28746.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE INVESTIGATION OF THE CONTINUED REASONABLENESS OF USING VARIABLE COSTS ASSOCIATED WITH THE OPERATION OF COLSTRIP FOR ANNUAL ADJUSTABLE RATE CALCULATIONS AS PREVIOUSLY AUTHORIZED IN COMMISSION ORDER NOS. 23449, 26080 AND 23738.
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CASE NO. GNR-E-99-1

ORDER NO.  28746

The docket in Case No. GNR-E-99-1 was established by the Idaho Public Utilities Commission (Commission) in 1999 to examine the continued reasonableness of using variable costs associated with the operation of Colstrip, a coal-fired generating facility in southeast Montana, for the annual adjustable rate portion of avoided costs. Reference Commission Order Nos. 23349, 23738 and 26080. The use of Colstrip costs to determine the variable rate component was adopted as part of the Surrogate Avoided Resource (SAR) methodology developed in Case No. U-1500-170. There are 24 PURPA Qualified Facilities (QF) contracts that use Colstrip in the adjustable rate component of the contract rates.
On April 17, 2001, the Commission in final Order No. 28708 approved the following changed methodology for the annual adjustable rate portion of avoided costs for those QF contracts using variable costs associated with Colstrip:
For those QF contracts with Colstrip-related fuel costs and variable O&M, future Colstrip variable cost adjustments are to be calculated by using FERC Form 1 Colstrip Unit Coal Costs per megawatt hour (MWh) and adding $2.00/MWh (the average variable O&M cost of Colstrip plus $.20/MWh for generation taxes plus a five percent (5%) adjustment for line loss).

For PacifiCorp QF contracts with ‘92 Addendum language, variable O&M beginning in 2003 will be $1.51/MWh.

In its Order, the Commission included the following Findings of Fact with respect to the generation of PacifiCorp QF contracts with 1992 Addendum language:
For those PacifiCorp QF contracts with 1992 Addendum language, we note, by way of clarification, that the fuel component calculation is to remain unchanged, i.e., “average fuel costs as reported in FERC Form 1 for PacifiCorp Carbon, (Hale—presently out of service), Naughton, Huntington and Hunter plants.” The variable O&M under the PacifiCorp QF contracts, while presently fixed, is to be tied to Colstrip beginning in 2003. The Commission notes that pursuant to the ‘92 Addendum language in the PacifiCorp QF contracts, generation taxes and a line loss adjustment are specifically excluded from the calculation of any variable O&M. It is not our intention to change this contract term. The Commission notes, as calculated by Staff, that the exclusion of line loss (5%) and generation tax (20¢/MWh) from the variable Colstrip calculation for affected PacifiCorp contracts (beginning in 2003) results in an adjusted O&M figure of $1.51/MWh.

The Commission’s language also contained the following findings:
The Commission continues to find it reasonable to link the variable rate for affected contracts to Colstrip. The methodology proposed by Staff and adopted in our proposed Order remains, in the Commission’s view, the best method for calculating the variable rate for contracts using Colstrip in the adjustable rate component of the contract rates. This continues to be our finding despite proposals to move to an index or in the case of PacifiCorp QFs to use data from other coal plants to calculate the variable O&M portion of the rate. We also find Staff’s demonstration that the chosen method closely mimics Colstrip variable costs since 1989 a persuasive reason to not include an escalator for variable O&M costs.

Petition for Reconsideration
On May 8, 2001, a Petition for Reconsideration was filed by Mink Creek Hydro, the City of Preston and Birch Creek Hydro, all QF customers of PacifiCorp with contracts containing 1992 Addendum language. The position of Petitioners is as follows:
We respectfully petition the Idaho Public Utilities Commission to reconsider the Order fixing the variable O&M costs for QF contracts with PacifiCorp at $1.51 per MWh. We request using the same four plants for which the coal cost is to be derived in the future to derive the variable O&M costs. This would eliminate any potential misunderstandings or any disagreements as to whether the coal cost has been reduced and the O&M cost increased, etc. We also believe as a fundamental matter of fairness, that fixing variable O&M cost is unfair. Our cost of labor, our cost of insurance for our power plants continues to rise each year. We find it hard to understand why avoided cost plants would not be affected by the same market forces as we are experiencing. We, therefore, request your reconsideration.

PacifiCorp Response
On May 15, 2001, PacifiCorp filed an Answer to the Petition for Reconsideration. PacifiCorp opposes the Petition noting that in the Commission’s Order, the opposition to fixing the variable O&M component was previously voiced by not only the PacifiCorp QFs, but also the Idaho Power QFs, and the Commission found that “Staff’s demonstration that the chosen method closely mimics Colstrip variable costs since 1989 a persuasive reason to not include an escalator for variable O&M costs.” Order at 7. PacifiCorp notes that the QFs do not challenge the Order as unlawful, erroneous or not in conformity with the law, and they offer nothing new to the argument.
PacifiCorp also notes that the QFs’ recommendation, if approved, would alter one aspect of the ’92 Amendments entered into with the PacifiCorp QFs, in isolation from other aspects. The Amendments tie variable O&M to the SAR methodology. The QFs’ recommendation, PacifiCorp contends, would break that link.
COMMISSION FINDINGS
The Commission has reviewed the filings of record in Case No. GNR-E-99-1 including our final Order No. 28708. We have also reviewed the Petition for Reconsideration and the Company’s Response.
The Petitioners have not offered to provide any additional evidence in this case. Reference IDAPA 31.01.01.331.01. The issues and positions raised by Petitioners on reconsideration were previously presented and considered by the Commission. We find that Petitioners have not presented a new or persuasive reason to interfere with or change the terms of their QF contracts with PacifiCorp. We accordingly find it reasonable to deny the Petition for Reconsideration and to affirm Order No. 28708.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Idaho Power Company, Avista Corporation dba Avista Utilities—Washington Water Power Division (Idaho) and PacifiCorp dba Utah Power & Light Company, 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 (PURPA).
The Idaho Public Utilities Commission has authority under PURPA and the implementing regulations of the Federal Energy Regulatory Commission (FERC) to set avoided costs, to order electric utilities to enter into fixed obligations for the purchase of energy from qualified small power production and cogeneration facilities and to implement FERC rules.
O R D E R
In consideration of the foregoing, IT IS HEREBY ORDERED and the Commission does hereby deny the Petition for Reconsideration filed by Mink Creek Hydro, the City of Preston and Birch Creek Hydro.
THIS IS A FINAL ORDER ON RECONSIDERATION. Any party aggrieved by this Order or other final or interlocutory Orders previously issued in this Case No. GNR-E-99-1 may appeal to the Supreme Court of Idaho pursuant to the Public Utilities Law and the Idaho Appellate Rules. See Idaho Code § 61-627.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho, this
day of June 2001.

PAUL KJELLANDER, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

DENNIS S. HANSEN, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary

bls/O:gnre9901_sw3

ORDER NO. 28746 1

Office of the Secretary
Service Date
June 4, 2001