20210402Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: EDWARD JEWELL
DEPUTY ATTORNEY GENERAL

DATE: MARCH 26, 2021

SUBJECT: 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; CASE NO. IPC-E-20-02.

On January 21, 2020, Idaho Power Company (“Idaho Power” or “Company”) filed a
petition with the Idaho Public Utilities Commission requesting the Commission determine the
appropriate project eligibility cap and contract term for energy storage qualifying facilities (“QF”
or “QFs”) under the Public Utility Regulatory Policies Act of 1978 (“PURPA”). Petition at 11.
On October 2, 2020, the Commission issued a final order. Order No. 34794. On
October 30, 2020, the Company made a compliance filing pursuant to Order No. 34794.
On November 24, 2020, the Commission issued a Notice of Compliance Filing. Order
No. 34844. Commission Staff filed comments and the Company filed reply comments.
On February 5, 2021, the Commission issued an Order approving the compliance filing.
Order No. 34913.
On March 11, 2021, the Commission’s attorney sent a letter to Idaho Power asking the
Company to verify that Commission Staff had correctly updated the surrogate avoided resource
method (“SAR Method”) model and calculated the published avoided cost rates for energy storage
QFs correctly.
On March 26, 2021, the Company responded that the model had been updated correctly
pursuant to Commission directives in Order Nos. 34794 and 34913 and the calculations were
correct.

DECISION MEMORANDUM 2
BACKGROUND
The Commission established a new energy storage QF category in Order No. 34794
and determined that energy storage QFs below 100 kW are eligible for published avoided cost
rates. In the Order approving Idaho Power’s compliance filing, with modification, the
Commission stated, “Staff will calculate and publish the SAR Method rates for energy storage QFs
as they do for all other resource types.” Order No. 34913 at 7. Each year, the Commission updates
the SAR Method to account for new natural gas forecasts. See Order No. 32697. This update
occurs on June 1, or within 30 days of the final release of the U.S. Energy Information
Administration’s Annual Energy Outlook, whichever is later. Order No. 32802. The Commission
has consistently stated that the update is “a relatively simple arithmetic re-calculation.” E.g. Order
No. 33538. Staff believed that waiting until June 1 would be too long of a lag to post the SAR
Method energy storage avoided cost rates. So, similar to how Staff has historically updated the
SAR Method, Staff sent Idaho Power a letter requesting Idaho Power verify that the method
approved by the Commission to calculate energy storage QF published avoided cost rates was
applied and calculated correctly. Idaho Power replied that the calculations were correct.
SAR METHOD AND IRP METHOD COMPARISON
While updating and verifying the SAR Method model, Staff compared the avoided cost
of capacity (“Capacity Price”) for the incremental cost Integrated Resource Plan method (“IRP
Method”) and SAR Method. In order to explain the different Capacity Prices for the IRP Method
and the SAR Method, Staff provides the following analysis:
The total difference in the Capacity Price between the two methods using the example
included in the Company’s compliance filing is about $0.19 per kilowatt-hour in 2029, which
makes the SAR Method Capacity Price about 73% higher. The cause for differences between the
two methods can be attributed to (1) the difference in the surrogates; and (2) the method the
Company uses to determine the amount of QF generation during peak using the QF-supplied
generation profile.
The surrogate used in the IRP Method is a Simple-Cycle Combustion Turbine while
the SAR Method uses a Combined-Cycle Combustion Turbine as the surrogate. The higher cost
of the CCCT causes the SAR Method Capacity Price to be about $0.13 per kilowatt-hour higher,
which is about 70% of the total difference.
DECISION MEMORANDUM 3
The other cause for difference in the Capacity Price between the IRP Method and the
SAR Method can be attributed to differences in the source of inputs for determining the amount
of generation a QF will produce during Peak Hours. The generation amount during Peak Hours in
the IRP Method is taken directly from an estimated QF-supplied generation profile. Because this
amount, used as the denominator in the Capacity Price equation, is not likely to reflect the same
Peak-Hour Capacity Factor Credit used to adjust the avoided cost of the surrogate in the numerator,
the terms will not cancel out.1 However, the SAR Method Capacity Price calculation does not
utilize a generation profile and recognizes that the capacity factor at peak is not required in the
Capacity Price calculation since they are equivalent in both the numerator and the denominator.
Using the example included in the Company’s Compliance Filing, the difference in
calculation methods and inputs cause an incremental difference in the Capacity Price between the
two methods of about $0.06 per kilowatt-hour, which is about 30% of the total difference.
Depending on the specific QF and how close the Peak-Hour Capacity Factor Credit used to
calculate the avoided cost in the numerator is to the peak-hour capacity factor reflected in the
generation profile, the difference in the Capacity Price between the two methods could be more or
less.
STAFF RECOMMENDATION
Historically, the Commission has issued an order approving the update to SAR Method
rates upon confirmation that it was calculated correctly. Similarly, Staff recommends the
Commission issue an order approving the SAR Method avoided cost rates included in the March
11, 2021 letter to Idaho Power. Staff recommends the Commission issue an order approving the
published avoided cost rates for energy storage QFs, as calculated by Staff and verified by the
Company, and post the rates to the Commission’s website.

1 In Idaho Power’s compliance filing, a QF’s Peak Hour Capacity Factor Credit is determined using the generation
during 3:00 pm to 7:00 pm in July as stated in the QF-supplied generation profile with a benchmarking adjustment,
while the QF generation amount during Peak Hours uses the timeframe of 1:00 pm to 10:00 pm in July and 3:00 pm
to 8:00 pm in August from the same generation profile.
DECISION MEMORANDUM 4
COMMISSION DECISION
Does the Commission wish to issue an order approving the published avoided cost rates
for energy storage QFs, as calculated by Staff and verified by the Company, and post the rates to
the Commission’s website?

__________________________
Edward J. Jewell
Deputy Attorney General

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