20221206Comments - Redacted.pdf

MICHAEL DUVAL
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. II7I4
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Street Address for Express Mail:
1 1331 W CHINDEN BLVD, BLDG 8, SUITE 2OI-A
BOISE,ID 83714
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IDAHO POWER COMPAI\"Y'S AI\NUAL
COMPLIANCE FILING TO UPDATE THE
LOAD AI{D GAS FORECASTS IN THE
INCREMENTAL COST INTEGRATED
RESOURCE PLAN AVOIDED COST MODEL
CASE NO. IPC.E.22-26
REDACTED COMMENTS OF
THE COMMISSION STAFF
STAFF OF the Idaho Public Utilities Commission, by and through its Attomey of
record, Michael Duval, Deputy Attorney General, submits the following comments.
BACKGROUND
On October l4,2022,Idatro Power Company ("Company") made a compliance filing
("Filing") requesting the Commission issue an order accepting its updated "load forecast, natural
gas price forecast, and contracts used as inputs to calculate its lncremental Cost lntegrated
Resource Plan ("IRP") avoided cost methodology." Filing at 1. The Company must update
these inputs by October l5 of each year. See Order Nos. 32697 and32802. The Filing also
updates the peak and premium peak hours used by the Company for the avoided capacity cost
calculations available to energy storage qualiffing facilities ("QF"). IRP avoided cost rates are
available to QFs that are above the resource-specific project eligibility cap for published avoided
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1REDACTED STAFF COMMENTS DECEMBER6,2022
cost rates under Idaho's implementation of the Public Utility Regulatory Policies Act of 1978
("PURPA").
STAFF ANALYSIS
Staff has reviewed the Filing and recommends approval of following, with an effective
date of January l, 2023, as required by Order No. 35294:
l. The proposed load forecast;
2. The proposed natural gas forecast;
3. The proposed Peak Hours and Premium Peak Hours to be used to calculate and
pay capacity payments for energy storage QFs using lRP-based avoided cost
rates;
4. The Peak Hours to be used to calculate and pay capacity payments for energy
storage QFs using Surrogate Avoided Resource ("SAR")-based rates;
5. Staff s proposed modifications to the current methodology used to determine
Non-Premium Peak Hour and Premium Peak Hour rates, which will allow the
Premium Peak Hour rates to be consistently 20o/o above the Non-Premium Peak
Hour rates;l and
6. Staff s recommendation that the Company continue to include contract updates in
future annual filings, even though contract updates are incorporated in the IRP
model on a continuous basis.
The Company states that Peak Hours and Premium Peak Hours are subject to change
annually and when a new IRP is acknowledged. Filing at 9-10. The Company requested that the
Commission waive the requirement to file an update to the hours upon acknowledgement of the
IRP. Staff believes that the Company should only update Peak Hours and Premium Peak Hours
annually and does not need to update them upon acknowledgement of the IRP in accordance
with Order No. 34913.
I Because Peak Hours include Premium Peak Hours, Staff uses Non-Premium Peak Hours to refer to the remaining
Peak Hours that are outside the Premium Peak Hours.
2REDACTED STAFF COMMENTS DECEMBER 6,2022
Load Forecast
Staffbelieves that the proposed load forecast is reasonable aud reflects load hends within
the Compauy's seryice territory. Staffjustifies its conclusion based on the surall amoturt of
change from the previous year's forecast over the uext few years of the forecast time horizon, a
period critical to IRP-based PURPA confracts.
Staffcompared the proposed load forecast to last year's load forecast as illustrated in
Figtue No. I below. The proposed load forecast is higher than last year's forecast over the long
tenn mainly because of new large indushial customers being added to the system starting in year
2025. See Response to Staffs Production Request No. 3 (c). However, the urost important
period of the forecast relevant to this filing is duing the next few years. This is because only the
fust few years of the forecast will be used to develop avoided cost rates for IRP-based PURPA
coutracts rurtil the next arurual update, since IRP-based PURPA contracts are lirnils6 to 2-year
contract tenns.
Fipure ltio. 1: Load Forecast Comnarison
ldaho Power Annual Load Forecast
3500
3000
2500
2000
1500
1000
500
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..oi.. 2021 Load torecast
-2O22
Load Forecast
Nstural Gas Forecast
Staffverified that the Company has re-evaluated its nahual gas price forecast
methodology required by Order No. 35294. Staffalso believes that the proposed Platts forecast
is reasonable for detennining IRP-based avoided cost rates.
3REDACTED STAFF COMMENTS DECEMBER 6,2022
In the last annual compliance filing (Case No. IPC-E-21-35), the Company's proposed
Platts forecast did not accurately reflect natural gas prices that had shifted due to changes in
market fundamentals, especially in the near term. Staffs Comments in Case No. IPC-E-21-35.
Although the issue was mainly due to the age2 of Platt's forecast included in its initial filing, the
Commission required the Company to blend New York Mercantile Exchange ("NYMEX")
futures prices with its Platt's forecast3 in a compliance filing and for the Company to re-evaluate
its natural gas price forecast methodology prior to the next annual update. See Order No. 35294.
The Company re-evaluated its natural gas price forecast methodology for this case and
believes that the Platts long-term forecast is still an accurate forecast to be used for determining
IRP-based avoided cost rates. The Company states:
the inputs/techniques used to develop the Platts long-term forecast help
ensure reliability including the fact that it is based on fundamental market
drivers rooted in supply and demand. Additionally, the forecast model
inputs include production, storage, transmission, and pipeline dynamics,
among other factors, which work to solve for a competitive equilibrium.[ ]
Moreover, the Platts long-term forecast is updated quarterly versus other
forecasts that are updated annually, and further, Platts forecasts price curves
for individual proxy basis hubs, which is not only consistent with what is
used in the IRP but aligns with IPC's tading operations.
Idaho Power understands that other utilities may use other natural gas
price forecast method, including some that may use NYMEX futures prices
exclusively over the first few years of their forecasts. However, Idaho
Power disfavor this source since the NYMEX markets also trade on
technical drivers, which in part has led to unprecedented daily volatility
over the last year; NYMEX has the ability to swing +/-10 percent on any
given day. In contract, the Platts long-term forecast inherently smooths out
short-term volatility as it is not subjected to the irrational behavior of the
daily markets. Moreover, given that this annual compliance filing is
intended to maintain the most accurate and up-to-date reflection of a
utility's true avoided cost between IRP filings, the Company believes it is
appropriate to align the update with the inputs techniques used in the IRP
as opposed to those of other utilities.
See the Filing at 5-6.
2 The proposed Platts forecast in the last annual compliance filing was generated in July of 2021 and did not capture
price increases due to changes in the natural gas market that occurred starting the end of July. See the Company's
Reply Comments in Case No. IPC-E-21-35.3 The forecast for years 2022-2024 used the NYMEX forwards prices. The forecast for 2025 used an average of the
NYMEX prices and the Platts long-term forecast prices published on July 21,2021. The forecast for years2026-
2040 used the Platts long-term forecast prices published on July 21,2021. The forecast for204l used a calculated
value from the linear regression of the last five years of the Platts long-term forecast prices.
4REDACTED STAFF COMMENTS DECEMBER6,2022
Staff believes that as long as the Company uses the most recent quarterly Platt's forecast
in its annual update, it should reflect the most recent market fundamentals driving market prices
over the next few years. However, Staff believes it is still possible to use NYMEX prices in its
near-term forecast similar to other Idaho utilities using NYMEX prices and 3'd party forecasts.
For example, Avista smooths out the NYMEX forecasts by developing monthly projections
using daily forward prices on different settlement dates for a specific contract month in the future
to arrive at a monthly value for each montha.
Regardless, Staff believes the proposed Platt's natural gas forecast is reasonable based on
two separate analyses. First, Staff compared the proposed Platts Henry Hub forecast published
September 9,2022, the approved Henry Hub forecast under the blended method in Case No.
IPC-E-21-35, and the Platts Henry Hub forecast published December 14,2021s. Second, Staff
compared the Company's proposed Henry Hub forecast to the Henry Hub forecasts of Avista and
Rocky Mountain Power.
The comparison of the proposed Platts forecast published September 9,2022,the
approved forecast under the blended method in Case No. IPC-E-21-35, and the Platts forecast
published December 14,2021, is reflected in Figure No. 2 below. The proposed Henry Hub
forecast for this year is significantly higher than the other two forecasts from last year. Staff
believes the difference is primarily driven by market fundamentals that have increased the price
ofnatural gas over the past one and a halfyears.6
a This information was confirmed by Avista through email on December 2,2022.
5 This information was provided in the Company's Reply Comments in Case No. IPC-E-21-35.6 See natural gas market trends on Stats Tab at https://tradingeconomics.com/commoditr-/natural-gas
5REDACTED STAFF COMMENTS DECEMBER 6,2022
Figure No. 2: ComDarison of ltlaho Power's Henrv Hub Forecasts
Figtue No. 3 shorvs the courparisou betrveen the Courpany, Avista (Case No. AVU-E-22-
15), and Rocly Mourtain Power's (Case No. PAC-E-22-16) Heury Hub forecasts. The results
show sinrilar heuds behveeu the tluee utilities. Although these utilities use differeut
urethodologies to detenuine Heury Hub forecasts, all tluee forecasts rcflect a high level of
siruilarity over the next few years, which as discussed above. is the tirue frame relevant to nerv
coutracts that wotrld receive pricing for trvo-year IRP-based coutracts.
6REDACTED STAFF COMMENTS DECEMBER 6,2022
Figure No.3: Comparison of Henry Hub Gas Forecasts Used by Three Utilities
Contract Updates
Contract updates are incorporated into the IRP urodel on a continuous basis. Order
No. 32697 required that long-tenu contracts be considered in the IRP urethodology at such tiure
as coutracts were sipmed and when they had tenuinated or expired. Later, Order No. 33357
fourd the "sipoed cortract" lanpnrage in Order No. 32697 did not achieve its intended result aud
required utilities to create a queue to track the order in which QF projects have entered
negotiations with a trtility.
Althoupilr contract updates are incorporated in the IRP urodel on a continuous basis, Staff
believes the arurual {iling is a good opportunity for the Couunission to review and monitor these
updates. Therefore, Staffrecouuuends that the Courpany continue to include coutract updates in
the futtre amrual filings. For this case. Staff believes the contract updates included in the Filing
are reasonable.
Peak and Premium Peak Hours used for Output Based Capacity Payments
The Company is required to trpdate its Peali and Preuriuu Peak Hours used to detenuine
output-based capacity payurents for energy storage projects in its amrual load and naftual gas
forecast update. Order No. 34913. In addition to reviewing updates to Peak and Preurirun Peak
7REDACTED STAFF COMMENTS DECEMBER 6. 2022
hours, Staff reviewed the current method used to determine Premium Peak Hour and Non-
Premium Peak Hour rates to ensure that the premium is20Yo above the Non-Premium Peak Hour
rates.
Updates to Peak and Premium Peak Hours
Staff reviewed the method the Company used to update the Peak and Premium Peak
Hours for 2023 and determined that the Company used the same method used in last year's
annual filing. Therefore, Staff recommends approval of the proposed Peak Hours and Premium
Peak Hours to be used to calculate and pay capacity payments for energy storage QFs using IRP-
based avoided cost rates. Staff also recommends approval of the Peak Hours to be used to
calculate and pay capacity payments for energy storage QFs with SAR-based rates.
The proposed Peak Hours for July in2023 are2:00 pm to midnight, which has one
additional Peak Hour in July compared to the currently authorized Peak Hours. However, the
proposed Peak Hours for Augustin2023 are 5:00 pm to 9:00 pm, which has one fewer Peak
Hour, resulting in the same number of total Peak Hours (434 hours) overall for a year. The
proposed Premium Peak Hours for July are 6:00 pm through l0:00 pm, which start one hour later
and end one hour later compared to the currently authorized Premium Peak Hours. The proposed
Premium Peak Hours for August are 5:00 pm through 9:00 pm, which are the same as the
currently authorized Premium Peak Hours.
Unlike IRP-based energy storage avoided cost rates where the Premium Peak Hour rates
are higher than the Peak Hour rates, the SAR energy storage capacity payments are only paid for
generation during Peak Hours without any premium. Although the Peak Hours have changed in
this Filing compared to the currently authorized ones, the total number of Peak Hours remains
434 hours in a year. Avoided cost of capacity in the SAR Model is calculated by dividing the
annual capacity value of a Combined Cycle Combustion Turbine plant by the total number of
Peak Hours in a year. Therefore, the SAR-based avoided cost rates for energy storage will not
be affected. However, QFs will receive capacity payments for generation output during different
hours if the proposed hours are approved by the Commission.
8REDACTED STAFF COMMENTS DECEMBER 6,2022
Modification to Calculations of Non-Premium Peak Hour and Premium Peak Hour Rates
Staff proposes to modifr the current methodology used to calculate the Non-Premium
Peak and Premium Peak Hour rates so that the Premium Peak Hour rates are consistently 20o%
above Non-Premium Peak Hour rates without changing the total amount of Annual Capacity
Payments that a QF can receive.T Staff believes it is an ideal time to modifu the method since
there are no current or proposed energy storage PURPA projects using the current rate design.
In Case No. IPC-E-20-02, the Commission approved the current method and sets the
Premium Peak Hour rates at 120% of the Base Capacity Price, which is calculated by spreading
the Annual Capacity Payment over the total generation amounts within the Peak Hours. Under
this methodology, there is no direct, fixed relationship between the Premium Peak Hour rates and
the Non-Premium Peak Hour rates resulting in a premium that can vary depending on the project.
StafPs proposal establishes a direct, fixed relationship between the two rates maintaining a
consistent amount of premium of 20%o by using the following formula:
Non-Premium Peak Hour rates = Annual Capacity Payment / (Generation
during Non-Premium Peak Hours * Generation during Premium Peak
Hours * 1.2)
Staff believes this modification will result in better transparency of the rate structure for
negotiating parties.
Staff used data from Response to Staff s Production Request No. 39 in Case No. IPC-E-
20-02 to develop the rate proof below, which compares the two methods. See Table No. 1 .
7 Annual Capacity Payment is the product of Annual Value of the Surrogate Plant multiplying Peak Hour Capacity
Factor (90th percentile). See the Company's Compliance Filing in Case No. WC-E-20-02.
9REDACTED STAFF COMMENTS DECEMBER 6,2022
Msthod ilbthod
1.2
Not Used
Not Used
1.2
Ratio Betwcen Prcmium Peak Hour Rate and
Bate Capacl$ Prlcc
Ratio Bctwaen Prcmium Pcak Hour Ratc
and Nonfremimum Pcak Hour Rata
QF Gcneration
I).slivcrcd during All Pcak Hours (kWh)
Brse Price 0.2626
8339000
Not Used
8339000
QF Ggneration
Oelivcrcd durlng Prcmlum Pcak Hourr (ktUhl
Premlum Peak Hour Paymcnt ($)
Non-Premlum Peak Hourc Payment ($)
QF Gcneration Delivercd
Non-Prcmlum Pcak Hour
4960000
1562936
626802
3379000
4S60000
1396776
792962
337S000
26m831 2606831SCCTAnnualTotal
0.84 0.84
Pcak Hour Capaclty Frctor
Ratio Between Pramlum Peak Hour Rate
and Non-Premimum Peak Hour Rate 1.7 1.2
Table No. 1: Comnarison of Current Method and Proposed Method
As can be seen in the table, the amount of the total Annual Capacity Payment remains the
szune, but the proposed method ensures that the Premium Peak Hour rate will always be20%
above the Non-Premium Peak Hour rate. Under the current method, the amount of premium can
vary, which in this example is l70Yo of the Non-Premium Peak Hour rate.
STAFF RECOMMENDATION
Staff recommends that the Commission approve the following updates to determine the
Company's IRP-based PURPA avoided cost rates with an effective date of January 1,2023, as
required by Order No. 35294:
1. The proposed load forecast, as filed;
2. The proposed natural gas forecast, as filed;
3. The proposed Peak and Premium Peak Hours used to calculate and pay capacity
payments for energy storage QFs using IRP-based avoided cost rates, as filed;
REDACTED STAFF COMMENTS 10 DECEMBER6,2022
4. The Peak Hours used to calculate and pay capacity payments for energy storage
QFs using SAR-based avoided cost rates, as filed;
5. Staff s recommendation that the method used to determine Non-Premium Peak
Hour and Premium Peak Hour rates be modified based on Staffs proposal; and
6. StafPs recommendation that the Company continue to include contract updates in
future annual filings, even though contract updates are incorporated in the IRP
model on a continuous basis.
t*t
Respectfully submitted this (l day of December}l2}
Michael Duval
Deputy Attomey General
Technical Staff: Yao Yin
Kevin Keyt
i : umi sc/commen tsl ip ce22.26mdyykk comments
REDACTED STAFF COMMENTS 11 DECEMBER6,2022
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 6th DAY OF DECEMBER 2022,
SERVED THE FOREGOING REDACTED COMMENTS OF THE COMMISSION
STAFF, IN CASE NO. IPC-E-22-26, BY E-MAILING A COPY THEREOF, TO THE
FOLLOWING:
MEGAN GOICOECHEA ALLEN
DONOVAN E WALKER
IDAHO POWER COMPANY
PO BOX 70
BOrSE rD 83707-0070
E-MAIL: [e-mail]
dwalker@ idahopower. com
[e-mail]
SECRET
CERTIFICATE OF SERVICE