Idaho Published Avoided Cost Rates
Impacts of Increasing Project Size and Contract Length
Current Rate Methodology
A federal law called PURPA (Public Utilities Regulatory Policy Act of 1978)
The forecast assumes that the utilities would construct a natural gas fired power plant or
purchase electricity from someone who did. Therefore, the price paid to QF developers is
based on the cost to build a gas-fired power plant and the natural gas needed to run it.
Forecasting the price of electricity for the next 20 years using a gas fired power plant
requires that a starting price for natural gas be determined and then adjusted over the 20-year period to simulate what natural gas is expected to cost in the future. That stream of
costs over 20 years is then
converted toconverted to a constant , approximately
the same for all Idaho utilities.
Uncertainty and Price Risk
Obviously, the published rate is only an estimate of what electricity costs will be over the
next 20 years. Actual costs for electricity could be significantly different from the prices
paid to developers under contract. In addition, the
at published rate for new contracts
will changewill change each year as the starting price and escalation rate for natural gas
The risk of over payment is borne by the ratepayers, the risk of under payment is borne
by the project developers.
For example, the current rate assumes that natural gas costs will increase by 2.4% per
year for the next 20 years. If gas costs actually increase by only 1.5% per year,
developers with a 20 -year contract and 10 Mw project would be over paid by about
$220,000 per year. If the actual gas escalation rate were 4% per year, developers would
be underpaid by about $400,000 per year. The risk of over payment is borne by the
ratepayers, the risk of under payment is borne by the project developers.
Another uncertainty in establishing the published rate is the starting price for natural gas.
The starting gas price was just recently changed to reflect current market prices. It went
from $3.75 per unit to $4.40 per unit. This change increased the published rate and the
amount paid to developers by about $300,000 per year for a 10 Mw project with a 20-year contract. The point here is that high (or low)
The risk that published rates will be too high or too low is increased if we move from the
current 20-year contracts to
Higher Idaho Rates Attract Out of State Projects
. Current rates and terms available in Idaho are more attractive than those of
any qualifying projects regardless of
project location provided the generation can be delivered to the utility service area. There
is no limit on the amount of power that must be purchased at the published rate under
PURPA. Published rates and mandatory contract terms in surrounding states are as
|Idaho||$53.14/Mwh all hours||10MW||20 Years|
|Washington||Market Price||No limit||No Mandatory|
|Oregon||$48.7/Mwh On Peak||1MW||5 years|
|$33.8/Mwh Off Peak|
The published rates and terms now offered by Idaho are significantly higher than
surrounding states and may attract projects from outside Idaho. Increasing the rate,
maximum project size and contract term will make Idaho rates even more attractive to
projects outside the state. Idaho Power currently purchases 26 Mw (15% of all its QF
purchases) from outside the state.
The methodology approved by the Commission to establish avoided cost rates requires a
forecast of natural gas prices that are locked-in for the term of the contract. While
locking-in the forecast and levelizing rates over the term of the contract provides price
certainty and accelerated cost recovery for developers, it also creates risk that the prices
paid will not reflect costs that the utility actually avoids. As contract terms are lengthened
and project sizes increase the risk and magnitude of over or underpayment for generation
The published avoided cost rates and contract terms currently available from Idaho electric utilities to small power developers are more attractive than those available in any of the surrounding states. Increasing contract term and project size will further increase rates relative to those available from utilities in other states with the potential to attract projects located outside Idaho. In an effort to develop more projects in Idaho, increased rates and availability may simply increase costs to Idaho electric customers through development of more out of state projects.