20151016Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER RAPER
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: DAPHNE HUANG
DEPUTY ATTORNEY GENERAL

DATE: OCTOBER 15, 2015

SUBJECT: ROCKY MOUNTAIN POWER’S APPLICATION TO APPROVE
CAPACITY DEFICIENCY FOR AVOIDED COST CALCULATIONS,
CASE NO. PAC-E-15-12
In Order No. 32697, the Commission directed each 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. On October
13, 2015, Rocky Mountain Power Company filed an Application asking the Commission to
approve its updated capacity deficiency period for use in its avoided cost calculations. The
Company asked that the Application be processed under Modified Procedure.
BACKGROUND
Under the Public Utility Regulatory Policies Act (PURPA), electric utilities must
purchase electric energy from qualifying facilities (QFs) at rates approved by 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. § 292.101(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. At issue in this
DECISION MEMORANDUM 2
case is the SAR methodology, which the Commission uses to establish “published” avoided cost
rates. Id. Published rates are available for wind and solar QFs 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). Id.
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 [IRP] to the Commission, a
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
on March 31, 2015. The Company’s 2015 IRP includes the results of its capacity balance which
is “calculated for summer peak loads only.” Application at 3. Also, the 2015 IRP “shows 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 identifies three factors affecting the capacity deficit period reflected
in its 2015 IRP: (1) additional power purchase agreements signed with QFs since preparation of
DECISION MEMORANDUM 3
the 2015 IRP; (2) termination of power purchase agreements that were included in the 2015 IRP;
and (3) changes to the Company’s load forecast. Id. at 4. After accounting for these factors,
Rocky Mountain states that its “updated capacity deficit first occurs in the summer of 2025.” Id.
Rocky Mountain’s Application includes Table 2, which shows “updated system
capacity loads and resources.” Id. 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. The Company asks the Commission to approve a capacity deficiency period, for
calculating SAR-based avoided cost rates, of summer 2025.
STAFF RECOMMENDATION
Staff recommends that this matter be processed under Modified Procedure with a 21-
day comment period.
COMMISSION DECISION
Does the Commission wish to issue a Notice of Application and Notice of Modified
Procedure setting a 21-day comment period?

Daphne Huang
Daphne Huang
Deputy Attorney General

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