20060711Energy Vision Reply Comments.pdf

/~ID"lfu~~ H
Ner
~)
VISION' LLGOO6 JUll1 A~110: 12
IDAHO PUBLIc;,
UTILITIES COMMISSION
RECEIVED
Glenn S. Ikemoto
Principal
Envisioning sustainable future
672 Blair Avenue
Piedmont, CA, USA 94611
[phone] :T
[phone] :F
glenni(g)pacbelLnet :E
VIA EMAIL
July 10 2006
President Paul Kjellander
Commissioner Dennis Hansen
Commissioner Marsha Smith
Idaho Public Utilities Commission
472 West Washington Street
PO Box 83720
Boise , ID 83720-0074
Re: Comments on IPC-05-
Dear Commissioners:
First, let me apologize if it is inappropriate for me to reply to Idaho Power s comments in
the subject case. I am only an interested party, not an intervener. I simply don t know the
rules.
I would like to note that Idaho Power itself makes the strongest argument for allowing the
Modified PacifiCorp Method. On page 8 of their Initial Comments they state, "Under the
Schwendiman price floor concept, OFs can safely adjust their monthly energy delivery
commitment amounts upward within the 90%/110% performance band with less risk.
That's the point. The Pacificorp Method, at a minimum , will result in more accurate
forecasts.
Idaho Power s statement implies that raising the forecast is bad for ratepayers. If that
were true, developers would simply set their forecasts infinitely high. The incentives for
accurate forecasts are the same, regardless of which 90/110 method is used. Developers
must still balance the losses from over and under projections to maximize revenues.
While the expected value (average) cost to the ratepayers may well be the same for either
method , the variance and range (uncertainty) of possible outcomes are much lower with
Energy Vision Reply
IPC-05-
Page 1 of 2
the Modified PacifiCorp Method. Raising the forecasts is simply more accurate, not more
costly.
As a developer, I can say that a project's revenues are maximized by lowering the
projected output from what you believe to some theoretical optimum. The amount of this
reduction is a function of total uncertainty. This includes both the uncertainty of theamount of energy delivered and the uncertainty of price for that delivery. By reducing the
uncertainty of price, you will get a more accurate forecast.
It has already been recognized that, over the contract life, it is impossible to know whether
the ratepayer will actually be better or worse off with any particular approach to the 90/110
Performance Band. Just as it is impossible to know whether they will actually be better or
worse off with the underlying firm energy prices. We have to look forward , based on
reasonable planning assumptions. My earlier comments in this case demonstrate that
from a planning perspective, the Modified PacifiCorp Method is better for ratepayers.
While the actual effect on ratepayers can not be known until the end of the contract, we do
know that increasing uncertainty will increase the cost of financing. Absent any clear
differences in ratepayer impacts, the Commission should allow the Modified PacifiCorp
Method , since it provides the lowest level of uncertainty for both parties.
One final comment on a different issue. The Staff's recommendation to spread the
capacity prices over all three seasons is reasonable. They are probably correct that the
existing seasonality factors already account for system reliability differences , which are
typically the basis for spreading annual capacity costs.
Respectfully, ~7t-
Glenn Ikemoto
Principal
-'"
Energy Vision Reply
IPC-05-
Page 2 of 2