2000927_sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
RON LAW
LOUANN WESTERFIELD
TONYA CLARK
BILL EASTLAKE
DON HOWELL
DAVE SCHUNKE
RANDY LOBB
RICK STERLING
WORKING FILE FROM:
DATE:
SEPTEMBER 27, 2000 RE: CASE NO. GNR-E-99-1
PURPA CONTRACTS—COLSTRIP VARIABLE RATE

The Public Utility Regulatory Policies Act of 1978 (PURPA) requires electric utilities to enter into fixed term obligations to purchase energy from qualifying cogeneration and small power production facilities (QFs). The rate to be paid for such power is not to exceed the “incremental cost” to the utility of alternative electric energy, commonly referred to as a utility’s avoided cost.
The case docket in GNR-E-99-1 was established by the Idaho Public Utilities Commission (Commission) as a vehicle for examining the continued reasonableness of using variable costs associated with the operation of Colstrip for the annual adjustable rate portion of avoided costs for a prior generation of QF contracts. Reference Commission Order Nos. 23349, 26080 and 23738.
The Surrogate Avoided Resource (SAR) methodology (Case No. U-1500-170) for determining a utility’s avoided cost is based on a coal generating plant in the Powder River Basin. The adjustable portion of the avoided cost rate under the –170 SAR methodology is based on the variable costs associated with the operation of Units 3 and 4 of Colstrip, a coal-fired generating facility in southeast Montana. The same calculated rate revision under the avoided cost methodology is used by Avista, PacifiCorp dba Utah Power & Light Company and Idaho Power Company. The adjustable portion of the avoided cost rate is updated annually. There are 24 affected PURPA projects that use Colstrip in the adjustable rate component of their contract rates.
Avista by letter dated August 30, 2000 (attached), apprises the Commission that the Company will be unable in the future to furnish variable cost figures based on actual variable costs of Colstrip Units 3 and 4 for the purpose of determining avoided cost rates in Idaho.
As reported by Avista, although the Company still retains its ownership share, Montana Power has sold its majority share and is no longer the plant operator. The new owner, PP&L Montana, LLC, operates Colstrip Units 3 and 4 as a non-utility generator. The new owner does not utilize the same reporting criteria respecting costs as do regulated utilities. Many of the accounts relied upon by Avista Corp, in its avoided rate calculation in the past are now combined into larger categories and are not available.
Avista requests that it be relieved of the obligation of determining the adjustable portion of the avoided cost rates applicable to a coal plant SAR. Avista recommends that consideration be given to utilizing another source of information for purposes of determining the adjustable portion.
Commission Decision
Staff recommends that notice of the Company’s letter filing be provided to all affected contract parties and that written comment be required from the utilities and Staff and solicited from QF contract parties as to suggested alternatives for determining annual adjusted rate calculations. Following comments, Staff envisions a public workshop to explore whether a consensus can be reached on a proposed substitute. Does the Commission agree with Staff’s proposed procedure? If not, what is the Commission’s preference?

vld/M:gnr-e-99-01_sw

DECISION MEMORANDUM 2