Agenda Date: March 14, 2001 Item Number: 2B Docket: UE-010297 Company Name: Avista Corporation Staff: Lisa Steel, Assistant Director - Energy Merton Lott, Energy Coordinator Hank McIntosh, Regulatory Consultant Thomas Schooley, Policy Research Specialist Joelle Steward, Policy Research Specialist Recommendation: Approve the request for Less than Statutory Notice by Avista Corporation (Avista) to implement Original Sheet 70S, Buy-Back of Customer Power – Pumping. Background: On March 2, 2001, Avista filed Original Sheet 70S, “Rules and Regulations” with a new rule 23 to allow certain pumping customers to sell power back to Avista by reducing their historical electric consumption. LSN treatment for a March 15 effective date gives more farmers an opportunity to participate in the program because, according to Avista, “[m]ost farmers will decide on which crops to grow and how much acreage to plant prior to April 1.” Customers must notify Avista of any eligible energy curtailments by April 15, 2001, and must sign a self-certification that this curtailment program influenced their demand reduction. Eligible customers have at least 50,000 kWh five-year average historical demand. Avista proposes the following payments to pumping customers who curtail energy usage below their previous five-year average: curtailment < 25,000 kWh 0 ¢ payment per curtailed kWh curtailment 25,000 kWh, < 100,000 kWh 5 ¢ payment per curtailed kWh curtailment 100,000 kWh 10 ¢ payment per curtailed kWh Approximately 58 customers could curtail at least 100 MWh, representing 15.8 aMWh, or 58,000 total MWh over the ~3672 hour May-September 2001 period. Avista expects another 200 eligible customers in the 50,000 to 100,000 kWh range; total aMWh for this group are not available. Schedule 70S Rule 23 terminates after September 2001. Fixed pricing differentiates this program from Avista's buy-back for industrial customers. Industrial buy-back prices vary based on market price for each immediate and short curtailment period. Discussion: So long as Avista’s avoided cost of power, or market sale price of excess energy, is greater than 10 cents per kWh, this program could decrease Avista’s net power cost. 10 Cents per kWh is substantially below forward mid-Columbia summer firm prices of 30 to 40 cents per kWh. Customer elasticity of demand analysis supporting an optimum buy-back price is not available for the LSN, and probably would not be available this year. Other ongoing Northwest agricultural buy-back programs indicate that 8.5 cents is too low and 15 cents is more than sufficient. PacifiCorp is offering Idaho customers 8.5 cents per kWh for curtailment, but has not received much interest. Idaho Power issued a request for proposals for irrigation curtailment and received 900 customer bids. Idaho Power will accept 364 of these bids, at an average price of 14.2 cents per kWh and a maximum price of 15 cents. Some of the buy-back load could be from customers who would have curtailed without the program. “Free rider” payments offset benefits, as in all conservation programs. Staff cannot determine the level of free ridership, but we are encouraged that every kWh of genuine buy-back attracted by this program nets at least a 20 cent benefit, while every free rider kWh risks only 10 cents. We also note that PacifiCorp’s 8.5 cents received little interest: “free riders” would be expected to accept any positive buy-back price. Avista customers would sign a good-faith pledge that the buy-back program influenced the curtailment decision. A sliding scale of benefits minimizes payments for small cutbacks unrelated to the buy-back, while reducing administration costs. BPA programs requiring 100% curtailment were coolly received; pumpers did not want to risk leaving fields fallow for even one of the five years which results in a forfeiture of water rights. 100,000 KWh irrigates ~160 acres in Eastern WA for one season: Avista’s sliding scale does not exclude mid-sized or even smaller farms, or preclude all planting. Avista’s rates for Pumping Schedules 31 and 32 are lower than schedules for similar industrial or commercial loads. Historically, excess summer hydroelectric production justified the discount; this historical premise may no longer be valid given current critical water conditions and high summer market prices. A voluntary buy-back, while not an optimum price signal, can be implemented this season. Additional costs or savings generated through this proposal will impact the level of temporary electric power cost deferrals allowed by the Commission in Docket UE-000972. The Commission has not adopted a proposal to allow Avista to recover those costs from ratepayers, and nothing in Docket UE-010297 is meant to influence future decisions on whether or how Avista could or should recover those costs. Future decisions will address the prudence of Avista’s incurred costs, as well as allocation of power supply risk between shareholders and ratepayers. Staff perceives the current proposal as an effective tool to help Avista manage power supply costs and risks to either or both shareholders and ratepayers. Conclusions and Recommendation: Approve the request for Less than Statutory Notice by Avista Corporation (Avista) to implement Original Sheet 70S, Buy-Back of Customer Power – Pumping. Staff recommends that the Commission approve the proposal this year as an LSN: staff does not expect two weeks to provide enough useful information to offset the risk of influencing fewer irrigation decisions.