weston Rocky Mountain Power 201 South Main Street, Suite 2300 Salt Lake City, UT 84111 Email: ted.westonlßpacificorp.com Phone: 801-220-2963 Bruce Grswold PacifiCorp 825 NE Multnomah Portland, OR 97232 Email: bruce.griswoldlßpacificorp.com Phone: 503-813-5218 Very try yours,Ú~/~ Ted Weston Manger, Idaho Reguatory Affairs Enclosures Danel E. Solander Rocky Mountan Power 201 South Main Salt Lake City, UT 84111 Telephone: 801-220-4014 Facsimile: 801-220-3299 danel.solanderlßpacificorp.com RECEI 20U9 SEP l 8 AM 10: 35 Attorney for Rocky Mountain Power BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MATTER OF A REVIEW OF THE ) SURROGATE AVOIDABLE RESOURCE ) CASE NO. GNR-E-09-03 (SAR) METHODOLOGY FOR ) ROCKY MOUNTAI POWER'S INTIL CALCULATING PUBLISHED AVOIDED ) COMMNTS COST RATES ) ) On August 6, 2009, the Idaho Public Utilty Commission ("Commission") issued Order No. 30873 which directed Avista, Idaho Power, and Rocky Mountan Power to provide responses to three questions concernng the curent Surogate Avoided Resource ("SAR") methodology. In compliance to Order No. 30873 Rocky Mountan Power ("RMP") submits its initial comments addressing the Commission's questions posed in ths case. I. Background Order No. 30873 issued by the Commission described the history of avoided cost methodology in Idao and how the SAR methodology was developed and has evolved since the early 1980's. In 1993, Case No. IPC-E-93-28 resulted in the Commission issuing an order establishing the surogate avoided resource as a natual gas-fired -1- combined cycle combustion tubine ("CCCT"). The order went on to state that, if in th futue, the CCCT proves to not be a viable cost-effective resource, the Commission can seek to establish a new SAR. Whle recent orders by the Commssion have attempted to provide modifications to the CCCT based avoided cost prices to accommodate intermittent resources such as wid, it has become obvious that a more appropriate SAR should be selected to reflect a wind resource. By initiating this proceeding for stadad QF projects, the Commssion has acknowledged that the time is ripe to evaluate the tye of generating resource that its jurisdictional utilties may avoid by purchasing energy from QFs, regardless of whether it is a thermal resource or an intermittent resource. Two major changes have occured since the CCCT was selected as the SAR in 1993. First, the thee Idaho electric utilties; Idao Power, A vista and Rocky Mountain Power, have each identified in their respective Integrated Resource Plans and other resource acquisition documents their intention to acquire, outside of PURP A, substatial amounts of power generated by renewable resources, principally from generation using wind as its motive force. Second, the implementation of state-mandated renewable portfolio stadards (RPS) has come into play, requing states to meet a schedule to supply a portion of their electrc load with renewable energy. For example, RM has state-mandated RPS goals and tietables in four of its six states (Californa, Oregon, Washington and Uta) and with a similar renewable energy standard (RES) under evaluation at the federal level, the Commssion should include what the impact of RPS compliance goals will have on resource selection as a factor when considerig a change to the SAR methodology. For all of these reasons, the Commission's decision to initiate ths proceeding is both timely and appropriate. - 2- II. Rocky Mountain Power's Response to the Commission Questions The Commission's questions and a sumar ofRMP's responses are as follows: 1. "Does the present SAR methodology for published avoided cost rates need to be modified or augmented? Yes or No." RMP's answer: Yes. 2. "If answer to Question i is yes, 2a. Please provide the basis for your answer." RMP's answer: 2a. The curent SAR methodology with its proxy resource as a natual gas-fired combined-cycle combustion tubine is an inappropriate benchmark for an intermttent resource such as wind for several reasons. Capital and O&M costs for wid resources var significantly from the curent CCCT SAR. Operating characteristics including capacity factor, control over motive force, and dispatchabilty are unike the CCCT. Costs associated with integrating the wind resource as a network resource on the Company's grid are much higher th a CCCT. Finally, the CCCT SAR does not address issues associated with renewable resources such as the resource's environmenta attributes or renewable energy credits ("RECs") ownership. As noted by the Nortwest Planng and Conservation Council ("NPCC"), renewable resources, paricularly wind, are playing a much greater role in the region's new energy sources. As the NPCC tracks these regional projects to update its assumptions in its power plans, its capita and operating cost assumptions for wid generation are a reflection of the region's wind - 3- development. RM ha seen the same impact in its renewable resource procurement. RMP, through its Integrated Resource Plan and competitive bidding process, is acquig large amounts of power generated by renewable resources, principally from generation using wid as its motive force. In addition, the majority ofRM's QF project requests in Idaho over the past five years have been wind resources.. What the Company is seeing is that its utilty wid projects acquired through our competitive bidding process, both owned or through power purchase agreements, are being acquired by the Company at a lower cost tha curent Idaho avoided cost prices and these acquisitions also include those resource's RECs for the Company. Therefore, using a wid resource as a SAR will more equitably align the QF wind project with a proxy resource that the Company continues to acquire as identified in its Integrated Resource Plan on a competitive basis. 2b. "In broad and genera terms, how should the methodology be modified or augmented?" RMP's Answer: 2b. In general, RMP proposes that the Commssion consider developing a separate SAR methodology for intermttent resources such as wid and retanig the existing SAR methodology for thermal and/or baseload QF projects. This would retan the curent SAR methodology model but use two different surogate avoided resources - one for wind and one for baseload thermal QF projects. Each methodology would use inputs and assumptions for its specific surogate avoided resource from an independent source - the Nortwest Planng and Conservation Council with specific adjustments unque to each utilty. This approach would provide two separate tracks for stadard QF projects seeking - 4- avoided cost prices. The result would establish two sets of avoided costs, one for intermittent wind resources and one for thermallbaseload resources. The specific utility adjustments that have been established in previous Commission orders would continue as appropriate in each methodology except it should be noted that the wid integration adjustment per Order No. 30497 would not be applied in the wind SAR methodology. Since the wind SAR methodology assumes that the surogate avoided resource is a utility-owned wind resource and the utility is already bearng the cost of integration on its own resource, the wind integration adjustment normally applied per Order No. 30497 for the QF would cancel out and no longer be a necessar adjustment in the methodology. The Commission has already established the use of two separate contrct performance mechansms for these two decidedly different QF projects - the mechancal availability guartee ("MAG") for intermttent wind resources and the "90/110" performance band for thermallbaseload resources. Establishment of a separte SAR for a wind QF and for a thermallbaseload QF will provide additional alignent with stadard QF contracting terms for each tye ofQF resource. The followig changes to the curent SAR methodology are proposed for consideration to accommodate the intermttent wind resources cost and operatig characteristics. These suggested changes are not to be considered all-inclusive but serve as a staing point on developing a separate wid SAR. 1. Create a separate Wind SAR methodology based upon the cost of a wid resource. a. Use existing Idaho approved SAR spreadsheet model - 5- b. Wind SAR methodology cost inputs and assumptions would come from an independent source. Because the existing SAR methodology uses the Northwest Planng and Conservation Council inputs and assumptions, it is recommended that the Wind SAR methodology would also use the NPCC curent wid assumptions, both methodologies would apply utilty specific adjustments. These assumptions and inputs would be updated on a reguar schedule as the NPCC provides updates and / or as utility specific adjustments chage and are approved by the Commission. 1. For example, the latest NPCC wind assumptions per NPCC Sixth Power Plan Appendix I 1. Capital cost of approximately $1800/kW in 2009 price year (including AFUDC) 2. Capital cost would be fuher reduced by available federal ITC (30%) or other ta treatments available 3. Fixed O&M of $40.00 per kW-year 4. Varable O&M of $2.00 per MWh 5. Capacity factor of 38% capacity factor (eastern Wyomig assumption). Ths capacity factor assumption is a reflection of where RMP's avoided proxy resource would be located and has been demonstrated by the number of company-owned wind resources and PP As acquired in Wyoming. - 6 ~ 6. SAR heat rate is dropped to zero c. The methodology would be applicable to QF projects comig online in 2010-2012 where there is certinty regarding federal tax credits and other ta treatments d. SAR wind integration charge adjustment is removed since the utilty surogate resource is wind and the utilty would bear the cost of integration for its own resource e. Monthy on-peak and off-peak scalars would stil apply to the resultat avoided cost prices f. Contract terms for intermttent resources including a MAG provision would remain in the power purchase agreement g. Environmenta attributes or RECs from the QF resource would be assigned to the utilty since the utilty receives the RECs from its surogate wind resource 2. Thermal and baseload QF resources would be evaluated using the existing SAR methodology modeL. The Company suggests the Commssion consider revisiting the curent market conditions and consider any fuer updates to the fuel price forecast from the latest NPCC power plan based the market conditions more reflective of the current economic and market conditions. -7 - III. Grandfathering of QF Contracts During this Case Proceedings The Company recognzes that the Commssion has conducte such avoided cost investigations in the past and is willng to cooperate to achieve the best outcome for customers. Historically, the Commission has taen action to suspend the Company obligation to enter into new QF contracts or renew existing contracts for projects over 100 kilowatts until such time that the investigation was completed and the Commssion had made a final determination regarding appropriate avoided cost rates. Order No. 30873 on page 3, states that, "As always the published rates remain presumptively reasonable and available to eligible QFs until changed" and although the Order does not contemplate any control mechansm for in-progress QF projects durg ths investigation, the Company seeks to address grandfathering of in-progress QF contracts durg ths investigation, to provide certainty to both the QF developers as well as its customers. RMP makes this request for several reasons. First, the Company curently has requests from stadad QFs, new and existing, in varous staes of the contrt process, from the initial request for information to the exchanges of draft power purchase agreements. Several are requests from proposed QFs seeking contracts for new projects with futue on-line dates that have met few, if any, of the necessar milestones for execution. RM does not know if this proceeding will result in a modified SAR methodology which produces avoided cost rates higher or lower than curent rates. However, historically when avoided cost rate changes are being considered, the Company sees a signficant increase in QF activity as developers seek to require utilties to enter into long-term contracts at curent rates and lock in higher prices should a new SAR result in lower avoided cost rates. - 8- Second, although many of these QFs, both existing and new, are required to complete a new or updated interconnection study and agrement, they are pushig to execute a power purchase agreement far in advance of finalizing a necessar interconnection agreement. The Company has serious concerns about executing QF contracts that may not receive interconnection agreements or may have interconnection and integration issues that are not addrssed or acknowledged in the power purchase agreement. At a minimum, a moratorium on new contracts or any contract tht has not substatially completed the interconnection process while the SAR methodology issues are resolved, would allow for substatial completion of interconnection milestones key to a successfu project and power contract. Third, establishing specific milestones and requirements for QF projects seeking to be grandfathered under the existing avoided cost rates is an effective means of ensurng QF projects close to completion with a majority of milestones met, can move forward while those that For these reasons, the Company believes that the Commssion should immediately consider establishing milestones that it would expect a QF developer to satisfy if the QF desires to be "grdfathered" to the existing rates. The Company requests that the Commission require QF developers to meet two milestones to be eligible for grandfatherig at the existing rates. 1. The QF developer would be required to post securty in the form of cash or an acceptable letter of credit in an amount equal to $20 per kW multiplied by the nameplate capacity of the generating project that the QF developer is seekig a power purchae - 9- , , ageement for. This $20 per kW amount would be held as securty and retained by the Company in the event the QF failed to dilgently proceed though their interconnection application process, defaulted on the power purchase agreement, or if the QF failed to achieve its scheduled commercial operation date. 2. At the time the "grandfàthered" power purchase agreement is executed, the QF, at a minimum, must have completed its feasibilty study report in the interconnection process. In addition, at all times, the QF developer provide reguar updates on its interconnection process and show steady progress in the interconnection queue until it executes a generation interconnection agreement. A specific milestone schedule will be developed with the QF and monitored by the Company. In the event, the developer does not meet its scheduled milestones, including failure to execute a generation interconnection agreement, the "grandfathered" power purchase agreement would be terminated, gradfather status revoked, and the utilty would retain the $20 per kW security amount previously described. RM notes that there may be other issues that need to be addressed with respect to "grandfathering" of QF contracts while the Commssion considers the modifying the SAR. -10 - . . CERTIFICATE OF SERVICE I hereby certify tht on ths 18th day of September, 2009, I caused to be served, via E- mail, a tre and correct copy of Rocky Mountan Notice of Review of Avoided Cost Methodology in GNR-E-09-03 to the followig: Krstine A. Sasser Deputy Attorney General Idaho Public Utilties Commssion 472 West Washington P.O. Box 83720 Boise, Idaho 83720-0074 Krs.sasserlßuc.idaho.gov Kelly Norwood A vista Corporation 1411 East Mission Avenue P.O. Box 3727 Spokane, VV ashington 99202 kelly.norwoodlßavistacorp.com Ted Weston Rocky Mountain Power 201 S. Main Street, Suite 2300 Salt Lake City, UT 84111 Ted. westonlßacificorp.com KaeiÆ!f f) øN ty Coordiator, Administrative Services