20220412Comments.pdf

RILEY NEWTON
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. II2O2
'. i: l/fI:
Street Address for Express Mail:
1I33I W CHINDEN BLVD, BLDG 8, SUITE 2OI-A
BOISE,ID 83714
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO ESTABLISH A NEW
SCHEDULE TO SERVE SPECULATIVE
HIGH.DENSITY LOAD CUSTOMERS.
CASE NO. IPC-E.-21-37
COMMENTS OF THE
COMMISSION STAFF
STAFF OF the Idaho Public Utilities Commission, by and through its Attorney of
record, Riley Newton, Deputy Attorney General, submits the following comments.
BACKGROT]ND
On November 4,202l,Idaho Power Company ("Company") applied to the Commission
for authority to establish a new schedule to serve speculative high-density customers-
specifically, large-scale cryptocurrency mining operators. Application at l. The Company
reports that it "has received increased prospective customer interest of approximately 1,950
megawatts ("MW") in the last few 1n6nf[s"-an additional load that, if interconnected with the
Company's system, "would exceed the Company's ability to serve total system load during the
sufllmer season . . . ." Id.
The Company states that "recent Chinese restrictions on Bitcoin ("BTC") mining have
created a resurgence of interest in Idaho Power's service area largely due to the Company's
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1STAFF COMMENTS APRIL 12,2022
favorable rates, open parcels of land in the Company's service area, and high reliance on
hydroelectric power that can supply operations with desired clean energy." Id. at 4.
The Company states that attributes of cryptocuffency mining operations are high energy
use and load factor, ability to relocate and disaggregate equipment to obtain favorable rates,
volatile load growth and load reduction, sensitivity to short-term economic signals or volatility,
and lack of demonstrated financial viability. Id. at3.
The Company believes that increasing electricity demand in the Company's service area
coupled with limited capacity will likely constrain the Company's ability to meet demand during
the summer-season peak until at least 2026. The Company is'oconcerned that it will acquire new
resources that may ultimately become stranded when the economics of cryptocuffency change."
Id. at 14. The Company proposes to implement a new Schedule 20 "[t]o mitigate that risk while
meeting its obligation to reliably serve all customers." Id at9.
The proposed Schedule 20, attached to the Company's Application, incorporates three
modifications to Schedule 9 and Schedule 19's rate design including: (l) fully intemrptible
service during the summer peak season between l:00 p.m. and I l:00 p.m. Monday through
Friday; (2) a proposed reallocation of the portion of cost-of-service derived sunmer generation
capacity costs currently collected in an on-peak demand charge; and (3) a proposal to "price
energy at a marginal cost in all pricing periods, based on Avoided Cost Averages as listed in . . .
the Company's most recently acknowledged Integrated Resource Plan." Id. at 14-15.
STAFF ANALYSIS
Staff supports the Company's proposal to create a new class-Schedule 20--to provide
service for speculative high-density customers, specifically, large-scale cryptocurrency mining
operators. However, Staff has several concerns that will need to be addressed after the Company
gains actual experience dealing with these customers and notes that the Company will need to
ensure that Schedule 20 customer costs and benefits are appropriately allocated in the next
general rate case.
The design of Schedule 20 is based on the assumption that Schedule 20 customers exhibit
unstable and unpredictable loads and have questionable financial viability making them a high
risk for stranded asset costs that core customers may be responsible to cover. Because of these
customers' unpredictable and high-risk nature, it is evident that the Company has designed
2STAFF COMMENTS APRIL 12,2022
Schedule 20 to reside outside of the relatively stable cost structure used to provide service to the
Company's core customers, customers whose rates are based on embedded average cost and then
allocated by class based on cost of service. Instead, the Company has designed Schedule 20 to
address the risk of serving them. The design features that differ from a normal treatment for core
customers includes:
o Minimizing the risk of stranded assets by treating them as non-firm and requiring
interruptible service during summer On-Peak Hours to avoid the need to invest in
resources to meet their capacity needs;
o Ensuring Schedule 20 customer's share of demand-classified cost is being fully
recovered throughout the year, as a result of Schedule 20 requirements for
intemrptible service during summer On-Peak hours; and
o Recovering energy cost using marginal cost energy rates.
However, Staff has several concems related to the Company's proposal and has
concluded the following:
1. There is enough risk with Schedule 20 customers justifuing the establishment of a
new class;
2. The proposed requirements for non-firm service are reasonable when weighing
stranded-asset cost risk with the Company's obligation to serve given alternatives for
these customers to acquire non-firm service;
3. The proposed accounting treatment in the Power Cost Adjustment ("PCA") is proper,
but details ofhow Schedule 20 costs, benefits, and loads are incorporated into base
rates need to be determined before the next general rate case; and
4. The Company should be required to veriff its assumptions regarding the
unpredictable and high-risk nature of Schedule 20 customers after gaining first-hand
experience and collecting actual customer data.
Cryptocurrency Mining Risk
Staff believes there are risks to the system and to the Company's core customers due to
high-density load customers on the Company's system, and it is reasonable for the Company to
proactively mitigate these risks by establishing the proposed customer class. Through its
JSTAFF COMMENTS APRIL 12,2022
investigation, Staff believes the Company has followed the risk management process of risk
identification, evaluation, handling, and controlling in establishing the new customer class.
The characteristics of customers included in Schedule 20 thatpose a risk include: the
ability to relocate quickly in response to short-term economic signals; have high energy use,
density, intensity, and/or high load factor; ability to relocate and/or disaggregate; exhibit volatile
load growth or reduction; are sensitive to volatile commodity or asset prices; can rapidly require
a large amount of capacity; and may lack credit history or ability to demonstrate financial
viability.
Although none of the 17 customer inquiries are currently pursuing servicel due to the
current environment surrounding cryptocurrency mining, Staff believes there is still a high
probability that customers qualifuing under this classification will still seek to obtain service
from the Company. Indeed, cryptocurrency mining operations have increased interest in
relocating to the Company's system due to increased global restrictions.
Interruptible/llon-Iirm Service
Staff supports the proposed intemlptible service in Schedule 20 because it minimizes
stranded-asset cost risk by minimizing the need for the Company to acquire additional capacity
to serve these customers. Requiring non-firm treatment is a reasonable approach for a customer
class whose members are high-risk and whose combined loads may lack the stability necessary
to minimize stranded-asset cost risk. Staff reviewed the proposed interruptible service
requirements and options for customers to obtain non-interruptible service. Staff concludes that
requiring mandatory intemrptible service is reasonable when weighing the risk of potential
stranded assets against the Company's obligation to serve.2 However, Staff believes the
parameters for interruptible service should be reviewed after the Company gains experience with
actual Schedule 20 customers.
Requiring intemrptible service for Schedule 20 customers reduces stranded-asset cost risk
by allowing the Company to intemrpt service during hours in the summer when the Company's
system is constrained for capacity. Since these same hours dictate capacity needs for the system,
I See Response to Production Request No. 18.
2 In exchange for a utility to provide service as a monopoly, the utility has an obligation to provide service to its
customers. From a utility regulatory standpoint, regulations serve as a substitute for competition and must approve
the terms of service.
4STAFF COMMENTS APRIL 12,2022
the Company should not require incremental capacity resources for Schedule 20 loads that can be
intemrpted when determining its capacity needs through its Integrated Resource Plan ("IRP").
However, Staff is concerned that mandatory interruptible service may run counter to the
Company's obligation to serve. To determine if including intemrptible service for Schedule 20
is reasonable, Staff weighed the Company's obligation to serve with the risk of potential
stranded assets given: (l) limits to the number of hours and frequency each customer can be
interrupted; and (2) that high density customers can receive non-intemrptible service through
other altematives.
First, Staff believes that the proposed parameters determining when, how often, and how
much the Company can intemrpt service should minimize stranded-asset cost risk based on
similar parameters and methods approved by the Commission in Case No. IPC-E-21-32, which
defined parameters for curtailment of Demand Response program participants. However,
without knowing the actual usage characteristics of Schedule 20 customers, it will be difficult to
determine if the interruptible parameters are reasonable or if they should be revised. Staff
recommends that the parameters be reviewed in the next general rate case and/or after Schedule
20 customers are established and data has been collected to determine the amount, frequency,
and timing of intemrptions in service that occur.
Second, Schedule 20 customers that desire non-interruptible service have alternatives for
service such as: (1) entering into a special contract requiring stranded-asset mitigation measures
by aggregating equipment or expanding to exceed l0 MW of service; (2) reducing capacity
needs to meet criteria for a different schedule with lower demand requirements; or (3) taking
service in another electric service territory. Other Idaho electric customer classes with
intemrptible service are either an optional class (Demand Response customers) or have
negotiated a special contract. The absence of required intemrptible service in other customer
classes does not necessarily support or oppose the intemrptible service proposed in Schedule 20.
However, Staff recommends that the Company consider the potential for high density customers
with loads less than 10 MW to be eligible for a special contract after gaining experience with
these types of customers.
5STAFF COMMENTS APRIL 12,2022
Pricing and Recovery of Enerry-Related Cost
Currently all of the Company's customers' energy rates are based on embedded average
costs derived from a test year. However, the Company is proposing to use the Avoided Cost
Averages in the Company's IRP as a marginal cost of energy to determine Schedule 20 energy
rates. Although Staffagrees in principle to marginal cost rates in this case, Staff has concerns
with using an IRP-derived avoided cost in customer rates. Staff recommends utilizing the
Avoided Cost Averages in the Company's IRP for Schedule 20 energy rates as proposed, but the
Company should evaluate this method against altemative methods including a marginal energy
cost rate derived from a test year in preparation ofthe next general rate case.
By proposing a marginal cost of energy as its Schedule 20 energy rate, the Company is
placing these customers outside of its core embedded average cost rate structure used by the
Company's other customer classes. Including customers in the embedded cost rate structure
requires a level of stability within the class to ensure each customer's cost-of-service allocation
remains relatively stable between rate cases. If the assumption holds true that this class lacks
stability, Staff agrees that a marginal energy rate is appropriate since it is based on the cost of the
next increment of electricity beyond what is needed by the Company's core customers.
However, Staff is concerned with using an avoided cost rate from the IRP used to
evaluate the cost-effectiveness of Demand-Side resources as the Schedule 20 marginal energy
cost rate since that avoided cost rate is not derived from a test year and is currently not used for
any other customer rates. Because no customers are currently eligible for Schedule 20, Staff
believes the proposed rate is reasonable, but the Company should evaluate other altemative
methods for determining a marginal energy cost rate prior to the next general rate case.
Pricing and Recovery of Demand-Related Cost
The Schedule 9 (Large General Service) and 19 (Large Power Service) rate designs were
used as a basis to develop the proposed demand charges for Schedule20. Schedule 9 and 19
both have an On-Peak Demand charge that charges customers for their highest 15 minutes of use
during On-Peak hours only during summer months. Staff supports the Company's proposal to
reallocate cost of service derived srunmer generation capacity costs from the On-Peak Demand
charge to the standard Billing Demand charge to ensure Schedule 20 customers pay their fair
share for usage of the Company's system.
6STAFF COMMENTS APRIL 12,2022
By having an On-Peak Demand charge, Schedule 20 customers could avoid paying their
fair share of demand-related costs if Schedule 20 customers are interrupted during On-Peak
hours. Reallocating capacity cost from the On-Peak Demand charge to the standard Billing
Demand charge ensures that Schedule 20 customers pay their share of the cost relative to the
benefits they receive from existing capacity resources throughout the year. Specifically, it will
ensure Schedule 20 customers pay for incremental wear and tear and for increased operation and
maintenance costs based on their system use.
Accounting Treatment
Staff supports the Company's proposed treatment of Schedul e 20 energy costs, revenue,
and usage in the PCA. However, the details of how Schedule 20 costs, benefits, and loads are
incorporated into base rates needs to be determined. Staff recommends that the Company meet
with Staff prior to the next general rate case to examine how Schedule 20 should be
incorporated.
As discussed above, the Company is proposing to use a marginal cost of energy for its
energy rate. Since using marginal cost differs from an embedded cost rate structure and because
the PCA mechanism is a true-up of the Company's actual net power cost ("NPC") to the
recovery of NPC embedded in customer base rates, the treatment of Schedule 20 NPC, energy
revenue, and sales in the PCA needs to be modified.
The Company proposes that Schedule 20 customers will not be charged the Schedule 55
PCA rate. However, all costs of supplying power to Schedule 20 will be included as actual NPC
in the PCA. The revenues received from Schedule 20 energy sales will be treated in the same
manner as a surplus sale, which will act as an offset to power supply costs. Finally, energy sales
would not be included as an ldaho retail sale but treated in the same manner as an off-system
sale. Staff has reviewed the Company's proposal and recommends approval of the proposed
PCA accounting treatment.
The Company did not propose treatment of Schedule 20 costs, revenues, and loads in the
development of base rates. Because part of the rates differs from the Company's embedded cost
rate structure, Staff fully supports the Company's plan to re-evaluate Schedule 20 cost
assignment based on usage characteristics and system requirements and assign cost and benefits
incorporating the interruption requirement parameters in the next general rate case. Response to
7STAFF COMMENTS APRIL 12,2022
Staff Production Request No. 2. However, to ensure timely processing of the rate case, Staff
recommends meeting with the Company prior to the next general rate case to discuss the
treatment.
STAFF RECOMMENDATIONS
Staff recommends the Commission approve the Schedule 20 customer class as filed and
authorize implementation prior to the start of the June l5 to September 15 intemrption period.
Staff also recommends the Commission order the Company to file conforming tariffs.
Within five years from the date the Company commences service to customers under
Schedule 20, Staff recommends the Company evaluate:
1. Assumptions regarding the risks and need for mandatory intemrptible service;
2. The need for non-intemrptible service through special contracts or other options for
customers with loads below l0 MW; and
3. The need for marginal cost-based rates.
Prior to developing the next general rate case filing, Staff recommends the Company:
l. Evaluate and compare other methods for determining a marginal cost of energy in
addition to the use of Avoided Cost Averages in the IRP for the Schedule 20 energy
rate; and
2. Collaborate with Staff after re-evaluating Schedule 20 cost assignment based on
usage characteristics and system requirements, and assign cost and benefits
incorporating interruption requirement parameters.
Respectfully submitted this Of day of Aprilz122
Riley N
Deputy Attorney General
Technical Staff: Michael Eldred
Travis Culbertson
Josh Haver
Chris Hecht
i : umisc/comments/ipce2 I .3Trnjhkkchmetnc comments
8STAFF COMMENTS APRIL 12,2022
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS I2TH DAY OF APRIL 2022,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAtr'F, IN
CASE NO. IPC-E-21-37, BY E-MAILING A COPY THEREOF, TO THE
FOLLOWING:
LISA NORDSTROM
IDAHO POWER COMPANY
PO BOX 70
BOISE rD 83707-0070
E-MAIL: [e-mail]
[e-mail]
PETER J zuCHARDSON
RICHARDSON ADAMS PLLC
515 N 27TH ST
PO BOX 7218
BOISE TD 83702
E-MAIL: [e-mail]
ELIZABETH A KOECKERITZ
GIVENS PURSLEY LLP
60I W BANNOCK ST
BOISE ID 82702
E-MAIL: [e-mail]
CONNIE ASCHENBRENNER
RATE DESIGN SENIOR MGR
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: [e-mail]
DON READING
6070 HILL ROAD
BOISE ID 83703
E-MAIL : [e-mail]
SECRETARY
CERTIFICATE OF SERVICE