20011105_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:
NOVEMBER 5, 2001 RE: CASE NO. IPC-E-01-37 (Idaho Power)
PETITION FOR A DECLARATORY ORDER RE: QF ELIGIBILITY FOR PUBLISHED NON-FUELED RATES

On October 29, 2001, Idaho Power Company (Idaho Power; Company) filed an Application with the Idaho Public Utilities Commission (Commission) requesting a Declaratory Order clarifying the intent of Order No. 25884 issued by the Commission in Case No. IPC-E-01-28 dated January 31, 1995. Reference IDAPA 31.01.01.101. In Order No. 25884 the Commission approved two avoided cost rate methodologies for qualifying cogeneration and small power production facilities (QFs) smaller than 1 MW. Reference Public Utility Regulatory Policies Act of 1978 (PURPA); 18 C.F.R. § 292. One methodology was adopted for “…non-fueled projects, e.g., wind, solar, hydro…”, Order No. 25884, p. 14, and a separate methodology was approved for pricing power generated by “fueled projects.” Order No. 25884 did not provide examples of fueled projects but did state that it was the Commission’s intent to encourage the development of non-fossil fuel generation. Both methodologies assume the costs Idaho Power would avoid and the costs associated with a combined cycle combustion turbine (CCCT). The methodologies, although structured differently, are presumed to be equivalent, each representing the purchasing utility’s avoided costs, i.e., the “incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, such utility would generate itself or purchase from another source.” 18 C.F.R. § 292.101(b)(6) definition—Avoided Costs.
Fueled Project Methodology
As reflected in the Company’s Petition, the published avoided cost rates for fueled projects track very closely to the typical cost structure for a CCCT. Rates for fueled projects contain a non-adjustable component equivalent to the fixed cost of the CCCT and an adjustable component which is intended to track the price of the natural gas fuel for a CCCT. The adjustable portion is changed annually based on the price of natural gas at the Sumas, Washington hub. Like the actual costs of a CCCT, the non-adjustable component is relatively small when compared to the cost of the adjustable component, i.e., the natural gas fuel.
Non-Fueled Project Methodology
In contrast, the published rates for non-fueled projects, the Company states, look more like the typical cost structure for a hydro plant than for a CCCT. The total costs, fixed and variable, are combined into a large non-adjustable payment with a small increment for variable O&M that is escalated at a fixed rate and the total amount is fixed over a 20-year life. The rates for non-fueled projects are currently higher than the rates for fueled projects.
Idaho Power states that it continues to receive requests from QFs seeking to develop projects smaller than 1 MW. Most developers seek to have their projects categorized as non-fueled so that they can receive higher, fixed prices. Many of these proposed projects, the Company states, utilize a “fuel” to produce the motive force for their generating facilities. For example, anaerobic digesters utilize animal waste to produce methane gas, which is then combusted to provide motive force for the production of electricity. Wood processing facilities desire to utilize wood waste to burn to produce steam for the motive force for their generation equipment. Clearly these generating facilities, the Company contends, utilize materials that have variable O&M expense associated with acquisition, storage and handling of the “fuel” for the facilities. On the other hand, this fuel is a “non-fossil fuel” consisting of a waste product that is a by-product of other industrial processes or agricultural products. It generally is not purchased from third parties and may or may not have market value for other uses. Thus, the Company admits, it is not subject to price fluctuations in the same manner that the price of fossil fuels varies over time.
Idaho Power states that it is cognizant of the possible system benefits associated with distributed generating resources using renewable sources of fuel. However, the Company states it is also desirous of complying with the Commission’s intent that there be a distinction between fueled and non-fueled projects.
Idaho Power requests that the Commission issue a Declaratory Order clarifying Order No. 25884 with respect to QF eligibility for entitlement to published rates for non-fueled small power projects. Order No. 28854, the Company states, clearly identifies renewable resources such as wind, solar, and hydro as being eligible for non-fueled rates. Additional clarification is required as to whether non-fossiled fuel fired generating facilities utilizing waste products as fuel will also qualify for non-fueled rates.
Commission Decision
Idaho Power requests clarification as to the eligibility of animal waste and wood waste fueled projects for non-fueled rates. A copy of the Commission’s Order No. 25884 is attached to the Company’s Petition. Also attached is a copy of the Commission’s Order No. 28768 establishing the 2001 annual adjustable rates calculation. A Petition for Declaratory Ruling requires that a Notice be issued to all affected utilities (and interested parties). Reference IDAPA 31.01.01.101-102. Procedurally, the matter could be processed under Modified Procedure, i.e., by written submission rather than by hearing, IDAPA 31.01.01.201-204. Does the Commission finds it reasonable to process the Company’s Application pursuant to Modified Procedure?

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