20150319Answer to Clearwater and Simplot.pdf

DONALD L. HOWELL, II
DAPHNE HUANG
DEPUTY ATTORNEYS GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
472 WEST WASHINGTON STREET
PO BOX 83720
BOISE, tD 83720-0074
Idaho Bar Nos. 3366 and 8370
Tele: [phone]
(208) 334-03 I 8
Fax: [phone]
E-mail: [e-mail]
daphne.huang@puc. idaho. gov
Attorneys for Commission Staff
IN THE MATTER OF IDAHO POWER
COMPANY'S PETITION TO MODIFY
TERMS AND CONDITIONS OF PURPA
PURCHASE AGREEMENTS
IN THE MATTER OF AVISTA
CORPORATION'S PETITION TO MODIFY
TERMS AND CONDITIONS OF PURPA
PURCHASE AGREEMENTS
IN THE MATTER OF ROCKY MOUNTAIN
POWER COMPANY'S PETITION TO
MODIFY TERMS AND CONDITIONS OF
PURPA PURCHASE AGREEMENTS
ti; 55
CASE NO. IPC-E.Is-OI
CASE NO. AVU.E.15-01
CASE NO. PAC.E-15-03
STAFF ANSWER TO CLEARWATER
PAPER CORPORATION AND J.R.
SIMPLOT COMPANY'S JOINT
PETITION AND CROSS-PETITION
FOR CLARIFICATION
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
COMES NOW the Staff of the Idaho Public Utilities Commission and files this
answer to the Joint Petition and Cross-Petition ("Joint Petition") of Clearwater Paper Corporation
and J.R. Simplot Company to clarify Order No. 33222 issued February 6,2015. On February 25,
2015, the joint petitioners urged the Commission to "clarify" its prior Order. They argue that the
scope of this consolidated proceeding should be limited "to only address the appropriate contract
STAFF ANSWER TO CLEARWATER
PAPER AND SIMPLOT'S JOINT
PETITION FOR CLARIFICATION I
length for new intermittent solar and wind projects." Joint Petition at 3 (emphasis added). They
seemingly urge the Commission to restrict the scope of this consolidated docket to only solar and
wind projects. For the reasons below, the Commission should deny the Joint Petition.
BACKGROUND
A. Idaho Power's Inilial Petition
On January 30,2015,Idaho Power Company filed a Petition to reduce the length of
its new PURPA contracts from 20 years to five years. Id. Idaho Power asserted that the
mandatory acquisition of more than 800 megawatts (MW) of PURPA solar capacity over a 20-
year period exceeds the operational needs of the Company, places undue risk on customers, and
is contrary to the public interest. Petition at2,20,27-34; Order No. 33250 at 3. On pages l-2 of
its Petition, Idaho Power requested that the reduction in the PURPA contract length be "limited
to transactions with proposed QF projects that exceed published rate eligibility cap." Later in its
o'Prayer for Relief," the Company characterized its requested relief as a Commission order
"directing that the maximum required term for any Idaho Power PURPA [contract] be reduced
from 20 years to two years." Petition at36. In Order No.33222, the Commission granted Idaho
Power interim relief by temporarily reducing the maximum contract term for Idaho Power's new
PURPA contracts from 20 years to five years while the Commission reviews the issue of contract
length in greater detail.
B. Avista and Rocky Mountain Power's Petitions
On February 27 , and March 2,2075, Avista Corporation and Rocky Mountain Power,
respectively, filed separate Petitions seeking similar permanent relief and the same interim relief
(i.e., reducing new PURPA contracts from 20 years to five years) granted to Idaho Power in
Order No. 33222. In Commission Order No. 33250 issued March 13, 2015, the Commission
consolidated the three Petitions. The Commission found that all three utilities raise similar
concerns regarding the appropriate length of new PURPA contracts. Id. at 6.
The Commission also noted in Order No. 33250 that several parties had filed
Petitions to Clariff the scope of the five-year interim relief. Id. at 3 n.l. In particular,
Intermountain Energy Partners (IEP) and Renewable Energy Coalition (REC) recommended the
Commission clarify its Order to reflect that the interim relief (shortening new PURPA contracts
to five years) does not apply to new PURPA contracts eligible for published rates. IEP Petition
at l. In Order No. 33253 issued March 18, 2015, the Commission granted the IEP and REC
STAFF ANSWER TO CLEARWATER
PAPER AND SIMPLOT'S JOINT
PETITION FOR CLARIFICATION 2
Petitions. The Commission clarified its Order Nos. 33222 and 33250 by granting five-year
interim relief to Idaho Power, Avista and Rocky Mountain for new PURPA contracts in excess
of the published rate eligibility cap. Order No. 33253 at 4.
C. Clearwater and Simplot QFs
According to the Joint Petition, Clearwater has four generating facilities that are
capable of generating approximately 109 MW of energy. Joint Petition at 3. Staff understands
these generators primarily utilize the "black liquor" by-product from the paper production
process and wood waste as generating fuels. Clearwater and Avista currently have a five-year
non-PURPA contract for the sale of a portion of Clearwater's generating output to Avista. The
current non-PURPA contract terminates under its own terms in 2018 unless Clearwater desires to
sell its output to a third-party on 90 days' notice. The Commission approved this contract in
Order No. 32841.
Simplot operates a 15.9 MW cogeneration facility at its fertilizer plant in Pocatello.
Petition at 3. Simplot currently operates its cogeneration facility under a one-year PURPA
contract recently approved by the Commission on March 4,2015 in Order No. 33240. The new
PURPA contract replaced a prior two-year contract, and the new contract is set to expire on
March l, 2076. Id. Simplot states that it intends to negotiate a replacement contract for the
Pocatello facility as soon as the Commission approved the one-year contract, i.e., March 4,2015.
Id. at 4.
CLEARWATER AND SIMPLOT'S JOINT PETITION
Clearwater and Simplot filed their Joint Petition for Clarification on February 25,
2015. Although Clearwater and Simplot did not oppose the clarification sought by IEP and REC
(and subsequently granted by the Commission in Order No. 33253), the Joint Petition sought to
further restrict interim relief and the scope of the proceeding to only "wind and solar intermittent
resources that exceed the published rate eligibility cap of 100 kW." Joint Petitionat2. They
advance two primary arguments why the Commission should further clarifr its Order No.33222.
First, the joint petitioners maintain that the current consolidated process "will likely continue for
several months or a year. ." Cross-Petition at 4. Consequently, Simplot's intent to begin
negotiating a new contract for its Pocatello facility "will now be limited to a five-year contract
term. . .." Id.
STAFF ANSWER TO CLEARWATER
PAPER AND SIMPLOT'S JOINT
PETITION FOR CLARIFICATION
Second, the joint petitioners object to the interim relief because "[n]one of Idaho
Power's [underlying] arguments [supporting shorter contracts] apply to base-load facilities
utilizing waste heat, biomass, or industrial cogeneration such as" the Clearwater and Simplot
facilities. Id. at 3. While the petitioners concede that there is ample precedent to single out
interim relief for wind and solar QFs, they assert that Idaho Power has not presented sufficient
evidence supporting the interim reduction to "the maximum contract length for any type of
resource other than wind and solar." Id. at 5.
STAFF ANSWER
1. Interim Relief. Consistent with the parties' agreement at the prehearing
conference held on March 10,2015, the parties proposed and the Commission adopted a
schedule which sets a technical hearing in this proceeding to commence on June 29,2015. Order
No. 33253 at 5. This expeditious schedule complies with the Commission's direction to the
parties to process this docket in a timely manner. Order No. 33222 at 4. Obviously, the
petitioners did not have the benefit of the proposed schedule at the time they submitted their
Cross-Petition on February 25. Nevertheless, Staff believes that this case will be completed in
sufficient time so that the five-year term for interim relief will not be an issue. Moreover, the
joint petitioners agreed to the proposed schedule. Finally, the Commission may suspend the
proposed effective date of any contract or practice to conduct an inquiry into the same. Idaho
Code $ 6l-622(3). Thus, Staff concludes that the petitioners no longer view the schedule in this
docket as an impediment to negotiating a new PURPA contract for the Pocatello facility.
2. Objection to the Scope of the Docket. Staff believes that the better place to
address the joint petitioners' argument regarding the scope of relief and whether to shorten
contracts for cogen projects is in the technical phase of this case. Idaho Power (and the other
two utilities) sought interim relief from all new PURPA contracts in excess of the published rate
eligibility cap. Order Nos. 33253 at 4, 33253 at 4. The utilities' Petitions and supporting
testimony generally assert that Z0-year contract terms place undue risk on customers for several
reasons. First, Idaho Power asserts that its applicable PURPA contracts should mirror its non-
PURPA power purchases at terms of less than two years. The Company's approved risk
management policy limits non-PURPA purchases to two years. Idaho Power Petition at 2. The
Company does not enter into transactions beyond 18 months pursuant to its required risk
management policy. Petition at 30.
STAFF ANSWER TO CLEARWATER
PAPER AND SIMPLOT'S JOINT
PETITION FOR CLARIFICATION 4
Second, Idaho Power and Rocky Mountain have sufficient near-term resources to
meet customer demand. Id. If all current PURPA projects and the proposed 885 MW of solar is
added to the "must-run" and "must-take" generation, Idaho Power expects to exceed its
forecasted load by 40Yo for all hours during 2016 and 2017. Allphin Exh. 6. Rocky Mountain
calculates that if all current and proposed Idaho PURPA projects were approved and constructed
(465 MW), they would equal 108% of the utility's average retail load in Idaho and 275Yo of
minimum retail load. Clements Direct at3, 17. In addition, long-term PURPA contracts with
fixed avoided cost rates do not generally allow for rate changes resulting from changes in
capacity. For example, PURPA contracts with fixed capacity payment are usually not adjusted
to reflect updated IRP data indicating either a surplus or deficiency in a utility's system capacity.
Grow Direct at 2, 71, 17-20; Clements Direct at 4, 12, 21, 28-37 (discussing long-term price
risk).
Third, Idaho Power seeks to permanently align its new PURPA contracts with a term
similar to its IRP process which is updated every two years. Id. For its part, Rocky Mountain
seeks a three-year contract to align with its hedging, trading and IRP practices. Clements Direct
at 2, 6, 32. Fourth, Iong-term PURPA contracts transfer the risk of not accurately forecasting
long-term avoided cost rates to ratepayers. Petition at 22. The sheer size of Idaho Power's
contractual obligations over 20 years is much greater than its proposed two-year obligation. For
example, Idaho Power calculates that the 461 MW of solar projects currently under contract
would have a two-year obligation of $9.2834 million, as compared to a 2}-year obligation of
approximately $1.665 billion. Petition at34. Rocky Mountain maintains that its system-wide
PURPA payments in the next ten years will be about $2.6 billion, with Idaho's share assumed to
be about 6Yo, or $156 million. Clements Direct at 21, n.23. In other words, the longer the
contract, the greater the financial risk placed upon ratepayers.
Finally, Idaho Power's witness William Hieronymus testified that the 2}-year
contract term
is longer than is available in exempt markets and exceeds the length of time
that Idaho utilities can hedge contract obligations to buy power that must be
disposed of in interexchange markets. The need for shortened contracts also
relates to the market risk that customers are being required to take on. [Direct
at 15.1
STAFF ANSWER TO CLEARWATER
PAPER AND SIMPLOT'S JOINT
PETITION FOR CLARIFICATION
utility
Long-term contracts with prices, particularly energy prices, set for long
durations should be avoided. PURPA does not require that contracts of any
particular length be offered. However, if long-term contracts are offered, the
QF gets to choose whether it wants to be paid avoided costs computed at the
time of the contract or avoided costs computed at the time of delivery. [Direct
at 105.1
He concluded that when a utility signs a long-term contract with a fixed rate, the
is absorbing the financial risks ofthe project by guaranteeing a revenue stream
that may greatly exceed actual value or, at a minimum, is substantially more
certain than the fluctuating value of energy in today's volatile power markets.
Project risk is thus shifted from the developer and lenders to the utility and its
shareholders and ratepayers. For QFs (and distinct from EWGs), the risk is
shifted entirely to ratepayers since, by law, prudently incurred costs of
PURPA power must be passed through in rates.
Hieronymus Direct at 106-107. Staff asserts that the utilities have provided sufficient evidence
to support the Commission's Orders granting interim relief.
CONCLUSION
In summary, Staff believes that the scheduling of this case will move expeditiously
per the schedule recommended by the parties and adopted by the Commission in Order No.
33253. Staff asserts there is substantial evidence to support the Commission's granting an
interim relief. Finally, Staff submits that the arguments raised by Clearwater and Simplot
regarding the scope of permanent relief are more appropriately addressed in the evidentiary
hearing in this case. They will have ample opportunity to fully address their issues rather than
limit the scope of the hearing at this juncture with challenge in the Cross-Petition. Consequently,
Staff recommends the Commission denv the Joint Petition.
Respectfully submitted this lgth
bls:N:IPC-E-15-01 AVU-E-15-01 PAC-E-15-03 dh_Staff Reply
STAFF ANSWER TO CLEARWATER
PAPER AND SIMPLOT'S JOINT
PETITION FOR CLARIFICATION
day of March 2015.
Donald L. Ho
Deputy Attorney General
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 19TH DAY OF MARCH 2015,
SERVED THE FOREGOING STAFF ANSWER TO CLEARWATER PAPER
CORPORATION AND J.R. SIMPLOT COMPANY'S JOINT PETITION AND CROSS-
PETITION FOR CLARIFICATION, IN CASE NOS. IPC-E-I5-01/PAC-E-15-03/AVU-E-
15-OI, BY E-MAILING A COPY THEREOF TO THE FOLLOWNG:
DONOVAN E WALKER PETER J RICHARDSON
REGULATORY DOCKETS GREGORY M ADAMS
IDAHO POWER COMPANY RICHARDSON ADAMS PLLC
PO BOX 70 PO BOX 7218
BOISE ID 83707-OO7O BOISE ID 83702
E-mail: [e-mail] E-mail: [e-mail]
[e-mail] [e-mail]
DR DON READING BENJAMIN J OTTO
6070 HILL ROAD ID CONSERVATION LEAGUE
BOISE ID 83703 7IO N 6TH STREET
E-mail: dreadine(@mindspring.com BOISE ID 83702
E-mail: [e-mail]
DEAN J MILLER LEIF ELGETHUN
McDEVITT & MILLER LLP INTERMOLINTAIN ENERGY PARTNERS
420 W BANNOCK ST LLC
BOrSE rD 83702 PO BOX 7354
E-mail: [e-mail] BOISE ID 83707
E-mail: [e-mail]
KELSEY JAE NUNEZ KEN MILLER
SNAKE RIVER ALLIANCE SNAKE RIVER ALLIANCE
PO BOX I73I E.MAIL ONLY:
BOISE ID 83701 [e-mail]
E-mail : [e-mail]
TED WESTON DANIEL E SOLANDER
ID REG AFFAIRS MANAGER YVONNE R HOGLE
ROCKY MOUNTATN POWER ROCKY MOUNTAIN POWER
201 S MAIN ST STE 23OO 2OI S MAIN ST STE 24OO
SALT LAKE CITY UT 841I I SALT LAKE CITY UT 84111
E-mail: [e-mail] E-mail: [e-mail]
),rronne. ho gle @ pac i fi corp. com
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DATA REQUEST RESPONSE CENTER
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datarequest@pacifi corp,com
ERIN CECIL
ARKOOSH LAW OFFICES
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erin.cecil @arkoosh.com
ANTHONY YANKEL
298T4 LAKE ROAD
BAY VILLAGE OH 44104
E-mail: tony@,yankel.net
IRION SANGER
SANGER LAW PC
1117 SW 53RD AVE
PORTLAND OR 97215
E-mail : [e-mail]
CLINT KALICH
AVISTA CORPORATION
I411 E MISSION AVE
MSC-23
SPOKANE W A 99202
E-mail: [e-mail]
RICHARD MALMGREN
SR ASSIST GEN COUNSEL
MICRON TECHNOLOGY INC
8OO S FEDERAL WAY
BOISE ID 83716
E-mail: remalmgren@,micron.com
C TOM ARKOOSH
ARKOOSH LAW OFFICES
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ERIC L OLSEN
RACINE OLSON NYE BUDGE
& BAILEY
PO BOX 1391
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E-mail : [e-mail]
RONALD L WILLIAMS
WILLIAMS BRADBURY PC
I015 W HAYS ST
BOISE TD 83702
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MICHAEL G ANDREA
AVISTA CORPORATION
1411 E MISSION AVE
MSC-23
SPOKANE WA992O2
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MATT VESPA
SIERRA CLUB
85 SECOND ST 2ND FLOOR
SAN FRANCISCO CA 94105
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FREDERICK J SCHMIDT
PAMELA S HOWLAND
HOLLAND & HART LLP
377 S NEVADA ST
CARSON CTTY NV 89703
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SCOTT DALE BLICKENSTAFF ANDREW JACKURA
AMALGAMATED SUGAR CO SR VP NORTH AMERICA DEVL
I95I S SATURN WAY CAMCO CLEAN ENERGY
STE IOO 9360 STATION ST STE 375
BOISE ID 83702 LONE TREE CO 80124
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fu,^As-,*,u
SECRETARY
CERTIFICATE OF SERVICE