20230410Decision Memo.pdf

TO:
FROM:
DATE:
RE: DECISION MEMORANDUM COMMISSIONER ANDERSON COMMISSIONER HAMMOND COMMISSIONER LODGE
COMMISSION SECRETARY
LEGAL WORKING FILE
MICHAEL LOUIS RILEY NEWTON
APRIL 10, 2023
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
BACKGROUND
On March I 0, 2022, Idaho Power Company ("Company") applied to the Commission for
an order: 1) approving a revised Special Contract for electric service between the Company and
Micron Technology, Inc. ("Micron"), and 2) approving the 20-year Power Purchase Agreement
("PPA") between the Company and Black Mesa Energy, LLC that was entered with the
expectation of assigning the associated energy to Micron under the revised Special Contract.
On August l, 2022, the Commission issued Order 35482 approving the Black Mesa PPA
as filed but directing the Company to file an updated ESA, consistent with the Commission's
modifications, within 90 days from August 1, 2022. Order No. 35482 at 18.
On August 22, 2022, the Company filed a Petition for Clarification and Reconsideration
("Petition"). The Company requested Clarification pertaining to the Renewable Capacity Credit
("RCC") method in Order No. 35482.
On September 19, 2022, the Commission granted the Company's Petition, and stayed the
directive in Order No. 35482 requiring the Company to file an updated Micron ESA by October
30, 2022, and ordered the Company and Staff to "work together to develop a rate structure for
calculating Micron's [ RCC] under the ESA which the Company shall file as a compliance filing
DECISION MEMORANDUM -l -APRIL 10, 2023
in this case by December 13,2022,or by another date set by Commission order."Order No.
35532 at 10.
On December 9,2022,the Company filed a Motion for Extension of Time to Make
Compliance Filing ("Motion")requesting the deadline to make its compliance filing be extended
to December 23,2022.
On December 23,2022,the Company submitted a Compliance Filing proposing its
Proposed Renewable Capacity Credit Payment Performance Mechanism ("Proposed Method")
and in the alternative,the IRP-based Energy Storage Project Renewable Capacity Credit
Payment Performance Mechanism ("AlternativeMethod"),to calculate RCC payments based on
collaboration between the Company and Staff.
STAFF ANALYSIS
Staff recommends that the Micron ESA be updated using the Company's Proposed
Method for calculating performance-based RCC payments as reflected in the Company's
Compliance Filing as a result of Order No.35532.Followingthe Commission's directive,the
Company and Staff met on six separate occasions between November 2,2022,and December 14,
2022,to develop a performance-based compensation method for Micron RCC payments.One of
the Company's goals was to develop a mechanism that could be leveraged for other Clean
Energy Your Way -Construction ("CEYW-CO")projects,which Staff believed was an
important goal.However,Staff's primary criteria was to first ensure that Micron only receive
compensation for capacity that is actually delivered to the system during periods of system need.
Through discussions with the Company,Staff also realized the importance that whatever
resource is selected by Micron,it must consistently perform as expected over the life of the
resource as additional criteria.Staff evaluated three alternative mechanisms using these two
criteria prior to finalizing the Proposed Method as a recommendation.The recommended
method meets both criteria while also providing the followingadditional benefits:
1.Limits over-compensation of capacity value by capping annual capacity payments
by the annual avoided capacity cost derived from the fixed cost of an appropriate
proxy resource,the nameplate capacity of the solar resource,and the annual
expected capacity contribution from the most recent acknowledged Integrated
Resource Plan ("IRP");
DECISION MEMORANDUM -2 -APRIL 10,2023
2.Method can be leveraged for other large,renewable,non-dispatchableresources,
such as wind,which may be selected by other CEYW-CO customers;and
3.Provides incentive for delivery performance that will meet capacity needs likely
to occur in the future.
Criteria Used to Evaluate Alternatives
To guide the discussions with the Company and evaluate the different alternatives,Staff
adopted two criteria.
Criterion l
StafPs first criterion is that compensation should only be provided to Micron for Black
Mesa's ability to actuallydeliver contribution of capacity during time periods of system capacity
need.This criterion was derived from what Staff believed was the Commission's intent in Order
No.35482 that occurred prior to the Company's Petition for Clarification precipitating the
collaboration that resulted in the recommendations made here.It states:
We find it fair,just,and reasonable that the RCC utilize the rate and
payment structure for IRP-based energy storage projects.Under this
structure,avoided cost payments are based on actual energy delivered to the
system during system peak and premium peak hours,regardless of the
source of energy.This method aligns with established principles and
ensures accountability in compensating resources for the capacity
avoidance they deliver.In addition,applying this structure provides a
consistent methodology for future,anticipated resource combinations (wind
plus battery and/or solar plus battery)under the Black Mesa PPA and
additional CEYW -CO projects.
Order No.35482 at 17.
Althoughthe specific language in the form of criteria was absent in the Order,Staff
believesthe Commission's impetus for a performance-based mechanism was captured by the
criterion while allowingflexibility to explore other alternatives.
As a result of discussions between Staff and the Company,there was a realization that
"consistency and stability of output over the life of the PPA or resource"is additional criterion
critical for determining the RCC payment method given the set of circumstances surrounding
Micron's Black Mesa solar resource.The resource is a relativelylarge,non-dispatchable
generationresource selected primarily to offset a customer's electricity use with renewable
DECISION MEMORANDUM -3 -APRIL 10,2023
energy,which requires a long-term Company commitment.Because of these circumstances,this
criterion is important for two reasons.
First,in the case of a dispatchable resource,such as a battery or a fueled resource,a
performance-based RCC needs to provide an incentive for the resource to produce during hours
that maximizes the delivery of capacity during hours when the Company's system is capacity-
deficient.Because of the flexibilitythat a dispatchable resource provides,as the need for
capacity changes in the Company's system,the period that incentives are based upon can and
should change.This was the intent for adjusting the Peak and Premium Peak Hours every year
for Public Utility Regulatory Policies Act of 1978 ("PURPA")energy storage projects dictating
the hours that energy needs to be delivered to qualify for capacity payments.
However,Black Mesa is a non-dispatchablerenewable resource.As is the case with
wind and solar,the delivery of energy is dependent on an intermittent source.Because of the
lack of dispatchability,the amount of RCCs a customer can receive is dependent on the
intersection of two factors:the generation profile of the renewable resource chosen'and the time
periods annuallywhen the Company needs incremental capacity.2 Because the selection of a
resource is primarily chosen based on Micron's renewable energy goals and not the least-cost
least-risk resource through the Company's normal resource acquisition process,3 a primary
purpose of the RCC is to provide an incentive for customers like Micron to also choose a project
that both maximizes the amount of RCCs they can receive while providing increased capacity
benefits to the system.
Criterion 2
Second,because of the relativelylarge size of the resource,it will occupy a large position
in the Company's resource stack.Once it occupies a capacity position in the Company's Load
and Resource Balance,the Company needs it to consistently deliver energy based on this
position over the term of the PPA.This will allow the Company to plan additional resources in
future IRP cycles to fill holes of additional needed capacity outside of the capacity position
already occupied by the resource.Without stability and consistency being locked in for the term
i A generation profileis the expected output of a generation resource for each hour in every month.
2 The time period throughout the year when the Company most needs incremental capacity is determined by the lossofloadprobabilityforeachhouracrosstheyear.
3 It is generally accepted that the Company's acquisition of a least cost,least risk resource has to be identified
through the Company's IRP and finally selected through a rigorous competitive bidding process.
DECISION MEMORANDUM -4 -APRIL 10,2023
of the PPA,there is a higher chance the Company may need to re-address the amount and timing
of capacity the resource was intended to fulfill due to a lack of or change in its performance.
RCC PaymentAlternatives
The Company and Staff considered three different capacity payment methods:
1.The Proposed Method which is more fully described in the Company's
Compliance Filing;
2.The Alternative Method based on the Company's capacity payment method used
for IRP-based energy storage PURPA projects;and
3.The capacity payment method currentlyused for PURPA Surrogate Avoided
Resource ("SAR")energy storage projects.
With respect to the three alternatives considered,Staff believes the Company's Proposed
Method does a better job overall meeting Staff's two criteria described above.
Proposed Method
Staff believes the Proposed Method as designed will ensure Staff s two criteria are met.
Staff also believes the Proposed Method provides additional benefits not found in the Alternative
Method (listed below).
1.The amount of annual capacity payments is capped based on the annual capacity
contribution of the solar resource and on the most appropriate proxy resource in
the IRP for determining avoided capacity cost;
2.Compensation for future capacity needs during non-summer months are
incorporated into the method;and
3.The method can be leveraged for similar CEYW-CO projects includingwind.
Staff believes the framework of the Proposed Method provides compensation for capacity
commensurate with the value of capacity actually delivered to the system by identifying capacity
needs in a more rigorous manner across the entire year.The time periods for payments of
capacity are determined by identifyingthe loss of load probabilities ("LOLP")of the Company's
system in every hour throughout the year.Instead of limited resolution using peak and premium
peak hours to determine when payments are made,as is done in the Alternative Method,the time
periods of eligible payments is expanded to an increased number of months based on actual loss
DECISION MEMORANDUM -5 -APRIL 10,2023
of load data.The amount of payment in each month is then weighted by determining the loss of
load expectation ("LOLE")for each month giving credit for capacity contribution based on need
across a wider time frame.This includes eligibilityfor capacity payments during some fall and
winter months that are expected to become more critical in the Company's system.
Regarding the stability of output criterion,the Proposed Method requires the rate and
payment structure be locked in over the term of the PPA.This is important because once the
resource is selected,Micron is only compensated for the Company's need for capacity
determined at the time of contracting,incentivizingstable performance expected of the resource
over the term of the PPA.
In addition,Staff believes the Company has proposed a rigorous method for measuring if
the facility performs as expected.The method requires measuring the amount of sunlight at the
facility compared to the power output of the facility each month.If the project performs as
expected,Micron could receive all eligible payment amounts for that month.If it does not
perform as expected,Micron's eligible payment will be reduced.The total payment Micron
receives is capped based on the capacity contribution to the system of a solar resource as
measured through the Company's most recently acknowledged IRP,the nameplate capacity of
the resource,and the capacity value of the least-cost selectable capacity resource also from the
most recently acknowledged IRP.
Throughout the meetings between the Company and Staff,it was clear the Company
wanted a mechanism that could be applied to other CEYW-CO projects.Althoughthis was not
Staff's top priority,the Proposed Method can be leveraged for similar projects under the same
circumstances.However,Staff believes the Proposed Method may be overly complicated for
less sophisticated customers.
Alternative Method
Staff agrees with the Company that if the Commission believes the Proposed Method
does not meet the Commissions requirements then the Alternative Method is viable,but should
be modified in two ways.
First,to ensure the stability of output criterion is met,Staff agrees with the Company that
Peak and Premium Peak Hours be locked in for the duration of the 20-year term of the PPA and
should be based on the currently-approved Peak and Premium Peak hours.
DECISION MEMORANDUM -6 -APRIL 10,2023
Second,modifications to the calculation of the Non-Premium Peak and Premium Peak
Hour rates as approved in Commission Order No.35644 should be incorporated into the
Alternative Method.
SAR-Based Alternative
Capacity payments through the SAR-based energy storage method is well-suited for
smaller capacity projects that individually do not occupy large capacity positions;however,as an
aggregated whole,they can be characterized to occupy a relatively large capacity position.The
strength of this method is its simplicity.The rate structure is independentof the type of resource
and can be applied generically across all resource types-bothdispatchable and non-
dispatchable.Staff believes this method is better suited for programmatic resources where there
is a need to establish a single generic class-based rate structure as participating resources move
into and out of a program (e.g.Distributed Energy Resources,Demand-side Management,etc.).
However,the ability to apply this rate and payment structure generically for all types of
resources is specifically why it is not a good fit for the Micron ESA.As described earlier,the
Company needs the Black Mesa solar resource to perform as the solar resource was specified to
perform at the time of contracting and to maintain its performance over the entire 20-year term.
STAFF RECOMMENDATION
Staffrecommends that the Micron ESA be updated using the Company's Proposed
Method for calculating performance-based RCC payments as reflected in the Company's
Compliance Filing.
COMMISSION DECISION
Does the Commission wish to approve the Company's Proposed Method to calculate
RCC payments for the Micron ESA?
Udmemos/[PC-E-22-06 Decision Memo
DECISION MEMORANDUM -7 -APRIL 10,2023