Agenda Date:                   August 9, 2000
Item No.:            2 C
Docket:                    UE-001081
Company Name:           Avista Corp.
Staff:     Hank McIntosh, Regulatory Consultant 
             Doug Kilpatrick, Electric Industry Coordinator
    Joelle Steward, Policy Analyst
    Graciela Etchart, Policy Analyst
Recommendation: 
Grant Avista's request for waiver of the time requirement in WAC 
480-107-060(2)(b).  Accept Avista's proposal in Docket UE 001081 and allow the 
RFP to be issued for new power resources on August 14, 2000, after the Company 
makes certain amendments to text as agreed in consultation with Staff and other 
parties. 
Background: 
Avista Corp. ("Avista" or "Company") recently sold its interest in the 
Centralia Coal Station to TransAlta. This transaction was reviewed in two 
Commission Dockets UE-991255 and UE-000080. A contract with TransAlta was 
provided in the terms of sale in order to bridge the gap between the signing 
over of ownership and the acquisition of a replacement resource. This contract 
will expire on December 31, 2003. Therefore there are about 40 months of supply 
left in that resource. The Company estimates the time required to find and 
implement a solution to the power supply shortfall is almost that long and 
perhaps longer, if a combustion turbine is selected. This difficulty in quickly 
obtaining delivery of turbines is driven by a large increase in the number of 
orders and a moderate production capacity for new equipment.
Avista first approached Regulatory Division Staff (Staff) about the content of 
a request for proposals (RFP) for replacement power on May 23, 2000. 
Discussions were held in the weeks following May 31st . Company shared draft 
products of an Integrated Resource Plan (IRP) Update and an RFP during that 
time. The Company filed its RFP in this Docket on July 13, 2000. 
Proposal:
The Company proposes to issue an RFP in short order. To do so, they seek waiver 
of WAC- 480- 107- 060 (2) (b) as to review time and public comment time. The 
rule allows a time frame of 90 days. It contemplates a public comment period of 
60 days. The Company has circulated the draft RFP to several parties and has 
incorporated comments into the text. Staff issued a notice for comment on the 
request for waiver and the RFP itself on July 18th . Staff has received no 
comments on either the substance of the RFP or on the proposed waiver of the 
full 60-day comment period. 
Analysis:
At Staff request, Avista updated its 1997 IRP (Docket UE 971342) which had 
previously shown no need for power in the 2004-2009 timeframe. After revision 
of loads and resources to incorporate current of knowledge of growth and 
company resources, an obvious need for power was clear. The Company filed the 
Updated 1997 IRP one day prior to filing the RFP. This study included a refined 
quantitative determination of the need for resources.
During our review process, Staff has worked with Avista personnel to model the 
Avista system with an hourly production cost model (Prosym 8 ). This model is 
known to Staff and is used by many power companies and their consultants in 
power resource analysis studies. Projected years 2004, 2010, 2015, and 2020 
were analyzed to estimate the size, shape and changes in the new resource 
block. Because the wholesale sales and purchase contracts in Company's 
portfolio are close to expiration, the analysis considered only core elements 
of native load. The requirement was modeled by allowing a pseudo purchase to 
fill the gap left when all current Avista resources had been dispatched. The 
results are that about 300 mW of capacity and associated energy are required 
for supply to core loads as now understood. The effects of supplying the 
requirement with combinations of combustion turbines and contracts were also 
run as sensitivities. The complete RFP evaluation will require modeling of the 
candidates to check flexibility and cost results. 
As an ongoing process, the Company has indicated that Staff will be given 
access to all materials needed to review the final evaluation system before the 
bids are opened, and that any adjustment to bids as envisioned by the RFP 
language will be made available to Staff before any evaluations occur. Further, 
Avista has committed to sharing all modeling and analysis with Staff required 
to verify final selections. Specifically, if no bidder is cheaper than a known 
Avista affiliate resource, then all data needed to verify such a conclusion 
will be provided for Staff review.
Staff reviewed the avoided cost estimates filed with the RFP. Although the 
avoided cost published in the updated IRP is slightly different, the avoided 
cost is computed using the IRP's assumptions and is generally consistent with 
it. Avista uses the planning idea of the marginal unit as that which has lowest 
long run marginal cost and that technology is a combined cycle combustion 
turbine. The resulting levelized cost is consistent with the range of estimates 
Staff has reviewed in recent work. It might be noted that in other dockets, a 
retrofitted coal station might have been a good proxy for an avoided cost. 
However, in neither the original 1997 IRP nor in the IRP Update, is a coal unit 
a marginal resource. In short, in the world modeled by these studies, the coal 
unit was either already owned or not for sale at cost but only at prices 
determined by market conditions. This does not mean that only gas turbine 
technologies can win this competition. Other variables such as fuel price risk, 
availability and dispatchability and other features as known just before the 
decision are also important variables for consideration in actual power system 
resource acquisition.
Staff reviewed the RFP language to ensure equitable treatment among resource 
types and for conservation as well. The Company received comment from a small 
number of sources. These included the North West Energy Coalition, and 
Northwest Energy Services, Inc., an ESCO. The discussions which followed 
produced compromises on content which are reflected in the current draft RFP 
text. This modest level of interest and the accommodations made from it leads 
Staff to conclude that there is not material opposition to this draft RFP and 
no evident opposition to a waiver of comment time.
Conclusion:
Staff believes that after a compressed but intense review period, the filed 
draft RFP should be considered adequate to meet the minimum standard of the 
relevant rules covering bidding on resources. In light of a credible showing of 
urgency in the case of replacement resources and possible lead-time risks, 
Staff believes that holding the Company to a full 90 day review period is not 
in the public interest.
Staff recommends that the Commission grant the Company's request for waiver of 
the time requirement in WAC 480 107 060 (2) (b). Further, the Staff recommends 
that the RFP be accepted and that the Company be allowed to issue and process 
the RFP no later than August 14, 2000, as requested. We recommend no further 
comment time beyond the 21 days already afforded.