20200817Comments.pdf

DAYN HARDM
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 837 2O-OO7 4
[phone]
IDAHO BAR NO. 9917
IN THE MATTER OF ROCKY MOUNTAIN
POWER'S APPLICATION FOR APPROVAL
OR REJECTION OF A POWER PURCHASE
AGREEMENT BETWEEN PACIFICORP AND
FALL RIVER ELECTRIC COOPERATIVE,
INC.
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Street Address for Express Mail:
11331 W CHINDEN BVLD, BLDG 8, SUITE 2OI-A
BOISE, TD83714
Attorney for the Commission Staff
BBFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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CASE NO. PAC-E.20.10
COMMBNTS OF THE
COMMISSION STAFF
STAFF OF the Idaho Public Utilities Commission, by and through its Attorney of
record, Dayn Hardie, Deputy Attorney General, submits the following comments.
BACKGROUND
On June 9,2020, Rocky Mountain Power ("Company" or "PacifiCorp"), a division of
PacifiCorp, applied for an order approving or rejecting a Power Purchase Agreement
("Agreement") with Fall River Electric Cooperative, Inc. ("Fall River") for energy generated by
the Felt Hydro Facilityl ("Facility"), a small hydro facility in Teton County, Idaho. The Facility
is a qualifying facility ("QF') under the Public Utility Regulatory Policies Act of 1978
("PURPA").
I The Facility was previously known as CDM Hydro.
1STAI]F COMMENTS AUGUST I7,2O2O
The Facility has been delivering energy to the Company in accordance with a PURPA
contract dated December 4,1984. The existing PURPA contract will expire at midnight on
March 31,2021.
The Facility has a nameplate capacity of 7 .45 megawatts. The Agreement contains non-
seasonal hydro avoided cost rates based on the surrogate avoided resource cost methodology for
a2o-year term. The Agreement also contains capacity payments for the entire term with no
sufficiency period.
On July 2,2020, the Commission issued a Notice of Application and Notice of Modified
Procedure establishing an August 17 ,2020 comment deadline and August 24,2020 reply deadline.
On July 31,2020, Staff sent its Second Production Request to the Company. Staff
received Responses to Staff s Production Request Nos. 8-11 on August 10,2020 and Staff s
Production Request Nos. 12-14 on August 1I,2020.
STAFF REVIEW
Staff reviewed the Application and the Agreement. Staff's analysis focuses on three
issues it believes should be addressed. These issues are:
l. The appropriate mechanism that will allow capacity payments for generation from
Powerhouse #2, while not providing capacity payments to Powerhouse #1 when
the amount of generation for both powerhouses-the total Facility-is currently
only measured through a single meter;
2. The use of incorrect non-firm market rates for generation outside of the 90/110
performance band; and
3. How to determine the payments when monthly generation falls outside of the
90/110 band, given that Fall River could be paid two separate rates during the
month.
Capacity Payments
Under the proposed PPA, the Company will receive generation from the Facility which
has a total nameplate capacity of 7 ,450 kW. The facility is made up of two powerhouses:
Powerhouse #1 has two turbines and two generators with a total capacity rating of 5,500 kW; and
Powerhouse #2 also has two turbines and two generators with a total capacity rating of 1,950 kW.
2STAFF COMMENTS AUGUST 17 ,2020
The proposed rate structure includes immediate capacity payments for the entire generation of
both powerhouses over a 2O-year term.
A QF should only receive compensation for capacity when the utility is capacity
deficient, unless it is a renewal/extension project that was paid for capacity at the end of the
original contract (see Order No. 32697), or has contributed to meeting the utility's capacity needs
during the original contract term when the utility became capacity deficient (see e.g., Case Nos.
IPC-E-19-04,IPC-E-19-30, and IPC-E-19-35). In the current contract, Staff is uncertain if the
rate design reflects a capacity deficit or an energy deficit; thus Staff is uncertain if the Facility is
paid for capacity at the end of the original contract term. However, the Company has added
resources to meet its capacity deficiencies since 1984, when the original contract was executed
between Bonneville Pacific Corporation. For example, Lake Side 2 was brought online in2014
to meet the Company's capacity deficiency identified in its Integrated Resource Plan ("fRP").
(SeePage 9 of Volume I of PacifiCorp's 2011 IRP, Case No. PAC-E-11-10). Staff is confident
that the Facility has contributed to meeting the Company's need for capacity and should receive
capacity payments throughout the Agreement.
However, Staff discovered, by reviewing Federal Energy Regulatory Commission
1"FERC") Form 556, that Powerhouse #1 has not been in operation since 2006. Fall River
indicates there are plans for Powerhouse #1 to be operational at or before the start of the new
contract.2 Because Powerhouse #1 has not been contributing capacity for about 14 years, Staff
believes it should be treated as a new project without capacity payments in the proposed PPA
until the Company's first deficit year in 2028. (See Order No. 33917).
Staff learned on August II,2020, that the Facility has no way to separate the generation
output from Powerhouse #1 from the generation output from Powerhouse #2 because the point of
metering is the same for both powerhouses. (^See Company's Response to Staff s Production
Request No. l2). Because of the inability to meter the generation from each powerhouse
separately, an alternative solution needs to be determined that will ensure two objectives. First,
that Fall River does not receive capacity payments for generation from Powerhouse #1. Second,
2 Fall River stated through Response to Staff's Production Request No. I that both powerhouses were operational
from commencement of sales in 1986 until 2006 when flooding damaged Powerhouse #1, precluding safe operation
of Powerhouse #1. From that point in 2006 until the present time, only Powerhouse #2 has remained in regular
operation. Work to return Powerhouse #l to service is ongoing at this time, and the QF expects that Powerhouse #l
will be returned to service before April I , 2021, the commencement date of sales under the proposed PPA.
3STAFF COMMENTS AUGUST 1,7 ,2020
that Fall River will continue to receive capacity payments for generation from Powerhouse #2
equivalent to payments it has historically received and for capacity costs which the Company
should have already avoided.
Because of the lack of two meters, Staff requests that the Commission allow additional
time for discovery and analysis, and to initiate conversations with the parties, so that a solution
can be developed that address the two objectives stated above. If granted, Staff proposes to file
supplemental comments on October l,2O2O.
Staffbelieves there are several reasons to allow an extension in the schedule to file
supplemental comments. First, to identify a reasonable method, Staff needs to understand the
capabilities of the Company's meter and accounts payable processes, gather historical actual
generation data, determine how the Facility is operated under different water flow conditions,
and review information about the configuration of the Facility. Second, Staff wishes to initiate
conversations with Fall River and the Company to explore potential solutions. Third, there is
ample time before a new Agreement becomes effective. Finally, there are about seven years
before the deficit date that would be impacted by a relatively large difference between a rate with
and without capacity payments depending on the Commission's decision for determining the
proper rate.
Whatever method is developed to functionally separate generation from the two
powerhouses and to apply different rates, the development and calculation of avoided cost rates
and capacity payments are important pieces of the analysis. The method for paying QFs for
avoided cost of capacity in published rates is strictly based on the amount of actual generation on
a $/kWh basis, and not the nameplate capacity of a QF. The $/kWh rate structure is designed to
reward QFs for the avoided cost of capacity because of energy delivered, not its nameplate
capacity. The Surrogate Avoided Cost ("SAR") model that calculates these rates is based on this
method and has been reviewed and the rates authorized in a filing that has occurred every year
since at least 2013. (See Order Nos. 32817 ,33041,33305, 33538, 33773,34062,34350,34683\.
The SAR method accomplishes two objectives. First, it provides a publishable standard
rate schedule that can apply to any QF of a certain type (wind, solar, seasonal hydro, non-
seasonal hydro, etc.), regardless of the nameplate capacity of the QF as long as it qualifies for
published rates under the respective eligibility cap. In this case, Fall River is compensated using
the published rate schedules for Non-Seasonal Hydro shown in Exhibit K of the Agreement.
4STAFF COMMENTS AUGUST 17 ,2020
These rates will be no different than any other Non-Seasonal Hydro QF that has a fully executed
contract while these rates are in effect. Second, it holds the QF accountable, requiring it to
generate energy to earn the capacity value for the cost of capacity that it avoids for the utility.
90/110 Rule
Staff has reviewed the contract provisions related to the 90/110 rule and believes the firm
market price needs to be converted to a non-firm market price, using an 82.47o discount. Staff
also recommends that the term "Mid-C-85" in Exhibit K be changed to "PV-85" to reflect the
use of the Palo Verde Hub. Finally, Staff may propose additional changes to how the parties
implement the 90/l l0 rule, depending on the information and the data Staff will examine
through additional discovery to accommodate two sets of rates needed for the Facility.
Monthly Estimates
The Application states Fall River has demonstrated to the Company's reasonable
satisfaction "the likelihood the facility, under average design conditions, will generate at no more
than2.5 alvfw in any calendar month." However, both the Energy Delivery Schedule section
and the Exhibit A of the proposed Agreement shows that the months of April, May, June, and
July exceed the2.5 aMW.
The Company stated in its Response to Staff s Production Request No. 14 that the 2.5
aMW figure in the Application was an error, and it should have been 3.5 aMW. Staff agrees
with this statement and believes no changes need to be made to the monthly estimates in the
Agreement.
Advanced Notice Timeframe
The Agreement uses a 10-day advanced notice to revise future monthly estimates. Staff
believes any timeframe between a month and five days in advance is reasonable, and
recommends approval of the proposed lO-day advanced notice. The Commission allowed a
month-ahead timeframe in Order No. 33103, which states:
The intent of a QF providing generation estimates has always been to assist the
utility in forecasting and operational planning so that the utility can provide the
most reliable service possible to its customers. We find that a provision
STAFF COMMENTS AUGUST I7,2O2O5
allowing for monthly generation estimate updates is consistent with that
purpose.
Later, the Commission also allowed a five-day timeframe in several cases, recognizing
that monthly estimates provided closer to the time of delivery can improve the accuracy of input
used for short-term operational planning. (See, e.g., Case Nos. IPC-E-19-01, IPC-E-19-03,
IPC-E- 1 9-04, IPC-E- I 9-O7, and IPC-E- I 9- 1 2).
Market price
Staff believes the Company's determination of firm market price is fair and reasonable,
but the price needs to be discounted to convert to non-firm market price for the purpose of the
90/110 rule.
Firm Market Price Index is defined on Page No. 4 of the Agreement as:
[T]he hourly value calculated based on the average prices reported by the
Intercontinental Exchange,Inc. ("ICE") Day-Ahead PV On-Peak Index and the
ICE Day-Ahead PV Off-peak Index (each an ICE Index) for a given day,
weighted by the count of hours for each ICE Index on such day, multiplied by
the hourly [Califomia Independent System Operator] ("CAISO") day-ahead
market locational marginal price for the "PACE. DGAP_PACE-APND"
location and divided by the average of the same CAISO index over all hours in
such day.
In this definition, PV refers to the Palo Verde Hub. The Company explained through Response
to Staff s Production Request No. 10 that the Idaho service territory is located within the
PacifiCorp East balancing authority area, which is more closely connected to Palo Verde than
Mid-Columbia. Therefore, the Company uses the Palo Verde Hub instead of the Mid-Columbia
Hub. The ICE On-Peak Index at the Palo Verde Hub, however, spans a wide range of conditions
that are not adequately represented by an average value, so the Company further adjusts the
numbers with the CAISO day-ahead market index to provide hourly granularity. The adjustment
is based on the locational marginal price foT "PACE.DGAP-PACE-APND" location, which is
the Default Generation Aggregate Price for the PacifiCorp East balancing authority area. This
price reflects an average of generation resources in PacifiCorp East. Lastly, the hourly prices are
averaged over a month to arrive at a monthly value for the purpose of the 90/110 rule. Staff
6STAFF COMMENTS AUGUST 17 ,2020
believes that this method reflects the Company's actual operations and transactions and is a fair
representation of firm market price values.
If the Facility delivers more than 110 percent of the estimated amount, energy delivered
in excess of I 10 percent is priced at the lesser of 85 percent of the market price or the contract
price. If the Facility delivers less than 90 percent of the estimated amount, total energy delivered
is priced at the lesser of 85 percent of the market price or the contract price. Order No.29632.
However, the market price referred to in Order No.29632 is a non-firm market price, not
a firm market price. Originally, in Order No.29632, market price was defined as "the monthly
weighted average of the daily on-peak and off-peak Dow Jones Mid-Columbia Index (Dow
Jones Mid-C Index) prices for non-firm energy." However, the Dow Jones Mid-C lndex was
discontinued in 2013, and Case No. IPC-E-13-25 was initiated to find a replacement market
index for non-firm energy. Because firm energy is more valuable than non-firm energy, the
Commission authorized that 82.4Vo of the monthly arithmetic average of each day's ICE daily
firm Mid-C Peak Avg and Mid-C Off-Peak Avg index prices can be used as a replacement
market index for non-firm energy. Order No. 33053. Since then, the 82.4Vo discount has been
used in Idaho Power's and Avista's PURPA contracts when non-firm market prices are not
available. Staff recommends using 82.4Vo as a fair and reasonable generic discount to be applied
to convert firm market price to non-firm market price.
In addition, the Company stated through its Response to Staff s Production Request
No. 11 that the term "Mid-C-85" in Exhibit K should have been changed to "PV-85" to reflect
the use of the Palo Verde Hub. Therefore, Staff recommends amending Exhibit K to correct the
mistake and incorporate the use of the 82.4Vo discount for converting firm market price to non-
firm market price throughout the Agreement.
Method to Determine Payments Outside the 90/110 Performance Band
As stated above, when the Facility produces energy outside of the 90/1 10 performance
band for a given month, the total energy delivered in that month is priced at the lesser of 85
percent of the market price or the contract price. (See Order No. 29632). However, given the
need for two sets of contract rates, one set for each powerhouse until the Company is capacity
deficient, a method is needed to ensure that the contract rate is appropriate and reasonable when
it is compared against the market rate if the Facility falls outside of the 90/1 10 band. If the
STAFF COMMENTS AUGUST I7,2O2O7
Commission allows for additional time for discovery and analysis, Staff believes it will be able
to find an alternative that is appropriate for purposes of the 90/1 10 rule and will include its
recommendations in its supplemental comments.
STAFF RECOMMENDATION
The current contract between the Company and Fall River will not expire until March 31,
2021. To identify a fair and reasonable methodology to determine capacity payments until the
next capacity deficiency date, Staff requests additional time to conduct additional discovery and
to file supplemental comments on October 1,2020. Based on its analysis so far, Staff
recommends that the Company file an amended Agreement that includes the following updates:
1. lncorporate the 82.4Vo discount for purposes of converting firm market prices to
non-firm market prices throughout the Agreement; and
2. Change the term "Mid-C-85" in Exhibit K to "PV-85" to reflect the use of the
Palo Verde Hub.
Respectfully submitted thi.[?%ay of Augu stzo2o.
yn Hardie
Deputy Attorney General
Technical Staff: Yao Yin
Mike Louis
i:umisc/commentdpace20. I 0dhyyrf comments
8STAFF COMMENTS AUGUST I7 ,2020
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS ITth DAY OF AUGUST 2020,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. PAC-E.20-IO, BY E.MAILING A COPY THEREOF, TO THE
FOLLOWING:
TED WESTON
ROCKY MOUNTAIN POWER
1407 WEST NORTH TEMPLE STE 330
SALT LAKE CITY UT 84116
E-MAIL: [e-mail]
idahodockets@pagifi com. com
JACOB A McDERMOTT
ROCKY MOUNTAIN POWER
1407 WN TEMPLE STE 320
SALT LAKE CITY UT 84I16
E-MAIL: [e-mail]
ADAM LOWNEY
McDOWELL RACKNER GIBSON
419 SW l ITH AVE SUITE 4OO
PORTLAND OR 97205
E-MAIL: [e-mail]
DATA REQUEST RESPONSE CENTER
E.MAIL ONLY:
datarequest@Ea cificorp. com
GREGORY M ADAMS
PETER J zuCHARDSON
RICHARDSON ADAMS PLLC
515 N 27TH STREET
BOISE ID 83702
E-MAIL : [e-mail]
Eter@richardsonadams. com
CERTIFICATE OF SERVICE