20040416Reply Comments.pdf

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MONICA B. MOEN, ISB # 5734
BARTON L. KLINE , ISB # 1526
Idaho Power Company
1221 West Idaho Street
O. Box 70
Boise, Idaho 83707
Telephone: [phone]
FAX Telephone: [phone]
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Attorney for Idaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR APPROVAL)
OF AN AGREEMENT FOR SALE AND
PURCHASE OF ELECTRIC ENERGY
BETWEEN IDAHO POWER COMPANY AND
RENEWABLE ENERGY OF IDAHO, INC.
CASE NO. IPC-04-
IDAHO POWER COMPANY'S
REPLY COMMENTS
COMES NOW, Idaho Power Company ("Idaho Power" or "the Company
by and through its attorneys of record, and , in response to the Comments of the
Commission Staff dated April 6, 2004 , herewith submits the following reply comments.
At the outset, Idaho Power wants to emphasize that in negotiating rates
with Renewable Energy of Idaho, Inc. ("Renewable Energy ), it was not the Company
intent to disregard the Commission s 1996 order, Order No. 26576 , which established a
methodology for computing avoided cost rates for OF projects larger than ten (10) MW
using multiple runs of a computer model.
IDAHO POWER COMPANY'S REPLY COMMENTS , Page
Staff's comments correctly note that a Commission order remains in effect
until it is changed by Commission order. Idaho Power acknowledges that fact. In the
case of the contract with Renewable Energy, the Company did not utilize the AURORA
model to attempt to compute avoided cost rates for Renewable Energy for two principal
reasons:
(1 )At the time Renewable Energy approached Idaho Power for
a contract, the Company had not utilized the AURORA model to generate
avoided costs. Idaho Power had used the AURORA model for some resource
expansion comparisons but it did not believe that it had sufficient experience with
the AURORA model to rely on the model to accurately determine avoided costs.
(2)Renewable Energy was extremely anxious to execute a
contract with Idaho Power so that it could move forward with the development of
its project. The Company was concerned that taking the time necessary to
modify and test the AURORA model to perform the precise cost-benefit analysis
required by the methodology described in Commission Order No. 26576, would
have significantly delayed the development of a contract for the Renewable
Energy Project.
For these reasons , Idaho Power utilized the Commission-approved energy
purchase rates for OF projects smaller than ten (10) MW as the starting point for
negotiations with Renewable Energy. Under the circumstances, that seemed to be the
best approach for developing avoided cost rates for Renewable Energy that would be
consistent with Commission-approved avoided costs. Idaho Power s rationale
supporting that decision is more particularly described as follows:
IDAHO POWER COMPANY'S REPLY COMMENTS, Page 2
AURORA Was Designed To Be A General Forecasting Model.
Idaho Power does not know whether making the two AURORA runs in the
manner described in Order No. 26576 would result in energy purchase prices that are
higher or lower than the negotiated purchase prices contained in the Renewable Energy
contract filed with the Commission. Idaho Power s concern about utilizing the AURORA
model to compute avoided costs is not driven by an anticipation of higher purchase
prices. Idaho Power s concern is solely related to the fact that the Company has not
tested the AURORA model sufficiently to confirm if it is appropriate to use AURORA in
the manner contemplated in Order No. 26576.
In 1996, when Idaho Power entered into the Stipulation which describes
the methodology ultimately approved in Order No. 26576 , the Company s system
expansion model was one with which the Company had substantial experience in
running and applying the model outputs to real life operating conditions. In the mid to
latter 1990', there was a growing national and regional consensus that the burgeoning
de-regulated wholesale market was likely to become the primary source of new
generation in the region. Order No. 26576 made reference to this changing regional
landscape. The Commission noted on Page 6 of Order No. 26576:
Significant changes have swept through the electric industry
since we last examined the issue of contract length. The FERC
has mandated open access to the transmission system , thermal
technologies have improved , gas prices are low, there is a
considerable surplus of energy available in this region resulting
in very low spot market prices for electricity and , finally, even
the continued existence of PURPA is being called into question.
We find that as the industry continues to transform to a more
free market model we cannot justify obligating utilities to twenty
year contracts for PURPA power.
IDAHO POWER COMPANY'S REPLY COMMENTS, Page 3
Order No. 26576 goes on to describe the increasingly competitive nature of the industry
and the greater role that free market was playing in energy pricing.
Based on that expectation , the Company moved away from using its then-
current system expansion model as the basis for determining future power supply costs.
Several years later, after the bloom went off "the market will do it all" rose
the Company acquired a license to use the proprietary AURORA model and has used
AURORA to perform a number of specific tasks in the Company s resource planning
process.
Idaho Power has experienced a number of problems with the AURORA
model. One example of those problems relates to the assumptions the model used for
forecasting wholesale market purchase and sales prices. As originally provided by the
vendor, the model did not do a good job of replicating the effect of actual transmission
system conditions on wholesale prices. This problem could have a material adverse
effect on avoided-cost computations. Idaho Power has made a number of modifications
to the AURORA model that the Company hopes will mitigate these problems and result
in the AURORA model providing market price results that are much closer to actual
system conditions. Bringing the AURORA model to this current status has been a
complex and time-consuming effort.
While the Company believes that AURORA can successfully provide the
more general analysis needed for IRP purposes , the Company is not confident that it
has sufficiently tested AURORA to conclude that two runs of the AURORA model , one
with a OF project included and one without, would , in fact, produce pricing and cost data
that would precisely quantify the costs that Idaho Power would avoid over a twenty-year
IDAHO POWER COMPANY'S REPLY COMMENTS , Page 4
period if it acquired a OF resource rather than building another resource or purchasing
wholesale power in an amount equivalent to the OF resource s output.
To Avoid Delay, Idaho Power Chose To Use the Currently-Approved
Avoided Cost As A Starting Point For Negotiations.
As previously noted , Renewable Energy was extremely anxious to enter
into a contract with Idaho Power so that it could move forward with its development
plans.
About the time that Renewable Energy approached the Company
concerning a OF contract, the person who was most experienced in operating the
AURORA model had recently left the Company s employment. The Company was
the process of training new people to operate the AURORA model.
In light of the concerns Idaho Power had with its ability to properly utilize
the AURORA model and the concerns the Company had about the validity of some
portions of the model itself, Idaho Power concluded that it would be better to negotiate a
contract with Renewable Energy using the approved rates for projects smaller than ten
(10) MW as the starting point for those negotiations rather than delay negotiations until
such time as the Company could become satisfied that the AURORA model was
providing the extremely accurate results that are necessary for long-term fixed-rate OF
contract purposes.
Currently the AURORA model is being run almost constantly in preparing
the Company s 2004 IRP. The Company now has employees that better understand
the model and the Company has made needed changes to the model to increase the
Company s confidence in the model's outputs. It is the Company s intention, as soon as
IDAHO POWER COMPANY'S REPLY COMMENTS, Page 5
the 2004 IRP process is completed, to turn its full attention to the AURORA model to
make a final determination that (1) the AURORA model outputs are sufficiently
consistent with actual system experience that the output of the model would be a
reliable predictor of costs a utility can avoid by adding a specific large OF resource over
a twenty-year period, or (2) the AURORA model cannot be used for this purpose and
some alternative must be developed.
Conclusion
Staff's comments correctly note that Order No. 26576 has not been
rescinded or changed by the Commission and is still in effect. It is the Company
intention to ultimately be in a position to use AURORA to implement the provisions of
that Order or, if it ultimately determines that the AURORA model cannot be used in the
way contemplated by Order No. 26576 , advise the Commission of that fact and seek
modification of Order No. 26576.
Idaho Power acknowledges that it would be desirable to have a consistent
methodology for setting avoided cost prices for larger OF projects. Idaho Power
commits that it will use its best efforts to efficiently complete its evaluation of the viability
of using the AURORA model as a tool to provide that consistent application.
In the final analysis, the Commission must decide if the filed contract
between Idaho Power and Renewable Energy is in the public interest. Staff
acknowledges that the purchase rates in the filed contract may well be reasonable but
qualifies its opinion due to the fact that the AURORA model was not used to test the
rates. Idaho Power submits that because the purchase rates in the Renewable Energy
contract in total, are less than the currently approved avoided cost rates for smaller
IDAHO POWER COMPANY'S REPLY COMMENTS , Page 6
OF's , the rates are reasonable. Of course, the reasonableness of any contract must be
viewed in the totality of its parts. Idaho Power believes that taken as a whole, the
prices, terms and conditions contained in the Renewable Energy contract are
reasonable and the contract should be approved.
Finally, the reasons supporting Idaho Power s decision to negotiate rates
with Renewable Energy are equally applicable to the OF contract negotiated with the
R. Simplot Company that is currently awaiting Commission review and approval.
Idaho Power requests that the Commission take administrative notice of these reply
comments in its upcoming consideration of the J.R. Simplot OF contract.
Respectfully submitted this 15th day of April , 2004.
BARTON L. KLINE
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S REPLY COMMENTS , Page 7
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 15th day of April , 2004 , I served a true
and correct copy of the within and foregoing IDAHO POWER COMPANY'S REPLY
COMMENTS upon the following named parties by the method indicated below, and
addressed to the following:
Scott Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington Street
O. Box 83720
Boise, Idaho 83720-0074
Richard Vinson, President
Renewable Energy of Idaho, Inc.
320 Mountview
Meridian, ID 83642
CERTIFICATE OF SERVICE
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BARTON L. KLINE