20180501JR Simplot Comments.pdf

Peter J. Richardson ISB # 3195
Gregory M. Adams ISB # 7454
RICHARDSON ADAMS, PLLC
515 N. 27th Street
Boise, Idaho 83702
Telephone: [phone]
Fax: [phone]
peter@richardsonadams. com
greg@richardsonadams. com
Attorneys for the J. R. Simplot Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
REC T IVE D
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UPDATE TO PUBLISHED AVOIDED
COST RATES TO REFLECT AN
UPDATED NATURAL GAS PRICE
FORECAST OF THE U.S. ENERGY
TNFORMATION ADMINISTRATION
("EIA")
CASE NO. IPC.E.18.O5
J.R. SIMPLOT COMPANY'S
COMMENTS
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The J. R. Simplot Company ("Simplot") respectfully submits its Comments in Opposition
to Idaho Power Company's ("Idaho Power") suggestion that the Idaho Public Utilities
Commission ("Commission") should abandon its well-established methodology for calculation
of published avoided cost rates. Simplot is impacted by this issue because Simplot's current
energy sales agreement with Idaho Power expires early next year, and Simplot will therefore be
eligible to sell its cogenerated output under the rates approved in this annual rate update. As
further explained herein, the only change proposed by Idaho Power is not computational in
nature but is instead a major policy change to a major input to the previously approved surrogate
avoided resource ("SAR") methodology for calculating published avoided cost rates. Therefore,
the Commission should approve the avoided cost rates calculated by the Commission Staff s
letter dated April 5, 2018, with an effective date of June l, 2018, just as it has done each year
J.R. SIMPLOT COMPANY'S COMMENTS
CASE NO. IPC-E-I8-05
Page I
since issuance of Order No. 32697 in20l2.
The Commission has used a streamlined process to update the published avoided cost
rates without controversy ever since 2012. Specifically, the Commission decided in Order No.
32697 to conduct an annual update to the natural gas price forecast used in the surrogate avoided
cost model. This process results in an annual update to the most significant input to the
published avoided cost rates to ensure the avoided cost rates are promptly and accurately
changed. Prior to 2012, the Commission had used a natural gas price forecast developed by the
Northwest Power and Conservation Council. Because that forecast was updated infrequently,
disputes arose due to the unexpected nature of the updates and other issues. The Commission
intentionally moved to the use of the U.S. Energy Information Administration's ("EIA")
"reference case" natural gas price forecast for the Mountain Region's Electric Power sector
included in EIA's Annual Energy Outlook to avoid the uncertainty and unpredictability that
formerly existed with the use of the Power Council's natural gas forecasts. The Staff s letter
simply proposed to again update the published avoided cost rates using the same forecast as prior
years.
The Commission policy on this point is now longstanding and well-established. In the
time since Order No. 32697, the Commission has used the EIA's Mountain Region "reference
case" to update the published avoided costs for each of Idaho's three electric utilities effective on
June I in 2013,2014,2015,2016, and 2017. See Order No. 32817, Case Nos. AVU-E-I3-03,
IPC-E-13-13, PAC-E-13-09 (May 29,2013); Order No. 33041, Case Nos. AVU-E-14-04,IPC-E-
l4- I I , PAC-E- l4-03 (May 30, 2014); Order No. 33305, Case Nos. AVU-E- I 5-04, IPC-E- l5- 16,
PAC-E-14-07 (May 29,2015); Order No. 33538, Case Nos. AVU-E-16-04, IPC-E-16-12, PAC-
E- l6- l0 (June 14, 2016); Order No. 33773, Case Nos. AVU-E- l 7 -02,IPC-E-L7 -07 , PAC-E- I 7-
J.R. SIMPLOT COMPANY'S COMMENTS
CASE NO. IPC-E-18-05
Page 2
05 (May 31,2017).
The Commission has unambiguously explained that this is an automatic tpdate to the
published avoided cost rates. In the words of Order No. 32817, "this Commission stated that
each year the final release of the Annual Energy Outlook should automatically tigger a re-
calculation of the published avoided cost rates." Order No. 32817 atp.l (emphasis added). The
Commission has further explained, "the update should occur on June I or within 30 days of the
final release of the Annual Energy Outlook, whichever is later." Id. The Commission provides
the utilities the opportunity to review the proposed rate computation before it goes into effect,
and it has corrected "what amount to clerical errors in the SAR model" during these annual
updates. Id. at 2. But there is no basis for any changes to the underlying methodologies and
indexes used during such automatic updates because "[t]he annual update to the SAR
methodology's natural gas price forecast is a relatively simple arithmetic re-calculation." Id. at
2.
Indeed, the Commission has never provided notice during any of these annual update
proceedings that other parties should, or even may, intervene to review and comment on the
underlying forecasts, inputs and methodologies. The "process" has been limited to the
computational review allowed by the utilities themselves. This year is no different. The
Commission provided no formal notice it might change the underlying natural gas price forecast
used for the last five years and invited no such proposals from Idaho Power or any other utility.
Instead, Staffls April 5, 2018 letter to Idaho Power merely asked Idaho Power to confirm the rate
computations by Staff utilizing the 2018 publication of the EIA's Mountain Region reference
case
J.R. SIMPLOT COMPANY'S COMMENTS
CASE NO. IPC-E-I8.05
Page 3
Yet Idaho Power appears to suggest that the Commission should summarily abandon use
of the Mountain Region's reference case as the basis for this annual update. Although Idaho
Power disputes that the Commission has ever expressly mandated use of the Mountain Region's
reference case, the Commission has indeed used that reference case as the input in each year's
automatic update since Order No. 32697. Furthermore, the Commission has in fact declared in at
least one of,its orders that "[i]n accordance with the methodology approved in Order No. 32697,
the 'reference case' natural gas price forecast for the Mountain Region's Electric Power sector
included in EIA's Annual Energy Outlook serves as the basis for computing published avoided
cost rates." Order No. 33538 at p. l. Idaho Power's assertion is therefore misplaced.
Idaho Power has attempted previously to change the use of the EIA's Mountain Region
reference case as the natural gas price forecast for use in the SAR model, but it has never gone
through the proper procedural channels to obtain such a change. Last year, Idaho Power filed a
response letter to the Staff s annual update letter, wherein Idaho Power proposed use of EIA's
natural gas spot price at Henry Hub: High Oil and Gas Resource and Technology forecast,
adjusted for Sumas and Idaho City Gate, just as it proposes again this year. However, the
Commission appropriately declined to make such a major change during the automatic update
proceeding last year. The Commission correctly noted that "the EIA's 'reference case' natural
gas price forecast for the Mountain Region's Electric Power sector has been used to update
published avoided cost rates each year for the past four years without objection. See Order Nos.
32817,33041, 33305, 33538." OrderNo. 33773 atp. 3.
Last year, the Commission generously treated Idaho Power's misplaced objection as an
application to commence a new generic case, which was promptly opened so that "the other
utilities and any interested parties can provide comments to fully inform the Commission about
J.R. SIMPLOT COMPANY'S COMMENTS
CASE NO. IPC-E-I8-05
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the issue." Id. ln the newly opened case, a number of interested parties intervened to oppose
Idaho Power's proposal, and the Commission directed that a schedule be established for prefiled
testimony and live hearings. See Order No. 33848, Case No. GNR-E-17-02. The Commission
explained that "the sole "issue to be decided in this case is whether the Commission should use
the EIA's Henry Hub forecast instead of the EIA' s Mountain Region forecast to calculate
published avoided cost rates each year." Id. at 4. Thus, the Commission provided Idaho Power
with a forum and procedure to implement the change it now seeks. Shortly thereafter, however,
Idaho Power voluntarily dismissed its own application.
The issue was next discussed in Case No. IPC-E-17-ll, where the Commission reviewed
Idaho Power's 2017 Integrated Resource Plan ("IRP"). Idaho Power drafted its 2017 IRP to use
the EIA's Henry Hub "High Oil and Gas Resource and Technology" case, just as it proposes for
use in published avoided cost rates in this case.l However, as the Commission's order reviewing
the 2017 IRP illustrates, Idaho Power's proposal to use this new gas forecast was among the
most controversial proposals in the 2017 IRP, with Commission Staff and several other parties
objecting to Idaho Power's changes to its natural gas forecast. See Order No. 33983 at pp. l3-
14. Among other issues, these parties pointed out that "the use of very low natural gas price
forecasting contradicts how the Company plans for water conditions, average load, and peak-
hour capacity," and that "the Company's continued reliance on low natural gas prices will cause
under investment in conservation and inaccurate avoided costs rates." Id. at p. 13.
Staff, in particular, strongly opposed the switch to the arbitrarily low natural gas forecast
in thorough and persuasive comments. See Staff's Comments, Case No. IPC-E-17-l l, at pp. 6-9
' Somewhat confusingly, the "High Oil and Gas Resource and Technology" case results in the
lowest natural gas prices because more gas can be accessed and developed with high technology.
J.R. SIMPLOT COMPANY'S COMMENTS
CASE NO. IPC-E-I8-05
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(Nov. 27 , 2017). As Staff demonstrated, use of an artificially low natural gas forecast can lead to
imprudent acquisition of major resources that use natural gas as a variable cost (such as natural
gas plants and transmission). At the same time, use of a low gas price forecast undermines the
cost-effectiveness of demand side management programs. It also sends the wrong price signals
to qualifying facilities seeking to sell their output to Idaho Power at the avoided cost rates.
But the Commission does not approve Idaho Power's IRPs or any element of the IRP,
and it therefore had no occasion to resolve the dispute in the IRP order. Instead, the
Commission's order on the 2017 IRP unambiguously stated "the Commission is not approving
the IRP or any resource acquisitions referenced in it, [or] endorsing any particular element in it . .
. ." [d. at 18. The order stated the "appropriate place to determine the prudency of the IRP or the
Company's decision to follow or not follow it, and the validation of predicted performance under
the IRP, is a general rate case or other proceeding where the issue is noticed." 1d. (emphasis
added). Thus, despite the suggestion in Idaho Power's letter at issue here, the Commission has
not approved the new natural gas price forecast for use in the published avoided cost rates during
this automatic rate update. And no such notice has been made to institute such a change as part
of this automatic rate update.
It is not clear from Idaho Power's response letter whether Idaho Power believes any
additional process is needed to make Idaho Power's proposed change to the natural gas forecast,
but Simplot opposes making such a major change without additional process and opportunity for
input from interested parties. The substantive suggestion by Idaho Power is a highly
controversial proposal. As it did last year, the Commission should not adopt such a major
change without providing a full opportunity for input and participation from other parties.
However, Idaho Power has not asked for any other proceeding to address the issue, and Idaho
J.R. SIMPLOT COMPANY'S COMMENTS
CASE NO. IPC-E-I8-05
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Power itself dismissed its own proceeding on the issue last year. Therefore, the Commission
should decline Idaho Power's proposal this year without opening another docket.
ln sum, Idaho Power has provided no basis to depart from the previously approved
methodology and use of the EIA's Mountain Region reference case as the natural gas forecast,
and therefore the Commission should approve the automatic update as proposed by Staff s April
5, 2018 letter.
Respectfully Submitted on May l, 2018.
RICHARDSON ADAMS, PLLC
M. Adams, ISB # 7454
Peter J. Richardson, ISB #3195
Attorneys for J. R. Simplot Company
J.R. SIMPLOT COMPANY'S COMMENTS
CASE NO. IPC-E-I8-05
Page 7
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CERTFICATE OF SERVICE
I HEREBY CERTIFY that on the l't day of May 2018, a true and correct copy of the
COMMENTS of the J.R. SIMPLOT COMPANY in Case No. IPC-E-I8-05 were delivered via
U. S. Mail postage prepaid and electronically to the following:
Diane Hanian (Hand Delivery)
Idaho Public Utilities Commission
47 2 W est Washington Street
Boise, Idaho 83702
diane.holt@puc. idaho. gov
Sean Costello
Deputy Attorney General
Idaho Public Utilities Commission
47 2 W est Washington Street
Boise, Idaho 83702
sean. costello@puc. idaho. gov
Donovan Walker
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707
dwalker@idahopower. com
Kandi Walters