20221018Reconsideration Comments.pdf

Street Address for Express Mail:
I1331 W CHINDEN BLVD, BLDG 8, SUITE 201-A
BOISE, ID 83714
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
RILEY NEWTON
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. II2O2
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 WITH BLACK
MESA ENERGY, LLC
CASE NO. IPC.E.22-06
RECONSIDERATION
COMMENTS OF THE
COMMISSION STAFF
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STAFF OF the Idaho Public Utilities Commission, by and through its Attorney of
record, Riley Newton, Deputy Attomey General, submits the following comments.
BACKGROUND
On March l0,2022,Idaho Power Company ("Company" or "Idaho Power") applied
("Application") to the Commission for an order approving the Revised Special Contract
("Micron ESA" or "ESA") with Micron Technology, Inc. ("Micron") and a power purchase
agreement ("Black Mesa PPA" or "PPA") with Black Mesa Energy, LLC ("Black Mesa").
On April 6,2022, the Commission issued a Notice of Application and Notice of Modified
Procedure setting public comment and Company reply comment deadlines. Order No. 35367.
Industrial Customers of Idaho Power Company ("ICIP") intervened, Order No. 35406, but did
IRECONSIDERATION COMMENTS ocToBER t8,2022
not file comments. Staff filed comments to which the Company replied. No other comments
were received.
On August 7,2022, the Commission issued Order No. 35482, approving the Black Mesa
PPA, as filed, but directing the Company to file an updated ESA and Schedule 26 addressing the
Commission' s modifications.
On August 22,2022, the city of Boise City ("Boise City") filed a Petition for
Reconsideration and a Petition to Intervene, and the Company filed a Petition for Clarification
and Reconsideration ("Company's Petition").
Staff filed an Answer to Boise City's and the Company's petitions on August 29,2022.
On September 19, 2022, the Commission granted the Company's Petition and Boise City's
Petition to Intervene, and granted in part and denied in part Boise City's Petition for
Reconsideration ("Boise City's Petition"). Order No. 35532.
STAFF REVIEW
The Commission granted reconsideration of two issues in Order No. 35482:
l. Whether payments of the Excess Generation Credit(s) ("EGC(s)") and the
renewable capacity credit(s) ("RCC(s)") included in net power supply expense
('NPSE") in the Power Cost Adjustment ("PCA") should be subject to 95o/o
sharing; and
2. What is the proper method for determining the EGC.
Order No. 35532 at 6, 8.
Staff addresses both these issues below.
957o Sharins of EGC and RCC Pavments in PCA
The Commission determined that payments to Micron for EGCs and RCCs should be
subject to 95oh customer sharing in the PCA in Order No. 35482. The Company and Boise City
both petitioned the Commission to reconsider this decision, arguing that these payments should
be passed through the PCA at l00yo of actual cost. Staff maintains that payments for EGCs and
RCCs should be subject to 95o/o sharing, consistent with all other non-Public Utility Regulatory
Policies Act ("PURPA") PPAs. Staff believes that its position is justified for several reasons.
The Commission has not determined a fixed, universal method, such as avoided cost, for setting
RECONSIDERATION COMMENTS 2 ocToBER 18,2022
the EGC and RCC rates. Therefore, the Company has flexibility to negotiate the rates it pays
Micron for excess generation. Without having a fixed method for determining the EGC and
RCC rates in place, Staff believes that subjecting EGC and RCC expenses to 95% sharing
incentivizes the Company to negotiate for the lowest cost. The policy decisions to set a fixed
method for EGC and RCC rates and whether to apply sharing to the cost in the PCA need to also
consider the following:
1. The potential for Micron and other Clean Energy Your Way - Construction
("CEYW-CO") customer's net export cost to become an increasingly large proportion
of the Company's NPSE.
2. Micron's decision to enter a contract, as a customer of the Company, to provide
excess generation to the Company's system is functionally no different than any other
non-PURPA supplier.
Method for Settine EGC and RCC not Commission Mandated
The purpose of the PCA is to true-up the amount of NPSE recovered through base rates
to actual NPSE. Without 95% sharing in the PCA, the Company is guaranteed full recovery of
its actual NPSE and has no monetary incentive to reduce its costs. However, with sharing, the
Company has an incentive to reduce its NPSE because it is (l) allowed to keep 5% of the
difference between actual NPSE and NPSE recovered through base rates if actual NPSE is lower,
and (2) only allowed95%o recovery of actual NPSE if actual NPSE is higher.
For sharing to work as an incentive to reduce costs, Staff believes as many components of
NPSE as possible should be subject to sharing in the PCA. Currently, the only NPSE
components of the PCA not subject to sharing are those components mandated through
regulatory policy, including PURPA payments, demand response ("DR") incentive payments,
and energy efficiency ("E8") incentive payments. The components not subject to sharing have
rates determined by a set method authorized as a matter of policy, which, in the case of PURPA
payments and DR and EE incentive payments, are all based on avoided cost.
However, the Company mistakenly assumes that the Commission mandated the EGC and
RCC rates be based on avoided cost as a matter of policy. Company's Petition at 5. Although
Staff s standard of analysis used avoided cost as a threshold to ensure other customers are not
harmed, it does not advocate that these rates should be determined based on avoided cost in
RECONSIDERATION COMMENTS J ocToBER 18,2022
CEYW - CO participant contracts. Staff does not believe that the Commission was making a
policy decision on the method used to determine compensation for excess generation in future
CEYW - CO contracts. For example, in response to Boise City's Petition for Reconsideration,
the Commission stated that, "[i]t is important to distinguish findings from the rationale and
analysis used to support them." Order No. 35532 at 7. The Commission continued, stating that
it had "identified an analysis in this case that could be consistently applied to other similar cases
. . [and that] . . . applying a consistent analysis should not be construed to dictate the same
outcome in every case." Id.
Additional support for the argument that EGC and RCC rates are not being dictated via
Commission policy, is the Commission's own statement that "the resources under CEYW - CO
projects and associated agreements, unlike resources under PURPA, which the Company is
mandated to take by the Federal Energy and Regulatory Commission, are freely negotiated by
the Company with its customers." Order No. 35482 at l8 (emphasis added).
Increased Penetration of Micron and other CEYW-CO Cost in Company's NPSE
Staff believes the potential for Micron and other CEYW - CO customers to become a
relatively large proportion of the Company's NPSE is an important factor to consider regarding
sharing and whether the rates should be freely negotiated.l Micron has a renewable energy goal
of using 100% renewable energy to support its U.S. operations by year 2025. Application at 3.
One of the Company's largest power customers, Micron has a load in excess of 20 MW and is
planning to increase its total load in the next few years in conjunction with construction of its
new $15 billion facility. Assuming about a30oh capacity factor for solar, Micron will need to
acquire an amount of solar nameplate capacity more than 3 times its average load to achieve its
goal. With such a large amount of nameplate capacity compared to its average load, the
Company will receive large amounts of excess generation exported to its system, approaching
two times Micron's average load when the sun is its most intense. The amount of excess
generation cost that make up the Company's NPSE could become even larger with additional
CEYW - CO customers that have similar renewable energy goals. Because there is the potential
for a high penetration of Micron and other CEYW - CO customer's excess generation costs to be
I The Company proposed to acquire up to I l0% of any CEYW-CO customer's annual energy requirements. Case
No. IPC-E-21-40 Application, Attachment l, Sheet No. 62-3.
RECONSIDERATION COMMENTS 4 ocToBER 18,2022
included in the Company's NPSE, Staff believes it is important that compensation for excess
generation be subject to PCA sharing so the Company is motivated to negotiate these contracts at
least cost.
Micron as a Supplier
Although Micron and other CEYW- CO participants are customers when consuming
power supplied by the Company, their decision to export generation into the Company's system
is functionally no different than any other non-PURPA supplier that exports power to the
Company's system. From a purely technical standpoint, any entity that provides power into the
Company's system and receives renumeration for that power is a supplier to the Company. The
main difference between a non-PURPA supplier and Micron is that Micron's load is netted from
its generation.2
Currently, the Company freely negotiates and enters contracts with other non-PURPA
suppliers, just as the Company did with Micron. When negotiating non-PURPA PPAs with
suppliers; however, there is a financial incentive for the Company to negotiate for the lowest
rates and most favorable terms because these PPAs have NPSE that are subject to sharing in the
PCA. Staff believes that by applying sharing to Micron's payments for EGC and RCC in the
PCA, similar to the sharing applied to the cost of the Company's other non-PURPA PPAs, the
Company will have the financial incentive to negotiate the best rates for its customers, resulting
in a prudent least cost, least risk outcome.
Boise City argues against sharing, stating:
the application of the cost sharing mechanism here does nothing to encourage the
Company to mitigate its power supply expenses and instead passes back the cost to
Micron or the future CEYW-CO participating customer by further reducing the value of
excess energy and capacity credit costs. The Commission has the opportunity to review
and approve each future CEYW-CO agreement . . . so it is not necessary to impose
additional discriminatory costs to further increase the renewable resource benefits to non-
participating customers through a cost-sharing mechanism.
City of Boise City's Petition for Reconsideration at 8, 9.
Staff has several points to make in response to Boise City's argument.
2ln the case of Micron, the amount of exports seen by the Company requires mathematically netting Micron's load
from its generation on an hourly basis. This "behind-the-virhral-meter" framework establishing a boundary between
Micron and the rest of the Company's system is more fully discussed in Staff s initial comments in this case.
RECONSIDERATION COMMENTS 5 ocToBER 18,2022
First, even though All Non-PURPA PPAs are subject to sharing in the PCA, the
Company and other Idaho electric utilities must obtain approval from the Commission to recover
their NPSE by filing for pre-approval through a separate case, through the annual PCA filing,
and/or by filing a general rate case.
Second, Staff believes the purpose of sharing specific to non-PURPA PPAs is primarily
to motivate the Company to achieve the best deal for all customers during its negotiation prior to
authorization for recovery. Although sharing provides an incentive that aligns the Company's
organizational objectives with the Company negotiating the best deal for all customers, Staff
does not believe sharing by itself is sufficient to achieve the best deal for customers, which is
why additional review and approval is necessary.
Finally, the Commission has stated that there is no guarantee that rates are set to ensure a
project's f,rnancial viability or its owner is able to earn a retum on investment.3 Micron and the
Company, just as in any other negotiation between the Company and a non-PURPA power
contractor, freely entered a negotiated agreement based on each party's own conceptualization of
its costs and benefits. Furthermore, Micron has a corporate goal to supply 100% of its energy
needs by 2025 with renewable energy and it has negotiated to own and retire all the Renewable
Energy Credits ("REC") eamed from its generation. Only Micron can evaluate the non-
monetary benefits of its CEYW- CO project relative to its costs. Micron is also able to select the
renewable resource of its choice. Because every resource type has a different generation profile,
the Company needs to evaluate the value of this resource type (net of consumption) to the
Company's system among its other generation options and consider this evaluation in its overall
negotiation.
Method used to Determine EGC
Boise City's issue with the EGC is that the backstop mechanism, whereby ECRs are "the
lower of the Excess Generation Price (with the 85% adjustment) and the actual high or low load
hour Mid-C market price (without any adjustment) for each hour of excess energy delivered,"
precludes Micron, and other future CEYW - CO customers, of the opportunity to receive a larger
3 Not requiring that rates must provide financial viability to project owners is a principle the Commission has
applied to PURPA rates in Order Nos. 32262 at 8 and 34794 at 14, and customer generation in Order Nos. 34509 at
l3 and 35284 at 10.
RECONSIDERATION COMMENTS 6 ocToBER 18,2022
EGC payment if actual market prices are higher. Boise City's Petition for Reconsideration at
6-7.
Staff believes that the backstop authorized by the Commission in Order No. 35482
mitigates the potential consequences of ( I ) a price forecast with a significant amount of error,
and (2) a fundamental change in market prices between forecast updates. Staff also believes the
backstop strikes a balance between Micron's need for predictability so that it can predict its
revenue through the use of a forecasted EGC rate and the need to protect other customers by
backstopping market price risk.
Because the Aurora market price forecast will be updated every two years with
acknowledgement of the Integrated Resource Plan, the risk and impact of an incorrect forecast is
greatly reduced. Because of this reason, Staff believes the backstop should be designed
conservatively being infrequently needed unless the two conditions it is intended to mitigate
occur. Staff believes the right balance can be struck by determining the EGC price each hour
taking the lower of the Excess Generation Price (the Aurora market forecast with the 82.4%
firmness adjustment and the 85% transmission-related cost adjustment) and a backstop amount
using the actual high or low load hour Mid-Columbia ("Mid-C") market price without the two
adjustments.
Staff analyzed the frequency that the actual Mid-C price backstop came into play by
comparing the 2019 Aurora-forecasted hourly prices (with the adj ustments) to the 20 I 9 actual
Mid-C high and low load hourly prices (without the adjustments). Staff determined that by not
applying the 82.4o/o and 85o/o adjustment to the actual Mid-C price, the backstop would come
into play less than l0% of the time (819 hours out of 8760 hours). Staff believes that this
backstop design provides the right balance of providing predictable rates for Micron while
protecting other customers.
STAFF RECOMMENDATIONS
1 . Staff continues to recommend that 95oh customer sharing be applied to all EGC
and RCC payments in the PCA; and
2. Staff continues to recommend that the EGC rate be based on the lower of the
Excess Generation Price (with the 82.4Yo andS5Yo adjustments) and the actual
RECONSIDERATION COMMENTS 7 ocToBER t8,2022
high or low load how Mid-Columbia ('Mid-C') market price (without any
adjushents) for eaeh hour.
Respecttullysubmittedthis $ln day ofOctober 2a22.
RileyNewton
Deputy Attomey General
Technical Staff: Michael Louis
l:umisdcomments/ipce.n.6mmetqc reconsidordion goiiiinents
RECONSIDERATION COMMENTS 8 ocToBER t8,2A,22
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THTS l8th DAY OF OCTOBER 2022,
SERVED THE FOREGOING RECONSIDERATION COMMENTS OF THE
CoMMISSION STAFF, IN CASE NO. IPC-E-22-06, BY E-MAILING A COPY
THEREOF, TO THE FOLLOWING:
DONOVAN E WALKER
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: [e-mail]
dockets@ idahopower.com
PETER J RICHARDSON
RICHARDSON ADAMS PLLC
515 N 27TH ST
PO BOX 7218
BOISE TD 83702
E-MAIL: [e-mail]
ED JEWELL
DEPUTY CITY ATTORNEY
BOISE CITY ATTORNEYS OFF
PO BOX 500
BOrSE rD 83701-0500
E-MAIL : ej [e-mail]
A
TIM TATUM
CONNIE ASCHENBRENNER
IDAHO POWER COMPANY
PO BOX 70
BOrSE rD 83707-0070
E-MAIL: [e-mail]
caschenbrenner@ idahopower.com
DON READING
6070 HILL ROAD
BOISE ID 83703
E-MAIL : [e-mail]
WIL GEHL
ENERGY PROGRAM MANAGER
BOISE CITY DEPT OF PUBLIC WORKS
PO BOX 500
BOISE ID 8370I
E-MAIL: wgehl@,citvofboise.org
J" /1"0-",
SECRETARY
CERTIFICATE OF SERVICE