20071206Additional reply comments.pdf

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esIDA~POR~
An IDACORP Company
4: 57
BARTON L. KLINE
Senior Attorney
December 5, 2007
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
P. O. Box 83720
Boise, Idaho 83720-0074
Re: Case No. IPC-E-07-15
IN THE MATTER OF IDAHO POWER'S PETITION TO MODIFY THE
METHODOLOGY FOR DETERMINING FUEL COSTS USED TO
ESTABLISH PUBLISHED RATES FOR PURPA QUALIFYING
FACILITIES
Dear Ms. Jewell:
Please find enclosed for filing an original and seven (7) copies of Idaho
Power Company's Additional Reply Comments for the above-referenced matter.
i would appreciate it if you would return a stamped copy of this transmittal
letter in the enclosed self-addressed, stamped envelope.
ve'YIY ¡O~rs:~~
Barton L. Kline
BLK:sh
Enclosures
P.O. Box 70 (83707)
1221 W. Idaho St.
Boise, ID 83702
BARTON KLINE, ISB # 1526
LISA D. NORDSTROM, ISB # 5733
Idaho Power Company
1221 West Idaho Street
P. O. Box 70
Boise, Idaho 83707
Telephone: [phone]
FAX Telephone: [phone]
4: 51
Attorney for Idaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER'S
PETITION TO MODIFY THE
METHODOLOGY FOR DETERMINING
FUEL COSTS USED TO ESTABLISH
PUBLISHED RATES FOR PURPA
QUALIFYING FACILITIES
)
) CASE NO. IPC-E-07-15
)
) IDAHO POWER'S ADDITIONAL
) REPLY COMMENTS
)
COMES NOW, Idaho Power Company ("Idaho Powet' or the "Company") and
hereby provides the Commission with its comments responding to the additional comments
filed by the Commission Staff ("Staff") and by Exergy, Renewable Northwest Project,
Intermountain Wind and Idaho Wind Farms (collectively "Wind Developers").
Idaho Power's comments will be brief. With the exception of Staff's Reply
Comments, the additional comments are primarily a restatement of the arguments and
positions presented in the initial round of comments. Idaho Power believes it adequately
addressed those arguments in its November 5, 2007 Reply Comments.1
1_ In its additional comments, Exergy asserts that Idaho Power's filing of its initial reply comments without a
Commission order granting it leave to do so, was contrary to the Scheduling Order. Idaho Power respectfully
disagrees. Commission practice has consistently recognized that because the moving part carries the
burden of proof, it is entitled to closing argument. When operating under modified procedure, the
Commission's scheduling orders rarely establish a date for reply comments because, in many circumstances,
reply comments are not necessary. In lieu of delaying the schedule to allow for reply comments that may not
be needed, the Commission allows the parties to informally schedule reply comments through Commission
counseL. In this case, Idaho Power followed this long-standing Commission practice. Exergy's accusations of
misconduct are unfounded.
IDAHO POWER'S REPLY COMMENTS - Page 1
Staff's Reply Comments correctly identify the issues presented in this case, and
Idaho Power has used Staff's issue list to structure these comments.
1. Should the Commission continue to use the Northwest Power Planning
Conservation Council's September 11! 2007 median natural gas price
forecast as a basis for determining the fuel cost component of the published
avoided cost rates?
Staff's Reply Comments succinctly summarize the role that the Northwest Power
and Conservation Council's ("NWPCC" or "Council") gas price forecast plays in the
development of the fuel cost component of avoided cost rates under the surrogate avoided
resource (SAR) methodology for setting avoided costs.
In this case, Idaho Power has consistently advocated the continued use of the
NWPCC's median natural gas price forecast as the benchmark for determining the fuel
cost component of the published avoided cost rates. The benefits of using the Council's
natural gas price forecast identified in Case No. GNR-E-02-1 have not changed. The
Council's forecast is prepared by a neutral third party. The Council is a Northwest-based
entity that possesses sufficient expertise to provide a credible forecast of natural gas
prices.
Among the Wind Developers, only Exergy is critical of the Council's forecasts.
(Exergy Additional Comments p. 3). While the Wind Developers cite other forecasts of gas
prices, including the gas price forecasts Idaho Power used in preparing its 2006 Integrated
Resource Plan (IRP) and the gas price forecasts the Company used to prepare its pending
general rate case (Exergy Additional Comments, p. 7-8), it is not Idaho Powets impression
that the Wind Developers, (with the possible exception of Exergy), really want the
Commission to substitute an alternative gas price forecast prepared by a different entity for
NWPCC's forecast in this case.
IDAHO POWER'S REPLY COMMENTS - Page 2
It is Idaho Powets belief that using the Council's September 11, 2007 natural gas
price forecast as the basis for setting the fuel cost component of the published rates is the
only option reasonably available to the Commission in this case. In contrast to the
Commission's decision in GNR-E-02-1 to adopt the NWPCC's twenty-year price gas
forecast as the benchmark for fuel costs in setting avoided cost rates, neither the natural
gas price forecast data contained in Idaho Powets IRP nor the data from Idaho Powets
pending retail rate case filng (as recommended by Exergy), have been considered by the
Commission in the context of setting avoided cost rates. As a result, it is unlikely that the
data from these alternative forecasts would constitute substantial, competent evidence in
the record in this case, no matter how accurate Idaho Power's data is for its intended
purpose. If the Commission desires to depart from the use of the NWPCC forecast, Idaho
Power believes it wil be necessary for the Commission to open a new docket and develop
an adequate record that would support the decision to abandon the NWPCC forecast
benchmark and adopt an alternative gas price forecast as a basis for determining the fuel
cost component in the SAR methodology.
2. Should the Commission Change the Methodology Used to Compute the Fuel
Related Component of the Published Avoided Cost Rate?
The Wind Developers all urge the Commission to continue to use the three-year
average methodology to set the fuel costs for the published rates. However, none of the
Wind Developers have asserted that the three-year average methodology accurately
reflects the full twenty-year profile of natural gas prices contained in the NWPCC's
forecast. The Wind Developers do not argue that continued use of the three-year average
methodology is analytically accurate or that it is consistent with the benchmark NWPCC
gas price forecast. Instead, they urge the Commission to use the three-year average
IDAHO POWER'S REPLY COMMENTS - Page 3
method to set the published avoided cost rates on a temporary or interim basis. (RNP
Comments, page 5, Intermountain Wind Additional Comments p. 4).
The term "interim rates" has a specific meaning in utility rate-setting parlance.
Interim rates are rates that are placed into effect on a temporary basis subject to later
adjustment either upward or downward depending on a final decision made by the
Commission. Idaho Power does not believe that Wind Developers are urging the
Commission to set interim rates that are subject to subsequent adjustment. Interim, as the
Wind Developers define it, means that until the Commission conducts a full-blown avoided
cost case, QFs could enter into twenty-year fixed term, fixed rate contracts that would not
be subject to adjustment even if the Commission ultimately determined that the published
rates were either too high or too low.
The Wind Developers are not urging retention of the three-year average
methodology because it is consistent with the NWPCC forecast of gas prices. The Wind
Developers want to retain the current three-year average methodology because it
produces higher purchase prices. (Intermountain Wind Farm Additional Comments, Page
3-4, Exergy Additional Comments p. 6, Idaho Wind Farm Additional Comments p. 4).
Intermountain Wind is candid in advising the Commission in its Additional Comments that
the principal issue the Commission needs to consider in this case is whether or not the
published rates are sufficiently high to allow wind developers to proceed with their projects.
In its Additional Comments on page 3, Intermountain Wind urges that under current
conditions, the goal of restarting PURPA in Idaho should take precedence.
Idaho Power respectfully disagrees.
IDAHO POWER'S REPLY COMMENTS - Page 4
Setting twenty-year contract rates using a methodology that is not analytically
accurate and is not representative of the profile of the Commission-approved benchmark
gas price forecast is not, in Idaho Power's opinion, consistent with the requirements of
PURPA or consistent with good regulatory policy, even on a temporary basis. The PURPA
statute and the FERC rules and orders implementing PURPA are clear. State
commissions are to set avoided costs equal to the utilities' incremental cost of alternative
sources of power. Setting avoided costs using an analytically accurate methodology
protects both customers and QFs in the long run. Setting avoided costs in a manner that
places undue reliance on what it takes to make wind projects profitable and stimulate the
PURPA wind industry is inconsistent with both the letter and spirit of PURPA.
3. Should the Commission Review all of the SAR Generic Variables?
The Wind Developers suggest it is inappropriate to consider any change to the fuel
cost component portion of the published rates without considering all of the other
components at the same time. Again, it is clear from the Wind Developer comments that
(
the primary motivation for this position is to increase the published avoided costs rates
above the increase that wil occur if the Commission adopts the proposals presented by the
utilities and Staff.
Staff, in its Additional Comments, argues that the capital costs of constructing
CCCTs have not increased sufficiently to justify waiting to change the fuel cost component.
As a result, Staff argues it is not necessary to convene a new proceeding to look at the
non-fuel related avoided cost components (Staff Additional Comments pp. 5-8). Idaho
Power has not had time to analyze the material the Staff provided concerning the fixed cost
IDAHO POWER'S REPLY COMMENTS - Page 5
components of the SAR. While Staff may be correct in its analysis, Idaho Power believes
that the record relating to the costs of new CCCTs should be more fully developed.
To this end, in its Reply Comments, Idaho Power offered to facilitate workshops to
see if it might be possible to develop a consensus on updates to the non-fuel cost related
avoided cost components.
Staff's Reply Comments express skepticism regarding the prospects of a settlement
coming out of those workshops, citing the recent unsuccessful settlement efforts in the
wind integration case.
While Idaho Power agrees that the recent experience with settlement of the wind
integration case does not bode well, Idaho Power is stil wiling to undertake the effort. If
the issues to be resolved in those workshops are limited to the non-fuel cost related items,
the Company is more optimistic than the Staff appears to be about the prospects for a
settlement.
Conclusion
In Order No. 29124, issued in Case No. GNR-E-02-1, the Commission adopted the
Council's median natural gas price forecast as the source for the fuel prices used in the
computation of the published rates. The median forecast the Commission was considering
at that time showed natural gas prices steadily increasing in a linear fashion over the
twenty-year forecast horizon. In Order No. 29124, the Commission adopted the three-year
average methodology which generally tracked the linear upward profile of the Council's
then-current median gas price forecast.
In contrast, the Council's most recent natural gas forecast shows a decidedly
different profile than the one the Commission considered when it developed the three-year
IDAHO POWER'S REPLY COMMENTS - Page 6
average methodology. As a result, continued use of the three-year average methodology
is no longer reasonable and a different methodology for setting the fuel cost component of
avoided cost rates should be adopted by the Commission.
All of the data and evidence the Commission needs to adjust the fuel cost
component to be analytically consistent with the Council's latest gas price forecast is in the
record in this case. Fuel costs are by far the largest portion of the avoided costs under the
SAR methodology.2 Maintaining the existing SAR methodology and adjusting the fuel cost
component as advocated by the utilities and Staff (either the method Idaho Power
suggested or the method advocated by Staff, Avista and PacifiCorp) wil bring current
avoided cost rates into alignment with the Council's latest gas price forecast and wil allow
the Commission to maintain ratepayer neutrality as required by PURPA.
t\
Respectfully submitted this S day of December 2007.
BARTO~~
Attorney for Idaho Power Company
2 Avista estimates that fuel costs are 80% of its total avoided costs. Idaho Power estimates that fuel costs
represent 70% of total avoided costs.
IDAHO POWER'S REPLY COMMENTS - Page 7
CERTIFICATE OF SERVICE
lM
I HEREBY CERTIFY that on this S - day of December 2007, I served a true
and correct copy of the within and foregoing upon the following named parties by the
method indicated below, and addressed to the following:
Scott Woodbury
Deputy Attorney General
Idaho Public Utilties Commission
472 West Washington Street
Post Office Box 83720
Boise, Idaho 83720-0074
Exergy Development Group of Idaho
Peter J. Richardson
Richardson & O'Leary PLLC
515 N. 2ih Street
P.O. Box 7218
Boise, Idaho 83700
Intermountain Wind LLC
Dean J. Miler
McDevitt & Miler LLP
420 West Bannock Street
P.O. Box 2564-83701
Boise, Idaho 83702 ,
Rocky Mountain Power
Jordan A. White
Brian Dickman
Rocky Mountain Power
201 South Main Street, Suite 2300
Salt Lake City, Utah 84111
Avista
Kelly Nowood
Vice President
Avista Corporation
1411 East Mission Ave.
Spokane, Washington 99202
IDAHO POWER'S REPLY COMMENTS - Page 8
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Gary Seifert
Kurt Myers
INL
2525 S. Fremont Avenue
P.O. Box 1625, MS 3810
Idaho Falls, Idaho 83415
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kurt. myers (§ inl.govJli~Barton L. Kline
IDAHO POWER'S REPLY COMMENTS - Page 9