20020522Avoided Cost Letter.doc

May 22, 2002

Blair Strong
Paine, Hamblen, et al
717 W. Sprague Avenue, Suite 1200
Spokane, WA 99201-3505

Doug Young
Avista Utilities—WWP
1411 E. Mission
PO Box 3727
Spokane, WA 99220-3727

John M. Eriksson
Stoel Rives LLP
One Utah Center
201 S. Main Street, Suite 1100
Salt Lake City, UT 84111-4904 Rodger Weaver
PacifiCorp
825 NE Multnomah, Suite 600
Portland, OR 97232

Barton L. Kline
Idaho Power Company
PO Box 70
Boise, ID 83707-0070

Mark Widmer
PacifiCorp
825 NE Multnomah Street
Portland, OR 97232

RE: Case Nos. AVU-E-02-4, IPC-E-02-6, UPL-E-02-1

The Idaho Public Utilities Commission in Order No. 28708, Case No. GNR-E-99-1, established a new methodology for the annual adjustable rate portion of avoided costs for those QF contracts using variable costs associated with Colstrip, a coal-fired generating facility in southeast Montana. For those QF contracts with Colstrip-related fuel costs and variable O&M, future Colstrip variable cost adjustments are to be calculated by using FERC Form 1 Colstrip Unit Coal Costs per megawatt hour (MWh) and adding $2.00/MWh (the average variable O&M cost of Colstrip plus 20¢/MWh for generation taxes plus a five percent (5%) adjustment for line loss). As computed by Commission Staff the Colstrip related adjustable rate will change from 9.72 mill/kWh to 8.52 mill/kWh. The same calculated rate revision under the avoided cost methodology is used by Avista, PacifiCorp dba UP&L and Idaho Power Company. This change in the variable rate affects existing contracts under the previous SAR methodology.

The adjustable portion of the avoided cost rates under the present methodology is based on annual average gas prices indexed at Sumas, Washington. As reported by Avista, the indexed gas prices have increased by $0.41/mmbtu. The approved gas price of $4.82/mmbtu plus the $0.41/mmbtu increase results in a gas price of $5.83/mmbtu for the 2002-2003 year. This equates to a SAR fuel cost of 38.44 mill/kWh as used in the model.

Enclosed you will find prepared by Staff Engineer Rick Sterling, a new schedule of rates under the present methodology and a detailed sheet of variables for your respective utility. If after reviewing same, you accept the new schedule as accurate, please indicate your approval by letter (or other filing) directed to the Commission in the reserved case docket numbers identified above. The case heading in this matter will read as follows:

IN THE MATTER OF THE ANNUAL REVISION AND UPDATED CALCULATION OF THE ADJUSTABLE PORTION OF THE AVOIDED COST RATES FOR AVISTA CORPORATION DBA AVISTA UTILITIES — WASHINGTON WATER POWER DIVISION, FOR IDAHO POWER COMPANY, AND FOR PACIFICORP DBA UTAH POWER & LIGHT COMPANY.

Please file your respective responses with the Commission on or prior to June 14, 2002. The effective date for the new adjustable rate will be July 1, 2002.

Thank you for your cooperation, please feel free to contact me or Rick Sterling if you have any questions.

Sincerely,

Scott D. Woodbury
Deputy Attorney General
[phone]

Enclosure

bls/L:AVUE024_IPCE026_UPLE021_sw

May 22, 2002
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