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HomeMy WebLinkAbout20200716Request for Public Input and Initial Comments.pdfEDWARD J. JEWELL DEPUTY ATTORNEY GENERAL IDAHO PUBLIC UTILITIES COMMISSION PO BOX 83720 BOISE, IDAHO 83720-0074 (208) 334-0314 TDAHO BAR NO. 10446 r+"fi0ElvEB ?[i0 JJL l6 Pl{ lr; 57 ,..^!',..;::;tllsrL: l-". .-'|".'LrL/'t ',.., ',: ill.,:,-:lrlf$Si8,l{ Steet Address for Express Mail: 11331 W. Chinden Blvd. Bldg. 8, Ste.201-A Boise, Idaho 83720-007 4 Attorney for the Commission Staff BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MATTER OF IDAHO POWER COMPAI\Y'S PETITION TO ESTABLISH AVOIDED COST RATES APPLICABLE TO PURPA ENERGY STORAGE QUALIFYING FACILITIES CASE NO. IPC-E.20.02 REQUEST FOR PUBLIC INPUT AI\D INITIAL COMMENTS OF THE COMMISSION STAFF The Staffof the Idaho Public Utilities Commission comments as follows on Idaho Power Company's Petition. BACKGROT]I\D On January 2l,2020,Idaho Power Company ("Company") filed a petition requesting the Commission determine avoided cost rates, contract terms, and conditions applicable to energy storage qualiffing facilities (uQF" or "QFs") under the Public Utility Regulatory Policies Act of 1978 (',PURPA"). PURPA, and Federal Energy Regulatory Commission ("FERC") rules require state commissions to establish published avoided cost rates for QFs with a nameplate capacrty of 100 kilowatts ("kW") or less. 18 C.F.R. $ 29230a@)(l). The state commissions, in their discretion, may establish published avoided cost rates for QFs greater than 100 kW. 18 C.F.R. $ REQUEST FOR PUBLIC INPUT AND STAFF COMMENTS ) ) ) ) ) ) ) ) I ruLY t6,2020 29n0a@)(2). State commissions may differentiate among QFs using various technologies based on the supply characteristics of the resource. l8 C.F.R. $ 292.304(cx3)(ii). In Idaho, this Commission has established a 100 kW project eligibility cap for wind QFs andsolarQFstoreceivepublishedavoidedcostrates. OrderNos.32262 at8,32697 at 13. All other QF types have a l0 average Megawatt ("aMW") project eligibility cap for published avoided cost rates. Order No. 32697 at 14. Published avoided cost rates in Idaho are calculated by the Surrogate Avoided Resource ("SAR") Method, which is based on the assumed cost of a hypothetical combined cycle combustion turbine. See Order No. 32697 at 17. Negotiated rates, which are available for QFs above the project eligibility cap, are calculated by the Incremental Cost Integrate Resource Plan ("ICIRP") Method. The ICIRP Method calculates the marginal value of energy on the Company's system on an hourly basis given the Company's actual resource stack. See OrderNo. 32697 at20-21. In addition to eligibility for published avoided cost rates, the project eligibility cap determines the length of contract for which a QF is eligible. Those QFs above the project eligibility cap in Idaho are entitled to two-year contracts. Order No. 33357 at 25. Those below the project eligibility cap in Idaho are entitled to twenty-year contracts. See Order No. 33253 at 4. In Order No. 33785, the Commission determined five energy storage QFs were entitled to the terms and conditions available to solar QFs because the generation profiles of those energy storage QFs aligned closely to the generation profiles of solar QFs, and based on the Commission's interpretation of Luz Development and Finance Corporation, 51 FERC fl 61,078 (1990). OrderNo. 33785 atll-12. See also OrderNo. 33858 at 3. On January 17,2020, the United States District Court for the District of Idaho issued a Memorandum Decision and Order in Franklin Energy Storage One et al. v. Kjellander et al., Case No. 1:18-cv-00236-REB, holding that the Commission's decision in Order No. 33785 "established an implementation plan that impermissibly classified the QF status of Plaintiffs' energy storage facilities that are certified under IPURPA] as energy storage facilities." Memorandum Decision at37. "Classi$ing such facilities as'solar QFs' is outside the Commissioners' authority as state regulators and therefore in violation of federal law." Id. While finding that the Commission could not treat these energy storage QFs as solar QFs, the Court specifically declined "to order [the Commission] to require utilities under their jurisdiction REQUEST FOR PUBLIC INPUT AND STAFF COMMENTS 2 ruLY 16,2020 to afford energy storage QFs all rights and privileges afforded to'other QFs'under the IPUC's PURPA implementation plan." 1d. ln response to the Memorandum Decision, and to two energy storage QF applications received by Idaho Power immediately following the Memorandum Decision, Idaho Power filed this petition requesting the Commission determine the proper avoided cost rates and contact terms applicable to energy storage QFs. Petition at 5. Idaho Power requests the Commission establish a 100 kW eligibility cap for energy storage QFs to receive published avoided cost rates, the minimum project eligibility cap allowed by FERC rules, and twenty year contacts. Idaho Power requests any energy storage QF above the eligibilif cap receive avoided cost rates calculated by the ICIRP Method and be eligible for two-year contracts. Petition at 2. STAFF REVIEW I. Scope of this Docket and Scope of Preliminary Comments. Staffrecommends that this docket determine the project eligibility cap for battery QFs in Idaho Power's service territory. Staff understands that the energy storage technology being addressed in Idaho Power's Petition is battery storage and is the most likely storage technology to be developed as a QF in the near futue. Staffrecommends that, consistent with Commission practice, the project eligibility cap determine the avoided cost rate methodology and the contract term for battery storage QFs in Idaho Power's service territory. Staffrecommends a follow-on docket to examine refinement or alteration of avoided cost rate methodologies for battery QFs for all electric utilities in Idaho and to evaluate applying the project eligibility cap principles established in this docket to the other Idaho electric utilities. Establishing the project eligibility cap for battery QFs in Idaho Power's service territory in this docket addresses an immediate request. The follow-on docket would implement the Commission's practice of similarly applying PURPA across Idaho's electric utilities. See Order No. 29880. In these preliminary comments and request for public input, Staffdiscusses some of its analysis completed so far, identifies areas in which it would like additional information, and indicates the direction in which its analysis appears to be heading. Other than Staff s recommendations on the scope of this docket indicated above, Staffrefrains from making specific recommendations at this time. lnstead, Staffprovides a general trajectory its analysis is REQUEST FOR PUBLIC INPUT AND STAFF COMMENTS 3 ruLY 16,2020 expected to take given information currently known. Requests for Public lnput are included in each section of these comments and are collected for easy reference in Attachment A. II. Overview of Staffs Analvsis So Far. At this point in time, Staffbelieves the ICIRP Method is a more accurate way to calculate the avoided cost of energy than the SAR Method. Staffbelieves the ICIRP Method for calculating capaclty could be improved and is examining whether to make a recommendation to the Commission to adopt a method to calculate the avoided cost of capacity similar to the method used by Duke Energy. Staffbelieves that battery QFs are modular and capable of disaggregation. Based on these considerations, Staffbelieves a project eligibility cap on the lower end of the spectrum would likely be appropriate in order to ensure that the avoided cost rates paid to battery QFs are as accurate as possible and to discourage disaggregation. However, Staffalso acknowledges that there may be reasons for a project eligibility cap higher than the 100 kW minimum established by FERC regulation. Staffis also considering whether to recommend calculating published avoided cost rates for battery storage using the ICIRP Method but with a standard generation profile for the resource type. Staffacknowledges this would be a departure from longstanding Commission precedent of using the SAR Method to calculate published avoided costs. Staff also notes that the incentive to disaggregate could be diminished if the difference in the contract length and the avoided cost prices were less for projects above and below the project eligibility cap. By reducing incentives to disaggregate, Staff will evaluate if it may be reasonable for the Commission to establish a higher project eligibility cap than the 100 kW minimum. Staffanticipates recommending the ICIRP Method to apply to most battery storage QFs because it more accurately reflects avoided costs and minimizes potential harm to customers. Staffis analyzing the contract term length-given the costs of developing a battery QF and the ICIRP rates-that would allow a battery QF a reasonable opportunity to recoup its investment and be able to atffact financing. In analyzing the proposed contract length, Staffis also examining the likely lifespan of different battery technologies. Additionally, Staffis looking at the QF contract length in neighboring jurisdictions for points of reference. Briefly stated, at this point in its analysis, Staff anticipates recommending the ICIRP Method apply to a majority of battery QF projects. Staff is evaluating if applying the more REQUEST FOR PUBLIC INPUT AND STAFF COMMENTS 4 ruLY 16,2020 accurate ICIRP Method will diminish concems related to longer term confracts. Staff is also evaluating if it may be prudent for the Commission to change the methodology it uses to calculate published avoided costs and align it with the ICIRP Method, which could potentially justiff setting a project eligibility cap greater than 100 kW. III.Backeround. A diagram of the current PURPA avoided cost framework is provided below. Wind or Solar <= 100 kW <= 10 aMW > 10 aMW AI Other KW Wind Solar Custom for each QF Non-seasonal Hydro Seasonal Hydro Fossil-fueled Cogen Other - includes: - Biomass - Eiogas - Landfill Gas - Geothermal - Waste-to-enerSy - Non-fossil fueled Cogen Custom for each QF IV. The ICIRP Method Is More Sophisticated.Includes More Variables that Affect Avoided CosL Makes More Reasonable Assumptions. and is Updated More Freouentlv than the SAR Method. The ICIRP Method and SAR Methods use significantly different assumptions for both energy and capacity that result in different rates. Staffidentified the key differences in the two methods below. REQUEST FOR PUBLIC INPUT AND STAFF COMMENTS ruLY rc,20205 QF for Eligibility Size of Eligibility cap Size of Eligibility cap IRP Method IRP Method SAR Method Up to 2-Yr Contract Up to 2-Yr Contract Up to up to 20-Yr Contract Rate RateRateRate a. Comparison between the ICIRP Method and the SAR Method in calculating avoided energy costs. The factors used to derive avoided cost energy rates for the ICIRP Method and the SAR Method are compared below. Table No. l: ICIRP and SAR Methods Avoided Energy Inputs Comparison Generally, there are three factors driving the difference in the avoided cost of energy. First, the SAR Method assumes that a combined cycle combustion turbine ("CCCT") gas plant is the marginal cost resource 100% of the time, while the ICIRP Method captures the marginal cost resource at the top of the Company's resource stack for every hour of operation throughout the term of the contract. Based on the Company's response to Staff Production Request No. 16, REQUEST FOR PUBLIC INPUT AND STAFF COMMENTS ruLY 16,20206 Avoided Energy ICIRPMethod SAR Method Method Custom based on generation profile of each project and the marginal cost resource at top ofthe generation stack in each hour across contract term. Assumes CCCT1 is marginal cost resource being avoided 100% of the time. Natural Gas Price Updated every year using IRP forecast Updated every year using Mountain Region EIA2 forecast Performance of Generation Resources Updated each IRP every 2 years Heat Rate of CCCT based on 2008 NWPP3 Market Electricity Prices WECC4 market prices generated each AURORA run for each contract. Not used Power Purchase Agreements New, terminated, or expired contracts are updated on a continuous basis. Not used QF Queue QF application queue is maintained real- time and is included in the resource stack in AURORA. Not used Forecasted Customer Load Updated annually in October Not used t CCCT - Combined Cycle Combustion Turbine 2 EIA - Energy Information Administration 3 NWPP - Northwest Power Plan4WECC - Westem Energy Coordinating Council Langley Gulch, the only CCCT in the Company's system, is the marginal resource only 9.3o/o of the time. Second, the sources of the natural gas price forecasts are different. Third, committed resources and QF applications are considered in AURORA's resource stack and are not considered for developing published avoided energy cost rates. b. Comparison between the ICIRP Method and the SAR Method in calculating avoided capacity costs. The factors used to derive avoided capacity rates for the ICIRP Method and the SAR Method are compared below. Table No. 2: ICIRP and SAR Methods Avoided Capacity Inputs Comparison Staffis evaluating the appropriate resources and methodologies to determine avoided cost of capacity. The frequency of updating the cost of surrogate using the ICIRP Method occurs every two years with each IRP acknowledgment, whereas there is no established timeframe to update it in the SAR model. Although the Company uses contract provisions to assess a price adjustment when the Company deviates from the generation profile included in the contract, Staff believes that a method used by Duke Energy in North and South Carolina could be a significant improvement REQUEST FOR PUBLIC INPUT AND STAFF COMMENTS 7 Avoided Capacity Cost ICIRP Method SAR Method Method Based on fixed cost of SCCTT surrogate Based on fixed cost of CCCT surrogate Cost of surrogate Updated every 2 years with IRP acknowledgement 2008 Northwest Power Plan adjusted for inflation Capacity Factor Custom using QF's generation profile Set in GNR-E-I l-03 Capacity Contribution at Peak Custom using QF's generation profile Set in GNR-E-Il-03 Deficit Date Updated every 2 years using IRP load/resource balance Updated every two years using IRP load/resource balance t SCCT - Simple Cycle Combustion Turbine ruLY 16,2020 potentially reducing or eliminating the need for price adjustment contract provisions to ensure accountability and could be applied for all avoided capacity payments regardless of the type of QF or method. Although Duke Energy's method is similar to ldaho's method for determining the amount of avoided capacity cost by using an SCCT surrogate, Duke Energy will only pay the QF avoided capacity cost payments provided during specific hours and during specific months that Duke has identified as capacity hours, which has been defined by a Duke representative as periods that represent "the hours of capacity need and thus reflect the value of QF capacity to ensure customers are paying for QF capacity that actually reduces the utilities' needs for future capacity." Snider Testimony, South Carolina Docket No. 2019-185-E, p. 20. ln contrast, Idaho currently pays an avoided capacity rate for all output from a QF regardless of the month or time of day, as long as the capacity deficiency date has passed that is established in the contract. Staff is evaluating using this method for payment of avoided capacity cost for both negotiated and published rates in this case. V. Factors Affectins the Elieibilitv Cap for Batterv Storaee OFs. Given the greater accuracy of the ICIRP Method compared to the SAR Method, as described above, and the Commission's historic concern with disaggregation, Staff believes it may be appropriate to set the project eligibility cap at or near the 100 kW minimum established by l8 C.F.R. $ 292.304(c)(1). Staffbelieves that battery storage technologies are capable of easy disaggregation. However, Staff acknowledges the time and resources required to develop a forecasted generation profile in order to receive tailored ICIRP rates may be prohibitive for small battery QFs, and there are longer timelines in Schedule 73 for projects not using a standard contract. Additionally, Staff acknowledges that the incentive to disaggregate could be reduced if the difference in prices and contract term lengths above and below the project eligibility cap is reduced. a. Impact of Prior Decreases in Project Eligibility Caps for Other Technologies. Staff has examined the effect on wind and solar development when the Commission reduced the l0aMW cap to l00kW in OrderNo. 32176 by comparing the amount of development that occurred prior to the change and the amount of development that occurred after the change. In order to determine the effect on project development of lowering the eligibility REQUEST FOR PUBLIC INPUT AND STAFF COMMENTS 8 ruLY t6,2020 cap to 100 kW for projects that were under l0 aMW, Staffrequested a list of all wind and solar projects approved between February 20,2008 and December 14, 2010 when the eligibility cap was set to l0 aMW through Order No. 30488, as well as projects approved on or after December 14,2010, when the eligibility cap for wind and solar was set at 100 kW through Order No. 32176. To limit the scope so that the results only reflected projects that would have been affected by the change in the cap, Staff calculated the amount of generation in each month for each project. Staff concluded that projects with a nameplate capacity below 25 MW would be able and would likely choose to qualiff for published rate contacts had they all been under a 10aMW eligibility cap so that a fair comparison could be made. Between August 5,2009 and December 14,2010, 2 projects would have qualified for published rates under the l0 aMW cap, which is approximately 0.125 projects per month.r This is compared to l0 projects that would have qualified for published rates under the same cap between December 14,2010 and August 20,2015, which is approximately 0.180 projects per month. This analysis shows that lowering the eligibility cap to 100 kW likely did not impact the amount of QF development for wind and solar projects under l0 aMW. Staff s analysis isolated the effect of the reduced eligibility cap by not considering projects authorized after August20,20l5, when the Commission reduced contract term length to two years for IRP-based projects, since reducing contract terms would also affect project development. However, Staffwas not able to factor into its analysis changes in rates during the study period which could also have affected project development. b. Abitity of Battery Storage QFs to Disaggregate. Based on Staff s investigation so far, Staff believes that Li-Ion batteries are predominant in the indusfy. Staffbelieves that the size of the inverter is the limiting factor in how small a Li- Ion battery storage QF can be. Staff believes inverters range from about 70 kW to 4 MW. Staffis requesting public input on: o The time, costs, and resources required to develop a forecasted generation profile. I Staff excluded all the disaggregated projects in the calculation, because large, combined projects fall outside the range between 100 kW and l0 aMW. The results are calculated based on the number of qualified projects divided by the number of months for each timeframe before and after the eligibility cap reduction to 100 kW. REQUEST FOR PUBLIC INPUT AND STAFF COMMENTS 9 ruLY t6,2020 o Whether there are additional benefits to the utility's system that are achieved by battery storage projects at specific thresholds. o Whether there are limitations on the ability of battery storage QFs to disaggregate o Whether Staff s understanding of the prevailing state of battery technology and inverter size is correct. VI. Factors Affectins the Contract Lensth Analvsis. Given Staff s analysis that the ICIRP Method more accurately values avoided cost rates, Staffis evaluating the importance and weight that should be placed on the payback period for a battery storage QF receiving ICIRP Method rates when establishing the contract term for battery storage QFs. To determine the payback period, Staffrequires a better understanding of the costs to build a typical battery storage QF and the expected generation profile of a typical battery storage QF. Staffis also evaluating the expected life of a battery storage QF as a relevant consideration. Additionally, Staffhas examined the contract terms for QFs in surrounding states as a possible point ofreference. a. Staffis Conducting a Quantitative Analysis of Costs Associated with Developing a Battery Storage QF. Staff is working with the Pacific NorthwestNational Laboratory ("PNNL") to quantitatively analyze contract lengths for battery QF projects. This analysis will take the costs for a range of battery storage projects over 100kW and optimize the generation profile of the project to maximize revenue under the Company's ICIRP Method. The revenue produced by optimizing the generation profile will then be compared against the total cost of the project to determine a payback period. It is Stafls understanding that financial institutions utilize cash flows when approving finance applications. Cash flow is determined by rates and contract lengths. Lending institutions generally prefer to finance projects that have contract lengths that generate suffrcient cash flow to be equal or greater than project costs. This calculation provides a quantitative framework for estimating a range of contract lengths that might provide a fair opportunity for financing. Staffunderstands that battery storage projects can be extremely different from each other in many aspects, including cost, which means that a contract length that may be sufficient to REQUEST FOR PUBLIC INPUT AND STAFF COMMENTS 10 ruLY 16,2020 finance one project may not be sufficient to finance another. Staff s intent is not to ensure financing for battery projects, but rather, to identifu a range of contract terms that could meet the threshold of providing a reasonable opportunity to acquire financing. Staffrecognizes the Commission's concern that long contract lengths can harm customers when those contracts are based on inaccurate rates. Because ICIRP rates are more accurate than SAR rates, Staffis evaluating if a contract length longer than 2 years could be supported in contracts with rates based on the ICIRP Method. But as previously discussed, Staff believes that the ICIRP Method could be improved to increase both accuracy and accountability. As those revisions are made, Staffis evaluating longer conffact lengths that could meet the customer indifference standard and also provide a fair financing opportunity for QFs. Staffseeks additional public input on: o The all-in costs to develop and build a battery QF. o The expected life of different battery technologies. o How ancillary services provided by battery QFs could be valued and what impact this would have on the payback period. b. Contract Lengths in Surrounding States. Staffreviewed QF contract lengths in several surrounding states to provide context for a similar decision in this case. While these contracts lengths are not specific to battery storage projects, Staffbelieves that the terms established for a range of other resotuces in nearby states may help indicate a reasonable threshold under which QF projects have a fair opponunity to acquire financing. Staffnotes that several of these decisions were made recently. Table No. 3: Surrounding States Contract Lengths State Contract Type Contract Length Washington* u-t61024 (July 2019) New QF contract, 5MW or larger 15 years, not less than t2 Existing QF contract, renewal l0 years Oregon uM 1734, tt29 (March 2016 and May 2015) Standard QF contracts, l0MW or less 20 years: 15 fixed pricing,last 5 market pricine Non-Standard, l0 MW or larger 20 years Utah Co-gen QFs, lMW or less Not to exceed 15 years REQUEST FOR PUBLIC INPUT AND STAFF COMMENTS ll ruLY 16,2020 DocketNo. 15- 035-53 (January 2016) Small Power Production QFs, 3 MW or less Not to exceed 15 years QFs, 3 MW or larger Not to exceed 15 years Wyoming** Docket No. 20000-545-ET- l8 (June 2020) Published rates I MW or less, or Hydro 5 MW or less, historic Hydro or other projects l0 MW or less 15 years, Small Hydro 20 years Non-Standard, QF 1 MW or larger, or Hydro 5 MW to 80 MW l5 years * A new Washington rule eliminates the need to negotiate contracts for projects less than 5MW. lnstead, utilities will provide standard contract rates for those generators. Avoided cost rate methodolosies for each OF contract are broueht before the Washineton UTC. **PacifiCorp requested to reduce confract terms from 20 years to 7 years on the basis that developers can finance QF projects on shorter terms due to declining renewable energy project costs Staffnotes the discussion in many of these cases focused on the contract length necessary for a QF to have a fair opportunity to acquire financing. This is similar to the discussion in IPC-E-15-01 and is also relevant in this case. Staff observes that no QF contracts for wind or solar have been signed since the contract length for projects was changed from 20 years to 2 years, even though these projects would be eligible for subsequent 2-year contracts after the first contract expires. This appears to indicate that the length of the initial contract is an important factor when atffacting financing and that the 2-year contract length should be extended. Staffseeks additional public input on: o The contract term necessary in order for a battery storage QF to have a reasonable opportunity to obtain financing. o Using multiple successive contracts with shorter length terms to maintain accuracy of avoided cost pricing over the life of a PURPA project and the QFs ability to obtain financing. o Best practices in surrounding states and analysis on the development of QFs in those states. STAFF RECOMMENDATIONS Staff does not have any substantive recommendations at this time. Rather, Stafflooks fonvard to receiving more information that will aid its analysis. tn addition to incorporating information received from the public, Staffwill continue to gather information on its own to REQUEST FOR PUBLIC INPUT AND STAFF COMMENTS t2 ruLY 16,2020 ensure ttrat it can support its recommendations in its revised commerfs. Staffnotes that on July 16,2020, FERC revised its regulations implementing PLJFJA. Staffwill evaluate the potential impacts of FERC's nrlemaking on this docket going forward. Respectfully zubmitted thrs 76th day of July 2020. Edward Deputy r( Ge,neral i:umisc/comcatc/ipce202ejyyohfttlhc conncnts REQIJEST FOR PI.JBLIC INPI.N A}ID STAFF COMMENTS 13 JULY 16,2020 Requests for Public Input The time, costs, and resources required to develop a forecasted generation profile. Whether there are additional benefits to the utility's system that are achieved by battery storage projects at specific thresholds. Whether there are limitations on the ability of battery storage QFs to disaggregate. Whether Staff s understanding of the prevailing state of battery technology and rnverter sze N correct. The all-in costs to develop and build a battery QF The expected life of different battery technologies. How ancillary services provided by battery QFs could be valued and what impact tlus would have on the payback period. The contract term necessary in order for a battery storage QF to have a reasonable opportunity to obtain financing. a a a a o o o a Using multiple successive contracts with shorter length terms to maintain accuracy of avoided cost pricing over the life of a PURPA project and the QFs ability to obtain financing. Best practices in surrounding states and analysis on the development of QFs in those states. Attachment A Case No. IPC-E-20-02 Staff Comments 07116120 Page 1 of I CERTIFICATE OF SERVICE I HEREBY CERTIFY THAT I HAVE THIS I6M DAY OF JUNE 2020, SERVED THE FOREGOING REQUEST FOR PUBLIC INPUT AI\D INITIAL COMMENTS OF THE COMMISSION STAFF, IN CASE NO. IPC-E-20-02, By E-MAILING A COpy THEREOF, TO THE FOLLOWING: DONOVAN E WALKER REGULATORY DOCKETS IDAHO POWER COMPANY PO BOX 70 BOISE ID 83707-0070 E-MAIL: dwalker@idahopower.com dockets@ idahooower. com R.eArLa Q.uirutero SECRETARY CERTIFICATE OF SERVICE