20141010Reply Comments.pdf

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DONOVAN E. WALKER
Lead Counsel
dwal ker@i dahooower.com
October 10,2014
VIA HAND DELIVERY
Jean D. Jewell, Secretary
ldaho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
Re: Case No. IPC-E-14-22
Confirming Use of Capacity Deficiency Period in IRP Methodology - ldaho
Power Company's Reply Comments
Dear Ms. Jewell:
Enclosed for filing in the above matter please find an original and seven (7)
copies of ldaho Power Company's Reply Comments.
DEW:csb
Enclosures
Very{uly youfti,rilq,^
Donovan E. Walker
'1221 W. ldaho 5t. (83702)
P.O. Box 70
Boise, lD 83707
DONOVAN E. WALKER (lSB No. 5921)
ldaho Power Company
1221 West ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
Telephone: [phone]
Facsimile: [phone]
[e-mail]
Attorney for ldaho Power Company
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
CONFIRMATION OF THE CAPACITY
DEFICIENCY PERIOD FOR
INCREMENTAL COST, INTEGRATED
RESOURCE PLAN, AVOIDED COST
METHODOLOGY.
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
GASE NO. |PC-E-14-22
IDAHO POWER COMPANY'S
REPLY COMMENTS
I. INTRODUCTION
Pursuant to the Idaho Public Utilities Commission's ("Commission") Order No.
33147, Commission Staff ("Staffl'), Intermountain Energy Partners, LLC ("lEP"), and the
ldaho Conservation League ("lCL") filed Comments on October 6,2014. ldaho Power
Company ("ldaho Powe/'or "Company") now files these Reply Comments.
[. DrscussroN
ldaho Powe/s request for the Commission to confirm the Company's proper use
of a capacity sufficiency through July of 2021 in the estimation of negotiated avoided
cost rates pursuant to the approved incremental cost, lntegrated Resource Plan ("lRP")
IDAHO POWER COMPANY'S REPLY COMMENTS - 1
methodology is just, reasonable, in the public interest, and assures that customers do
not pay more than the Company's avoided cost in 2O-year power purchase obligations.
As acknowledged and recommended by Staff, the public interest requires that avoided
cost rates be as accurate as possible, especially given that the difference to customers
could be as much as $170 million over the next 20 years. Staff Comments, p. 6. !n
summary, Staff recommends that the Commission approve ldaho Power's request to
confirm use of a first capacity deficit of July 2021 for purposes of avoided cost prices
determined by the incremental cost IRP methodology. ld. Staff discusses how it would
be unreasonable to include such capacity deficiency determination for the purposes of
avoided cost rates determined for the Surrogate Avoided Resource ("SAR")
methodology and not for the IRP methodology. ld. Staff also discusses how the
Commission's clear intent from Order No. 32697 is that the Company only begins
payments for capacity at such time that the utility becomes capacity deficient. /d., pp. 5-
6. The Company agrees with Staff and asks the Commission to confirm use of a first
capacity deficit of July 2021 for purposes of avoided cost rates determined by the
incremental cost IRP methodology.
A. Use of a Julv 2021 First Capacitv Deficit is a Reasonable Estimate for Use
in the IRP Methodolosv's Estimate of Avoided Cost Prices Rates.
As set forth in ldaho Powefs Application, Case No. IPC-E-13-21 established, in a
contested proceeding, that it was just and reasonable to utilize a first capacity deficit of
July 2021 based upon the unusual situation whereby the Company's demand response
('DR") programs were suspended in 2013 (See Case No. IPC-E-12-29) and not
included in the IRP's preferred resource portfolio that established a first capacity deficit
of 2016. However, shortly thereafter, in Case No. !PC-E-13-14, the Company entered
IDAHO POWER COMPANY'S REPLY COMMENTS - 2
into a stipulation with the parties to that proceeding (which included Staff and ICL
among several others) that reinstated the DR programs, and required the Company to
take all DR up to approximately 440 megawatts ("MW"). As established in the
Commission's final determination on reconsideration in Case No. IPC-E-13-21, the
additional evidence that the Company had enrolled DR participation for 2014 that
exceeded 400 MW was confirmation that it was appropriate to utilize the capacity deficit
projection that was sought by the Company in that case-which shows a first capacity
deficit of July 2021. The Commission, after initially finding a first capacity deficit of
2013, ultimately determined, based upon the testimony and evidence submitted, that it
was appropriate to utilize the July 2021 first capacity deficit for avoided cost rates.
Order No. 33084.
As discussed by Staff, Order No. 32697, from Case No. GNR-E-11-03, is clear
that the Commission intends that a utility will NOT pay for capacity as part of avoided
cost rates when the utility is in a capacity sufficient position. Moreover, the IRP
methodology is meant to be a more flexible, negotiated process whereby a more
accurate representation of avoided costs can be determined and reduced to an
appropriate obligation that is passed on to ldaho Powe/s customers for the next 20
years. The Commission clearly intended, in Order No. 32697, that the utility's capacity
deficiency be updated, and that a capacity payment be reflected in avoided cost rates
only for those times that the utility is capacity deficient.
ln computing avoided cost rates under the IRP Methodology,
each of the three utilities already employs a two-step
approach in which energy and capacity values are computed
separately. ln calculating a QF's ability to contribute to a
utility's need for capacity, we find it reasonable for the
utilities to only begin payments for capacity at such time that
the utility becomes capacity deficient. lf a utility is capacity
IDAHO POWER COMPANY'S REPLY COMMENTS.3
surplus, then capacity is not being avoided by the purchase
of QF power. By including a capacity payment only when
the utility becomes capacity deficient, the utilities are paying
rates that are a more accurate reflection of a true avoided
cost for the QF power.
Order No. 32697, p. 21. ldaho Power believes the correct avoided cost pricing for al!
proposed Public Utility Regulatory Policies Act of 1978 ("PURPA") projects takes into
account the determined first capacity deficit of July 2021. To do otherwise would violate
PURPA, as customers would be paying costs that are substantially above the
Company's avoided cost.
B. The Comments of IEP and ICL are Unpersuasive and Without Merit.
!EP and ICL both disagree with the use of a first capacity deficit determination of
July 2021, and both raise issues related to the actual level of DR program dispatch for
2014 referring to DR as "short-term." IEP Comments, pp.1-3; ICL Comments, p.3. IEP
goes as far as to state that the 2021 determination should be rejected because
"[s]ubsequent events . . . call into question the accuracy of the assumed level of actual
demand response dispatch." IEP Comments, p. 1. IEP cites to discovery materials
showing various levels of actual MW utilization for the various DR programs in 2014,
implying that this somehow invalidates a first capacity deficit determination of 2021. IEP
Comments, pp. 1-2. This is an erroneous view for several reasons. First, there has
been no significant change in the actual level of participants that enrolled in the DR
programs from that reported in Case No. IPC-E-13-21 at 403 MW. The way that the
various programs work does not translate to flipping a switch whereby all 403 MW
comes on and off at will to meet the capacity needs of the Company. Cumulatively,
there was no single event whereby all 403 MW of DR potential was activated at the
same time. However, all three programs were dispatched, or called upon, several times
IDAHO POWER COMPANY'S REPLY COMMENTS - 4
throughout 2014 and contributed MW reductions that exceeded any identified capacity
deficits for 2014 and beyond.
Additionally, this approach-of arguing that some variation from actual numbers
invalidates an avoided cost estimation-is without merit. The Commission did not
determine that the actua! amount of 403 MW that enrolled in DR programs for 2014 was
what established the first capacity deficit of July 2021. The 403 MW actual number was
used to validate the Company's first deficit projection, filed with its Application, Table 3,
p. 4, in Case No. IPC-E-13-21. The 2021 lirst capacity deficit is an estimation based
upon the inclusion of up to 440 MW of DR, as the Company is required to accept
pursuant the DR settlement stipulation in Case No. !PC-E-13-14. Like everything else
that goes into establishing an avoided cost rate at the time of contracting that is locked
in for the duration of the contract, the first capacity deficit is an estimation. The
estimation to include up to 440 MW of DR through 2021 was deemed reasonable and
accepted by the Commission. This estimation was verified as reasonable by the
evidence that the participation in the DR programs, by enrolling at levels over 400 MW
in 2014, was not decimated by the suspension of the programs in 2013 and that it was
reasonable to assume continued participation at similar levels into the future. As we are
allwell aware, the Federal Energy Regulatory Commission ("FERC") takes the view that
once rates are determined and set in a contract or obligation for the 2O-year duration of
that obligation, they are deemed correct and reasonable, even if it is later determined
that actual numbers were significantly different. Additionally, FERC will assume that all
costs for the duration of the 2O-year term were included at the time of contracting, even
in the face of direct evidence that certain costs were not part of the methodology, nor
IDAHO POWER COMPANY'S REPLY COMMENTS - 5
included. FERC will maintain an assumption that all costs were considered and
included regardless. Thus, it is the reasonableness of the DR program participation
estimate of inclusion of up to 440 MW through 2021, and not the actual enrollment of
403 MW for 2014, that establishes the first capacity deficit utilized in avoided cost rates.
ICL advocates to somehow defer the determination sought in this matter, and
recommends updating the capacity deficiency at the time of the annual October 15
avoided cost update and as part of the 2015 lRP. ICL Comments, p. 1. The
incremental cost IRP avoided cost methodology WILL update at both of those identified
times and processes. However, ICL misunderstands the issues here regarding the
locking in and establishment of a 2}-year avoided cost rate at the time of contracting,
and ensuring that customers are not overpaying for PURPA resources-paying above
the avoided cost-by making the most accurate estimate of avoided costs that can be
made at the time. Additionally, ICL advocates for the use of the October 15 annual
update to litigate load and resource balance issues, acknowledging that "this will lead to
a complex, time-consuming process . . . ." ICL Comments, p. 6. This again, in much
the same way that ICL's motion for additional time erroneously tried to paint things as
significant, complex, and technica!, is not correct. The October 15 update is a
compliance filing, reviewed by Staff, and not a forum for re-litigating issues from Case
No. GNR-E-1 1-03.
ICL erroneously states again, as it did in its motion for additional time, that the
issues in this case have no direct impact on customer rates. ICL Comments, pp. 1-2. lt
is difficult to understand this statement when all PURPA expense is passed directly
through to customers at 100 percent on an annual basis through the Company's annual
IDAHO POWER COMPANY'S REPLY COMMENTS.6
Power Cost Adjustment (PCA). The difference in avoided cost rates at issue here-
whether capacity payments are made to a qualifying facility ("QF") when the utility is
capacity sufficient through 2021-is approximately $6.3 million for every 20 MW project.
Right now, ldaho Power has 13 solar QF contracts in the final stages of contract
negotiation and execution representing approximately 381 MW seeking to obligate
customers to 2}-year Iocked in rates. There is a significant and direct impact to
customers upon the inclusion of the proper capacity sufficiency period through July of
2021.
ln discussing the incremental cost IRP methodology, ICL erroneously states that
"a QF commits to deliver energy in a specific houf in a strained argument that the IRP
methodology "does not require an extrinsic determination of a utility's resource
deficiency date." ICL Comments, pp. 4, 5. This is absolutely incorrect. First of all, a QF
makes no such commitment to deliver any amount in any specific hour. All QF projects
will deliver if, when, and in whatever amounts they can or choose to-and ldaho Power
must accept and take these if, when, and in whatever amount the QF determines it will
put that energy to the utility. Secondly, a determination of capacity sufficiency is
absolutely required in order to comply with the Commission's requirement that the utility
not pay for capacity at such times as the utility is capacity sufficient. Order No. 32697,
p.21.
ICL argues, as it did in its motion, that "this case raises significant and complex
technical issues that are unique to using the lntegrated Resource Plan methodology for
avoided costs." ICL Motion, p. 2. This is simply not the case. This case is neither
complex, nor technical, and does not require any calculations or modeling involved with
IDAHO POWER COMPANY'S REPLY COMMENTS - 7
the IRP methodology. This case directly and simply involves the correct application of
the Commission's resource sufficiency determination-which the Commission has all
ready found just and reasonable for SAR avoided cost rates-for the Company's
negotiated avoided cost rates. The Commission determined in Case No. IPC-E-13-21
that with the inclusion of up to 440 MW of DR as referenced in the approved stipulation
from Case No. IPC-E-13-14, the Company's capacity sufficiency extends to July of
2021. Whether the capacity component of avoided cost rates determined pursuant to
the approved incrementa! cost IRP methodology is included starting in 2016, or included
starting in 2021, does not require any calculation or re-running of any modeling. The
capacity component of avoided cost rates is what it is. lt is determined pursuant to the
Commission's direction in its final orders from Case No. GNR-E-11-03. Payment of a
separate capacity component of the rate is not a model input. The capacity component
is separately determined and is simply removed for those years that the Company is
capacity sufficient.
The determination sought in this case is not a fact-based challenge to the
avoided cost methodology. That is settled by the final, non-appealable orders from
Case No. GNR-E-11-03. Additionally, this case does not involve a fact-based
determination of the Company's capacity deficiency period. That is settled by the final,
non-appealable orders from Case No. IPC-E-13-21. This case seeks a legal
determination from the Commission that the Company's use of the capacity sufficiency
period established in Case No. IPC-E-13-21 is appropriate for use in negotiated avoided
cost rates. ICL's representations that this case raises "complex" and "technical" issues
are simply not the case.
IDAHO POWER COMPANY'S REPLY COMMENTS - 8
Lastly, ICL talks about how the IRP is the best place to analyze such issues. ICL
Comments, pp. 6-8. As ldaho Power set forth in its Application, both the SAR and the
lRP methodologies start with a default capacity deficit which is the same as that
established by the most recent IRP planning process. For the 2013 IRP planning
process, a first deficit was identified as 2016 in the preferred resource portfolio.
However, because of the suspension of the Company's DR programs in 2013 at the
time the 2013lRP was finalized and filed with the Commission, the first deficit of 2016
legitimately did not consider the approximate 440 MW of DR. Subsequent to the filing
of the 2013 lRP, the Company entered into a settlement stipulation regarding its DR
programs, which was subsequently approved by the Commission. This stipulation
obligated the Company to accept up to 440 MW of DR. For 2014, the Company
received actual subscribed customers to its DR programs that exceeded 400 MW.
Consequently, the Commission updated the Company's first deficit from the IRP
planning process to now include consideration of the Company's DR programs, which
were not considered in the preferred resource portfolio of the !RP. This resulted in the
Commission-approved first deficit of July 2021 for avoided cost rates established by the
SAR methodology. !t would be unjust, unreasonable, and not in conformity with PURPA
to require customers to pay for capacity when the Commission has separately
determined the Company to be capacity sufficient for purposes of avoided cost rates.
III. CONCLUSION
ldaho Power respectfully requests that the Commission issue an order confirming
use of a first capacity deficit of July 2021 for purposes of avoided cost rates determined
by the incremental cost, IRP methodology, effective as of the Commission's
IDAHO POWER COMPANY'S REPLY COMMENTS - 9
determination of July 2021 capacity sufficiency on July 30,2014. Case No. IPC-E-13-
21, Order No. 33084. This determination is a straightforward application of the
Commission's prior orders to the present negotiated avoided cost rate determinations
relevant to severa! pending contracts. It has a direct and substantial potential effect
upon ldaho Power customers estimated to be a difference of more than $170 million in
avoided cost rates locked in for the next 20 years. This determination is consistent with
and upholds the Commission's directive that the utility and its customers not pay for
capacity during those time in which the utility is capacity sufficient. This determination is
also entirely consistent with the way in which the IRP methodology is meant to be a
more flexible, negotiated process whereby a more accurate representation of avoided
costs than that contained in the SAR methodology can be determined and reduced to
an obligation that is passed on to ldaho Powe/s customers for the next 20 years. The
Commission clearly intended, in Order No. 32697, that the utility's capacity deficiency
be updated, and that a capacity payment be reflected in avoided cost rates only for
those times that the utility is capacity deficient. ldaho Power respectfully requests that
the Commission issue an order confirming use of a first capacity deficit of July 2021 for
purposes of avoided cost prices determined by the incremental cost, IRP methodology.
Respectfully submitted this 1Oth day of October 2014..e t
-
DONOVAN E. WALKER
Attorney for ldaho Power Company
IDAHO POWER COMPANY'S REPLY COMMENTS - 1O
CERTIFIGATE OF SERVICE
I HEREBY CERTIFY that on this 1Oh day of October 2014 I served a true and
conect copy of IDAHO POWER COMPANY'S REPLY COMMENTS upon the following
named parties by the method indicated below, and addressed to the following:
Commission Staff
Kristine A. Sasser
Deputy Attomey General
Idaho Public Utilities Commission
472 West Washington (83702)
P.O. Box 83720
Boise, ldaho 83720-007 4
ldaho Conservation League
Benjamin J. Otto
ldaho Conservation League
710 North 6th Street
Boise, ldaho 83702
lntermountain Energy Partners, LLC
Dean J. Miller
McDEVITT & MILLER LLP
420 West Bannock Street (83702)
P.O. Box 2564
Boise, ldaho 83701
Leif Elgethun, PE, LEED AP
lntermountain Energy Partners, LLC
1775 State Street (83702)
P.O. Box 125
Boise, ldaho 83701
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IDAHO POWER COMPANY'S REPLY COMMENTS - 11