20181127Comments.pdf

EDITH PACILLO
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720.0074
[phone]
IDAHO BAR NO. 5430
IN THE MATTER OF THE ANNUAL
COMPLIANCE FILING OF IDAHO POWER
COMPAI\Y TO UPDATE THE LOAD AND GAS
FORECASTS IN THE INCREMENTAL COST
INTEGRATED RESOURCE PLAN AVOIDED
COST MODEL
fl.ECEIVED
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Street Address for Express Mail
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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CASE NO. IPC-E-18.13
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Edith Pacillo, Deputy Attomey General, and in response to the Notice of
Application and Modified Procedure issued in Order No. 34180 on November 5,2018, in Case
No. IPC-E-I8-13, submits the following comments.
BACKGROUND
On October 15,2018,Idaho Power Company filed its annual update to certain
components of its avoided cost rate calculation for qualifuing facilities (QF) under the Public
Utility Regulatory Policies Act of 1978 (PURPA). Specifically, Idaho Power updated the load
forecast, natural gas price forecast, and contract information components that it uses to calculate
avoided cost rates under the incremental cost Integrated Resource Plan (IRP) method, and asks
the Commission to accept the updated information for filing.
In Idaho, under PURPA, electric utilities must purchase electric energy from QFs at rates
approved by the Commission. 16 U.S.C. $ 824a-3; Idaho Power Co. v. Idaho PUC,155 at
1STAFF COMMENTS NOVEMBERZ7,2OI8
Idaho 780,780,316 P.3d 1278,1287 (2013). The purchase or "avoided cost" rate shall not
exceed the'o'incremental cost' to the purchasing utility of power which, but for the purchase of
power from the QF, such utility would either generate itself or purchase from another source."
Order No. 32697 at 7 , citing Rosebud Enterprises v. Idaho PUC, 128 Idaho 624, 917 P .2d 781
(1996); l8 C.F.R. 5 292.101(b)(6) (defining "avoided cost").
The Commission has established two methods of calculating avoided cost, depending on
the size of the QF project: (1) the surrogate avoided resource (SAR) method, and (2) the IRP
method. See Order No. 32697 at7-8. The Commission uses the SAR method to establish what
are colnmonly referred to as "published" avoided cost rates. 1d. Published rates are available for
wind and solar QFsr with a design capacity of up to 100 kilowatts (kW), and for QFs of all other
resource types with a design capacity of up to l0 average megawatts (aMW). On the other hand,
if a QF's design capacity is above the published rate eligibility caps, the utility must use the QF
IRP method to negotiate a project-specific avoided cost rate with the QF. Id. at2; Order
No. 32176. The QF IRP method accounts for o'many different variables and produces a[n
avoided cost] result based on each individual utility's need for energy." Order No. 32697 at 17.
The QF IRP method's variables are at issue here.
With respect to the QF IRP method, the Commission requires utilities to update fuel price
forecasts and load forecasts each year on October 15. Order No. 32802 at 3. All other IRP
method variables and assumptions remain fixed between the biennial IRP filings. Order No.
32697 at22. The Commission expects the utility's load and resource balance to account for
long-term contract commitments, and PURPA contracts that have terminated or expired. Id.
With this Application, Idaho Power updates its load forecast, natural gas price forecast,
and contract information. The Company explains that the information has been incorporated into
its QF IRP avoided cost model and that it will use the model to begin negotiating contractual
avoided cost rates as of October 15, 201 8.
Idaho Power's updated load forecast is from October 2018 and "shows, on average, a
decrease in its customer loads when compared to the October 2017 load forecast that was
provided to the Commission for the 2017 update in Case No. IPC-E-17-15 and approved by the
I See Order No. 33785 (regarding battery storage facilities).
2STAFF COMMENTS NOVEMBERZ7,2Ol8
Commission in Order No. 33957." Id. at 2-3. Idaho Power provides both the October 2017 and
the October 2018 average annual load forecasts for years2017 through 2036. Id. at3.
Idaho Power's updated natural gas price forecast is the Energy Information
Administration's (EIA) Natural Gas Henry Hub Spot Price: High Oil and Gas Resource and
Technology forecast, published on February 6,2018. Id. at 4. Idaho Power uses the same
forecast, adjusted for pricing at Sumas and transport for Idaho City Gate delivery, in its 2018 IRP
process. Id. The Company explains that the 2018 forecast shows o'a decrease in the average
annual natural gas prices over the remaining period" compared to the 2017 forecast. Id. at 4-5.
Idaho Power provides both the 2017 and the 2018 forecasts for years 2018 througb2036.
Id. at 5.
Idaho Power explains it has the following contract changes: (a) three non-PURPA, long-
term power purchase agreements for 136 MW; (b) 134 PURPA QFs with a name plate capacity
of 7,149 MW; (c) a new Oregon solar QF energy sales agreement (ESA) for 3.00 MW; (d) one
new Idaho hydro QF ESA for 2.10 MW; and (e) four replacement ESAs for existing ldaho QF
projects totaling 7 .17 MW. Id. Attacl'rnent 1. The Company indicates it continuously includes
new ESAs, terminated or expired contracts, and new complete ESA applications in its avoided
cost IRP model. Id. at 6.
STAFF REVIEW
Staff has reviewed the Company's Application and recommends approval of the updated
load forecast, natural gas price forecast, and long-term contracts to be used in the QF IRP
methodology. Staff finds that the differences between this year's forecasts and last year's
forecasts are acceptable for both load and natural gas prices and that the contract information is
accurate. Therefore, Staff recommends approval of the updated load forecast, natural gas price
forecast, and long-term contracts to be used to calculate avoided cost rates in the Company's QF
IRP methodology with an effective date of October 15, 2018.
Load Forecast
Staff has compared the Company's annual system load forecast in this filing to last year's
filing in Case No. IPC-E-17-15 and finds the new forecast reasonable based on the comparison.
The comparison shows that the Company's 2018 forecast decreases by I .89%. Staff believes
that this change reflects a continuing trend of overall economic conditions in Idaho Power's
JSTAFF COMMENTS NOVEMBER 27 ,2018
service territory that was used to develop last year's load forecast. If the Commission authorizes
the load forecast, the small size of the reduction should not have a significant effect on avoided
cost rates in future IRP-based QF contracts.
Natural Gas Price Forecast
Last year, the Company changed the source of its natural gas price forecast to EIA's
Natural Gas Henry Hub Spot Price: High Oil and Gas Resource and Technology forecast that the
Company then adjusted for pricing at the Sumas Hub and for transportation cost to the Idaho
City Gate. The Company has continued using this price forecast and method of adjustment for
this year's forecast. Despite concerns outlined below, Staff recommends the Commission
approve the Company's proposed price forecast to update the avoided cost rates in the QF IRP
methodology.
Staff compared the Company's natural gas price forecast to last year's filing in Case No.
IPC-E-17-15. The difference between the 2018 forecast and the 2017 forecast ranges
ftom -22.45o/oto -3.73o/o for years 2019 througn2036 (see Figure 1). According to EIA, the
reduction in natural gas price projections from the 2017 forecast can be attributed to increased
natural gas production from continued development of shale gas and tight oil plays, which is
projected to outpace gas consumption. (See EIA Annual Energy Outlook 2018: with projection
to 2050). Because natural gas market conditions are predicted to continue to be favorable, Staff
believes that the change in the Company's natural gas price is acceptable.
4STAFF COMMENTS NOVEMBERZ7,2OI8
ldaho Power
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Figure I ldaho Power's 20I8 Forecast and 2017 Forecast
for Henry Hub prices adjusted for pricing at the Sumas Hub and for transportation cost to the ldaho City Gate
However, Staff has two concerns regarding the Company's natural gas price forecast.
First, Staff reiterates its concems regarding the Company's decision to change from using EIA's
Henry Hub Reference Case forecast to EIA's Natural Gas Henry Hub Spot Price: High Oil and
Gas Resource and Technology forecast in the Company's 2017 IRP and last year's load forecast
and natural gas price forecast QF IRP-method annual update (see Staff Comments, Case Nos.
IPC-E-17-11 and IPC-E-17-15). In those cases, the Company justified using the EIA High Oil
and Gas Resource price forecast, because it aligned more closely with natural gas futures market
pricing. Although Staff believes that futures market prices are indicators of natural gas prices for
the first few years, Staff does not believe that extrapolating futures market pricing over a20
year-time horizon is an acceptable method for choosing a long-term forecast.
Second, Staff also has concerns regarding the first 2 to 3 years of the Company's natural
gas price forecast. This period is critical for IRP-based PURPA contracts that are capped at a
two-year contract term. The 2017 EIA forecast reflected a spike in natural gas prices during this
time frame, which Staff does not believe matched natural gas futures market prices and predicted
near-term market conditions. This spike has been smoothed in this year's natural gas price
forecast, but it is still higher than short-term natural gas futures prices and market trends. This
could result in overstated QF avoided cost rates for IRP-based PURPA contracts.
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5STAFF COMMENTS NOVEMBER27,2OI8
Staff identified this concern by comparing Idaho Power's forecast to Avista's, Rocky
Mountain Power's (RMP), and two of the U.S. Energy lnformation Administration's (EIA)
Henry Hub price forecasts. Although all the forecasts reflect a similar trend that shows natural
gas prices at Henry Hub increasing over time, Idaho Power's natural gas price forecast is higher
than both Avista's and RMP's forecasts from 2019 through 2022 (see Figure 2). These utilities
do not use EIA's forecasts, but instead use a combination of third party forecasts over the long
term and natural gas futures market prices for the short term. This deviation may indicate that
the starting conditions and assumptions in the EIA's natural gas price forecasts may not reflect
actual short-term market conditions or QF avoided cost for two-year PURPA contracts. In
addition, Avista and RMP's forecasts both significantly exceed Idaho Power's forecast in the
later years.
Staff encourages the Company to look closely at the assumptions and caveats the EIA
uses to develop the various gas price forecasts over the short and long term. This research
should be discussed with participants in the IRP as part of the natural gas price forecast analysis.
6STAFF COMMENTS NOVEMBER27,2OI8
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20L9 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 203L 2032 2033 2034 2035 2035
. Rocky Mountain Power
.ldaho Power
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Reference Case
EIA High Oil and Gas Resource and Technology Case
Figure 2 Comparing Three Utilities' Henry Hub Price Forecasts to EIA's Henry Hub Price Forecasts
Contract Terminations, Expirations, and Additions
Staff has verified the contract information and finds it accurate. Since filing Case
No. IPC-E-17-15, the Company has signed one new Oregon solar QF ESA for 3MW, one new
Idaho hydro QF ESA for 2.1MW, and four replacement ESAs for existing ldaho QF projects
for 7.l7MW.
STAFF RECOMMENDATIONS
Staff believes the load forecast, the natural gas price forecast, and the contract
information submitted by Idaho Power reflect their most recent estimates and comply with Order
Nos. 32697 afi 32802. Staff recommends approval of the updated load forecast, natural gas
price forecast, and long-term contracts to be used to calculate avoided cost rates in the
Company's QF IRP methodology rate calculation with an effective date of October 15, 2018.
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Henry Hub Natural Gas Price Forecasts by Three Utilities
Compared to EIA Price Forecasts
7STAFF COMMENTS NOVEMBERz7,2OT8
Respectfully submitted this {+1L day of November 2018.
%_(//L(,r Edith Pacillo
Deputy Attorney General
Technical Staff, Yao Yin
Rachelle Farnsworth
Umisc/comments/ipce I 8 . I 3 epyyrfsd comments
8STAFF COMMENTS NOVEMBER}7,2OI8
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 2]TH DAY OF NOVEMBE,R 2018,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-E-18-13, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
DONOVAN E WALKER
REGULATORY DOCKETS
IDAHO POWER COMPANY
PO BOX 70
BOISE tD 83707-0070
E-mail : dwalker@,idahopower. com
[e-mail]
,.ln /)8,*
SECRETARY/
CERTIFICATE OF SERVICE