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LAW OFFICES
277 North 6th Street. Suite 200
PO Box 2720. Boise. Idaho 83701
TELEPHONE: 208 388-1200
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Direct Dial: (108) 388-1119
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Gary G. Allen David:R. Lombardi
ChristOPhe; J. Bee~Dn r '0 : .. '. Dt1~;'~..Lp;iIlOy Jr.
MidhlldI .G.!Creamer. L.
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Kevin,)' .:MI1Jj~EIy
Emily MacMaster Durkee Kimberly D. MaloneyThomas E. Dvorak John M. Marshall
Roy Lewis Eiguren Kenneth R. McClureTimothy P. Feamside Kelly Greene McConnellJeffrey C. Fereday Cynthia A. Melillo
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Debora K. Kristensen L. Edward MillerAnne C. Kunkel Patrick J. MillerFranklin G. Lee Judson B. Montgomery
Angela K. Nelson
W. Hugh O'Riordan
Kenneth L. Pursley
Brad V. Sneed
Conley E. Ward
Robert B. White
Raymond D. Givens
James A. McClure
Stephanie C. Westermeler
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March 15 , 2002
VIA HAND DELIVERY
Scott Woodbury
Idaho Public Utilities Commission
472 W. Washington Street
O. Box 83720
Boise, ill 83720-0074
Re:
Our File:
Case No. GNR-O2-
1314-
Dear Scott:
I am enclosing the original and seven copies of Potlatch's Comments. Please date
stamp the extra copy of this letter and return with our runner.
~inc.erelY'
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Tina N. Smith
Assistant to Conley E. Ward
Enclosure
S:\Clients\1314\47\Corr\2002-15 pue comments. doc
Conley E. Ward ISB #1683
GIVENS PURSLEY LLP
277 North Sixth Street, Suite 200
O. Box 2720
Boise, Idaho 83701-2720
Telephone: 208-388-1200
Facsimile: 208-388-1300
S:\MAeS\eEW\POTLA TeH\Pot1atch's eomments (2002-03-11 ).doc
Attorneys for Potlatch Corporation
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE
INVESTIGATION OF THE
CONTINUED REASONABLENESS OF
CURRENT SIZE LIMITATIONS FOR
PURP A OF PUBLISHED RATE
ELIGIBILITY (i., 1 MW) AND
RESTRICTIONS ON CONTRACT
LENGTH (i., 5 YEARS).
) CASE NO. GNR-O2-
) POTLATCH'S COMMENTS
Potlatch Corporation ("Potlatch") files these Comments in response to the Idaho Public
Utilities Commission s ("Commission ) Notice of Investigation issued on February 5 , 2002 in
the above-entitled case. In its Notice of Investigation, the Commission invited interested parties
to comment on Simplot's request that the Commission (1) increase the capacity size limit of
qualifying facilities ("QF") entitled to published avoided cost rates from 1 megawatt to 1 0
megawatts, and (2) increase the duration of contracts for such QFs from 5 to 20 years. For the
reasons stated below, Potlatch supports Simplot's request with one modification.
The existing size limitation on QFs entitled to published avoided cost rates was imposed
by Commission Order No. 25884 issued in Case No. IPC-01-28 on January 31 1995 (hereafter
cited as Order No. 25884). In the next two years, the Commission adopted additional orders
POTLATCH'S COMMENTS-
limiting the mandatory term of PURP A contracts to five years, first for projects larger than
megawatt, and then for all QFs regardless of size. See Order No. 26576 and Order No. 27111.
The rationale for these limitations was that emerging competition in the utility industry
was driving wholesale electric prices down and Idaho utilities were relying solely on the short
term wholesale market to supply additional capacity and energy. See Order No. 26576 at 3.
Consequently, the Commission adopted the I-megawatt and 5 year constraints in an attempt to
strike
a reasonable balance between encouraging the development of independent
alternative energy technologies with the need to protect ratepayers from paying
for resources which have not proven their cost effectiveness.
Order No. 25884 at 4. Unfortunately, with the passage of time it has become increasingly clear
that the Commission s QF restrictions have not achieved their stated goals. They have neither
encouraged the development of cost effective QFs nor protected utility ratepayers from
inordinate price increases. In fact, they have had precisely the opposite effect by effectively
shutting down the industry when continued resource development would have been a welcome
hedge against exorbitant market prices.
As the Commission s Notice of Inquiry notes, conditions in the electric utility industry
are now radically different than they were 5-7 years ago. Deregulation is no longer a realistic
possibility for the foreseeable future, and wholesale electric markets in the West have proved far
more volatile and risky than originally thought. While current prices have returned to more
acceptable levels, there is little reason to think that volatility has been permanently eliminated, or
that it would be prudent to rely on wholesale markets to supply Idaho s native load in the future.
The unpredictable nature of hydroelectric conditions, and the recent reliance on natural gas for
POTLATCH'S COMMENTS - 2
all new thennal generation virtually insure unpredictable price spikes will recur at some point.
Wholesale prices in the Northwest have always been subject to wide swings in reaction to water
supplies, and natural gas prices have been through repeated booms and busts for more than 25
years, with seasonal price variations of 100% or more quite common.
Consequently, the resuscitation of the Idaho QF industry is a matter of the utmost
importance. There is no mystery about what is required to achieve this goal. The Commission
must simply return to the status quo ante and require Idaho utilities to offer standard 20-year
contracts at published rates to all QFs of whatever size. The demonstrable fact is that the utilities
are either unable or unwilling to negotiate with QFs under any other scenario. Potlatch believes
this is primarily due to the fact that the opaque and complex proprietary models employed to
estimate avoided costs for larger projects are something of a shell game.These models
invariably calculate avoided costs as equivalent to short tenn market prices. This means that a
potential QF developer receives little or no value for its capacity. The utilities, for their part, are
disinclined to agree to a more realistic price that would reflect long-tenn capacity values for fear
of being criticized for executing an above market contract.Consequently, to the best of
Potlatch's knowledge, there have been no new QF contracts of more than 1 megawatt signed by
Idaho utilities since the orders of the mid 1990's were issued.
Instead Idaho utilities have relied on wholesale markets to meet short tenn load growth
(with disastrous consequences) and then, when the need for new capacity has become apparent
they have invariably constructed their own plants, directly or through subsidiaries and affiliates
at costs greatly in excess of published QF rates. Idaho Power s 2002 addition of its 90 megawatt
Mountain Home plant is a perfect example of the detrimental impact of this policy on ratepayers.
POTLA TCH'S COMMENTS - 3
The cost of that plant, under the most favorable conditions, is estimated at $77 /mwh, roughly
40% higher than its levelized 5 year QF rate of $55/mwh!
We will never know whether the Mountain Home plant could have been avoided with
less expensive PURP A purchases. But we do know that the next plant won t be avoided by
offering only 5-year contracts for less than I-megawatt projects. The record of prior cases is
replete with evidence that QF developers need something on the order of 20 year contracts to
finance their projects. Size restrictions also need to be lifted completely so that developers can
take advantage of economies of scale and produce sufficient capacity to avoid the need for new
utility plants the size of Mountain Home s or larger.
For these reasons, Potlatch urges the Commission to lift the existing size and contract
duration restrictions for QF developments for all Idaho utilities.In addition, Potlatch
recommends that all QFs should be able to take advantage of published avoided cost rates. Idaho
QFs have demonstrated that they can provide an inexpensive and stable source of generation that
diversifies utility resource portfolios and supports Idaho industries. They can do so again if the
Commission adopts appropriate reforms.
Potlatch submits that these remedies can be adopted without evidentiary hearings. If
however, the Commission finds that further evidentiary proceedings are warranted, Potlatch is
prepared to submit evidence in support of the positions advanced in these comments.
RESPECTFULLY SUBMITTED this 15th day of March 2002.
I U
Con ey Ward
Givens Pursley LLP
Attorneys for Potlatch Corporation
POTLATCH'S COMMENTS - 4
CERTIFICATE OF SERVICE
I hereby certify that on this 15th day of March 2002, I caused to be served a true and
correct copy of the foregoing by the method indicated below, and addressed to the following:
Scott Woodbury
Idaho Public Utilities Commission
472 W. Washington Street
o. Box 83720
Boise, ill 83720-0074
u.S. Mail Fax By Hand _Overnight
Robert J. Lafferty
Blair Strong
O. Box 3727
Spokane, W A 99220
S. Mail Fax By Hand _Overnight
Mark Widmer
Pacificorp
825 N.E. Multnomah, Suite 800
Portland, OR 98232
u.S. Mail Fax By Hand _Overnight
John M. Eriksson
Stoel Rives LLP
201 S. Main Street, Suite 1100
Salt Lake City, UT 84111
u.S. Mail Fax By Hand _Overnight
Barton L. Kline
Senior Attorney
Idaho Power Company
O. Box 70
Boise, Idaho 83707-0070
S. Mail
POTLA TCH'S COMMENTS - 5