19960528Reply Comments.PDF

0 C)
BARTON L.KLINE EECEV.)L
LARRY D.RIPLEY
Idaho Power Company
P.O.Box7O 3f’I’23 F1 99
Boise,ID 83707 -
[phone]
is jL)
Attorney for Idaho Power Company
Street Address for Express Mail
1221 West Idaho Street
Boise,Idaho 83702
FAX Telephone No.:[phone]
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE CASE NO.IPC-E-95-15
APPLICATION OF IDAHO POWER
COMPANY FOR AN ORDER REVISING REPLY COMMENTS OF IDAHO
THE RATES,TERMS,AND POWER COMPANY
CONDITIONS UNDER WHICH IDAHO
POWER PURCHASES NON-FIRM
ENERGY FROM QUALIFYING
FACILITIES.
Idaho Power Company (“Idaho Power”or “Company”)hereby submits the following
comments in response to the comments of Commission Staff and interested parties.
BACKGROUND
Rate Schedule 86 was originally filed in 1981 in response to Commission Order No.
16025.Order No.16025 was the first Order issued by the Commission to implement PURPA in
REPLY COMMENTS OF IDAHO POWER COMPANY,Page 1
0
Idaho.Since 1981,Idaho Power and the Commission have both gained a better understanding
of the costs and benefits associated with the development of PURPA resources in Idaho.For
example,Order No.16025 is replete with references to the need to stimulate and encourage the
development of QF resources.However,since the issuance of Order No.16025 the Commission
has recognized in several subsequent orders that the QF industry in Idaho has matured to the
extent that it no longer needs the same degree of stimulation and protection from competition.
Despite the significant changes that have occurred as the QF industry has evolved and
matured,the one constant has been the requirement of PIJRPA embodied in 18 CFR §292.304(d)
that utilities cannot be required to pay more than their avoided costs for purchases of power from
QF’s.Several recent FERC cases have strongly reinforced this basic principal of ratepayer
protection.(See So.Cal.Edison,San Diego Gas &Electric,70 FERC ¶61,215 and Conn.L&P,
70 FERC ¶61,012.)This reaffinnation of the avoided cost cap by the FERC is consistent with
current discussions on the national level of “stranded cost”and other fundamental changes in the
structure of the electric utility industry as it exists today.
STANDARD RATE OPTION
The FERC’s regulations implementing PURPA provide,inter alia that rates for purchases
from QFs will satisfy PURPA’s requirements if they are based on either:(1)the avoided cost
calculated at the time of delivery;or (2)the avoided cost calculated at the time the obligation is
incurred.(18 CFR §292.304(d).)In the specific case of non-firm purchase prices the FERC
regulations state:
(d)Purchases “as available”or pursuant to a legally enforceable
obligation.Each qualifying facility shall have the option either:
REPLY COMMENTS OF IDAHO POWER COMPANY,Page 2
0
(1)to provide energy as the qualifying facility
determines such energy to be available for such purchases,in which
case the rate for such purchases shall be based on the purchasing
utility’s avoided costs calculated at the time ofdelivery;or.
(Emphasis supplied)
(2)to provide energy or capacity pursuant to a legally
enforceable obligation for the delivery of energy or capacity over
a specified term,in which case the rates for such purchases shall,
at the option of the qualifying facility exercised prior to the
beginning of the specified term,be based on either:
(i)the avoided costs calculated at the
time of delivery;or
(ii)the avoided costs calculated at the time the
obligation is incurred.
Because the specific intent of Schedule 86 is to address non-firm,as available
energy purchases,Idaho Power originally proposed to delete the existing Option A,Standard Rate
and retain only the existing Option,B Actual Avoided Energy Cost at Time of Delivery.Under
Option B the Company determines the average cost of energy used to serve the Company’s
marginal 200 MW’s of load during the preceding calendar month and pays that amount to the non-
firm energy producer.This provides an accurate determination of the actual value of non-firm
QF energy “at the time of delivery.”Staff characterizes Idaho Power’s Option B as a “new
method of calculating avoided cost.”(Staff comments p.4.and 5)In fact,this same purchase
option has been in place since the original Schedule 86 was ified in 1981.While this method of
pricing QF energy is certainly different from the estimated avoided costs traditionally associated
with firm energy QF contracts in Idaho,it is consistent with the FERC’s regulations governing
purchases of “as-available”energy.Idaho Power does not believe that it represents a new method
of calculating avoided costs for non-firm energy.
REPLY COMMENTS OF IDAHO POWER COMPANY,Page 3
0
Idaho Power also proposed to eliminate the “standard rate option”because it involves
estimating the future value of non-firm energy.As the Commission knows,much of the difficulty
associated with developing avoided cost rates arises out of the process of trying to estimate future
energy costs.This is particularly true today in light of the substantial changes that are occurring
in the wholesale power markets.In its Application,Idaho Power opted to reduce forecasting risk
and limit payments for non-firm energy to actual values at the time of delivery.
Staff recommends that the standard rate option be retained in order to allow QF developers
to obtain financing and to plan future production.Idaho Power questions whether non-firm
energy prices play much of a role in the evaluation of the long term viability of a QF project by
potential project financiers.Nevertheless,Idaho Power is willing to accept the Staff’s proposal
to retain the standard rate option in Schedule 86 as an alternative to purchases based on actual
avoided costs at time of delivery.This acceptance is conditioned on the Company’s ability to
revise these estimated rates on a regular basis.Staff’s proposal that the rates be revised every two
years is reasonable.In light of the volatility of the current market for non-finn energy,any longer
interval between revisions would not be prudent.
ELIMiNATION OF RATE OPTION C-NET METERING,(RUNNING THE METER
BACKWARDS)
Idaho Power’s Application proposes to eliminate the purchase arrangement identified in
the existing Rate Schedule 86 as “Option C.”Under the current Option C,very small QF projects
are permitted to “run the meter backwards”and thereby sell their power at retail rates rather than
at avoided cost.This purchase arrangement should be eliminated for at least two reasons.First,
retail rates exceed Idaho Power’s Commission approved avoided power supply costs.As a result,
purchasing non-firm energy at retail rates clearly violates the PURPA proscription on above
REPLY COMMENTS OF IDAHO POWER COMPANY,Page 4
0
avoided cost purchase prices.As the Commission Staff correctly notes in its comments on page 3,
“Rate Option C in its current form,creates a situation where the Company may have to buy
electricity at prices well in excess of either current generation costs or avoided costs.”
The second reason that Option C should be eliminated is that it prevents the Company from
recovering all of its cost of serving those retail customers that sell power under Option C.In their
comments,the Staff noted that by allowing a customer to “run the meter backwards”the Company
will be under earning on its investment required to serve a particular customer.The Staff’s
comments identify this under earning on the portion of the distribution system and service drop
required to provide self-generators with flail back up power.In fact,Staff’s comments understate
the extent of the under earning problem.The retail rates Idaho Power charges its retail customers
cover more than just the Company’s generation costs.Retail rates include costs associated with
the Company’s transmission system,its distribution system and all of the other costs associated
with providing retail electric service.If the self-generator “runs the meter backwards”to zero,
none of these non-generation costs are recovered from the self-generator.Staff’s proposal to
modify Option C to require purchases of net generation at avoided cost rather than at retail rates
does not avoid the under earning problem.
The O&M charges under Schedule 72 are designed for QF projects generating in parallel
with the Company’s system and will not recover all of the system costs attributable to self-
generators.These cost recovery issues for self-generators are not new.Utilities and
Commissions have dealt with them for years.Traditionally utilities and Commissions have
resolved these problems by means of a standby or back-up charge.This allows the utility to
recover,from the self-generator,the self-generator’s fair share of the costs of the back up it is
REPLY COMMENTS OF IDAHO POWER COMPANY,Page 5
0 C)
receiving from the utility system.Standby charges are intended to minimize the risk that other
customers will be disadvantaged by a self-generator’s decision to generate to its own load.
As the Commission is well aware,there is a substantial push currently to “unbundle”the
delivery of electrical services in order to send the right price signals to customers.Net metering
or running the meter backward allows one group of customers to shift system costs to other
customers and sends price signals that are inconsistent with “unbundled”electrical service.
Idaho Power is certainly willing to accommodate small QF projects within its system.In
fact,Idaho Power has signed contracts with nine QF developers for projects smaller than 100 KW.
However,QF purchases should not be made if they require Idaho Power to pay more than its
avoided costs for QF energy and,in the case of Option C,if the purchase arrangement does not
even allow Idaho Power to recover all of its costs.
CONCLUSION
Idaho Power is willing to retain the standard rate option and the option to sell power at
Idaho Power’s avoided energy costs at the time of delivery.Idaho Power believes that unless
provision is made for a standby charge that allows Idaho Power to recover all of its costs,both
the current Option C and the Commission Staff’s modified Option C should be rejected.
RESPECTFULLY SUBMITTED this 28th day of May 1996.
IDAHO POWER COMPANY
Barton L.Kline
REPLY COMMENTS OF IDAHO POWER COMPANY,Page 6