20101222Avista Initial Comments.pdf

. ties Commission
mgton St.
3702
mail: jean.jewel1ß1puc.idaho.gov
Initial Comments of A vista Corporation
IPUC Docket No. GNR-E-10-04
Dear Ms. Jewell:
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Corp.
December 21, 2010
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Please find enclosed an original and seven copies of Avista Corporation's Initial
Comments in the above-referenced docket. Please let me know if you have any questions
regarding this filing.
Enclosures
cc: Service List
Sincerely,.~
Michael G. Andrea
Senior Counsel
..
MICHAEL G. ANDREA (ISB No. 8308)
A vista Corporation
1411 E. Mission Ave., MSC-23
Spokane, W A 99202
Telephone: [phone]
michael.andrea~avistacorp.coin
CE
inßDEC 22 PM \: 59
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE JOINT PETITION )
OF IDAHO POWER COMPANY, AVISTA )
CORPORATION, AND PACIFICORP TO )
ADDRESS AVOIDED COST ISSUES AND )
JOINT MOTION TO ADJUST THE )
PUBLISHED AVOIDED COST RATE )ELIGIBILITY CAP. )
)
)
CASE NO. GNR-E-1O-04
INITIAL COMMENTS OF AVISTA
CORPORATION
Pursuant to the Notice issued by the Idaho Public Utilities Commission ("Commission")
on December 3, 2010 in Order No. 32131 ("Notice"), A vista Corporation ("A vista") respectfully
submits the following comments in support of reducing the eligibility cap for the published
avoided cost rate.
I. Introduction
On November 5, 2010, Avista Corporation along with Idaho Power Company and
PacifiCorp, dba Rocky Mountain Power, (collectively, the "Utilties") fied a Joint Petition
requesting the Commission to initiate an investigation into various avoided cost issues regarding
PURP A Qualifying Facilities ("QFs" or "QF" where referring to a singular qualifying facility).
Additionally, the Utilities requested that the Commission issue an order adjusting the published
avoided cost rate eligibility cap for QFs from 10 average megawatts ("aMW") to 1 00 kilowatts
("kW") effective immediately.
Page - 1 INITIAL COMMENTS OF A VISTA CORPORATION
On December 3, 2010, the Commission issued the Notice in which it, among other things,
set a modified procedure comment schedule with which to develop a record for its decision
regarding the Joint Petition and Motion's request to lower the published avoided cost rate
eligibility cap. Order No. 32131, Case No. GNR-E-1O-04. In the Notice, the Commission
indicated that this proceeding wil be bifucated into two phases. In this first phase, the
Commission wil address the Utilties' request to reduce the eligibility cap. Specifically, the
Commission set out three specific topics that it is interested in receiving comments upon:
(1) the advisability of reducing the published avoided cost eligibility cap; (2) if the
eligibility cap is reduced, the appropriateness of exempting non-wind QF projects from
the reduced eligibilty cap; and (3) the consequences of dividing larger wind projects into
10 aMW projects to utilize the published rate.
Initial comments on the issues set for this first phase are due on December 22, 2010, with
reply comments due January 19, 201 1. Oral Argument on these first phase issues is scheduled
for January 27,2011. In these comments, Avista wil address these topics. Avista reserves the
right to comment on any other PURPA-related issues in subsequent phases of this proceeding.
II. Background
Avista has an obligation under federal law and this Commission's orders to enter into
power purchase agreements with qualifying facilities. As other utilities in Idaho have found,
unfettered additions ofPUPRA QF generation onto Avista's system carries with it the potential
for negative and damaging effects to the utility and its customers.
Published rates are intended for smaller projects, in large part to ease the administrative
burden of the developer in negotiating the economic component of a QF contract. After
published rates are established by the Commission, changes in conditions can quickly cause them
to be either too high or too low as compared to actual avoided resource costs. It is reasonable to
Page - 2 INITIAL COMMENTS OF A VISTA CORPORATION
accept the imperfections of the published rates (i.e., the rates being either too high or too low for
a period of time) in order to accommodate small QF developers because: 1) small QF developers
generally have fewer resources to dedicate to complex contract negotiations, and 2) the financial
impact to A vista's retail customers from paying a published rate in excess of the actual cost wil
be, for a small QF project, smalL. But where larger projects are afforded published rates that
exceed actual avoided costs, A vista's retail customers are hared.
A vista is now receiving proposals for utility-scale projects by developers with both the
means and sophistication to negotiate a QF rate more representative of the costs the utility wil
avoid. Such a negotiation is the only way to determine the true avoided cost of the utility,
recognizing the specific operating characteristics of the QF.
The first, and largest concern for Avista at this time, is paying more for a QF's output
than it would cost for the utility to develop a similar project itself. Recent interest by potential
qualifying facilities highlights the speed at which new developments could overwhelm A vista's
ability to absorb them using its currently-available flexible generation resources. A vista
understands that several regional utilities, including Idaho Power and the Bonnevile Power
Administration, are already experiencing significant issues integrating variable generation
facilities such as wind into their systems. A vista shares the concerns of regional utilities
regarding the implications of integrating large amounts of variable energy resources on its
system
Lowering the published rate eligibility cap does not eliminate or otherwise diminish
Avista's obligation to purchase power from qualifying facilties. Reducing the eligibilty cap to
QFs of 100 kW or less is consistent with federal law. See 18 C.F.R. § 292.304c. Rates paid to
larger QFs should be set at avoided costs reflecting the incremental value of the QF generation to
Page.. 3 INITIAL COMMENTS OF A VISTA CORPORATION
the utility. To the extent that a resource is unable to provide similar generating characteristics to
the Surrogate Avoided Resource, its payments would be adjusted accordingly.
PURPA's intent is that utility customers are economically indifferent to the effects of
whether output is purchased from a QF or otherwise acquired (generated or purchased) by the
utility. When the utility is obligated to buy QF power at a price exceeding its avoided costs,
customers are no longer indifferent.
For the reasons discussed herein, A vista provides these comments in support of the
Utilities' request to reduce the curent 10 aMW cap for eligibility for published avoided cost
rates.
III. Comments in Support of Reducing the Published Avoided Cost Eligibilty Cap
A. The Advisabilty of Reducing the Published Avoided Cost Eligibilty Cap
Reducing the eligibility cap for published avoided cost rates is essential for two reasons
that have a direct effect on utilty customers: 1) utility customers are paying developers too
much under the published rates, and 2) QF development levels have the potential to compromise
system reliabilty.
1. The Economics
The explosion of QF development is underpinned by pure economics: a value stream,
substantially supported by the published avoided cost rate, that exceeds the expenses a developer
or utility would incur for equipment purchase, construction and operations. This is especially the
case when a project in reality is not "small" but instead represents a portion of a much larger
project benefitting from economies of scale. Published PURP A rates are especially attractive to
these projects. In other words, QF developers are "gaming the system" by breaking larger
projects into smaller 10 aMW projects that otherwise would not be eligible for published rates.
Page - 4 INITIAL COMMENTS OF A VISTA CORPORATION
There is now a race to develop projects that might not occur absent a rate that exceeds actual
avoided costs. The impacts are significant.
A vista is witnessing this rush firsthand. It currently has a total of 91 MW~5% of system
peak-of PURP A power on its system today under nine contracts. All are hydro except for two
biomass projects. This total is comprised of projects developed over the past 30+ years. Today's
published rates have attracted more than 450 MW of new development to Avista's system; 90%
was received over the past year, and nearly half over the past 3 months. This level of
development would bring PURP A capacity to 30% of system peak. Of the 19 new requests, only
one is below one megawatt and three are below 10 MW.
Standing alone, a 30-35 MW wind farm creates approximately 10 aMW. Similarly, 50-
60 MW of solar equates to approximately 10 aMW. These projects are large by themselves and
approach or equal utility scale. Because of the 10 aMW eligibility cap, even larger projects are
able to split into smaller groupings to obtain both the benefits of economies of scale and
eligibility for the published rate while maintaining the one-mile separation required by FERC.
The ratepayer impact of allowing larger projects to avail themselves of the published rate
is significant. Assuming all of the wind being proposed on Avista's system is developed at a
price that is, for example, $15 per MWh (-20%) more than its value under an individually-
calculated avoided cost, customers would spend nearly $15 milion more per year for one millon
megawatt-hours ofPURPA power, the amount of incremental power that would be generated by
the new QF requests on A vista. i Over a 20-year life, the total overpayment would equate to
i $15 per MWh represents an approximation of the capacity discount the Joint Utilties proposed recently before the
Commission. It also could be considered representative of the Renewable Energy Credit value that developers
propose to retain when building a qualifying renewable resource.
Page - 5 INITIAL COMMENTS OF A VISTA CORPORATION
$300 milion, a figure exceeding Avista's total Idaho anual electrical revenue requirement of
approximately $250 milion.
2. Reliabilty
Recent QF interest directed to A vista highlights the speed at which new developments
could overwhelm A vista's ability to absorb them. Over just the past few months A vista has seen
a large increase in interest from qualifying facilties. We canot guarantee that the existing
levels of flexibility in our system wil be capable of integrating the variation created by a large
increase in QF deliveries absent additional investments in new generation. This result is
supported by other utilities throughout the region that are already experiencing, or are
immanently facing, substantial wind penetrations on their systems (e.g., BPA and Idaho Power).2
A vista custoiners would shoulder the burden of new resource construction necessary to maintain
adequate system flexibility in the advent of a substantial amount of variable energy resource
additions to Avista's own system created by the existing PURPA rate structure.
3. The Solution
An efficient fix, as proposed by the Joint Utilities, is to reduce the eligibility for the
published rate to 100 kW, the limit established by federal law. See 18 C.F.R. § 292.304c.
Larger QFs wil stil be eligible to sell to the utilities, but they wil enter into negotiations so that
all attributes of the projects are considered on a comparable basis.
B. The Appropriateness of Exempting Non-Wind QF Projects from the
Reduced Eligibilty Cap
It is not appropriate to unilaterally exempt non-wind QF projects from a reduced
eligibility cap for three reasons. First, in some cases the utility and its customers would stil be
2 Both BPA and Idaho Power have publicly express~d their concerns about the growing wind amounts on their
systems, and the potential for reliability and cost impacts.
Page - 6 INITIAL COMMENTS OF AVISTA CORPORATION
paying too much relative to a published rate based on the surrogate avoided resource. Second,
other non-wind technologies have the ability to break their facilities into smaller pieces with the
express intent of obtaining a rate that in many cases wil not equal avoided cost. Finally,
published avoided cost rates should be available only to small developers without the financial or
technical means to negotiate an avoided cost rate.
1. Paying Too Much
A vista believes at this time that policy should not discriminate between varying
technology and/or fuel types. The unique characteristics of QFs present circumstances where the
purchase price is best set through an evaluation of the resources' contributions to the system.
Examples of the need for negotiation are wind, solar, and other qualifying variable resources.
Some of these resources do not provide capacity at the time of system peak. They are net
consumers of system capacity, meaning that unlike the surrogate avoided resource that provides
power at the time of system peak, variable resources are not likely to be producing any
generation and the utilty must stand ready with reserves to accommodate their variability. The
consumptive use of capacity, as well as other characteristics associated with wind resources, has
resulted in the need to include a wind integration charge under existing published rates.3 In
addition to this cost, variable resources wil not displace the utility's need to build new resources
to meet peak load requirements. Earlier Joint Utility comments recommended a"capacity
discount" of approximately $15 per MWh to account for the fact that while the surrogate gas-
fired resource would displace the construction of utilty generation, a variable resource would
not. This value was determined by an analysis of the capacity component of the gas-fired
3 Avista is concerned about the potential system impacts and costs of non-wind variable renewable generation
sources, and the fact that there is not presently any means to account for this variability as with wind.
Page - 7 INITIAL COMMENTS OF A VISTA CORPORATION
surrogate avoided resource. Solar and other variable resources likely are in the same category
and wil require a capacity discount.
Alternatively, QF resources that can be reasonably expected to provide significant levels
of generation during periods of system peak should not receive the same discount. Biomass and
geothermal are potential examples that might have the ability to deliver their rated output at the
expected times of utility system peak. Hydroelectric generation facilities, on the other hand,
might be relied upon to provide some capacity level, but oftentimes their rated capacity at system
peak periods in the summer and winter are significantly reduced. Hydro resources therefore
might not warrant a full capacity credit.
Irrespective of their underlying technology or fuel source, Avista believes at this time that
it is not appropriate to exempt any resource from the 100 kW limit. Evaluating each QF
resource's contribution to the utility's needs wil ensure a fair price is paid.
2. Dividing Large Projects into Smaller Projects
A vista believes that the eligibility cap should not discriminate based on technology or
fuel type due to the abilty to break one large project into smaller projects to remain eligible for
published rates. It might be true that some technologies and fuel types are less capable of
splitting themselves up; however, it would appear that any QF resource might have the potential
to exercise this option. At 100 kW it wil be difficult for a QF resource to circumvent the intent
of the Commission's rules on eligibility for the published rates.
3. Published Rates are for Small QF Developments
Published rates are intended for smaller projects, in large part to ease the administrative
burden of the developer in negotiating the economic component of the QF contract. It might be
reasonable to accept the imperfections ofthe published rates (i.e., the rates being either too high
Page - 8 INITIAL COMMENTS OF A VISTA CORPORATION
or too low for a period of time) in order to accommodate small QF developers because: I) small
QF developers generally have fewer resources to dedicate to complex contract negotiations, and
2) the overall financial impact to Avista's retail customers from paying a published rate in excess
of the actual cost will be, for a small QF project, small. But where larger projects are afforded
published rates that are exceed actual avoided costs, Avista's retail customers wil clearly be
harmed.
Proposals for larger utility-scale projects, where the developers have both the means and
sophistication to negotiate a QF rate, should be subject to a negotiated rate. Such a negotiation is
really the only way to determine the true avoided cost ofthe utilty, recognizing the specific
operating characteristics of the QF.
C. The Consequences of Dividing Larger Wind Projects into 10 aMW Projects
to Utilize the Published Rate
There are many consequences of continuing to allow large wind farms the ability to
divide into 10 aMW projects. The primary concern is the impact on customers who potentially
wil pay much higher rates than they otherwise would if the utilities developed or acquired
resources through a competitive process.
Second, a situation has been created whereby utilities are facing unprecedented levels of
QF development, especially from non-dispatchable variable generation resources that in large
volumes have the potential to adversely affect system reliabilty.
Finally, enabling essentially unlimited QF eligibility for published rates creates a vacuum
because published rates in Idaho 1) are much higher than neighboring states, and 2) much higher
than the market value ofthe QF production. Avista believes that if the ability to divide large
projects into small projects is removed, a balance wil return to Idaho that wil both provide a fair
price offering to QF developers and a fair purchase price for utility customers.
Page - 9 INITIAL COMMENTS OF AVISTA CORPORATION
Present published rates have the potential to compromise a utility's competitive
acquisition processes (i.e., a request for proposals, or "RFP"). With the opportunity for a high
published avoided cost rate, and an essentially unlimited ability to break up a utility-scale project
to gain access to the published rates, PURP A developers have no incentive to competitively bid
their projects into a utility's RFP process. A situation of artificial competition is created that
ultimately harms utilty customers because the best and least-cost projects are not bid into the
RFP process. A 100 k W limit would offer the possibility of more resources becoming available
to utilities when they issue their competitive RFPs.
iv. Conclusion
Avista appreciates the opportunity to provide these initial comments on PURPA
published rate eligibility. Based on the facts, Avista believes it is essential that the Commission
reduce the eligibilty for published avoided cost rates to 100 kW for all QF facilities as soon as it
is possible. Absent such a reduction existing customers wil be harmed by paying too much for
QF generation, and by the potential for reliability-related system upgrade costs necessary to
accommodate ever increasing amounts of new variable QF generation.
DATED this 21st day of December 2010.
~Michael G. Andrea
Attorney for A vista Corporation
Page -10 INITIAL COMMENTS OF AVISTA CORPORATION
CERTIFICATE OF SERVICE
I hereby certify that on this 21 st day of December 2010, true and correct copies of
the foregoing Initial Comments of A vista Corporation were delivered to the following
persons via EmaiL.
Jean Jewell
Idaho Public Utilties Commission
472 W. Washington St.
Boise, ID 83702
Email: jean.jewell~puc.idaho.gov
Dean J. Miler, Esq.
McDevitt, & Miler, LLP
PO Box 2564
Boise, ID 83701-2564
j oe~mcdevitt -miler. com
Daniel E. Solander
Senior Counsel
Rocky Mountain Power
201 S. Main Street, Suite 2300
Salt Lake City, UT 84111
Email: Daniel.solander~pacificorp.com
Donovan E. Walker
Lisa Nordstrom
Idaho Power Company
PO Box 70
Boise, ID 83707-0070
Email: dwalker~idahopower.com
Inordstrom~idahopower .com
Page I-CERTIFICATE OF SERVICE
Scott Woodbur
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington St.
Boise, ID 83702
Email: scott. woodburyiipuc.idaho. gov
Kris Sassar
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington St.
Boise, ID 83702
Email: kris.sassariipuc.idaho.gov
Peter Richardson
Gregory M. Adams
Richardson & O'Leary
515 N. 27th St.
PO Box 7218Boise, ID 83702
Email: peter~richardsonandoleary.com
greg~richardsonandoleary .com
Ted Weston
ID Regulatory Affairs Manager
Rocky Mountain Power
201 S. Main Street, Suite 2300
Salt Lake City, UT 84111
Email: ted.weston~pacificorp.com
R. Greg Ferney
Mimura Law Offices, PLLC
2176 E. Franlin Rd., Suite 120
Meridian, ID 83642
Email: greg~mimuralaw.com
Ted S. Sorenson, P.E.
Sorenson Engineering, Inc.
5203 South 11 th East
Idaho Falls, ID 83404
Email: ted~sorenson.net
Glenn Ikemoto
Margaret Ruger
Idaho Windfaris, LLC
672 Blair Ave.
Piedmont, CA 94611
E-mail: glennirãpacbell.net
Margaret~envisionwind.com
Shelley M. Davis
Barker Rosholt & Simpson, LLP
1010 W. Jefferson St., Ste. 102
P.O. Box 2139
Boise,ID 83701-2139
Email: smd~idahowaters.com
Paul Marin
Interiountain Wind, LLC
PO Box 353
Boulder, CO
Email:
paulmarin~interiountainwind.com
Ronald L. Wiliams
Wiliams Bradbury, P.C.
1015 W. Hays St.
Boise ID, 83702
Email: ron~wiliamsbradbur.com
Dana Zentz
VP, Sumit Power Group, Inc.
2006 E. Westminster
Spokane, W A 99223
Email: dzentz~summitpower.com
James Carkulis
Managing Member
EXERGY DEVELOPMENT GROUP OF
IDAHO, LLC
802 West Banock Street, Ste. 1200
Boise, Idaho 83702
Page 2-CERTIFICATE OF SERVICE
Clair D. Bosen, President
Twin Lakes Canal Company
PO Box 247
Preston, ID 83263
E-mail:
contact~twinlakescanalcompany .com
Bil Piske, Manager
Interconnect Solar Development, LLC
1303 E. Carer
Boise, ID 83706
Email: bilpiske~cableone.net
Bil Brown, Chair
Board of Commissioners of Adams County,
Idaho
PO Box 48
Council, ID 83612
Email: dbbrown~frontiernet.net
Scott Montgomery
President, Cedar Creek Wind, LLC
668 Rockwood Drive
North Salt Lake, Uta 84054
Email: scott~westernenergy.us
Wade Thomas
General Counsel, Dynamis Energy
776 E. Riverside Drive, Suite 15
Eagle, ID 83616
Email: wthomas~dynamisenerg.com
Robert A. Paul
15960 Vista Circle
Desert Hot Springs, CA
Email: robertapaul~gmail.com
Email:jcarkulis~exergydevelopment.com
Northwest and Intermountain Power
Producers Coalition
c/o Robert D. Kahn, Executive Director
1117 Minor Avenue, Suite 300
Seattle, Washington 98101
Email: rkahn~nippc.org
JohnR. Lowe
Consultant to Renewable Energy
Coalition
12050 SW Tremont Street
Portland, OR 97225
Email: jravenesanarcos~yahoo.com
Twin Falls Canal Company
c/o Brian Olmstead, General Manager
P.O. Box 326
Twin Falls, Idaho 83303-0326
Email: olmstead~tfcanal.com
Page 3-CERTIFICATE OF SERVICE
Thomas H. Nelson
Attorney for Renewable Energy Coalition
PO Box 1211
Welches, OR 97067-1211
Email: nelson~thnelson.com
Don Sturevant
Energy Director
J. R. Simplot Company
ONE CAPITAL CENTER
999 Main Street, P.O. Box 27
Boise, Idaho 83707-0027
Don. Sturevant~simplot.com
North Side Canal Company
c/o Ted Diehl, General Manager
921 N. Lincoln St.
Jerome, Idaho 83338
Email: nscanal~cableone.net.~