20090806notice_of_review_order_no_30873.pdf

Office of the Secretary
Service Date
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
August 6, 2009
IN THE MATTER OF A REVIEW OF THE
SURROGATE AVOIDABLE RESOURCE
(SAR) METHODOLOGY FOR
CALCULA TIN G PUBLISHED AVOIDED
COST RATES
CASE NO. GNR-09-
NOTICE OF REVIEW OF
AVOIDED COST METHODOLOGY
NOTICE OF
COMMENT DEADLINE
ORDER NO. 30873
YOU ARE HEREBY NOTIFIED that the Idaho Public Utilities Commission
(Commission) is initiating a generic electric case to assess the continued viability of the
Commission s existing proxy unit or surrogate avoidable resource (SAR) methodology for
calculating published avoided cost rates. Specifically, the Commission intends to explore the
continued reasonableness of using published avoided cost rates as presently calculated for all QF
resource types.
BACKGROUND
Out of the nationwide energy crisis of the late 1970s, Congress enacted the Public
Utility Regulatory Policies Act of 1978 (PURPA). Sections 201 and 210 of PURPA require
electric utilities to purchase power produced by co-generators or small power producers that
obtain qualifying facility (QF) status. Under PURP A Section 21 O(b) the rate to be paid for such
power is not to exceed "the incremental cost to the utility of alternative electric energy.
Pursuant to Congressional directive, the Federal Energy Regulatory Commission
(FERC) promulgated rules implementing Sections 201 and 210 ofPURPA. Under FERC rules
the utility requirement to purchase from QFs is set out in 18 C.R. ~ 292.303(a). The rate a
qualifying facility is to receive for the sale of its power is generally referred to as the "avoided
cost" rate - the incremental cost to an electric utility of electric energy or capacity or both which
but for the purchase from the qualifying facility, such utility would generate itself or purchase
from another source. 18 C.R. ~ 292.101(b)(6). PURPA Section 210(b) and related FERC
regulations provide that the rates for QF purchases shall: (1) be just and reasonable to the
NOTICE OF REVIEW OF
AVOIDED COST METHODOLOGY
NOTICE OF COMMENT DEADLINE
ORDER NO. 30873
electric consumers of the electric utility and in the public interest; and (2) not discriminate
against qualifying co-generators or small power producers. 18 C.R. ~ 292.304(a)(1)(i), (ii).
There are two general caveats under PURP A: (1) electric utilities are not required to
pay more than the utility's avoided costs for purchases of QF capacity and energy (PURPA
Section 21O(b); 18 C.R. ~ 292.304(a)(2)); and (2) co-generators and small power producers in
their sales to utilities are not to be subjected to pervasive utility type regulations, i., regulation
respecting (i) the rates of electric utilities; and (ii) the financial and organizational regulation of
electric utilities. PURPA Section 21O(e); 18 C.R. ~ 292.602(c)(1)(i)(ii).
In implementing PURP A, the Idaho Commission has developed a body of regulatory
decisions in generic rate setting and complaint actions since 1980 that set out the general
principles and framework under which Idaho electric utilities are to purchase power from
qualifying facilities.
A voided Cost Methodology for QFs Larger than 10
PURP A requires only that the Commission establish and make available published
rates for projects 100 kW (i., one-tenth of 1 MW) and smaller. 18 C.R. ~ 292.304(c). The
current threshold established by this Commission for published rate eligibility is 10 MW. The
Commission-approved methodology for establishing rates for QFs larger than 10 MW (QFs not
eligible for published rates) is based on a utility s Integrated Resource Plan (IRP), using a least
cost planning based methodology. As provided in Commission Order No. 25884, pages 4-, this
methodology operates as follows: First, the utility determines through its least cost plan model
the cost of meeting load over the next 20 years. Whenever a proposed QF project is offered to
the utility, the utility inserts the generation and capacity of the project into the model and
determines what cost would be avoided over the 20-year period. That avoided cost is the rate
available to the developer. Requiring developers of such projects to prove their viability by
market standards ensures that utilities will not be required to acquire resources priced higher than
would result from a least-cost planning process. Ratepayers will not be disadvantaged and QFs
will be treated fairly and consistently with the requirements and goals of PURP
The Commission is satisfied that avoided costs for QFs larger than 10 MW under
current methodology are calculated correctly. Accordingly, the avoided cost methodology for
large QFs is not being reviewed in this case docket.
NOTICE OF REVIEW OF
AVOIDED COST METHODOLOGY
NOTICE OF COMMENT DEADLINE
ORDER NO. 30873
Published A voided Cost Rates (for QFs Smaller than 10 MU)
The current administrative SAR methodology for calculation of published avoided
cost rates for QFs smaller than 10 MW is based on the estimated costs that a utility would incur
in constructing a natural gas-fired combine cycle combustion turbine (CCCT). Prior to that, the
surrogate was a hypothetical base load coal-fired generation plant. In selecting a gas-fired
CCCT to replace the coal SAR, the Commission in Case No. IPC-93-28 noted that the
Northwest Power Planning Council (Council) had adopted a gas-fired CCCT as the regional
resource of choice. Order No. 25884, p. 3. We then stated that if, in the future, a gas CCCT
proves not to be a viable, cost-effective resource, then we are free to again alter our choice of the
surrogate. Id. Based on recent filings at the Commission by Idaho s electric utilities, we are
concerned that a disparity exists between Idaho s published avoided cost rate established using a
natural gas-fired surrogate resource and the cost to a utility of developing and operating its own
wind generation proj ect.
YOU ARE HEREBY NOTIFIED that the appropriateness of a single avoided cost
SAR methodology for published rates is being re-examined in the context of PURP A and FERC
requirements and the comparative and different generation and operation capabilities of
resources being offered to Idaho utilities, e., capacity factor, dispatchability, intermittency.
To establish a basis for discussion and analysis and to determine the nature and scope
of further procedure, we seek answers to the following questions. We require answers from all
three electric utilities, Avista, Idaho Power and PacifiCorp. We also solicit answers from other
interested parties. As always, the published rates remain presumptively reasonable and available
to eligible QFs until changed.
1. Does the present SAR methodology for published avoided cost rates need
to be modified or augmented? Yes or No.
2. If answer to Question 1 is no, please provide the basis for your answer.
3. If answer to Question 1 is yes
Please provide the basis for your answer.
In broad and general terms, how should the methodology be
modified or augmented?
The deadline for filing written comments is September 18,2009.
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AVOIDED COST METHODOLOGY
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ORDER NO. 30873
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Idaho Power Company,
A vista Corporation dba A vista Utilities and PacifiCorp dba Rocky Mountain Power, electric
utilities, pursuant to the authority and power granted it under Title 61 of the Idaho Code and the
Public Utility Regulatory Policies Act of 1978 (PURP A).
The Commission has the authority under PURP A and the implementing regulations
of the Federal Energy Regulatory Commission (FERC) to set avoided costs, to order electric
utilities to enter into fixed-term obligations for the purchase of energy from qualified facilities
and to implement FERC rules.
ORDER
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED and the Commission does hereby initiate generic electric docket No.
GNR-09-03 and adopts the foregoing schedule for comments.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this S#-
day of August 2009.
J!. ~-JI . KEMPTON, P DENT
ARSHA H. SMITH, COMMISSIONER
~~ )?r
MACK A. REDFORD, COMMISSIONER
ATTEST:
~~~
Je . Jewell
Co mission Secretary
bls/O:GNR-09-03 sw
NOTICE OF REVIEW OF
AVOIDED COST METHODOLOGY
NOTICE OF COMMENT DEADLINE
ORDER NO. 30873