20221028Reconsideration Reply Comments.pdf

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DONOVAN WALKER
Lead Counsel
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Enclosure
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ISSION
Donovan E. Walker
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October 28,2022
VIA ELECTRONIC FILING
Jan Noriyuki, Secretary
ldaho Public Utilities Commission
11331 W. Chinden Blvd., Bldg 8,
Suite 201-A (83714)
PO Box 83720
Boise, ldaho 83720-0074
Re Case No. IPC-E-22-06
ln the Matter of ldaho Power Company's Application for Approval of a
Replacement Special Contract with Micron Technology, lnc. and A Power
Purchase Agreement with Black Mesa Energy, LLC
Dear Ms. Noriyuki
Attached for electronic filing is ldaho Power's Reply Comments on Reconsideration in
the above-entitled matter.
Please feel free to contact me directly with any questions you might have about this
filing.
Very truly yours,
DONOVAN E. WALKER (lSB No. 5921)
MEGAN GOICOECHEA ALLEN (lSB No. 7623)
ldaho Power Company
1221 West ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
Telephone: [phone]
Facsimile: [phone]
[e-mail]
mqoicoecheaallen@ ida hooower.com
Attorneys for ldaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR
APPROVAL OF A REPLACEMENT
SPECIAL CONTRACT WITH MICRON
TECHNOLOGY, INC. AND A POWER
PURCHASE AGREEMENT WTH BLACK
MESA ENERGY, LLC.
CASE NO. IPC-E-22-06
IDAHO POWER COMPANY'S
REPLY COMMENTS ON
RECONSIDERATION
ldaho Power Company ("ldaho Powe/'or'Company"), pursuant to Rule 332 of the
Rules of Procedure of the Commission and the Order granting ldaho Power's Petition for
Clarification and Reconsideration, Order No. 35532, issued September 19, 2022,
provides these Reply Comments on Reconsideration of the Commission's finding that the
Excess Generation credit ('EGC") and renewable capacity credit ('RCC') payments made
to Micron Technology, lnc. ("Micron") through their Revised Specia! Contract ('ESA")
included in the Company's power supply expense be subject to 95 percent sharing in the
Power Cost Adjustment ('PCA").
IDAHO POWER COMPANY'S REPLY COMMENTS ON RECONSIDERATION.l
As set forth by the Company in its Application, the Micron ESA is consistent with
the regulatory framework of the Clean Energy Your Way ('CEYW') program previously
proposed by the Company in an effort to expand clean energy options for customers.l
From its inception, a priority in development of the Company's CEYW program was to
design a menu of clean energy offerings that would appeal to customers of all sizes and
seeking a variety of clean energy objectives, while also holding non-participants
harmless.2 !t was through this lens that ldaho Power engaged in the special contract
negotiation with Micron to design a pricing structure that does not harm non-participants,
but also appropriately recognizes the value a!! ldaho Power customers receive when a
new, 100 percent paid-for renewable resource is added to the Company's system.
Application of the PCA sharing mechanism to Micron's ECG and RCC payments has the
potential to upset that balance and result in pricing terms which go beyond holding non-
participants harmless, and instead result in either Micron or ldaho Power subsidizing
power supply expense of all customers.
The Commission's Order May lntroduce Power Supply Expense Subsidization by
CIean Energy Your Way Participants
ldaho Power is concerned Staffs rationale for recommending the PCA's 95/5
sharing mechanism apply to EGC and RCC payments may indicate a misunderstanding
of the nature of the proposed CEYW transaction as applied in the Micron ESA. First, it is
important to recognize that Micron, under the ESA, is required to pay for 100 percent of
the output of a new resource which supplies energy and capacity to ldaho Power's
1ln the Mafter of ldaho Power Company's Application to Expand Optional Clean Eneryy Offeings
Through the Clean Energy YourWay Program, Case No. IPC-E-21-40, Application (Dec. 2, 2021), p.3.
2 ld., p.2.
IDAHO POWER COMPANY'S REPLY COMMENTS ON RECONSIDERATION - 2
system. While Micron will receive the benefit of the resource's renewable attributes, all
ldaho Power customers benefit because the participant-paid resource has the potential
to avoid or defer future capacity needs and will supply energy to the system, which may
either displace more-costly resources or market purchases, or be sold into the market,
both of which reduce power supply expense to the benefit of all customers. Providing a
fair value to Micron for the benefits the resource brings to the system is integral to the
viability of the proposed CEYW program.3
Staffs recommendation is based on the premise that priced too high, EGC and
RCC payments will over compensate CEYW participants at the expense of al! other
customers. That is a valid concern and one that has been appropriately mitigated by a
thorough review and vetting of the proposed transaction in this case. lt is important to
note, the corollary also exists, under valuing the EGC and RCC payment will provide a
benefit to all other customers at the expense of the CEYW participant. lnstead of seeking
to minimize EGC and RCC payments and favor non-participants over CEYW participants,
it is more appropriate to strive to achieve an EGC and RCC payment that is not
overvalued or undervalued, but instead near an equilibrium value where both CEYW and
non-participants would be held neutral. The purpose of this case is to seek Commission
review and approval of the ESA between Micron and ldaho Power to ensure that the
pricing and compensation structure provided for under the ESA is fair, just, and
reasonable for Micron, ldaho Power and ldaho Power's customers. Once the Commission
establishes that an ESA compensation structure is indeed fair, just, and reasonable from
3 The CEYW program docket (Case No. IPC-E-21-40) remains pending, and as such any reference
herein to the CEYW program or CEYW participants/customers is prospective. While the issue on
reconsideration is specific to the Micron ESA, it relates to a fundamental component of the proposed
CEYW program that could also impact future CEYW customers generally.
IDAHO POWER COMPANY'S REPLY COMMENTS ON RECONSIDERATION - 3
the perspective of each of those parties, it is inappropriate to subsequently apply an
additiona! discount factor in the form of the PCA sharing percentage to further lower the
compensation cost.
Staffs argument for applying the PCA sharing mechanism to Micron's EGC and
RCC payments is that "the Company will have the financial incentive to negotiate the best
rates for its customers, resulting in a prudent least cost, least risk outcome."a Following
this logic through, by introducing a financial penalty to ldaho Power of 5 percent of the
EGC and RCC payment, Staff posits this will motivate the Company to negotiate lower
EGC and RCC payments in future contracts. This premise is flawed, as from the
Company's perspective, the only way to avoid financial penalty from CEYW-like
transactions is to reduce the value of EGC and RCC payments towards zero or not
engage in such transactions altogether. ln order to prevent financial harm, ldaho Power
envisions it would seek modification of the Micron ESA, to only pass through the value of
EGC and RCC payments for which the Company can recover, thereby compensating
Micron at a level below that which the Commission has already determined to be fair, just
and reasonable.
\Mat Staffs rationale does not consider is whether or not the value the CEYW
resource provides all ldaho Power customers is already appropriately valued, which
would negate the need to introduce an incentive for further reduction. Because the
Commission has ordered EGC and RCC payments be set at avoided cost,S application of
5 percent sharing, or any other arbitrary reduction to the recovery of EGC or RCC
4 Staff Reconsideration Comments, p. 5
5 Order No. 35482, p.15-17.
IDAHO POWER COMPANY'S REPLY COMMENTS ON RECONSIDERATION - 4
payments, changes the balance from one which the CEYWand non-participant is neutral,
to one which Micron now provides a subsidy to the benefit of all customers. Staffs
rationale in their Reconsideration Comments is also incongruent with their prior
Comments to establish not "least-cost" pricing, but neutral pricing:
...for energy exported or "sold" to the Company, the principles established
through PURPA for not harming customers is to base the rates on avoided
cost. Under PURPA, utility customers must be economically indifferent to
purchases of Qualiffing Facility ('QF") power by paying no more for power
than the amount they would have paid but for the purchase from the QF.6
Staff has advocated for, and the Commission has adopted, economically indifferent
pricing for Micron's EGC and RCC. Staffs position on reconsideration, however,
undermines this premise as it would result in Micron subsidizing power supply expense
for all other ldaho Power customers to benefit from.
Finally, it is important to make the distinction that while Staff argues "the Company
has the flexibility to negotiate the rates it pays to Micron for excess generation,"T that
negotiated rate has been directed by the Commission to be one based on avoided cost.
It is also important to note, the avoided cost compensation levelforeach individualCEYW
ESA must be reviewed and approved prior to any compensation cost being incurred by
the Company. Staff argues "the Company mistakenly assumes the Commission
mandated the EGC and RCC rates be based on avoided cost as a matter of policy.'8 The
Company does not believe the Commission made a policy decision regarding avoided-
cost pricing terms be applied across all CEYW transactions, but instead highlights the
6 Staff Comments, p. 7 (citing lndep. Energy Producerc Ass'n, lnc. v. Cal. Pub. Utils. Commh, 36 F.3d
848,858 (9h Cir. 1994).
7 Staff Reconsideration Comments, p. 3.
I ld.
IDAHO POWER COMPANY'S REPLY COMMENTS ON RECONSIDERATION - 5
specific determination of avoided-cost pricing terms made for Micron's CEYWtransaction.
ldaho Power seeks equaltreatment for Micron's avoided cost-based payment as allother
arrangements where the Company utilizes avoided costs as a basis for establishing
pricing or compensation for contracted energy and capacity, treatment that permits the
Company to collect these costs - in their entirety - from all customers. This is the case
for all PURPA compensation, demand response incentive payments, and energy
efficiency incentive payments.
EGC and RGC Valuation is Self-Adjusting for Future Additional CEYW Resources
Staff cites the consideration that there is potential for Micron and other CEYW
Construction option customers' net exports to become an increasingly large portion of the
Company's net power supply expense as they add resources to approach meeting 100
percent of their annual energy requirements with renewables.e The existing Micron ESA
terms for EGC and RCC payments are already self-adjusting for potential future
renewable resource additions and how they impact ldaho Power's power supply expense.
First, in determining the value of the RCC, the Company includes evaluation of
both the year in which ldaho Power first has a capacity deficiency, and the ability of the
resource to meet the Company's system capacity needs. As ordered by the Commission,
the Black Mesa capacity credit is provided starting on the Commission-authorized first
deficiency date, July 1,2026. Future resources will be eligible to receive a capacity credit
based on the deficiency date authorized by the Commission at the time of Power
Purchase Agreement execution, with that eligibility date updated through time as the
Company's capacity needs change. As an example of the ability of the resource to meet
e ld.
IDAHO POIA'ER COMPANY'S REPLY COMMENTS ON RECONSIDERATION - 6
the Company's system capacity needs, in the context of a solar photovoltaic ("PV')
resource, the capacity contribution methodology results in reduced capacity contribution
for each incremental solar PV resource added. lf Micron was to contract for additional
solar generation under the CEYW offering, each additional solar tranche is likely to
receive less capacity value than the previous under ldaho Power system configuration
today because each additional tranche provides Iess capacity benefit during the
Company's highest risk hours. The other portion of the RCC value comes from the
surrogate resource value. lf costs of future capacity resources decrease, that cost
reduction will be captured in the lntegrated Resource Plan ("lRP") surrogate capacity
resource reference. Micron's terms already seek to value the capacity of the CEYW
resource based on system costs at the time the resource is contracted, ensuring the
capacity value it receives does not exceed the value it provides ldaho Power's system
when additional resources are contracted for Micron.
Second, the EGC payment contemplates compensation at either a market price
forecast updated every two years in conjunction with IRP acknowledgement, or an actual
market price which adjusts to real-time market dynamics. lf Micron's resources grow to
comprise a large proportion of ldaho Power's generation resources, any energy not
required to serve system load will be sold into the market and ldaho Power receives the
same value for which Micron is compensated. !f the concern is CEYW resources may
grow so large as to displace ldaho Power's lower-cost resources, those lower-cost
resources may still be run and their excess energy sold into the market, valued at the
same amount for which Micron is credited, resulting in an offsetting power supply credit
to the EGC payment Micron would receive.
IDAHO POWER COMPANY'S REPLY COMMENTS ON RECONSIDERATION - 7
The existing Micron contractua! terms for crediting CEYW resources for the EGC
and RCC already provide the necessary mechanisms to appropriately reflect the capacity
and energy value delivered to ldaho Power's system as new resources are added without
further reduction.
lmplementation of Sharing Potentially lntroduces Magnifying Circular Mechanics
Because Staffs recommendation does not include an example of how it is
envisioned the mechanism work, ldaho Power assumes there are two potential
approaches for Staffs intent: 1) EGC and RCC compensation is to be reduced by five
percent, which the Company would pass on to Micron, or 2) anv EGC and RCC pavments
are alwavs onlv to be recoverable at onlv 95 percent of the compensation amount. The
second approach has the potentialto introduce a circular calculation where the EGC and
RCC amounts are reduced by 5 percent in perpetuity.
ln the first example, as noted earlier, should the Commission affirm application of
the PCA's sharing provision to Micron's EGC and RCC payments, ldaho Power is likely
to seek modification of the ESA to only pass-through payments to Micron which are
recoverable, resulting in Micron's compensation receiving a 5 percent reduction.
However, in the second approach, ldaho Power would again seek to only pass
through to Micron what is recoverable through the PCA, but regardless of the amount the
Company included for recovery through the PCA, under Staffs recommendation, that
amount would be subject to a further five percent reduction.
lf the Commission affirms Staffs recommendation, careful consideration of how to
effectuate the intent of Staffs recommendation must be made; is the goalsolely to reduce
the existing Micron ESA EGC and RCC payment term by 5 percent or simply to introduce
IDAHO POWER COMPANY'S REPLY COMMENTS ON RECONSIDERATION. S
an unavoidable financial penalty to ldaho Power for facilitating CEYW transactions?
The 'lower of' EGC Provision Unfairly Applies Asymmetrical Risk to Micron
ln their Order granting clarification and reconsideration, the Commission provided
Boise City the opportunity to provide a reply regarding arguments it made with respect to
the method for calculating EGCs having a discriminatory effect on other CEYW
Construction option customers.l0 Boise City raised issues regarding use of the "lower of'
mechanism to determine EGC value,11 with Micron's EGC value capped at the lower of
85 percent of an hourly non-firm Integrated Resource Plan ("lRP") Mid-Columbia ("Mid-
C") forecast price, or actual heavy-load or light-load market price. The Company
respectfully reiterates prior Comments it has made on the record for this issue:
ldaho Power disagrees with the recommendation and believes price risk should be
symmetrically applied. One of Staffs arguments for the "lesser of concept is the
introduction of risk from customers paying forecast Mid-C prices which are above
actual market Mid-C prices for excess generation. ldaho Power agrees with Staff
there is potential risk that the Mid-C forecast exceeds actual hourly Mid-C prices;
however, Staffs "lower of recommendation does not provide symmetrica!
treatment forthat risk and instead shifts alldownside risk to Micron, while affording
customers all of the benefit of actua! Mid-C prices that are higher than the forecast
rate contemplated by the ESA. Price risk should be symmetrica!, achieved through
either compensating Micron's excess energy at the Mid-C forecast price, or at
actual Mid-C price, not through an artificia! ceiling from the "lower of'concept.12
Conclusion
The Company respectfully requests the Commission reconsider application of the
PCA's 95/5 sharing mechanism to Micron's EGC and RCC payments. Application of the
sharing provision to Commission-approved pricing components based on avoided cost-
10 Order 35532, p. 8.
11 City of Boise City's Petition for Reconsideration, p. 7
12ldaho Power Reply Comments, p. 10.
IDAHO PO\A'ER COMPANY'S REPLY COMMENTS ON RECONSIDERATION - 9
based payments has the unintended consequence of shifting value from one near
equilibrium between Micron and other ldaho Power customers, to favoring one group of
ldaho Power customers at the expense of another ldaho Power customer. ldaho Power
does not believe it is Staffs intent to determine winners and losers in proposing
application of the PCA sharing mechanism to EGC and RCC payments but that is the
consequence of this position. It is important to recognize that advocating for the least-
cost is not the same as farr-cosf, and any discount to avoided cost-based payments will
result in Micron receiving less than the value its contracted resource provides all ldaho
Power customers or an unwarranted and unavoidable financial penalty to ldaho Power.
The incentive for ldaho Power is fair treatment of all customers which the Company
believes can be achieved by the Commission consistently applying the same recovery
standard for excess energy and capacity payments in similar situations which are based
on avoided cost, with 100 percent recovery through the PCA.
Respectfully submitted this 28th day of October 2022.
fuzda*' -
DONOVAN E. WALKER
Attorney for ldaho Power Company
IDAHO POWER COMPANY'S REPLY COMMENTS ON RECONSIDERATION - 1O
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 28th day of October 2022,1 served a true and
correct copy of the foregoing ldaho Power Reply Comments on Reconsideration upon the
following named parties by the method indicated below, and addressed to the following:
Commission Staff
Riley Newton
Deputy Attorney General
ldaho Public Utilities Commission
Po Box 83720
Boise, ldaho 83720-0074
lndustrial Customers of ldaho Power
Peter J. Richardson
RICHARDSON ADAMS, PLLC
515 North 27th Street (83702)
Boise, ldaho 83707
Dr. Don Reading
6070 Hill Road
Boise, lD 83703
City of Boise
Ed Jewell
Deputy City Attorney
Boise City Attorney's Office
150 North Capitol Boulevard
P.O. Box 500
Boise, ldaho 83701-0500
Wil Gehl
Energy Program Manager
Boise City Dept. of Public Works
150 N. Capitol Blvd.
PO Box 500
Boise, ldaho 83701-0500
Emailed to:
rilev. newton@pu c. idaho.oov
Emailed to:
peter@richa rdsonadams.com
Emailed to:
d read ino@mindsprino. com
Emailed to:
eiewel!@citvofboise. oro
bo isecitvattornev@citvofboise. o ro
Emailed to:
wqeh [e-mail]
&rst.
Stacy G ust, Reg u latory Ad min istrative Assista nt
IDAHO POWER COMPANY'S REPLY COMMENTS ON RECONSIDERATION - 11