HomeMy WebLinkAbout28380.doc BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF PACIFICORP DBA UTAH POWER & LIGHT COMPANY FOR APPROVAL OF A NEW RENEWABLE ENERGY TARIFF, SCHEDULE 70 NEW WIND, GEOTHERMAL AND SOLAR POWER RIDER—OPTIONAL.
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CASE NO. PAC-E-00-1
ORDER NO. 28380
On March 10, 2000, PacifiCorp dba Utah Power & Light Company (PacifiCorp; Company) filed a Tariff Advice with the Idaho Public Utilities Commission for approval of a new renewable energy tariff, Schedule 70 New Wind, Geothermal and Solar Power Rider—Optional. The Company made this filing pursuant to a commitment it made in the recent merger case between PacifiCorp and ScottishPower, Case No. PAC E 99-1.
The proposed Schedule 70 tariff, the Company states, will allow customers to purchase blocks of energy from new renewable generation resources (wind, geothermal, solar). The customer will choose the number of blocks for purchase, independent of the amount of energy used. Customers who participate will pay an additional $4.75 per month for each 100 kWh block of renewable energy. This premium is in addition to the normal billed rate for that amount of energy. The premium will be used to cover the costs of the program, i.e., marketing costs, program administration and the incremental cost of the new renewable energy.
For accounting purposes, the Company states that the costs associated with the program will be booked in accordance with normal FERC accounting procedures. For the purpose of earnings demonstrations (i.e., Results of Operations reports, general rate cases, etc.), a normalizing adjustment will be made to remove the revenues, program costs and above-market costs of the energy associated with the program from the revenue requirement calculation. This, the Company states, will assure that no costs are borne by non-participants.
This program, the Company states, is considered by it to be a generation program. As such, all revenues and costs will be allocated system-wide using the generation allocation factors.
The Company states that it will provide annual reports commencing October 31, 2000. The reports will include the revenues received, blocks purchased, blocks generated or contracted for, and other program costs. The annual reports will include both the 12 months ended September 30 period and the period from the program inception. The reports are intended to provide the Company, Commission and interested parties with the information necessary to assure that the program revenues are just sufficient to cover the program costs over the life of the program. After an initial two-year period, the Company states that it will review the revenues and costs associated with the program. The Company may at that time ask the Commission to modify the program to adjust the price and/or the size of the blocks purchased to match the costs and revenues on an ongoing basis. Attached to the Company’s Application is a program description Q&A with further details. Included in the Q&A is a financial analysis of the program and an example of the program accounting.
On March 23, 2000, the Commission in Order No. 28324 initiated a formal proceeding for consideration of the Company’s Application. The Commission suspended the proposed April 12, 2000 effective and issued a Notice of Application and Modified Procedure. Reference IDAPA 31.01.01.201-204. The deadline for filing written comments was April 12, 2000. Timely comments were filed by the Land and Water Fund of the Rockies, Aurora Power & Design and Commission Staff. A Reply Comment was filed by the Company on April 19. The comments can be summarized as follows:
The Land and Water Fund of the Rockies (LAW Fund)
The LAW Fund urges the Commission to reject PacifiCorp’s proposed Green Resource Tariff as currently structured. While the LAW Fund states that it is generally supportive of green pricing, the Company’s commitment to develop new renewable resources and the flexible block-based approach which allows customers to purchase varying amounts of renewable energy, the Law Fund believes that the proposed tariff is unfair to green customers and will hinder market development. Specifically, the LAW Fund cites and addresses five major concerns with the Company’s filing.
1. The size of the premium charged to green customers and its impact on customer’s involvement in the program.
That PacifiCorp’s filing is a voluntary tariff, the LAW Fund contends, does not change the expectations of green customers that any tariff that obtains Commission approval is fair and cost-based. PacifiCorp, the LAW Fund argues, remains a regulated monopoly utility operating under a certificate in a service territory that is not subject to competition. The proposed 4.75¢/kWh premium, the LAW Fund contends, is almost double the premium levels being charged by other utilities that offer wind-based renewable energy products in the Rocky Mountain region, e.g.:
Platte River Power Authority
a Colorado Joint Action Agency
serving four municipalities
Wind premium 2.5¢ kWh
Public Service Company of Colorado
IOU serving Denver Metropolitan area
Wind premium 2.5¢ kWh
The proposed premium, the LAW Fund contends, greatly exceeds the incremental costs of renewable energy and appears to be heavily weighted with marketing and overhead costs (estimated at 2.25 to 2.35 cents/kWh). Such a high premium, the Law Fund states, will prove unattractive to large commercial and industrial customers who tend to be price sensitive and may also significantly impact the level that which residential customers participate.
2. Inconsistencies in the economic arguments and planning scenarios PacifiCorp uses to justify roughly $2.5 million in marketing and other overhead.
PacifiCorp, the LAW Fund contends, argues that increased participation due to aggressive marketing will more than offset lower per customer renewable energy sales arising from the higher premium. However, based on the economic analysis PacifiCorp has provided, the Company, the LAW Fund states, appears unwilling to price the renewable energy product based on the level of sales that they have said they expect to achieve.
3. The lack of specificity about the resources used to satisfy green customer demands.
PacifiCorp, the LAW Fund states, is asking its green customers to pay a premium to purchase an unspecified resource, coming from either new wind, solar or geothermal. Because the Company’s analysis is based on wind power, the LAW Fund urges the Commission to require PacifiCorp to commit to acquiring wind energy.
4. Lack of regulatory oversight of utility marketing expenditures.
The LAW Fund’s experience with utility marketing of green pricing programs is that there is a strong tendency for the utility to focus on branding itself as environmentally responsible to gain customer goodwill, rather than to focus on maximizing the sales of renewable energy. To the extent that a marketing campaign is funded by shareholders, the self-serving nature of the marketing is less of a concern. However, in this case, the marketing efforts are to be funded by the green customers. Consequently, the LAW Fund contends that a forum must be created whereby stakeholder concerns about the utility marketing campaign can be addressed in a timely manner.
5. The fact that customers could end up paying for renewable energy up to two years before it is actually produced.
Finally, the LAW Fund expresses concern over PacifiCorp’s plan to begin collecting money from green customers as early as two years in advance of any renewable energy being provided to the grid. Such an approach, the LAW Fund contends, is likely to reduce customer purchases.
The LAW Fund recommends that the Company’s tariff be rejected until it is modified so that it is fair to green customers and more likely to succeed.
Aurora Power & Design (Aurora)
Aurora, a member of the renewable energy industry in Idaho, recommends that the Company’s Application, as presently structured, be rejected. Green customers, Aurora contends, should not be required to pay for the Company’s good will advertising or to subsidize non-participants. Nor should the Company, it states, be permitted to mislead its customers who might naturally believe they were purchasing blocks of energy from renewable generation sources. The proposed tariff, Aurora contends, gives PacifiCorp an unfair advantage over utilities that have committed to a renewable energy development and the renewable energy industry as a whole.
Aurora states that it promotes and supports cost effective utilization of renewable resources and would welcome a fair and meaningful green resource tariff. As Aurora is confident that it can generate electricity from renewable sources at significantly lower costs than PacifiCorp, Aurora recommends that the Company consider purchasing green power from outside sources.
Commission Staff (Staff)
Staff supports the Company’s tariff noting that it is voluntary and structured such that non-participating customers are not required to bear any of the program costs. If program revenues prove insufficient to cover costs, shareholders, not customers, will be responsible for the shortfall. As reflected in the Application’s supporting materials, Staff notes that while the Company after five years expects to achieve a penetration rate of 2.75% on a system-wide basis (38,500 customers), it expects to achieve only half of that penetration rate in Idaho (800 customers). Because Idaho customers are expected to be less receptive, the Company plans to undertake only a very limited marketing program in Idaho. The primary marketing medium will be customers’ bills. Staff concurs with the Company’s general plan of action. Staff encourages the Company to also pursue a more targeted approach in Idaho by identifying or working with groups or individuals who support “green” programs.
To guard against the possibility of program revenues exceeding program costs, Staff proposed and the Company has agreed to conduct regular reviews of the program, track the balance of the off-book balancing account containing program revenues and costs, and beginning two years after the start of the program, to modify the program if revenues are higher than expected.
Because participation is strictly voluntary and because costs cannot be passed onto non-participants, Staff states that it was not overly concerned with program details. Nevertheless, Staff does offer some observations. For residential customers, a customer would pay the tariff rate of 7.4904¢/kWh plus 4.75¢/kWh for a total of 12.2404¢/kWh for each kilowatt hour of renewable energy purchased. Although the renewable rate is based on actual projected program costs, Staff notes that there are substantial marketing and management costs built into the program, approximately 1/3 of the 4.75¢/kWh premium cost. Any savings reduction in marketing and management costs after start up, however, Staff states, is likely to be offset after year 2001 by elimination of the federal energy tax credits on which the premium price has been based. Unless participation levels increase greatly or technological improvements lead to cost reductions, renewable energy prices in the future, Staff speculates, are likely to be higher than they are now. Staff believes that it is unfortunate that the price premium to be charged will not accurately reflect the true costs of renewable energy, costs more in line with other programs being offered in the region:
Utility Price Premium (¢/kWh)
Energy Source Portland General Electric 5.00 Vansycle Ridge wind (OR) Eugene Water & Electric Board 3.09 Foote Creek wind (WY) Avista (MOPS II pilot program) 2.00 Wind (source not specified) Flathead Electric 2.00 Hydro & Foote Cr. wind (WY) through BPA Central Electric Co-op 1.80 Landfill gas Clark Public Utilities 1.50 Wind (WY) and Geothermal (UT) from PacifiCorp Staff states that it is uncertain as to the degree, however, that the other programs identified may be subsidized using non-program revenues.
In assessing the true costs of renewable energy, Staff notes further that renewable resources such as wind, solar and geothermal offer environmental benefits over traditional coal-fired generation sources. Such benefits, which are ultimately shared by all customers, while difficult to quantify, Staff states can help justify higher prices for renewable energy.
PacifiCorp Reply
Responding to all parties who in their comments suggested that the tariff price was too high, PacifiCorp in its reply filed April 19th reiterates its contention that the tariff price is strictly cost-based. Reference Application financial analysis. To develop the costs, the Company states that it followed traditional rate base methodology and used the actual costs associated with its recently completed wind project at Foote Creek in Wyoming. The Company commits to reviewing costs as development proceeds and filing tariff revisions to assure that the tariff continues to be cost-based. PacifiCorp cautions against comparing its program price to programs offered by other utilities. The underlying costs of the other programs, the Company states, are not known and may not be cost-based.
Regarding the need for marketing, PacifiCorp believes that program participation and numbers beyond those customers who are eagerly awaiting the program and willing to pay a premium to stimulate renewable resource development (estimate 1% of customer base) can only be achieved with an effective marketing effort. The Company seeks to attract those customers who may be inclined but don’t often give much thought to the issue (estimate 1-2% of customer base). The Company encourages feedback on its marketing campaign from interested stakeholders and would welcome the establishment of an advisory forum.
Regarding the two year delay from customer purchase to renewable kilowatt hour delivery, the Company prefaces its comments by noting that renewable resources are generally not dispatchable, and that this is especially true for wind and most solar resources. The Company stresses that what is being proposed in this program is development of a new resource, not the use of existing renewables. Consequently, it states, there must be a true-up period. A balance of kilowatt hours purchased versus kilowatt hours sold needs to be maintained in order to assure that all kilowatt hours purchased are eventually generated. The two year delay, it states, is also the period for start-up being proposed by a Northwest consortium of new renewable resource developers, a standard called Renew 2000. It is the time required to develop a new renewable resource. When the product is available, it will be delivered to those customers who have previously purchased it. While the lag may in fact be as long as two years, the Company states that it is actively pursuing options that would substantially reduce the time. Once the project is on line all kilowatt hours purchased will be generated and delivered to the grid. After the initial period, the true-up between purchase and delivery will be more or less seasonal due to the non-dispatchable nature of the renewable resource.
Finally, the Company notes that it has recently determined that the initial resource to be developed will be a wind resource.
PacifiCorp encourages the Commission to approve its tariff, as filed. The Company believes the tariff is well designed to encourage participation and new renewable resource development.
COMMISSION FINDINGS
The Commission has reviewed and considered the filings of record in Case No. PAC E 00-01 including the Company’s proposed tariff and the accompanying workpapers. We have also reviewed and considered the comments of the Law Fund, Aurora Power & Design and Commission Staff, and the reply comments of PacifiCorp.
The Company’s filing is a follow-up to a commitment made in the ScottishPower merger proceedings. Although the submitted tariff is structured in such a way that all program costs are paid by participants—marketing costs, program administration, and incremental cost of new energy, we will not approve it at this time.
All parties note that the tariff premium (4.75¢/kWh) exceeds the cost of other regional programs. The Company cautions us in making such a comparison, however, that we do not know whether the renewable premium rates of the other regional energy providers are cost-based, inferring that they may be subsidized. The Company may be right. The fact remains that the cost appears to be too high. Nearly one-third of the proposed premium is apparently for program administration and marketing. The commenting parties are concerned that the Company’s focus appears to be more on marketing and promotion than on actual renewable resource development. While marketing and promotion are necessary, resource development should have the benefit of the majority of premium dollars provided by customers.
In the merger case, the overriding customer sentiment in the Company’s southeast Idaho service territory was a desire for lower cost electricity. Geographically, the Company’s Idaho customers are uniquely situated, surrounded by municipal, cooperative and investor owned utilities, all providing lower cost power. The Company in this case presents us instead with a higher cost resource. In a separate case, also pending, it presents a rate increase related to elimination of the BPA exchange credit (Case No. UPL-E-00-1). We cannot ignore that while the Company forecasts a penetration rate of 2.75% on a system-wide basis for its new green tariff, it expects to achieve only half of that penetration rate in Idaho. The Commission finds that regardless of the voluntary nature of the submitted program, we must consider customer acceptance and we have a responsibility to assure fair pricing. While this Commission supports the development of renewable resources, we believe that the Company needs to refine its proposal. Perhaps experience gained in other states will result in program improvements. We encourage the Company to file a “green tariff” for UP&L that supports deployment of renewable resources and is priced to foster customer acceptance.
CONCLUSIONS OF LAW
The Commission has jurisdiction over PacifiCorp dba Utah Power & Light Company, an electric utility, and its Application in Case No. PAC-E-00-1 pursuant to the authority and power granted under Title 61 of the Idaho Code and the Commission’s Rules of Procedure, IDAPA 31.01.01.000 et seq.
O R D E R
In consideration of the foregoing and as more particularly described above, IT IS HEREBY ORDERED and the Commission does hereby deny the Company’s Application in Case No. PAC-E-00-1.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7) days after any person has petitioned for reconsideration, any other person may cross-petition for reconsideration. See Idaho Code § 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this _______ day of May 2000.
DENNIS S. HANSEN, PRESIDENT
MARSHA H. SMITH, COMMISSIONER
PAUL KJELLANDER, COMMISSIONER
ATTEST:
Myrna J. Walters
Commission Secretary
vld/O:PAC-E-00-01_sw2
ORDER NO. 28380 1
Office of the Secretary
Service Date
May 18, 2000