20071109notice_of_additional_comment_period.pdf

Office of the Secretary
Service Date
November 9, 2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S PETITION TO MODIFY THE
METHODOLOGY FOR DETERMINING
FUEL COSTS USED TO ESTABLISH
PUBLISHED RATES FOR PURP A
QUALIFYING FACILITIES
NOTICE OF ADDITIONAL
COMMENT PERIOD
CASE NO. IPC-O7-
Pursuant to the Public Utility Regulatory Policies Act of 1978 (PURP A) and the
implementing regulations of the Federal Energy Regulatory Commission (FERC), the Idaho
Public Utilities Commission (Commission) has approved a methodology for calculation of the
avoided cost rates paid to PURP A qualifying cogeneration and small power production facilities
(QFs) by Idaho Power Company, Avista Corporation and PacifiCorp. Avoided cost rates are the
purchase price paid to QFs for purchases of QF capacity and energy.
On September 10, 2007, Idaho Power Company (Idaho Power; Company) filed a
Petition with the Idaho Public Utilities Commission (Commission) to modify the methodology
for determining fuel costs used to establish published rates for PURP QFs. Idaho Power
contends that use of the current method to set the fuel cost component in the surrogate avoided
resource (SAR) methodology will result in published avoided cost rates that are not
representative of the costs Idaho Power is likely to avoid by purchasing energy from QFs.
BACKGROUND
In Order No. 29124 issued September 26, 2002 in Case No. GNR-02-, the
Commission established the methodology currently used to compute the fuel cost component of
the surrogate avoided resource (SAR) methodology. For QF projects generating less than 10
aMW, the avoided cost rates determined by the SAR methodology are commonly referred to as
the published rates. The current SAR is a natural gas-fired combined cycle combustion turbine.
The method the Commission adopted in Order No. 29124 to calculate the fuel cost
component starts with an arithmetic average of the nominal prices for natural gas for the first 3
years of the Northwest Power Planning and Conservation Council's (NWPCC) median 20-year
forecast of natural gas prices. These three years consist of the current year s forecasted price
plus the previous two years' forecasted prices , escalated a uniform percent per year over 20 years
(escalation rate also calculated from NWPCC forecast).
NOTICE OF ADDITIONAL COMMENT PERIOD
In 2004, the NWPCC revised the 20-year natural gas price forecast. In Order No.
29646, the Commission revised the fuel cost component for the SAR methodology utilizing the
average of the NWPCC's natural gas price forecast for the 3-year period 2004 through 2006.
This change in the three-year average price revised the fuel cost component in the SAR
methodology to $5.10. The fuel escalation rate was changed to 2.3%. As a result of these two
changes, in 2004, the levelized published rate for a QF project estimated to come on-line in 2007
(20-year term) went from 53.67 mills/kWh in 2002 to 62.40 mills/kWh in 2004.
IDAHO POWER PROPOSAL
On July 31 , 2007, the NWPCC released a draft of its next forecast of natural gas
prIces. Petition, Attachment 1. I Idaho Power contends that there exists an extreme divergence
between NWPCC's forecast of natural gas prices and the assumed cost of fuel for the SAR. The
principal reason for the divergence between the assumed cost of fuel for the SAR under the
current methodology and the NWPCC's 20-year forecast in natural gas prices is the use of the 3-
year average starting point and the linear escalation from that starting point. By starting the fuel
cost assumption at the high-end of the range of prices shown in the NWPCC forecast and
escalating prices from that point in a linear profile, the current methodology fails to recognize the
expected downward trend in fuel prices apparent in NWPCC's 20-year forecast. Failing to
recognize the non-linear shape of the NWPCC's 2007 forecast, the Company contends, will
cause the published rates to be much higher than they otherwise would be.
Idaho Power proposes that the Commission utilize the average of all 20 years of the
NWPCC's final 2007 median 20-year natural price forecast as the fuel cost component in the
SAR methodology.Because Idaho Power proposes to use the 20-year average price, no
escalation forecast is needed. (Utilizing assumptions in the NWPCC 2007 draft forecast, the
calculated escalation rate is 1.10%.
Petition Attachment 4 depicts three sets of published avoided cost rates for Idaho
Power: (1) the current published avoided cost rates; (2) the published avoided cost rates that will
go into effect if the NWPCC accepts its 2007 draft natural gas price forecast as its final forecast
and the 3-year average natural gas price method remains unchanged; and (3) the Idaho Power
I The draft fuel price forecast was approved by the NWPCC on September 11 , 2007.
http://www.nwcouncil.org/library/2007/2007-14.htm.
See
NOTICE OF ADDITIONAL COMMENT PERIOD
proposal - the fuel cost component is computed using the average of the 20 years of natural gas
prices from the NWPCC's dnift 2007 median gas price forecast:
Using NWPCC Gas Forecast
Update Fuel Only Update Fuel Only
Published Rate Calculation Model Current Pricing Using Established Using a 20 yr Avg
Method
NWPCC 2004 Fuel NWPCC 2007 Fuel NWPCC 2007 Fuel
3 yr avg 3 yr avg 20 yr avg
2002-2004 2005-2007 2008-20027
20-yr levelized rate, on-line date:
2007 62.40 72.22 67.
2008 63.73.68.
2009 65.31 74.68.
Idaho Power believes that its Petition presents a limited policy question to the
Commission. The Company does not believe that its proposal presents a factual dispute
requiring a technical proceeding to effectuate a resolution. The Company proposes to retain the
fundamental SAR methodology. The assumptions for all components of the SAR methodology
remain the same except for the fuel cost assumption. All of the data required to analyze Idaho
Power s proposal to change the fuel cost assumption are contained in the NWPCC's 2007 natural
gas price forecast in the current SAR methodology model. The Company is not requesting a stay
of the implementation of the new published rates while this case is pending.
Idaho Power requests that the Commission issue an Order changing the method for
determining the fuel cost component of the SAR methodology to utilize the average of all 20
years set out in the NWPCC's 2007 final median forecast of natural gas prices rather than the
escalated average of the first 3 years of the same forecast.
On September 27, 2007, the Commission issued a Notice of Petition and Modified
Procedure in Case No. IPC-07-15 establishing a comment deadline of October 23 , 2007.
Comments were filed by Idaho Windfarms LLC, Intermountain Wind LLC, Exergy
Development Group, Commission Staff, A vista Corporation, PacifiCorp dba Rocky Mountain
Power, INL Engineers, and other interested parties. All parties other than the utilities and Staff
oppose a change in the methodology.
Idaho Power proposes that the Commission utilize the average of all 20 years of the
Council's median 20-year forecast. The Commission Staff contends that a better, more straight-
NOTICE OF ADDITIONAL COMMENT PERIOD
forward and mathematically sound approach would be to use each year of the Council's entire
forecast "as is" rather than the escalated average of the first three years. A vista contends that the
Company proposal does not account for the "time value of money." By using an average price
across all of the year, it states, they are proposing to pay a higher cost now and a lower cost later
, in real dollar terms. Avista and PacifiCorp support Staff's proposed method.
Exergy urges the Commission to deny the Company s Petition and to implement new
rates based on the existing SAR methodology. Exergy contends that the 17 inputs that comprise
the methodology are interdependent. The requested change in the variable fuel cost component
methodology, it states, reduces the published avoided cost from what it otherwise would be.
Exergy contends that some fixed components to the methodology have changed and should also
be adjusted (citing, e., construction costs and interest rates). In support of its opposition to a
change in only one component, Exergy contends that the Council's forecast has proven to be
extremely conservative.
Idaho Windfarms contends that there is an imbalance that occurs when the
uncertainty of wind is adjusted for integration costs and the fuel price uncertainty in utility
resources is ignored. Both, it states, have an equivalent impact on ratepayers. Clearly, it states
if we are to revisit one issue in calculating average costs, it is fair and reasonable to revisit them
all.
Avista opposes a revisiting of the non-fuel SAR assumptions. Natural gas, it notes
represents approximately 80% of the overall cost of the SAR resource. Other cost drivers
included in the SAR, on the whole, it contends, remain reasonable, and were they to change
would not greatly affect overall published rates.
Idaho Windfarms, Intermountain Wind and Exergy all characterize the Company
proposal to change the fuel cost component methodology as a violation of the policy disfavoring
a single-issue rate case. Adjustment of only one item that makes up an overall rate, without
examining all components of the overall rate, Intermountain Wind contends, makes it impossible
for the Commission to make the statutorily required public interest finding that the overall rate is
fair, just and reasonable.Idaho Code ~ 61-502. Intermountain Wind contends that avoided
cost rates under PURP A are subject to the same "fair, just and reasonable" standard as are retail
rates. Intermountain Wind and Idaho Windfarms contend further that the Company s proposal is
also an impermissible collateral attack on a final Order. Idaho Code ~ 61-625.
NOTICE OF ADDITIONAL COMMENT PERIOD
Idaho Power in reply comments provides a brief summary of the legal underpinnings
and requirements of PURP A and distinguishes the standards the Commission is required by
federal law to follow in establishing avoided cost rates and the standards that Idaho law
establishes for setting retail rates. Federal law, it states, does not require the Commission to
consider whether the avoided cost rates it sets are sufficient to make QF projects economically
viable. If the Commission sets avoided cost rates that are equal to "the incremental cost to the
utility of alternative energy" the published rates, it concludes, are per se, just, reasonable and
non-discriminatory.18 C.R. ~ 292.101(b)(6) definition "avoided costs ; 18 C.R. ~
292.304(a) Rates for Purchases.
Despite Exergy s urging, federal law, Idaho Power contends, does not permit the
State of Idaho to artificially stimulate the development of QF resources by requiring the
Commission to set QF purchase prices above avoided costs. Connecticut Light Power Co.
FERC ~ 61 012 (1995).
Idaho Power states that the alternative methodology proposed by Staff, A vista and
Rocky Mountain is reasonable and is superior to the current methodology. The Company
believes, however, that the Staff and utilities ' proposal will cause greater swings in the cash
flows ofQF developers and may thus impact project financing.
Addressing the suggestion that perhaps all SAR methodology cost components need
to be updated, Idaho Power states that it is agreeable to hosting a meeting no later than March 1
2008 to identify and quantify necessary updates to the remaining avoided cost methodology
components. The Company is hopeful that an agreement can be reached and subsequently filed
with the Commission as a consensus document.
YOU ARE HEREBY NOTIFIED that the Commission has reviewed the filings
comments and recommendations in Case No. IPC-07-15. The Commission finds it reasonable
given the proposals and recommendations of commenting parties, to provide the following
schedule and deadline for the filing of additional written comments or protests with respect to
Idaho Power s Petition, the alternative proposal of Staff, Avista, and PacifiCorp and the use of
Modified Procedure in Case No. IPC-07-15:
Monday, November 26, 2007 Deadline for additional comments
Wednesday, December 5, 2007 Deadline for Idaho Power reply
NOTICE OF ADDITIONAL COMMENT PERIOD
YOU ARE FURTHER NOTIFIED that written comments concerning Case No. IPC-
07-15 should be mailed to the Commission and the Company at the addresses reflected below.
Commission Secretary
Idaho Public Utilities Commission
PO Box 83720
Boise, ID 83720-0074
Street Address for Express Mail:
Barton L. Kline, Senior Attorney
Lisa D. Nordstrom, Attorney II
Idaho Power Company
1221 W. Idaho Street (83702)
PO Box 70
Boise, ID 83707-0070
E-mail: bkline~idahopower.com
In ordstro m~i dah opo wer. com472 W. Washington Street
Boise, ID 83702-5983
All comments should contain the case caption and case number shown on the first page of this
document. Persons desiring to submit comments via e-mail may do so by accessing the
Commission s home page located at www.puc.idaho.gov. Click the "Comments and Questions
icon, and complete the comment form, using the case number as it appears on the front of this
document. These comments must also be sent to Idaho Power at the e-mail addresses listed
above.
YOU ARE FURTHER NOTIFIED that the Petition and comments in Case No. IPC-
07-15 may be viewed at www.puc.idaho.gov by clicking on "File Room" and "Electric
Cases " or can be viewed during regular business hours at the Idaho Public Utilities Commission
472 W. Washington Street, Boise, Idaho and at the general business office of Idaho Power
Company, 1221 West Idaho Street, Boise, Idaho.
- NOTICE OF ADDITIONAL COMMENT PERIOD
DATED at Boise, Idaho this ql";' day of November 2007.
PL~
ARSHA H. SMITH, COMMISSIONER
ATTEST:
Je D. JewellCo ISSlOn Secretary
bls!N:IPC-07-15 sw2
NOTICE OF ADDITIONAL COMMENT PERIOD