Opinion ID: 517400
Heading Depth: 1
Heading Rank: 2

Heading: financial feasibility and levelized costost

Text: 10 Idaho Power first claims that in finding financial feasibility the Commission abandoned an approach it had employed in Utah Board of Water Resources, 27 F.E.R.C. p 61,437 (1984). There, as here, it was assessing a small power production facility that would in all likelihood be eligible under PURPA to put its power to a utility at avoided cost rates. 1 It determined feasibility by asking whether the project's annual power costs would exceed the avoided cost of the prospective buyer. 11 As Idaho Power's avoided costs are now 47 mils/kwh and the project's levelized cost is 76.7 mils/kwh, an analysis exactly tracking Utah Board would seem to point to infeasibility. In its initial order, the Commission resolved the issue by suggesting that Idaho Power's avoided costs might rise in the future, and that other utilities in the region might buy for as much as 80 mils/kwh. In its Order on Rehearing the Commission elaborated somewhat, concentrating on a hypothetical coal plant that it projected would likely be necessary by 2002 and that would produce at a levelized cost of 96.9 mils/kwh. This fleshed out FERC's earlier suggestion that in later periods the Horseshoe Bend power would sell for more than could be inferred from Idaho Power's present avoided costs. Thus the different facts appear to supply ample reason for adjusting the approach taken in Utah Board of Water Resources. 12 Next, Idaho Power attacks the Commission's use of the hypothetical coal plant on the ground that it fails to support an assumption that someone will be willing to purchase Horseshoe Bend power for up to 96.9 mils/kwh in 1992. Petitioner's Brief at 40. 13 The Commission's Order on Rehearing does not seem to us to claim that anyone would purchase Horseshoe Bend power in 1992 at 96.9 mils/kwh, or even at a price exceeding 76.7 mils/kwh. As we read the Order, its point is that the higher revenues in 2002-2042 are enough to offset losses in 1992-2002. It is not necessarily material who bears them. If indeed the later gains outweigh the early losses, then the plant will be feasible for Boise itself--even if it bears the early losses. At oral argument, Commission counsel suggested that because of the expectation of higher prices in 2002 (or thereabouts), a potential buyer might pay Boise 76.7 mils/kwh even as early as 1992, in order to assure itself the long-run supply. If that is so, so much the better for Boise. But we do not think it necessary to support the Commission's principle that financial feasibility may rest upon late-year gains outweighing early losses. 14 Of course this outweighing is possible only if the Commission has properly compared costs and benefits in different time periods. In making its comparison, the Commission used what it refers to as levelized cost figures. First, it took 76.7 mils/kwh as the levelized cost of power from Horseshoe Bend. Then, to calculate the return, it considered two phases, 1992-2002 and 2002-2040. For the first period it used Idaho Power's current avoided cost of 47 mils/kwh, and for the second it used the hypothesized fossil-fuel plant's levelized cost of 96.9 mils/kwh. If we assume that Horseshoe Bend's power production is the same each year, and that the units employed are truly the same, the 38 years of gaining 20 mils/kwh would outweigh the 10 years of losing about 30 mils/kwh. The units indeed are the same only if they are all present discounted values (or values discounted to any specific year--the Commission here apparently used 1992). At oral argument counsel for intervenor assured us that the levelized costs used were indeed all discounted to present values. Although the record before us is not clear, no one questioned his assertion, and we take it as correct. Accordingly, we can find no error here. 15 None of this discussion, we note, bears directly on the suitability of licensing a plant that is expected, for 10 years after it starts production, to generate power costing more than the power it displaces (if that is what the Commission expects--it isn't clear). Such a 10-year period of costs exceeding the apparent benefits (equal to alternative costs averted) suggests that FERC might do better to bank the site for development 10 years later. By deferring costs and eliminating or reducing a period where the benefits generated are of relatively low value, this strategy would increase the present discounted value of the site's use. Nor would it appear to contradict the Commission's view, approved by the Ninth Circuit in Idaho Power I, that it may not issue licenses under which the licensee banks the site. But no one raises the issue. Accordingly, the petition for review is 16 DENIED.