20030804_569.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
CO MMISSI 0 NER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
WORKING FILE
FROM:RICK STERLING
DATE:JULY 18, 2003
RE:REVISION OF QF VARIABLE ENERGY PRICES IN ACCORDANCE
WITH TERMS OF THE 1992 AMENDMENTS TO POWER PURCHASE
AGREEMENTS BETWEEN IDAHO QFS AND P ACIFICORP; CASE NO.
PAC-03-10.
On July 1 , 2003 , PacifiCorp (Company) sent a letter notifying the Commission of an
annual revision to the variable energy price for Qualifying Facilities (QFs) holding certain power
sales contracts with the Company. Thirteen QFs have contracts with PacifiCorp that include a
1992 amendment that outlines a methodology that is to be used for determining the variable
energy price component of the avoided cost rate. As stated in the 1992 amendment:
Beginning July 2003 and continuing throughout the term of the power purchase
agreement, including any extensions, the variable energy rate shall be calculated
in accordance with the following methodology:
a) the variable energy rate shall be the sum of the Buyer s (PacifiCorp) fuel
cost and the variable O&M cost.
b) Buyer s fuel cost shall be the average cost of fuel consumed in Buyer
Utah Division, specifically the Carbon, Hale, Naughton, Huntington and
Hunter generating plants. If any of the specified plants does not operate in
any calendar year, such plant shall be excluded from the calculation of the
average cost of fuel. The average cost of fuel shall be calculated using the
data reported in Buyer s FERC Form 1. For 1990, Buyer s fuel costs are
reported at pages 402-403 , lines 12 and 21 of the FERC Form 1. In the
event that the FERC Form 1 ceases to include the cost of fuel or net
generation data, comparable data based upon Buyer s normal accounting
practices shall be used.
DECISION MEMORANDUM - 1 -JULY 18, 2003
c) Buyer s variable O&M cost shall be calculated using the methodology
adopted by the Idaho Public Utilities Commission in Order No. 23738 for
determining the variable avoided O&M cost of the Surrogate Avoidable
Resource, excluding the State of Montana generation tax and the line loss
adjustment.
The variable energy component is composed of two parts, fuel costs for PacifiCorp
Utah thermal plants and variable O&M costs. Commission Order No. 28708 clarified how each
of these two parts to the variable energy component is to be computed:
For those PacifiCorp contracts with 1992 Addendum language, we note
by way of clarification, that the fuel component calculation is to remain
unchanged, i.
, "
average fuel costs as reported in FERC Form 1 for
PacifiCorp Carbon, (Hale-presently out of service), Naughton
Huntington and Hunter plants." The variable O&M under the PacifiCorp
QF contracts, while presently fixed, is to be tied to Colstrip beginning in
2003. The Commission notes that pursuant to the '92 Addendum
language in the PacifiCorp QF contracts, generation taxes and a line loss
adjustment are specifically excluded from the calculation of any variable
O&M. It is not our intention to change this contract term. The
Commission notes, as calculated by Staff, that the exclusion of line loss
(5%) and generation tax (20~/MWh) from the variable Colstrip calculation
for affected PacifiCorp contracts (beginning in 2003) results in an adjusted
O&M figure of$1.51/MWh.
As computed by PacifiCorp, fuel costs in 2002 for its Utah thermal plants is $8.66/MWh.
As stated above in Order No. 28708, variable O&M has been set at $1.51/MWh. The sum of
these two parts is $10.17/MWh, and represents the new variable energy rate for the affected
contracts.
Concurrent with the letter received by the Commission, PacifiCorp submitted workpapers
for Staff s review showing how the new variable energy rate has been computed. Staff has
reviewed the Company s data and computations and believes they comport with both the 1992
Amendment and with Commission Order No. 28708.
Besides notifying the Commission of the new variable energy rate, PacifiCorp sent letters
to the holder of each affected contract. Staff also sent letters to the same parties and posted the
Company s workpapers showing its calculations on the Commission s web page for review.
Because the 1992 Amendments require annual adjustments henceforth, Staff recommends
that the Commission direct the Company to annually submit its revised variable energy costs on
DECISION MEMORANDUM - 2 -JULY 18, 2003
a schedule consistent with other avoided cost annual updates that become effective on July
each year. By filing its revised variable energy costs on or before June 1 each year, Staff will be
able to process the changes before the July 1 effective date, and the Commission can incorporate
the revision in the same Order issued prior to July 1 each year that updates the Colstrip and
Sumas avoided cost rate adjustments that apply to some other QF contracts.
RECOMMENDATIONS
Staff recommends approval of the revised variable energy costs as computed by
PacifiCorp for existing QF power purchase contracts with the 1992 Amendments for an effective
date of July 1 , 2003. Supporting workpapers have been provided. The calculation is formulaic
and mathematical; Staff contends that no further notice of procedure is required. Individual
copies of the Commission s Order will be mailed to all affected QFs. Staff recommends that
henceforth, PacifiCorp be directed to make a filing showing its computation of the revised
variable energy costs for these contracts on or before June 1 of each year.
;;
!tick Sterling
QF Dee Memo
DECISION MEMORANDUM - 3 -JULY 18, 2003