Bill Arkoosh..pdf

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BILLARKOOSH
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2005 US HIGHWAY 26
GOODING, IDAHO 83330
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March 12, 2002 ii~_
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Commission Secretary
Idaho Public Utilities Commission
Post Office Box 83720
472 West Washington Street
Boise, Idaho 83720-0074
Re:IN THE MATTER OF THE INVESTIGATION OF THE CONTINUEDREASONABLENESS OF CURRENT SIZE LIMITATIONS FOR PURP A OF
PUBLISHED RATE ELIGIBILITY (i.e., 1 MW) AND RESTRICTIONS ON
CONTACT LENGTH (i., 5 YEARS)
Case No. GNR-02-
Dear Sir or Madam:
Congress insisted in passing PURP A that the state public utility commissions overcometraditional utilities ' monopolistic reluctance to buy cogenerated and small hydro power by requiring
the purchase of this power at rates, terms and conditions that leaves the consumer indifferent to
whether the power came from the utility or qualified facility ("QF'). Congress sought, in part, toaccomplish this purpose by requiring that the utilities purchase QF power at the same marginal price
that the utilities paid for power and capacity elsewhere. By thus "avoiding the cost," of themarginal unit of power, it could be offered to the consumer at exactly the same rate regardless of
whether the power originated with the traditional utility or the QF.
Congress intentionally meant to foster the QF industry by insisting QF's had a right of first
opportunity to provide the marginal unit of power at the marginal rate. Understanding, however
that the QF industry could not invest capital to be ready to transmit the marginal unit of power when
the price provided the incentive to exercise the right of first opportunity, Congress ~xtended themarginal cost concept to added capacity, and further insisted that the state commissions provide
realistic terms and conditions that would protect the small producer from the traditional utilities
refusal to deal.
Although every participant in all this Commission s QF cases understands and mouths these
concepts, we have not implemented them. Instead, for whatever reasons, we offer QF's under one
megawatt a contract term of only 5 years at a rate less than that consistently awarded to local
utilities to add on the marginal unit. Not only does the term prevent realistic commercial financing,
thus violating the mandate to provide incentive terms, but the low rate provides a disincentive
instead of the required incentive. Anything over one megawatt imprisons the QF in the pre-PURP Awilderness of seeking terms and rates from the same utility it seeks to displace.
,. ,
Commission Secretary
Idaho Public Utilities Commission
March 12, 2002
Page 2
The proof has resided very much in the pudding. The utilities tell the Commission they do
not intend to build, so the marginal cost of the unwanted marginal unit sinks to nearly zero. The
QF industry withers without an offer of a fair price. Suddenly, demand in the area of service
magically grows, and the utilities approach the Commission for permission to obtain more capacity
and power. The approach seems always in a vacuum, isolated from the question of obtaining the
power from QF's, except to note that no QF's are up and running to meet this new and desperate
need. And the approach always comes in a hurry.
To some of the participants in the QF industry, the solution seems exceedingly simple. We
in Idaho should do as Congress intended and give the QF's the right of first opportunity to sell the
marginal unit at the marginal cost by providing terms and conditions which assure the public that
before the traditional utility be allowed to provide the marginal units of capacity and power, they
have offered the opportunity to Idaho s public. Those terms and conditions would require that a
precondition to any new acquisition be tied to the realistic, rather than the induced, absence of QF
power. In order for the utility to show a realistic absence of QF power, it would be required to show
that it had timely offered QF's the opportunity to displace the power or capacity the utility seeks to
put on line at the same rate the utility seeks upon bankable terms.
What does this mean in practical terms? It means that a condition precedent to any utility
building or purchases would be a showing on the part of the utility it has in place a program offering
the true avoided cost of energy and capacity upon terms and conditions that realistically allow
construction in Idaho s commercial and banking climate. This would require, at the least, that the
avoided cost must be calculated and offered for a period acceptable to the banking community for
purposes of financing, which appears to be at least twenty years.
What does this do? This approach would marry the utilities need to acquire marginal
capacity and electricity to the QF's mandated right of first opportunity. It would open up the
vacuum that now allows the utility to reject the need for any long term power or planning on
Monday, and be at the Commission s door by Friday with a hand out for permission to engage in
incremental growth. If on Friday, the Commission required the utility to prove it had timely offered
realistic terms and conditions to the QFindustry, the Commission would not only find that the QF's
would have been building on Monday, but that the growth of power supply in this state would be
constant, incremental, and controlled by the realistic demands of a free market place rather than
artificial, and artificially false, planning.
What are the benefits? The utilities would necessarily do authentic long term planning. The
necessity of incremental power or capacity would only arise when the QF industry had not stepped
up to the plate. The QF industry would not have exercised its right of first opportunity, if timely
offered realistic terms to accept the avoided cost rates only if the offer had not been timely, the
Commission Secretary
Idaho Public Utilities Commission
March 12, 2002
Page 3
terms realistic, or the rate unacceptable. If the Commission finds that the offers had been untimely
to build, or the terms unrealistic to attract commercial endeavor, it would require adjustment at the
time. If the Commission found that the avoided cost rates offered were unacceptable because they
were below what the utility would pay itself for the power, the Commission would require the utility
pay the real avoided cost rate. If the Commission found that the avoided cost rate were
unacceptable to the QF industry because it resided below the cost of production, the Commission
would have a gem of a planning opportunity to timely learn whether over the long term such a
condition would be expected to continue. By putting the monkey on the utilities ' backs to prove
they are not evading their responsibilities to Idaho s public under PURP A, they must prove realistic
planning or explain why.
By marrying the terms and rates offered to QF's to the real world needs for power and
financing, and only through this marriage, will Idaho ever benefit from PURP A. If we continue the
starts and jerks of utility reluctance of offer out part of the production pie until, under essentially
emergency conditions, utilities must find power elsewhere, we not only miss a stellar opportunity
to build Idaho s infrastructure through market forces, but we actually cost the ratepayer through bad
planning. It is ironic that while trying to evade purchasing power from QF's through hocus
planning and the false polemic that avoided cost pricing is a "subsidy" to QF's , the utilities havereally upped costs to the rate payers.
Sincerely
Bill Arkoosh
/BA
cc:A vista Corporation
PacifiCorp
Utah Power & Light
Idaho Power Company
Governor Kempthorne
Senator Robert Lee
Representative Bert Stevenson