20151204final_order_no_33425.pdf

Office of the Secretary
Service Date
December 4,2015
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF PACIFICORP DBA )
ROCKY MOUNTAIN POWER’S )CASE NO.PAC-E-15-12
APPLICATION TO APPROVE CAPACITY )
DEFICIENCY FOR AVOIDED COST )
CALCULATIONS )ORDER NO.33425
________________________________________________________________________________________________
)
In December 2012,the Commission directed each electric utility to initiate a case
outside of its Integrated Resource Plan (IRP)filing to establish the “capacity deficiency period”
for calculating avoided cost under the surrogate avoided resource (SAR)methodology.Order
No.32697.On October 13,2015,PacifiCorp dba Rocky Mountain Power (the “Company”)filed
an Application asking the Commission to approve its updated capacity deficiency period for use
in its SAR-based avoided cost calculations.The Commission issued a Notice of Application and
Notice of Modified Procedure with a 21-day comment period.See IDAPA 31.01.01.201-210.
Staff timely filed the only written comments,and the Company timely replied.
The Commission has reviewed the Application,and comments of Staff and the
Company,and now approves the Application as discussed below.
BACKGROUND
Under the Public Utility Regulatory Policies Act (PURPA),electric utilities must
purchase electric energy from qualifying facilities (QFs)at rates approved by the applicable state
regulatory agency —in Idaho,this Commission.16 U.S.C.§824a-3;Idaho Power Co.v.Idaho
PUC,155 Idaho 780,789,316 P.3d 1278,1287 (2013).The purchase or “avoided cost”rate
shall not exceed the “‘incremental cost’to the purchasing utility of power which,but for the
purchase of power from the QF,such utility would either generate itself or purchase from
another source.”Order No.32697 at 7,citing Rosebud Enterprises v.Idaho PUC,128 Idaho 624,
917 P.2d 781 (1996);18 C.F.R.§292.l0l(b)(6)(defining “avoided cost”).
The Commission has established two methods of calculating avoided cost,depending
on the size of the QF project:(1)the surrogate avoided resource (SAR)methodology,and (2)
the integrated resource plan (IRP)methodology.See Order No.32697 at 7-8.The Commission
uses the SAR methodology to establish what are commonly referred to as “published”avoided
cost rates.Id.;18 C.F.R.§292.304(c).Published rates are available for wind and solar QFs
ORDER NO.33425 1
with a design capacity of up to 100 kilowatts (kW).and for QFs of all other resource types with a
design capacity of up to 10 average megawatts (aMW).Order No.32697 at 7.
In calculating avoided cost,the Commission found it “reasonable,appropriate and in
the public interest to compensate QFs separately based on a calculation of not only the energy
they produce,but the capacity that they can provide to the purchasing utility.”Id.at 16.As to
the capacity calculation,the Commission found it appropriate “to identify each utility’s capacity
deficiency based on load and resource balances found in each utility’s IRP.”Id.The
Commission elaborated:
In calculating a QF’s ability to contribute to a utility’s need for capacity,we
find it reasonable for the utilities to only begin payments for capacity at such
time that the utility becomes capacity deficient.If a utility is capacity surplus,
then capacity is not being avoided by the purchase of QF power.By including
a capacity payment only when the utility becomes capacity deficient,the
utilities are paying rates that are a more accurate reflection of a true avoided
cost for the QF power.
Id.at 21.
The Commission directed that “when a utility submits its [IRPJ to the Commission,a
[separate]case shall be initiated to determine the capacity deficiency to be utilized in the SAR
Methodology.”Id.at 23.The Commission also stated ‘utilities must update fuel price forecasts
and load forecasts annually —between IRP filings....We find it reasonable that all other
variables and assumptions utilized within the IRP Methodology remain fixed between IRP filings
(every two years).”Id.at 22.
THE APPLICATION
Rocky Mountain filed its 2015 IRP (Case No.PAC-E-15-04)with the Commission in
March 2015.The Company’s 2015 IRP included the results of its capacity balance the net of
its surplus and deficiency —which is “calculated for summer peak loads only.”Application at 3.
Also,the 2015 IRP showed “that the Company first becomes capacity deficient in 2020.”Id.
According to the 2015 IRP,“[a]vailable sYstem capacity is increased in the summer of 2021 with
the expiration of a legacy exchange contract,and the system falls short again in 2023.”Id.
Rocky Mountain identified three factors affecting the capacity deficit period reflected
in its 2015 IRP:(1)additional power purchase agreements signed with QFs since preparation of
the 2015 IRP;(2)termination of power purchase agreements that were included in the 2015 IRP;
ORDER NO.33425
and (3)changes to the Company’s load forecast.Id.at 4.Rocky Mountain’s Application
included Table 2,attached here,showing updated system capacity loads and resources.”Id.
Table 2
Updated System Capacity Loads and Resources
Ca1edre,r 2015 2016 2017 2018 2019 2020 21121 2022 202.3 2024 2025
tVatdLdFwst1id ‘:
.i5 20 4 10 3 7
11,412 1159 11354 1L557 11.722 11,535 11.953 12.904 12220 12,254 12.740
SigndPPA u54dui1in1RP 0 0 213 21h 213 213 212 210 290 205 204
[e minte3PP’gclukdin 1kV
Ut,dResmirce 12237 11,SCO 12,013 12,05°12,015 11,994 12,354 12,313 12324 2,203 12,173
525 11 045 532 294 150 3’2 219 104 21
Table 2 reflects the inclusion of 564 MW of nameplate capacity from 23 additional QF contracts,
as well as the removal of two QF contracts,thus eliminating 82 MW of nameplate capacity and
roughly 12 MW of system capacity contribution.Id.at 4-5.
In determining its first capacity deficit date,the Company proposed to include 1,670
MW of available “Front Office Transactions”(FOTs)in each year.The Company’s 2015 IRP
described its systemwide FOTs as “proxy resources,assumed to be firm,that represent
procurement activity made on an ongoing forward basis to help the company cover short
positions.”PacifiCorp 2015 IRP at 128.Although FOTs can be made years or months in
advance,most are made “on a balance of month,day-ahead,hour-ahead,or intra-hour basis.”Id.
In other words,as part of its IRP,Rocky Mountain designated an amount of resources,identified
as FOTs,to be met by short-term firm market purchases.The Company’s FOT limits are
developed based on the Company’s active participation in wholesale markets,and consideration
of physical delivery constraints,market liquidity and market depth,and regional resource supply.
Id.at 128-29.
The Company calculated that it will be capacity deficient by 167 MW in the summer
of 2025.Application at 4.Rocky Mountain thus asked the Commission to issue an Order
establishing its capacity deficiency period beginning in the summer of 2025,for use in
calculating its SAR-based avoided cost rates.
STAFF COMMENTS
Staff recommended that FOTs not be included in the Company’s determination of
capacity deficiency.Staff observed that FOTs “generally do not represent committed market
ORDER NO.33425 3
purchases,except perhaps in the very near term.”Comments at 4.The Company’s Application
did not indicate that the FOTs identified therein are committed market purchases.Id.Staff
further expressed:
Uncommitted resources,regardless of whether they are FOTs (i.e.,market
purchases),Company-owned generation plants,or long-term power purchase
agreements,should not be counted in determining a utility’s capacity deficit
position for purposes of SAR avoided cost calculations.
Id.(emphasis original).
In support,Staff pointed to the obligation under PURPA for utilities “to purchase any
energy and capacity made available from [QFs].”Comments at 5,citing 18 C.F.R.§292.303(a).
According to Staff,this obligation “does not permit utilities to reject [QFs’]offers to sell ...in
lieu of utility purchases from the market.”Id.
Staff also noted that “including FOTs in determining the utility’s first capacity deficit
would be inconsistent with [Rocky Mountain’s]practices in the past.”Id.The current SAR
model,including input from Rocky Mountain’s 2013 IRP,“adopts the system position,exclusive
of FOTs,to represent the capacity balance.”Id.However,Staff acknowledged that Rocky
Mountain’s proposal may be consistent with Idaho Power’s past practices.Id.
Staff proposed an alternate capacity balance,excluding FOTs,as set forth in the
following Table.
Capacity Balance in 2013 and 2015
Calendar Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
System Position 2013 (1,228)(1.469)(1,688)(1,888)(2,100)(2,274)(2.081)(2,308)(2,308)(2,308)(2,308)
UpdatedSystem Position 2015 (844)(1,159)(1,021)(1.137)(1,376)(1,520)(1,298)(1,451)(1,565)(1,643)(1,837)
Under Staff’s proposal,the Company would be capacity deficit in 2015,as compared to the
Company’s request of 2025,and Rocky Mountain’s avoided cost rates under the SAR
methodology would not change.Staff recommended that the Commission reject Rocky
Mountain’s request,and instead adopt summer 2015 as the first capacity deficit.
ROCKY MOUNTAIN’S REPLY
Responding to Staffs concerns about its obligation under PURPA,Rocky Mountain
contended that “inclusion of FOTs in determining the SAR deficiency period does not serve as a
rejection of QF purchases.”Reply at 2.Instead,FOTs are “a means to recognize in standard
avoided costs[,]the timing and costs of the different resources used to balance the Company’s
ORDER NO.33425 4
capacity needs and achieve the ratepayer indifference standard mandated by PURPA.”Id.
Rocky Mountain asserted.‘Staffs recommendation to adopt summer 2015 as the first capacity
deficit fails to recognize the Company’s ability to utilize its existing firm transmission capacity
to procure resources in the wholesale market rather than acquire a new generating resource at a
higher cost.”Id.at 3.In essence,the Company maintained that its transmission system provides
access to cheaper power than building new generation,acquiring long-term firm power contracts
or PURPA contracts.
Rocky Mountain stated that its “FOT selections are as committed and specific as its
2018 [Combined Cycle Combustion Turbine (CCCT)],which the Commission has found
appropriate for determining the avoided costs for large QFs.”Id.Rocky Mountain pointed out
that,although Staff asserted ‘utilities should not be allowed to rely on uncommitted,non-specific
market purchases,”the alternative is “to use the costs of an uncommitted,non-specific CCCT.”
Id.at 3-4.
The Company reported that its FOTs “represent firm transmission rights currently
owned by the Company and included in customers’rates,which enable access to diverse
wholesale market resources.”Id.at 4.For purposes of its IRP,the Company relies on FOTs
“because they provide the best balance of cost and risk.”Id.at 5.According to Rocky
Mountain,‘Recognizing the [FOTs’]1,670 MW of firm transmission access to wholesale
markets in the determination of the SAR deficiency period more closely aligns the capacity
deficit period with the Company’s IRP and the costs that can be avoided by the addition of a
QF.”Id.Rocky Mountain contended that “retail customers end up paying more than avoided
costs”if the Company is not allowed to recognize FOTs when determining the SAR deficit
period.Id.at 5-6 (see Figure 2).If FOTs are ignored,the Company asserted,customers “avoid
[the cost of]firm market purchases but incur the fixed and variable costs of a CCCT that will not
be avoided by the Company.”Id.Rocky Mountain further noted that its risk management policy
“generally precludes [it]from entering into long term transactions with terms longer than three
years,”allowing the Company ‘flexibility to serve load while managing the risk of changing
wholesale market prices.”Id.
Finally,the Company observed that Idaho Power made a similar assumption
“regarding access to wholesale market purchases in its IRP and in its determination of the first
capacity deficiency for the SAR method that was just approved by the Commission.”Id.at 7.
ORDER NO.33425 5
The Company contended,“Inconsistent treatment for PacifiCorp in the current case will result in
avoided cost rates that are approximately $20/MWh higher for PacifiCorp compared to Idaho
Power each year through 2023.”Id.This disparity,the Company argued,will encourage QF
developers in Idaho Power’s service territory “to obtain a transmission wheel to PacifiCorp to
take advantage of higher prices”despite the fact that the Company has no need for new resources
in the next decade.Id.at 7-8.
Rocky Mountain thus asked the Commission to approve its Application as filed,
identifying summer 2025 as the first capacity deficit for use in the SAR model.
DISCUSSION AND FINDINGS
The Idaho Public Utilities Commission has jurisdiction over PacifiCorp dba Rocky
Mountain,an electric utility,and the issues raised in this matter under the authority and power
granted it under Title 61 of the Idaho Code and PURPA.The Commission has authority under
PURPA and Federal Energy Regulatory Commission (FERC)regulations to set avoided costs,
and to order electric utilities to enter into fixed-term obligations for the purchase of energy from
QFs.Execution of FERC regulations —as in this case —and the discretion to do so,are left to
this Commission.See Idaho Power Co.v.Idaho PUC,155 Idaho 780,782,316 P.3d 1278,1280
(2013),citing FERC u.Mississippi,456 U.S.742,751 (1982).
The issue before us is whether to allow Rocky Mountain to include its ability to use
transmission capacity in determining a date for capacity deficiency,as proposed by the
Company.In its Application,the Company described short-term purchases through its
transmission system as “Front Office Transactions,”or FOTs.Because our discussion centers
not on the FOTs themselves,but on the Company’s ability to make such purchases,we will refer
to that ability,using the term “import capability.”1
The SAR method treats generation from a CCCT plant the same as it would
generation from a QF project for purposes of determining published avoided cost rates.2 With
this in mind,the question here is whether a utility’s import capability —its ability to make short-
term purchases using its transmission capacity —should be treated the same as available
Idaho Power used the term “import capability”in its 2015 IRP.Idaho Power 2015 IRP at 66,73.93.134 (Case
No,IPC-E-15-l9).
2 The SAR method “estimates a utility’s avoided costs to be applied to QF generation by calculating the cost of a
surrogate avoided resource,”which is currently a natural gas-fired CCCT.Order No.32697 at 7-8.
ORDER NO.33425 6
generation resources such as a signed QF contract or generation from its own plant.We find that
it should.
To balance its capacity needs,Rocky Mountain uses existing plant generation,QF
contracts,and available transmission capacity.We agree with Rocky Mountain that including
firm transmission import capability in determining capacity deficiency recognizes the
Company’s use of its existing resources.See Reply at 3.Import capability constitutes capacity.
Exclusion of import capability from the capacity deficiency determination would fail to properly
account for the Company’s mix of existing resources and the timing and costs of those resources.
We further find that including import capability in the capacity deficiency
determination does not violate the Company’s QF purchase obligation and does not discriminate
against QFs.Staff Comments at 5,citing 18 C.F.R.§292.303(a).Rather,it recognizes
utilization of the utility’s existing resources that would be used to meet the Company’s capacity
needs prior to bringing on any new resource—without regard to whether it is QF or utility
generation.If a utility possesses available transmission capacity,it is clearly capacity surplus.
Consequently,capacity is not being avoided through the purchase of QF power.Consistent with
our findings and conclusions in Order No.32697,a QF is only entitled to capacity payments
when the utility becomes capacity deficient.Rocky Mountain would not build a new generation
resource in 2015 but for QF generation.The Company would utilize its available transmission
capacity to meet its customers’needs.
Rocky Mountain’s import capability must be considered as part of its overall capacity
balance.Avoided cost calculated without considering the Company’s import capability would
fail to recognize the entirety of the Company’s available capacity resources.If capacity
payments are made prior to the utility becoming capacity deficient then the avoided cost rates
would exceed Rocky Mountain’s “incremental cost”of obtaining “alternative electric energy.”
16 U.S.C.§824a-3(b).We find that including,rather than excluding,Rocky Mountain’s import
capability in the capacity deficit determination comports with the “incremental cost”mandate in
PURPA.By including import capability,avoided cost rates appropriately recognize the
Company’s mix of available resources.And importantly,including import capability ensures
that avoided cost rates do not favor QFs at the expense of Rocky Mountain’s ratepayers,who
ultimately bear the costs.See Order No.33419 at 6 (avoided cost rate overestimations
“subsidize [QFsJ at the expense of...ratepayers”)(citations omitted).
ORDER NO.33425 7
For these reasons,we approve Rocky Mountain’s proposed first capacity deficiency
of summer 2025,to be used in its SAR-based avoided cost determinations.
ORDER
IT IS HEREBY ORDERED that PacifiCorp’s Application is approved.The
Company’s capacity deficiency period for use in SAR-based avoided cost calculations shall be
summer 2025.
IT IS FURTHER ORDERED that Commission Staff submit an updated SAR model
and SAR-based avoided cost rates in accordance with this Order.
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 §6 1-626.
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of December 2015.
PAUL K ELLAND ,PRESIDENT
O1tQ)d2kLJ’L
MARSHA SMITH,COMMISSIONER
LI’-
KR INE RAPER,COMMISSIONER
ATTEST:
Jjn D.Jeweltl
Commission Secretary
O:PAC-E-15-1 2_djh2
ORDER NO.33425 8