The URL can be used to link to this page

Home My WebLink About20071127Idaho Windfarms more comments.pdfGlenn Ikemoto Idaho Windfarms, LLC 672 Blair Avenue Piemont, California 94611 Tel: 510-665-7600 Fax: 510-217-2239 glennOpacbell.net imn 9: 52 BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MATTER OF THE PETITION OF ) IDAHO POWER COMPANY TO MODIFY ) THE METHODOLOGY OF DETERMINING ) FUEL COSTS TO ESTABLISH )PUBLISHED RATES ) CASE NO. IPC-e-G7 -15 ADDITIONAL COMMENTS OF IDAHO WlNDFARMS, LLC Idaho Windfarms, LLC (IWF) hereby respectully submits its Additional Comments on Idèho Powets Petition in the subjec proceding. KEY ISSUES This proceing boils down to two key questions: 1. If the cost of uncertainty is to be deducted from prices for PURPA wind project, should it also be added to avoided costs? 2. Is it fair and reasonable to modif the cuent SAR methodology for only one factor - fuel costs. ADDITIONAL COMMENTS ON UNCERTAINTY Avista Utilities' IRP provides an excellent discussion of the impact of uncertainty on its customers. Page 6-10 of their IRP states, "Historically, northwest utilities planned for variability inherent in their hydrolectric plants and load forecast. Now northwest utilities must consider natural gas prie volatilit, thermal plant forc outages, wind speed, extrareional load and resource balances, and the ever changing face of emissions legislation." From this utilty supplied list of important risk factors, only the uncertainty of wind speeds is being addresse by the Commission. This is the only factor which would reuce the avoided cots appropriate for wind projects. All of the other factors, which increase avoided costs, are ignored in Idaho's SAR methodology. In most states, the costs of uncertainty are simply ignored. Integration costs are not assess and a premium for fossil fuel prices is not included in avoided cost calculations. While this approach is not particularl scientific, it is at least internally consistent. By contrast, it is entirely unreasonable to ass a penalt for uncertain deliveries (integration costs) without including the beneft of price certinty. Again, Avista'slRP, which is the only one to explicitly address planning riks, provides some guidance. They equate assembling a resource portolio with assmbling a personal investment portlio (pg 8-14). In both cases, there are a large number of possible portolios. However, optimal portolios lie along an "eficient frontier". Portolios not on this fronter take too much risk for their returns. For a resource plan, this means too litle relative cost savings for th level of risk (volatilit) in a particular plan. Better combinations are available. The Executive Summary of Avista's IRP notes that the volatility of natural gas prices is so high that their planning model would elect to pay even a 75% premium over the natural gas price forecst to lock in long term pri. In its Base Case, Avista assumes a 30% price premium over the gas forecast. This simply means that Avista would prefer to pay a 30% premium above forecasted gas prices in a long-term contract to eliminate price uncertainty. The resulting cost-risk scenario would be closer to their effcient frontier. In other words, it would be better for ratepayers. Of course, in the real world, this option is not available to Avista at any price. Avista's work implies that ratepayèrs would be better off if a 30% premium over the forecsted natural gas prices is included in PURPA rates for resources that can deliver energy at fixed long-term prices, such as wind. This is the cost of fuel price uncertainty. Adding this cost to PURPA rates is just as .valid as deductng the cost of delivery uncertinties (integration costs). SAR METHODOLOGY All avoided cot methodologies are a compromise. They evolve through complex negotiations involving numerous stakeholders. While the current method of modeling the fuel forecast is indeed favorable to PURPA projects, there are other components which are unfavorable. How can these be balanced without a full and fair review of all elements of Idaho's avoided cost metodology? One key example of a clearl unfavorable item is the resurce suficiency period, which was eliminated in the last review of the SAR methodoloy. Avoided costs can be divided into short-run and long-run periods. In the short-run, utilties must rely on market purchases for additional energy. In the long-run, new resources can be added to meet new load. The SAR methodology is now completely long*run. The resourc suffciency period defines the short-run where the resource base of the utility is fixed. Typically one would expect that short-run avoided costs are lower than long-run avoided costs. However, markets have flipped and market purchase are currently price above the exped long-run avoided costs. This can be clearly sen in Oregon, where Portland General and Pacifcorp use a resurce sufciency period in their avoided cost calculations and Idaho Power doe not. As a result, Idaho Powets SAR base avoided cots are lower than the other two utilties. The following table compares th currnt PURPA prices in Oreon: Oregon Avoided Costs Yi 2oo820-Yr Levelized ($/Mh) Resource Sufciency Period PGE PacifCorp Idaho Power (SAR) 73.40 72.34 67.67 Yes Yes No It is important to note that both PGE's and Paciicorp's publishe prices are comparable to the avoided costs calculated under the current SAR methodology. While there is no direc relationship between including a resource suffciency period and Idaho Powets requested fuel forecast modification, they are clarly offsetting items. CORRECTION We would like to use this opportunit to correct the comparison of IRP cost estimates for combined cycle projects filed in our original Comments. Avista has pointed out that we unintentionally neglected to deduct environmental costs from their cost estimate. In addition, we learned that they assume a 100% capacity factor for their cost of power calculations. The corrected table is below: Comparison of CCCT IRP Cost of Power Estimates ($/MWh) (Revised) (Tilted Capitl Method) 2007 SAR Uodate Current IPC ,PC PAC AVU Method Proposal Cost Estimate Year (SAR - non fuel)200 2006 2007 2000 2000 Utilty CCCT Cost of Power from IRPs 78.00 74.71 65.14 Type of Levelized Dollars Nominal Real Real Nominal Nominal IRP Capacty Factor 85%56%100% Adjust to SAR Capaci Factor (92%)-0.79 -6.00 0.83 Delete Environmental Adders -5.00 -2.27 -3.31 2006 Real Dollars NA 66.44 62.66 Escalate Nominal $ to 2008 2.92 NA NA 2008 20- Yr Nominal Le'lelizd $75.13 78.88 72.77 73.22 68.15 CONCLUSION The Idaho wind industry has limped along for long enough. The Commission should simply deny Idaho Power's Petition. The current SAR methodology prouces a reasonable result when all things are considered. Respectully submitted this 26th day of November, 2007: '.. -~;~...,'~''';~';;'''",'' .. \ \ /À CERTIFICATE OF SERVICE l hereby certif that on the 26th day of November, 2007, true and corrct copies of the ADDITIONAL COMMENTS OF IDAHO WINDFARMS, LLC were delivered by U.S. Mail to: Barton L. Kline, Senior Attorney Lisa D. Nordstrom, Attorney II Idaho Power Company PO Box 70 Boise, 10 83707 bkline~idahopower.com Inordstrom~idahopower.com Ric Gale, Vice Preident Regulatory Affairs Idaho Power Company PO Box 70 Boise, 10 83707 rgale(gidahopower.com ~¿L'6 nn Ikem Authoried Manager Idaho windfarms, LLC ..