Case No. IPC-E-07-15, Order No. 30480

January 4, 2008

Contact: Gene Fadness (208) 334-0339, 890-2712



PUC modifies method to calculate rates paid small-power developers


Beginning Jan. 1, 2008, the amount utilities must pay small-power producers under provisions of the federal PURPA act will be calculated under a different formula that is a compromise to an alternative proposed by Idaho Power Co. and the view of wind advocates that the formula should be left alone.


The federal Public Utility Regulatory Policies Act of 1978 (PURPA) requires regulated electric utilities to buy power from qualifying generators of renewable power at a rate determined by state utility commissions. The Idaho commission determines that rate, which is called an “avoided-cost rate.”  Ideally, the avoided-cost rate is to be equal to the cost the utility avoids if it would have had to generate the power itself or purchase it from another source.


In September, Idaho Power Co. petitioned the Idaho Public Utilities Commission to modify the method it uses to calculate the fuel component of the avoided-cost rate. The fuel component, which accounts for more than half of the total avoided-cost rate, varies as wholesale prices for natural gas fluctuate.


The fuel component was determined by using a 20-year forecast of natural gas prices issued by the Northwest Power and Conservation Council (NWPC). The Idaho PUC averaged the first three years of that forecast and also included a fixed 20-year escalation rate.


Idaho Power maintained that by using an average of the first three years of the NWPC forecast and a fixed escalation rate over 20 years, the downward trend in natural gas prices forecast in future years was not taken into account. The result is a rate that is higher than avoided cost, Idaho Power contended. A rate higher than avoided cost negatively impacts customers, Idaho Power said, because costs for PURPA contracts are passed on to customers.


Instead, Idaho Power proposed using an average of the entire 20-year forecast and eliminating the escalation rate. Under Idaho Power’s proposal, a small-power producer who signed a 20-year contract in 2007 would be paid $67.77 per MWh, compared to $72.22 per MWh under the commission’s formula.


Wind groups and developers argued the formula should not be changed because Idaho Power’s proposed method has never been tested. Wind developers said the commission should adopt a reasonable methodology that produces the best rate for wind developers to restart PURPA development here and put renewable projects at the top of the list of new generation in Idaho. Idaho Power said establishing an avoided-cost rate to make wind projects profitable and stimulate PURPA wind industry is inconsistent with the letter and spirit of PURPA.


The commission ultimately adopted a proposal offered by commission staff and supported by Avista Utilities and Rocky Mountain Power to use each year of the council’s 20-year forecast “as is”, rather than an escalated average of the first three years. Under that method, a 2007 contract would result in a payment of $66.88 per MWh, compared to Idaho Power’s formula, which results in a $67.77 per MWh payment to developers.


The commission agreed with Idaho Power that workshops should be scheduled to determine whether other variables used to calculate avoided-cost other than just the fuel component need to be updated as well.


A full text of the commission’s order, along with other documents related to this case, are available on the commission’s Web site at Click on “File Room” and then on “Electric Cases” and scroll down to Case No. IPC-E-07-15.


Interested parties may petition the commission for reconsideration by no later than Jan. 18. Petitions for reconsideration must set forth specifically why the petitioner contends that the order is unreasonable, unlawful or erroneous. Petitions should include a statement of the nature and quantity of evidence the petitioner will offer if reconsideration is granted.


Petitions can be delivered to the commission at 472 W. Washington St. in Boise, mailed to P.O. Box 83720, Boise, ID, 83720-0074, or faxed to 208-334-3762.