ipce0140swrps.doc

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 1895

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY TO AMEND SCHEDULE 86—COGENERATION AND SMALL POWER PRODUCTION—NON-FIRM ENERGY. )
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CASE NO. IPC-E-01-40

COMMENTS OF THE
COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of Application, Notice of Modified Procedure and Notice of Comment Deadline/Protest Deadline issued on November 23, 2001, submits the following comments.
On January 22, 1997, the Commission issued Order No. 26750 approving the current Schedule 86. On May 3, 1999, the Commission issued Order No. 28033 approving the current methodology for computing the purchase price, or avoided energy cost, for non-firm purchases under Schedule 86. The purchase price section of Schedule 86 currently provides two options under which PURPA qualifying facilities can sell non-firm energy to the Company:
Option A. The purchase price is an amount equal to the monthly weighted average cost per kilowatt hour of the daily on-peak and off-peak Dow Jones Mid-Columbia Electricity Price Index prices for non-firm energy published in the Wall Street Journal (Mid-C Index) minus $0.004 per kWh.
Option B. Under the Net Metering Option, customer generation is credited at a rate equal to the customer’s retail rate less a discount to allow Idaho Power to recover its investment in facilities and service costs.

Staff Analysis
Removal of Schedule 86 Option B
Idaho Power has requested that the Commission approve a new tariff Schedule 84—Net Metering—that would take the place of Option B under Schedule 86. Reference Case No. 
IPC-E-01-39. Staff analysis of Idaho Power’s proposed new Schedule 84—Net Metering is included in Staff Comments in Case No. IPC-E-01-39 and is not discussed here. Staff has no objection to eliminating Option B from Schedule 86, assuming the Commission approves a new Schedule 84 with some form of net metering provisions.
Tariff Eligibility Criteria
Idaho Power proposes to limit the applicability of Schedule 86 to PURPA qualifying facilities (QFs) with capacity name-plate ratings of less than 1 MW. This change, the Company contends, will bring Schedule 86 into conformity with the Commission’s current policy concerning qualifying facility purchase arrangements. Qualifying facilities smaller than 1 MW are entitled to Commission-established published rates; but qualifying facilities 1 MW and larger are required to negotiate contracts with Idaho Power containing power purchase prices computed using a methodology based on the Company’s integrated resource plan.
Staff opposes the Company’s proposal to limit Schedule 86 to projects smaller than one megawatt. Schedule 86 is the only means currently in place for establishing avoided cost rates for non-firm energy. The existing methodologies for smaller and larger than 1 MW facilities are specifically designed for firm energy only. Neither of these methodologies can fairly determine the value of non-firm energy. Consequently, if Schedule 86 is limited to projects smaller than for 1 MW, there will be no consistent means for determining non-firm energy rates for 1 MW and larger facilities. Given that the vast majority of non-firm energy currently purchased from QFs by Idaho Power is from a handful of facilities all larger than 1 MW, there must be some tariff or method in place to accommodate these types of non-firm energy sales.
As an alternative to restricting Schedule 86 to projects smaller than 1 MW, Staff suggests that Idaho Power add provisions to Schedule 86 permitting the Company to negotiate non-firm energy rates on a case-by-case basis for projects 1 MW and larger. This would be consistent with the manner in which the Company has handled several recent non-firm energy agreements with large industrial customers. In addition, such a provision explicitly acknowledges Idaho Power’s continuing obligation under PURPA to purchase energy from all QFs. Without such an explicit provision, there could be a perception that the Company is willing to sign non-firm energy contracts with some customers but not with others. Staff believes that the logical starting point for negotiations for 1 MW and larger projects should be the under 1 MW Schedule 86 rates, with discounts or bonuses to this price based on individual characteristics of each large project.
Schedule 86 Purchase Price
Idaho Power proposes to set the purchase price at an amount equal to eighty-five percent of the monthly weighted average non-firm Mid-C Index, consistent with several purchase and sale agreements the Company has recently entered into with various sellers. By establishing the purchase price as a percentage discount from the Mid-C Index, Idaho Power’s customers, the Company contends, can be confident that non-firm energy Idaho Power is obligated to purchase under Schedule 86 can be resold in the wholesale market at a price that will recover Idaho Power’s purchase costs plus transmission costs. Conversely, the Company contends that when Idaho Power desires to retain the non-firm energy delivered by a seller under Schedule 86, Idaho Power can be assured that the purchase price will be at least as beneficial as a wholesale non-firm market purchase.
Staff contends that the value of non-firm generation to Idaho Power varies depending upon whether the Company needs the generation or not. When it needs the generation, the value should be equal to full market price plus the costs of transmission, losses and transaction costs incurred in getting an equivalent amount of energy to Idaho Power’s system. When it does not need the generation, the value is equal to market price minus the costs of transmission, losses and transaction costs incurred in getting the energy to the market. It is not practical to price customer generation differently depending on whether Idaho Power needs the generation. Similarly, it is not realistic to assume that Idaho Power will always need the generation or that it will need it even half of the time. As a result, Staff believes it is reasonable to price non-firm customer generation at a discount from the non-firm market price. This provides a safeguard that the purchase and subsequent resale of non-firm energy at times when the Company does not actually need the generation will not harm Idaho Power and its customers.
The costs of transmission, losses and transaction costs vary somewhat depending on the amount of energy being considered and the location to/from which it will be purchased/sold. However, these costs are typically in the range of $4 per MWh. For market prices in their current range (approx. $27/MWh on 12/19/01), these costs represent about 15 percent of market price. Consequently, in the range of current market prices, the price in Schedule 86 of Mid-C minus 4 mills is approximately equal to 85 percent of market price. Thus, Idaho Power’s new proposed pricing method gives nearly the same price as the pricing method now in effect. Staff believes that 85 percent of market price is fair to customer generators while offering price protection to Idaho Power and its ratepayers in the event the Company is forced to sell customer generation it does not need.

Staff Recommendations
Staff recommends that the Commission approve Idaho Power’s request to eliminate Option B from the current Schedule 86, provided the Commission approves the Company’s request in companion Case No. IPC-E-01-39 to implement a new Schedule 84. If the Commission decides not to approve the proposed new Schedule 84, then Staff recommends that Option B continue to be included in Schedule 86.
Staff recommends that the Commission reject Idaho Power’s request to limit eligibility under Schedule 86 to facilities smaller than 1 MW. As an alternative, Staff recommends that Schedule 86 be amended to include a provision requiring Idaho Power to negotiate contracts on a case-by-case basis for projects 1 MW and larger. Staff recommends that 85 percent of market price be the starting point for price negotiations, with discounts or bonuses based on individual project characteristics.
Staff recommends that the Commission accept 85 percent of non-firm market price as the price for purchases under Schedule 86.

Respectively submitted this day of December 2001.

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Scott Woodbury
Deputy Attorney General

Technical Staff: Rick Sterling

SW:RS:i/umisc/comments/ipce01.40swrps
STAFF COMMENTS 3 DECEMBER 21, 2001