2001516_sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
LOUANN WESTERFIELD
BILL EASTLAKE
TONYA CLARK
DON HOWELL
LYNN ANDERSON
DAVE SCHUNKE
RICK STERLING
RANDY LOBB
GENE FADNESS
WORKING FILE
FROM:
DATE:
MAY 16, 2001 RE: CASE NO. GNR-E-99-01
AVOIDED COST VARIABLE RATE—COLSTRIP
FINAL ORDER NO. 28708—PETITION FOR RECONSIDERATION

The docket in Case No. GNR-E-99-01 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 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.

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.

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 Decision
The Petition for Reconsideration was filed on May 8th. The Commission’s decision date is June 5th. Reference Idaho Code 61-626. As reflected in PacifiCorp’s Answer, the Petitioners intend to offer no further evidence. Is the Commission inclined to grant the Petition for Reconsideration? If so, the Commission’s Order is to specify how the matter will be reconsidered.

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