20210205Compliance_Filing_Order_No_34913.pdf

ORDER NO. 34913 1

Office of the Secretary
Service Date
February 5, 2021

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF IDAHO POWER’S
PETITION TO DETERMINE THE PROJECT
ELIGIBILITY CAP FOR PUBLISHED
AVOIDED COST RATES AND THE
APPROPRIATE CONTRACT LENGTH FOR
ENERGY STORAGE QUALIFYING
FACILITIES
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CASE NO. IPC-E-20-02

ORDER NO. 34913

On January 21, 2020, Idaho Power Company (“Idaho Power” or "Company")
petitioned the Commission to determine avoided cost rates, contract terms, and conditions
applicable to energy storage qualifying facilities ("QF" or "QFs") under the Public Utility
Regulatory Policies Act of 1978 ("PURPA").
On October 2, 2020, the Commission established a 100 kW project eligibility cap for
energy storage QFs. Order No. 34794. The Commission determined that, consistent with its prior
implementation of PURPA, energy storage QFs below the project eligibility cap are eligible for
20-year contracts and avoided cost rates calculated using the surrogate avoided resource method
(“SAR Method”) whereas QFs above the project eligibility cap are eligible for 2-year contracts
and avoided cost rates calculated by the incremental cost integrated resource plan method (“IRP
Method”). The Commission ordered the Company to file an updated avoided capacity
methodology within 30 days. Id.
On October 30, 2020, the Company filed a compliance filing pursuant to Order No.
34794.
On November 24, 2020, the Commission issued a Notice of Compliance Filing. Order
No. 34844.
On December 29, 2020, Commission Staff filed compliance filing comments.
On January 12, 2021, the Company filed compliance filing reply comments.
Now, the Commission approves the Company’s compliance filing, with modifications
discussed below.
THE COMPLIANCE FILING
The Company stated that the avoided cost of capacity method in its compliance filing
(the “System Peak Capacity Method”) is based on the Commission’s approved IRP Method for

ORDER NO. 34913 2
calculating capacity, except under the System Peak Capacity Method, capacity payments are only
to be paid during pre-determined peak hours. Idaho Power Compliance Filing at 2. Idaho Power
identified its peak hours and premium peak hours under the System Peak Capacity Method (“Peak
Hours” and “Premium Peak Hours”) using data from its system and regional energy markets.
Idaho Power determined its Peak Hours using the load forecast annually updated for the IRP
Method. Id. Idaho Power determined Premium Peak Hours, a subset of Peak Hours, using
information from 1) its load, net of solar; 2) its Loss of Load Probability study; and 3) Energy
Imbalance Market Locational Marginal Pricing. Id.
Using current information, Idaho Power identified its present Peak Hours as 1:00 p.m.
– 10:00 p.m. in July and 3:00 p.m. – 8:00 p.m. in August. Id. Idaho Power identified Premium
Peak Hours as 6:00 p.m. – 10:00 p.m. in July and from 4:00 p.m. – 8:00 p.m. in August. Id. Idaho
Power stated that it targeted a four-hour block of Premium Peak Hours because that represents the
typical output duration of a battery storage facility. Id. at 3. The Company stated,
These higher value hours occur during peak hours but when
generation output from solar generation resources begins to decline
later in the day, while load continues to persist at a high level.
Providing a price signal to a battery energy storage QF to dispatch
its output during these hours is likely to provide more of the benefits
that a battery storage facility can deliver.
Id. at 7. Generation during hours that are not Peak Hours or Premium Peak Hours would receive
no compensation for capacity. Id. at 8. Idaho Power proposed that the Premium Peak Hour rate
be set at 120% of the base capacity price. Id. at 14. Raising the Premium Peak Hour rate does not
increase the overall capacity payments because the amount available for all other Peak Hours is
reduced by the amount paid during the Premium Peak Hours. Id. The Company proposed to
update the Peak Hours and Premium Peak Hours each year on October 15 when it updates the load
forecast, natural gas forecast, and long-term contract changes used in the IRP Method. Id. at 3.
Consistent with its approved method to calculate avoided capacity costs for other
resource types under the IRP Method, Idaho Power applied adjustments to the annual surrogate
capacity price. One adjustment is the QF’s contribution to peak (“CTP”). Idaho Power described
the CTP as “the unique QF project’s expected contribution of capacity (MWs) to Idaho Power
during Idaho Power’s peak customer load period.” Id. at 11. Idaho Power states that a 90th
percentile exceedance factor is used to determine each resource’s CTP percentage. Id. Under a
90th percentile exceedance factor, the QF’s generation should exceed the planning criteria 90% of

ORDER NO. 34913 3
the time. Id. The CTP value is calculated as a percentage and applied to the nameplate capacity
of the proposed QF to determine the QF’s MW CTP value. Id. Because there is no historic
generation data for energy storage QFs on Idaho Power’s system, Idaho Power used landfill gas
or anaerobic digester as a proxy resource to determine an energy storage QF’s CTP. Id. at 12.
Idaho Power stated that as more battery storage data becomes available, it will continue to evaluate
the appropriate battery storage CTP and update accordingly. Id.
Once the QF’s CTP percentage is determined (also called the Peak Hour Capacity
Factor in the Company’s compliance filing), it is divided by a benchmark resource capacity factor
to determine a ratio. Id. This ratio is then multiplied by the Benchmark Peak Hour Capacity Factor
used in the 90th percentile planning criteria. Id. The result is the Peak Hour Capacity Factor
Credit, which is used to determine the capacity prices applicable to the QF. Id. Based on current
information, its proposed method, and a hypothetical 20 MW energy storage QF, Idaho Power
calculated a Peak Hour rate of $212.80/MWh and a Premium Peak Hour rate of $309.84/MWh.
Id. at 16.
COMMENTS
a. Commission Staff Comments.
Staff states the Company’s method for determining Peak Hours and Premium Peak
Hours is reasonable. Staff Compliance Filing Comments at 4. Staff believes that pricing Premium
Peak Hours at 120% of the Capacity Price will provide incentive to QFs to deliver energy during
the Company’s most critical capacity need while also ensuring that customers do not pay more
than the avoided cost of capacity. Id. at 6. Staff notes that applying a Peak Hour Capacity Factor
Credit to derive the Capacity Price is the same method used for all other types of QFs with IRP
Method contracts. Id. at 6. Staff believes it is reasonable to use landfill gas or an anaerobic digester
as a benchmark resource for energy storage QFs until actual energy storage data is available. Id.
at 7. Staff states that the Company’s proposed method follows the IRP Method closely, but states
that a more simplified approach could be taken. “The Capacity Price can be derived using the
avoided annual capacity cost per kilowatt of a [natural gas-fired Simple Cycle Combustion
Turbine] and then spreading the cost over the number of Peak Hours in a year. This would
eliminate the need for QF-specific generation profiles and [Peak Hour Capacity Factor Credits].”
Id. at 7. Staff recommends the Company explore this simpler approach prior to submitting the
first IRP Method energy storage QF contract. Id.

ORDER NO. 34913 4
Staff recommends updates to the Peak Hours and Premium Peak Hours should occur
in the biannual capacity deficiency filing that occurs following IRP acknowledgment, rather than
annually in the Company’s updates to its load forecast, natural gas forecasts, and long-term
contract information used as inputs to the IRP Method. Id. Staff states 1) the Peak Hours and
Premium Peak Hours are not likely to change dramatically from year-to-year; 2) the biannual
capacity deficiency filing is capacity related whereas the load and natural gas forecast update is
energy related; and 3) updating with the load and natural gas forecasts on October 15 would require
another update to SAR Method rates. Id. at 7-8.
Staff believes an annual adjustment to Peak Hours and Premium Peak Hours is
unnecessary for QFs under contract and updates can occur when the contract is renewed. Id. at 8.
Staff states that the Company’s proposal to update Peak Hours and Premium Peak Hours during a
contract may run afoul of 18 C.F.R. § 292.304(d)(2), because it might not allow a QF to establish
the rates it will receive at the time the contract is signed. Id. at 8. Instead, Staff believes that the
Peak Hours and Premium Peak Hours established at the time the contract is signed should continue
to apply to that QF throughout the contract. Id. at 8-9. Staff believes the Company’s proposal to
allow QFs to update their generation profiles annually is a reasonable way to align production with
Peak Hours and Premium Peak Hours. But rates would need to be recalculated if the generation
profile is updated. Id. at 9.
Under the SAR Method, applicable to QFs under the project eligibility cap, Staff
proposes using a Combined Cycle Combustion Turbine (“CCCT”) natural gas plant as the
surrogate capacity resource and spreading its annual costs over the Peak Hours while omitting
Premium Peak Hours. Id. Staff proposes only Peak Hours be used for SAR Method contracts to
simplify the rate structure and add certainty for small QFs. Id.
Staff expresses concerns about levelizing rates for QFs when the avoided cost of energy
is applied to every hour in a contract term while the avoided cost of capacity is only applied to
Peak Hours and Premium Peak Hours. Id. at 10. To levelize rates, Staff recommends separately
levelizing the avoided cost of capacity and the avoided cost of energy rates. Id.
b. Idaho Power Reply Comments.
In reply, Idaho Power continues to advocate for its proposals. The Company reiterates
its proposal to update Peak Hours and Premium Peak Hours each year on October 15 when it
updates load and natural gas forecasts used to calculate the IRP Method. Idaho Power Compliance

ORDER NO. 34913 5
Filing Reply Comments at 4. Idaho Power states that the biannual capacity deficiency filing is
unrelated to determining Peak Hours and Premium Peak Hours. Id. at 4-5. Idaho Power also states
that the Peak Hours and Premium Peak Hours should be based on the most current load forecast,
which is updated annually on October 15. Id. at 5. Idaho Power states that the load forecast, which
is updated annually on October 15, is the primary basis of determining the Peak Hours and
Premium Peak Hours, and therefore it is reasonable to simultaneously update these elements. Id.
at 6. Idaho Power states that because capacity deficiency updates are filed after an IRP is
acknowledged, rather than upon filing, there is greater uncertainty as to when the update will occur.
Id. at 7.
Idaho Power disagrees with Staff’s recommendations about SAR Method contracts.
The Company states that Staff’s recommendations would cause inefficiencies, inconsistencies,
discrepancies, and missed opportunities by imposing different requirements on SAR Method
contracts and IRP Method contracts. Id. at 3-4. Idaho Power states that the technologies and
operational capabilities are the same for energy storage QFs regardless of size. Id. at 7. Idaho
Power recommends both SAR Method and IRP Method contracts have Peak Hours and Premium
Peak Hours. Id. at 8. Idaho Power does not respond to Staff’s recommendation to use a CCCT as
a surrogate capacity resource for SAR Method contracts rather than a Simple Cycle Combustion
Turbine (“SCCT”), which is used as a capacity surrogate for IRP Method contracts. Idaho Power
states that the SAR Method currently allows for separate calculation of capacity and energy
components and levelization of each component. Id. at 9.
Idaho Power proposes to wait until a SAR Method energy storage QF contract is
proposed to the Company, at which time the Company will work with Staff to provide the proper
rate to the proposed QF. Id. Idaho Power states that a similar situation occurred in IPC-E-19-39
for a fueled cogeneration QF. Id. Likewise, Idaho Power proposes to wait until it negotiates terms
with a QF and submits them for Commission review rather than determining energy storage QF-
specific terms in advance. Id. at 7.
Idaho Power states that QFs should not be able to lock in Peak Hours or Premium Peak
Hours for the duration of the contract term. Id. at 8. The Company states that doing so would
undermine the ability to provide a price signal to the QF to dispatch energy when it is most valuable
to the Company’s system. See id.

ORDER NO. 34913 6
COMMISSION FINDINGS AND DECISION
The Commission has jurisdiction over this matter under Idaho Code §§ 61-501, -502
and -503. The Commission is empowered to investigate rates, charges, rules, regulations,
practices, and contracts of public utilities and to determine whether they are just, reasonable,
preferential, discriminatory, or in violation of any provision of law, and to fix the same by
order. Idaho Code §§ 61-502 and 61-503. In addition, the Commission has authority under
PURPA and FERC regulations to set avoided costs, to order electric utilities to enter fixed-term
obligations to buy energy from QFs, and to implement FERC rules. The Commission may enter
any final order consistent with its authority under Title 61 and PURPA.
Having reviewed the record, we find the Company’s compliance filing reasonable with
modification. The Company’s compliance filing maintained the currently approved IRP Method
for calculating avoided capacity costs and added a method to determine the Company’s most high-
value hours. These high-value hours are the hours that generally drive system additions and greater
costs. By dispatching energy during these hours, a QF can help the utility avoid building new
generation resources or procuring energy when it is most expensive in the market. By identifying
its Peak Hours and Premium Peak Hours, the utility sends a price signal to energy storage QFs to
dispatch energy at the times the utility most needs the energy. Because energy storage QFs can
alter their output to respond to price signals, identifying and pricing high-value hours accordingly
can encourage QF development and help the utility avoid higher-cost resources, benefiting
ratepayers.
To ensure that the avoided cost rates are calculated using the most recent data, we find
it just and reasonable for the Company to update its Peak Hours and Premium Peak Hours annually
when it updates its load forecast, natural gas forecast, and contract information. An annual update
accommodates changes in the electric grid, such as resource decisions that change the Company’s
generation portfolio or changes in customer load patterns, to be reflected in the determination of
Peak and Premium Peak Hours. An annual update also allows changes in state or federal policies
that could impact load or resources to be incorporated. Besides being more frequent, this update
examines the Company’s load forecast, which is the basis for its determination of Peak Hours.
Including the Peak Hour and Premium Peak Hours in this annual update will also increase certainty
regarding the timing of the update as it will not be exposed to the timing uncertainties of IRP

ORDER NO. 34913 7
review and acknowledgment, as would be the case if the Peak Hours and Premium Peak Hours
updates occurred during the first capacity deficit date filing.
We find it fair and just that updates to the Peak Hours and Premium Peak Hours only
apply to new and renewal contracts. When a QF enters a contract, its Peak Hours and Premium
Peak Hours will be known for the duration of the contract. While locking-in the Peak Hours and
Premium Peak Hours for the term of the contract may impact the ability to discretely target specific
hours for energy storage QF capacity contribution, it does provide QFs certainty regarding their
commitments during the term of the contract. Relatedly, we find it in the public interest that
contracts for energy storage QFs under the project eligibility cap, which currently are eligible for
SAR Method rates, shall only include Peak Hours. By locking-in the Peak Hours for the duration
of the contract and providing these smaller QFs the opportunity to recover the full capacity price
through the broader range of Peak Hours, we provide these QFs with greater certainty about their
rates. Additionally, Staff will calculate and publish the SAR Method rates for energy storage QFs
as they do for all other resource types. Because the surrogate capacity resource under the SAR
Method is a CCCT, we approve Staff’s recommendation to use a CCCT as the surrogate capacity
resource under the System Peak Capacity Method. This will maintain consistency across resource
types under the SAR Method.
O R D E R
IT IS HEREBY ORDERED that Idaho Power’s compliance filing is approved, as
modified herein.
THIS IS A COMPLIANCE FILING ORDER. Any person interested in Order No.
34794 had twenty-one (21) days from the service date of that Order to seek reconsideration. No
parties did so. Any person interested in the matters determined in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order with regard to any
matter decided in this Order. Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code § 61-
626.

ORDER NO. 34913 8
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 5th
day of February 2021.

PAUL KJELLANDER, PRESIDENT

KRISTINE RAPER, COMMISSIONER

ERIC ANDERSON, COMMISSIONER

ATTEST:

Jan Noriyuki
Commission Secretary

I:\Legal\ELECTRIC\IPC-E-20-02\orders\IPCE2002_compliance final_ej.docx