20061218Vol II Part I.pdf

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ORIGINAL
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR A
CERTIFICATE OF CONVENIENCE
AND NECESSITY FOR THE EVANDER
ANDREWS POWER PLANT
CASE NO. IPC-E-06-9
PLACE:
DATE:
BEFORE
COMMISSIONER MARSHA SMITH (Presiding)
COMMISSIONER DENNIS HANSEN
COMMISSIONER PAUL KJELLANDER
Commission Hearing Room
472 West Washington
Boise, Idaho
November 20 , 2006
VOLUME II - Pages 33 - 396
CSB REPORTING
Constance S. Bucy, CSR No. 187
17688 Allendale Road * Wilder, Idaho 83676
[phone] * [phone]
Email csb~safelink.net
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For the Staff:Donovan Walker , Esq.
Deputy Attorney General
472 West Washington
Boise, Idaho 83720-0074
For Idaho Power Company:Monica Moen , Esq.
Idaho Power Company
Post Office Box 70
Boise, Idaho 83707-0070
For Industrial Customers
of Idaho Power:
RICHARDSON & 0' LEARY
by Peter J. Richardson , Esq.
and Mark P. Thompson , Esq.
Post Office Box 7218Boise, Idaho 83702
WITNESS EXAMINATION BY
Ms. Moen (Direct)
Prefiled Direct Testimony
Mr. Thompson (Cross)Ms. Moen (Redirect)
Mr. Walker (Direct)
Prefiled Direct Testimony
Mr. Thompson (Cross)
Ms. Moen (Cross)
Mr. Walker (Redirect)
Commissioner Smith
Mr. Thompson (Direct)
Pre filed Direct Testimony
Ms. Moen (Cross)
Commissioner Smith
Mr. Thompson (Redirect)
Ms. Moen (Direct-Reb)
Prefiled Rebuttal Testimony
Mr. Walker (Cross-Reb)
PAGE
164
167
183
186
188
190
293
298
300
302
305
362
Gregory W. Said
(Idaho Power)
Rick Sterling
(Staff)
Don C. Reading
(ICIP)
Gregory Said/Michael
Youngblood
Idaho Power)
NUMBER DESCRI PTION PAGE
FOR IDAHO POWER COMPANY:
(Confidential exhibit)Premarked
(Confidential exhibit)Premarked
3. Idaho Power Demand-Side Management
Potential Study
Premarked
(Confidential exhibit)Premarked
5. Request for Production No. 96
& Response
Identified 172
FOR THE STAFF:
101. Figure 7 Monthly Peak-hour Surplus/Deficiency, etc.Premarked
14
102. Figure 9 Monthly Peak-hour Surplus/Deficiency, etc.Premarked
103. Figure 12 Monthly Peak-hour Surplus/Deficiency, etc.Premarked
104. Figure 4-2. Monthly Peak-hour Surplus/Deficiency, etc.Premarked
105. Table 1-1. 2006 Preferred Portfolio
Summary & Timeline
Premarked
106. Figure 4-3. Month Peak-Hour Northwest
Transmission Deficit, etc.Premarked
107. - 113.(Confidential exhibits)Premarked
CSB REPORTING
Wilder, Idaho
EXHIBITS
83676
PAGE
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Prerrrarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
NUMBER DESCRIPTION
FOR THE INDUSTRIAL CUSTOMERS OF IDAHO POWER:
201. Curriculum Vitae of Don C. Reading
202. Idaho Power s Response to First
Production Request of ICIP
203. Request for Production No. 23 & Response
204. 2006 Integrated Resource Plan
205. Excerpts from the 2006 Integrated
Resource Plan
206.Request for Production No.Response
207.Request for Production No.Response
208.Request for Production No.Response
209.Request for Production No.100 Response
210. Request for Production No. 68 & Response
211.(Confidential exhibit)
212.(Confidential exhibit)
213.(Confidential exhibit)
214. Request for Production No. 19 & Response
215.(Confidential exhibit)
216.(Confidential exhibit)
217.(Confidential exhibit)
218. An Assessment of the Feasibility of
Emergency Electrical Generation Unitsetc.
CSB REPORTING
Wilder , Idaho 83676
EXHIBITS
PAGE
Continued)
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
NUMBER DESCRI PTION
FOR THE INDUSTRIAL CUSTOMERS OF IDAHO POWER:
219. Portland General Electric, Dispatchable
Standby Generation
220. Portland General Electric, Power Report
221. Portland General Electric, 2002
Integrated Resource Plan
222. Stakeholder Dialogue No., PGE' s
2006 IRP
223. Request for Production No.4 6 & Response
224. Idaho Power s Response to the First
Production Request of NW Energy Coalition
225. Request for Production No.8 & Response
226. Generation Options for Idaho s EnergyPlan
227. Idaho Power Demand-Side Management
Potential Study
228. Avista Corp., Quarterly Review
August 2006
229. Request for Production No. 38 & Response
230. Request for Production No. 37 & Response
231. Request for Production No. 18 & Response
232. Request for Production No.4 0 & Response
233. Request for Proposals, Peaking Resource
234. Request for Production No. 41 & Response
235. Request for Production No. 31 & Response
CSB REPORTING
Wilder , Idaho 83676
EXHIBITS
PAGE
Continued)
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
Premarked
NUMBER DESCRI PTION
FOR THE INDUSTRIAL CUSTOMERS OF IDAHO POWER:
236.(Confidential exhibit)
237.Request for Production No.Response
238.Request for Production No.Response
239.Request for Production No.Response
240.(Confidential exhibit)
241.(Confidential exhibit)
242. Peak Load Condition Monday, July 24 2006
CSB REPORTING
Wilder , Idaho 83676
EXHIBITS
BOISE , IDAHO, MONDAY , NOVEMBER 20,2006,9:30 A. M.
COMMISSIONER SMITH:Good morning, ladies
and gentlemen.This is the time and place set for a
hearing before the Idaho Public Utili ties Commission in
Case No. IPC-E-06-09 , further identified in the matter of
Idaho Power s application for a certificate of public
convenience and necessity for the Evander Andrews Power
Plant.Commissioner Kj ellander, President Kj ellander
has had an unfortunate incident that will necessitate his
leaving early, so I will be the Chairman of this case and
for those of you may not know him, he s sitting on my
right and on my left is Commissioner Dennis Hansen and
the three of us are the entire Commission.
ll begin with the appearances of the
parties, starting with Ms. Moen.
MS. MOEN:Thank you , Madam Chair.
Monica Moen appearing on behalf of Idaho Power Company.
COMMISSIONER SMITH:And Mr. Richardson.
MR. RICHARDSON:Thank you
Madam Chairman.Peter Richardson appearing on behalf of
the Industrial Customers of Idaho Power and also
supervising attorney Mark Thompson appearing on behalf of
the Industrial Customers of Idaho Power.
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COLLOQUY
83676
COMMISSIONER SMITH:Thank you , and
Mr. Walker.
MR. WALKER:Donovan Walker, Deputy
Attorney General, representing Commission Staff.
COMMISSIONER SMITH:And to my knowledge
these are the only parties in this case.Are there
preliminary matters that need to come before the
Commission before we take up the testimony of the
witnesses?
MS. MOEN:Madam Chair , I have three items
that we need to bring up preliminarily.First of all
there is much information and testimony that will be
coming before you that is confidential to Idaho Power or
to bidders into the -- that responded to Idaho Power
RFP and only those parties who have signed or people in
the room who have signed a protective agreement are
enti tIed to be here.I believe everyone with the
exception of (**Confidential**) has signed such an
agreement and I'm reluctant to offer one to him to sign
because he and his business have submitted a bid in
response to this RFP.We will be sharing some
information that is confidential to Siemens-Westinghouse
the party to which Idaho Power wishes to award the bid
and under those circumstances, I would suggest that he
not be able to attend this hearing.
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COMMISSIONER SMITH:Well , now do I let
(**Confidential**) respond to that?
MR. RICHARDSON:Madam Chairman, Peter
Richardson.
COMMISSIONER SMITH:, Richardson.
MR. RICHARDSON:m concerned,
Madam Chairman, that we exclude members of the public
from public portions of today ' s hearing.I don t think
we can legitimately close a hearing, except for those
portions of the hearing dealing with confidential
information and as a matter of convenience, if there s no
one in the audience from the public, we can proceed as if
it's closed, but from a record standpoint, I would be
very concerned if , say, someone wanted to take this
matter on appeal if the record were sealed without
parsing out the confidential portions from the
non-confidential portions.
COMMISSIONER SMITH:Well, I guess , Mr.
Richardson , I've talked with the Commission s counsel
about how we re going to do the transcript in this case
and I think we re going to have two transcripts prepared,
one that will be public and will be available and then
one that will include the confidential information and
will be sealed and it would be the sealed transcript that
would go into court because it would be the complete one
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in the event of an appeal, so that was kind of my thought
on the transcript and I guess I agree with you
theoretically about the public portions of the non -- the
hearing part that deals with the non-confidential
material should be open.
From a practical standpoint, I guess
don t know what you lawyers are going to do in terms of
your cross and I think it would be very difficult for the
court reporter to say this paragraph is closed and this
paragraph is open , so I think we re going to have to look
at how that plays out and it may be that portions of one
attorney s cross for one witness just has to be a closed
session because they re dealing with the portion of the
witness ' testimony that does have sensitive information
so I'm going to cross that bridge when we come to it.
Now (**Confidential**) was it -- had you
requested to sign a confidentiality agreement or were you
just here to look at what was public?
(**Confidential**) Madam Chairman
Members of the Commission , I agreed to sign a
confidentiality agreement, but Idaho Power indicated that
that was still unacceptable, because as a principle of a
company that bid, they were still reluctant to share some
information , so execution of the confidentiality
agreement seemed to not answer their questions, so I am
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prepared to do the Commission s bidding, but to the
extent that there are portions that are open to the
public or should be open to the public, I'd like to sit
through some of those today.
COMMISSIONER SMITH:Okay, we ll try and
proceed along those lines.Item 2.
MS. MOEN:On that first item, Madam
Chair
, ,
d just request, also, that there be no internal
broadcasting of the session before any of the IPUC Staff.
COMMISSIONER SMITH:I think it looks off
ll have to test that.to me.Gene, would you go test
that for me, please?
MS. MOEN:The second matter is we have a
representative, Mark Stokes, here of the Company s power
supply department and FERC standards of conduct do not
allow Mr. Stokes to have access to any information
related to the Company s transmission side.In the event
certain testimony starts getting into details beyond the
testimony that deals with transmission , I would request
that we hold off for a moment to allow Mr. Stokes to
leave the room.
COMMISSIONER SMITH:And you ll have to
alert me --
MS. MOEN:I will do that.
COMMISSIONER SMITH:-- when you get to
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that line.
MS. MOEN:Yes.The last thing is, as
everyone is aware, the Company has submitted joint direct
rebuttal testimony by way of Greg Said and Mike
Youngblood and on cross-examination of the witnesses, the
parties to the matter have agreed that only one witness
will have the opportunity to respond to a question.Both
wi tnesses will not be entitled to respond to one
question , nor will the witnesses be permitted to confer
before answering a question.The only conference they
may be able to have is to determine who will be answering
the question and those were agreements that the parties
had established prior to this hearing.
COMMISSIONER SMITH:Okay.Is that
acceptable, Mr. Walker?
Thank you, Madam Chairman.MS. MOEN:
did have those discussions with the Company and if the
Commission chooses to allow both people on the stand , I
did agree that that would, be the only acceptable way from
Staff's point of view that we could conduct
cross-examination was if the two parties on the stand
were strictly limited to only one person answering the
question , and for the record, I think it's important to
note here that I don t think this is a similar-type
si tuation as where the Commission may have done panel
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COLLOQUY
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testimony in the past.
This is a situation where two people have
jointly sponsored one testimony without identifying which
person has the requisite personal knowledge to make the
answers or to sponsor the exhibits that were attached.
Now, granted that the Commission is an administrative
agency and not bound by the Rules of Evidence in a
similar matter as the court , but as sure you re well
aware, our standard on appeal is substantial competent
evidence and there is some precedent in Idaho law dealing
wi th this situation specifically stating that although
the Commission does not adhere strictly to the Rules of
Evidence that it cannot base its findings upon hearsay
testimony and there s other follow-up precedent to that
saying that finding that it was proper for the Commission
to exclude hearsay testimony even though they re not
bound by the Rules of Evidence because it's improper to
base a decision upon that evidence, so with those caveats
and that obj ection, I think to the way that the evidence
was proffered to this Commission , if the Commission
chooses to allow both people on the stand, I would
request a very strict instruction that they identify
which portions they are sponsoring and only that person
be allowed to answer.
I think it would be patently unfair to
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allow both people to answer the same question upon
cross-examination, and alternatively, I think it would be
a good idea for purposes of the record to possibly have
the Company identify in the testimony, the written
testimony, that was submitted who s responsible for
submi t ting each question and who s responsible for
submi tting and sponsoring each exhibit on to the record,
so with those caveats, yes, I did agree that the only
proper way would be for one person to be limited to
answering.
COMMISSIONER SMITH:Thank you,
Mr. Walker.
Mr. Richardson , did you want get in on
this?
MR. RICHARDSON:Thank you,
The Industrial Customers find panelMadam Chairman.
testimony to be very problematic, it's very difficult to
identify who s responsible for what, but we reluctantly
agreed with Staff in the structure of today ' s panel,
we will not obj ect to it, but maybe suggest to the
Commission that for panel in the future that you require
parties to seek leave in advance of ~iling panel
testimony so it doesn t land on our desk and we
surprised by it.
Okay.All right, theCOMMISSIONER SMITH:
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Commission will proceed with the panel presentation as
filed by the Company and if we encounter problems beyond
what we can fix with the agreements made, we ll deal with
it at that time.Are there other preliminary matters
that need to come before the Commission?Then, I assume,
ll start with the Company.
Yes, thank you, Madam Chair,MS. MOEN:
Members of the Commission , I would like to
COMMISSIONER SMITH:Just one more thing.
Just on a scheduling note, I have a commitment at noon,
so we will be breaking for lunch at approximately five
The Commission has scheduled a decision meeting12: 00.
We will only do the consent agenda items, so itat 1: 30.
should only take us a minute or two, so we will resume
after lunch at 1: 35.
Thank you, Madam Chair, MembersMS. MOEN:
of the Commission , Idaho Power Company calls its only
direct witness Greg Said.
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GREGORY W. SAI D
produced as a witness at the instance of Idaho Power
Company, having been first duly sworn , was examined and
testified as follows:
BY MS. MOEN:
DIRECT EXAMINATION
Mr. Said, would you please state your full
name and spell your last name for the record?
CSB REPORTING
Wilder , Idaho
Gregory W. Said, S-
And please state your business address for
1221 West Idaho Street.
And by whom are you employed?
Idaho Power Company.
And in what capacity are you employed?
m the manager of revenue requirement.
Have you previously filed written direct
testimony consisting of 22 pages and no exhibits on
behalf of Idaho Power Company in this matter?
Yes , that's correct.
Do you wish to make any corrections to the
written testimony that you prefiled?
Just one.On page 16, line 19, a word was
the record.
SAID (Di)
Idaho Power Company83676
omi tted.It should read ... all Provisional Acceptance
Cri teria identified in the agreement have been
satisfied " so insertion of the word "have.
There are no other additions or
corrections?
No.
And if I asked you the same questions
today that are contained in your prefiled written
testimony, would your responses to those questions be the
same?
Yes, they would.
MS. MOEN:Madam Chair, I move that the
pre filed testimony of Gregory Said consisting of 22 pages
and no exhibits with the correction identified be spread
on the record as if read in its entirety.
COMMISSIONER SMITH:If there s no
objection , it is so ordered.
(The following prefiled direct testimony
of Mr. Gregory Said is spread upon the record.
CSB REPORTING
Wilder, Idaho
SAID (Di)
Idaho Power Company83676
Please state your name and business address.
My name is Gregory W. Said and my business
address is 1221 West Idaho Street, Boise, Idaho.
By whom are you employed and in what capacity?
I am employed by Idaho Power Company as the
Manager of Revenue Requirement in the Pricing and
Regulatory Services Department.
Please describe your educational background.
In May of 1975, I received a Bachelor of
Science Degree in Mathematics with honors from Boise
State University.In 1999, I attended the Public Utility
Executi ve ' s Course at the Uni versi ty of Idaho.
Please describe your work experience with Idaho
Power Company.
I became employed by Idaho Power Company in
1980 as an analyst in the Resource Planning Department.
In 1985, the Company applied for a general revenue
requirement increase.I was the Company witness
addressing power supply expenses.
In August of 1989, after nlne years in the
Resource Planning Department, I was offered and
accepted a position in the Company s Rate Department.
wi th the Company s application for a temporary rate
increase in 1992 , my responsibilities as a witness were
expanded.While I
SAID , DI
Idaho Power Company
continued to be the Company witness concerning power
supply expenses, I also sponsored the Company s rate
computations and proposed tariff schedules.
Because of my combined Resource Planning and
Rate Department experience, I was asked to design a Power
Cost Adj ustment (PCA) which would impact customers ' rates
based upon changes in the Company s net power supply
expenses.I presented my recommendations to the Idaho
Public Utili ties Commission in 1992 at which time the
Commission established the PCA as an annual adjustment to
the Company s rates.I have sponsored the Company
annual PCA adj ustment in each of the years 1996 through
2003.
In 1996, I was promoted to Director of Revenue
Requirement.At year-end 2002, I was promoted to Manager
of Revenue Requirement.
During 1999 and 2000, I directed the
preparation of the Company s 2000 Integrated Resource
I managed the Request for Proposals (RFP)Plan (IRP).
process that resulted from the Near-Term Action Plan
identified in that Resource Plan.I have also
participated in the preparation of subsequent IRPs and
several RFP processes.I was the Company s principal
witness in its applications for a Certificate of
Convenience and Necessity for both the original Evander
SAID, DI
Idaho Power Company
Andrews Power Plant proj ect and the Bennett Mountain
proj ect.
SAID DI
Idaho Power Company
Please outline the maj or topics you will
address in your testimony in this proceeding.
There are four maj or topics that comprise my
testimony.First, I will briefly describe the history
that preceded Idaho Power s issuance of the RFP on March
30, 2005.Second, I will describe the bid evaluation
process that led to selection of Siemens Power
Generation , Inc.(Siemens) as the winning bidder.Third,
I will provide a general description of the proposed
expansion of the Evander Andrews Power Plant (Proj ect) .
Finally, I will discuss the Company s proposed ratemaking
treatment of the costs associated with the proj ect.
What were the maj or events that preceded the
selection of the Siemens proposal?
The maj or events leading up to the selection of
the Siemens proposal were the issuance of the 2004 IRP in
August 2004 , the Commission s acceptance of the Company
2004 IRP for filing on April 22 , 2005 (Order No. 29762)
and issuance of the combustion turbine peaking resource
RFP in March 2005.The 2004 IRP is on file with the
Commission and, as such , Idaho Power requests that the
Commission take administrative notice of that document.
What drives the need for Idaho Power to acquire
addi tional resources?
Customer growth is the primary driving force
SAID, DI
Idaho Power Company
behind Idaho Power Company s need for additional
resources.The number of households in the Company
service territory is expected to increase from about
320 000 at the time the 2004 IRP was prepared to over
380,000 by the end of the 10-year planning period of that
IRP.Idaho Power must acquire additional physical
resources to meet the electrical energy demands of these
addi tional customers.
Please describe the maj or factor that formed
the basis of the 2004 IRP.
Idaho Power has an obligation to serve its
customers ' loads regardless of the water conditions that
may occur.The 2004 IRP was prepared by evaluating the
adequacy of the Company s resources to meet customer
needs based upon planning criteria that included 70th
percentile water conditions and 7 oth percentile load
This "worse-than-median " level of watercondi tions.
cri teria received both public input and regulatory
support during the 2002 IRP process. Use of these
criteria lessens the Company s reliance on market
purchases during periods of low water and produces a
greater need for resource acquisition than pre-2002
analyses that were based upon median water conditions.
Based upon this assumption , what did the
Company conclude was required to satisfy future loads in
SAID, DI
Idaho Power Company
the planning horizon?
Idaho Power examined 12 resource portfolios
SAID, DI
Idaho Power Company
as part of the 2004 Integrated Resource Plan.Five of
those portfolios were selected for additional risk
analyses.Ul timately, the Company, with the support of
the IRP Advisory Council, selected a balanced portfolio
containing renewable resources, demand-side measures and
thermal generation to meet the proj ected electric demands
over the next ten years.The 2004 IRP identified
specific actions in the Near-Term Action Plan to be taken
by the Company prior to the next IRP in 2006.
What specific actions did the 2004 IRP
Near-Term Action Plan recommend?
The 2004 IRP Near-Term Action Plan called for
the issuance of RFPs for 200 MW of wind resource, for 100
MW of geothermal resource, for 12 MW of Combined Heat and
Power resource and for 88 MW of a combustion turbine
peaking resource.In addition , the 2004 IRP called for
proceeding with the Borah-West transmission upgrade and
designing and developing demand-side measures in
coordination with the Energy Efficiency Advisory Group
(EEAG) and the Public Utility Commissions of Idaho and
Oregon.
In addition to the combustion turbine peaking
resource RFP , has Idaho Power issued other RFPs
consistent with those recommendations?
Idaho Power issued an RFP for renewableYes.
SAID, DI
Idaho Power Company
wind-powered generation on January 13, 2005.The
Company
SAID DI
Idaho Power Company
RFP evaluation team has notified the wind generation
bidders who have been selected for the short list.
Information concerning the transmission requirements of
the short-listed wind proposals has been solicited from
those bidders.That information will be used to further
evaluate the proposals.
On January 18 , 2006, the Company issued a draft
RFP for a geothermal-powered generation resource.Idaho
Power solicited comments concerning that geothermal
proposal and intends to issue a formal RFP for a
geothermal resource this spring.
The 2004 IRP Near-Term Action Plan also called
for issuance of an RFP for 12 MW of a Combined Heat and
Has that RFP been issued?Power (CHP) resource.
The 2004 IRP envisioned , in the Near-TermNo.
acquisi tion of 12 MW of a CHP resource and , later
acquisition of an additional 36 MW of CHP-generated
electricity to be on-line in 2010.However , the Company
is presently negotiating with a cogenerator who proposes
to provide the Company with CHP-generated power in excess
of the amounts identified in the 2004 RFP.For that
reason , the Company has not issued an RFP for this
resource.
The 2004 IRP also stated that the Company would
proceed with upgrading the Borah-West transmission line.
SAID, DI
Idaho Power Company
What progress is the Company making in upgrading that
line?
SAID , DI
Idaho Power Company
Idaho Power is presently upgrading the
capaci ty of the Borah-West path.The transmission
improvements will increase the Borah-West transmission
capaci ty by 250 MW and are expected to be completed in
May 2007.
What demand-side measures does the 2004 IRP
identify for the Company to pursue as part of the
Near-Term Action Plan?
In its 2004 IRP, the Company identified six DSM
resources to pursue as part of its Near-Term Action Plan.
These resources included two demand response programs and
four energy efficiency programs.Each of these programs
targeted summer peak loads.
Please describe the progress that the Company
has made toward the implementation of these six DSM
programs.
The six DSM programs included in the Company
2004 IRP final resource portfolio were designed with
input from the EEAG and successfully implemented during
Funding for these DSM efforts was provided through2005.
an increased Energy Efficiency Rider, Schedule 91 , which
became effective June 1 , 2005.
Idaho Power launched the Irrigation Peak
Rewards and A/C Cool Credit programs in accordance with
Order Nos. 29665 and 29702 , respectively.The two demand
SAID, DI
Idaho Power Company
response programs achieved a combined peak demand
reduction in 2005 of 43 MW at the meter level or 48.7 MW
at the generation level, which was approximately 124% of
the 2004 IRP target for demand response resources in
2005.
The Company expanded and modified the
Irrigation Efficiency (now known as Irrigation Efficiency
Rewards) and Indu~trial Efficiency programs to acquire
the energy savings identified in the 2004 IRP for those
two customer classes.The ENERGY STAR~ Homes Northwest
Program was expanded to achieve the energy savings
identified in the 2004 IRP under the name Residential
Efficiency (New Construction).
The Company launched the Building Efficiency
Program in 2005 to acquire the energy savings identified
in the 2004 IRP under the name Commercial Efficiency (New
Construction) .In 2005, these four energy efficiency
programs achieved a combined energy savings of 13,946
MWhs at the meter level or 15,466 MWhs at the generation
level , which was approximately 93% of the 2004 IRP target
for energy efficiency programs in 2005.
Has the Company filed with the Oregon Public
Utility Commission (OPUC) a request for authorization to
implement an energy efficiency tariff rider in Oregon?
The Company received authori zation toYes.
SAID, DI
Idaho Power Company
implement an Energy Efficiency Rider, Schedule 91 , in
Oregon effective August 31, 2005.The Oregon Schedule 91
mirrors the current Idaho Schedule 91.The Company has
also received authorization from the OPUC to operate the
Industrial Efficiency, Irrigation Peak Rewards,
Irrigation Efficiency Rewards, Building Efficiency and
ENERGY STAR Homes Northwest programs in Oregon.
Has the Company continued to assess the
potential for additional cost-effective DSM as an
al ternati ve to supply-side resources beyond the resources
identified in the 2004 IRP analysis?
Based on the recommendation of the 2004Yes.
IRP Advisory Council , the Company commissioned an
expanded assessment of DSM resources beyond those that
target the summer peak wi thin the residential and
commercial customer classes.Quantum Consulting Inc.
completed the Idaho Power Demand-Side Management
Potential Study in the fall of 2004 and the Company filed
the study with the Commission on December 15, 2004 as a
supplement to the 2004 IRP.The results of this study
will provide guidance in the design of two DSM retrofit
programs for the commercial and residential customer
Both of the DSM retrofit programs will beclasses.
analyzed as part of the Company s 2006 IRP as potential
base-load demand-side resources.Q. Please describe the 2005 peaking resource RFP
SAID, DI
Idaho Power Company
issued by the Company.
Among the actions recommended by the 2004 IRP
was the acquisition of a targeted 88 MW simple-cycle,
natural gas-fired combustion turbine.Consistent with
the recommendations of the 2004 IRP , the peaking resource
RFP requested proposals for an 80 MW - 200 MW turnkey
electric generation resource located wi thin the Company
service territory that would meet anticipated peak energy
demands.The flexibility in plant capacity permitted
under the RFP allowed the developers to respond to the
RFP wi th their most cost-effective proposals.The RFP
directed respondents to locate the proposed facility at
ei ther the Company s Evander Andrews Power Complex or the
Bennett Mountain Power Plant site or at a site of a
respondent's choosing.
Please describe the response the Company
received to the peaking resource RFP.
The Company received 31 proposals from nine
companies that offered generation units ranging in size
between 71 MW and 170 MW.The proposals included large
and small frame combustion turbines, aeroderi vati ve
combustion turbines and reciprocating engines located at
four proposed sites.Both new and secondary market
machines were proposed and evaluated by the Company.
Q. Did the Company engage an independent third
party to review the Company s RFP and bid evaluation
SAID, DI
Idaho Power Company
process?
Yes, as in our previous RFP evaluations, the
Company utilized an independent third party to assist in
the development of the 2005 peaking resource RFP and
evaluation criteria and to provide assistance in the
review and evaluation of bids.Power Engineers acted as
independent consultant for this RFP.
Please describe the process that resulted in
selection of the proposal from Siemens Power Generation
Inc. as the successful RFP respondent.
The Idaho Power RFP team received all the bids
on or before the June 2, 2005 submission deadline.The
Company did not prepare a self-build proposal.On June
3, 2005, the RFP evaluation team opened the proposals and
began the initial screening process based on
predetermined price criteria and non-price criteria
established with the assistance of Power Engineers.
September 2005, based upon initial screening, the top
fifteen proposals received from four different companies
were short-listed and face-to-face meetings with
representati ves of the short-listed entities were
scheduled for October 2005.Prior to these scheduled
meetings, the Company sent a document to each
short-listed bidder summarizing the Company
understanding of the bidder s proposal.Q. Whom did the Company ultimately select as the
SAID , DI
Idaho Power Company
preferred bidder?
Following the meetings with the short-listed
bidders, the RFP evaluation team selected Siemens as the
preferred bidder due to that company s ranking based upon
the pre-determined price and non-price criteria set out
in the Evaluation Manual developed for this RFP.The RFP
evaluation team made its recommendation to the Company
management on November 22 , 2005 and on March 16, 2006,
the Company s management recommended to the Idaho Power
Board of Directors that Siemens be selected as the
preferred bidder.Board authorization of the expenditure
of funds for construction of the new Evander Andrews
Power Plant by Siemens is expected next month.
Please give a general description of the
proj ect.
The proj ect will consist of a new
Siemens-Westinghouse SGT6-5000F simple-cycle, natural
gas-fired combustion turbine rated at 170 MW with ultra
dry low NOx combustion system , together with typical
balance of plant facilities and equipment.The proj ect
is currently scheduled to begin generating in June of
2008.The proj ect will be located at the existing
approximate forty (40) acre Evander Andrews Power Complex
located in Elmore County, north of Mountain Home, Idaho.
The site currently hosts two 45 MW gas-fired units owned
by Idaho Power.
SAID, DI
Idaho Power Company
The proj ect will be interconnected to the
Company s 230 kV transmission system located
approximately seven miles from the Evander Andrews site.
The combustion turbine will connect to an existing gas
line at the site for fuel supply.Sufficient capacity
exists in this gas line to accommodate the requirements
of the existing facilities and the new proj ect and no
upgrades are anticipated.
Water for generation will be pumped from an
existing well on the Evander Andrews premises.Both
substantial water supply capacity and prior water rights
exist for the existing and proposed facilities.The
proj ect' s waste water will be discharged to an existing
waste water system located on the site.The Proj ect will
operate in compliance with all appropriate DEQ air and
water quality standards.A map showing the location of
the proj ect is attached to the Company s Application for
a Certificate of Convenience and Necessity filed
concurrently with this testimony.
The Company s 2004 IRP Ten-Year Resource Plan
recommends that this Project be on-line in 2007.Wh Y i
the Project delayed by one year to 2008?
Idaho Power must make significant additional
investment in its generating resources and its
transmission and distribution infrastructure over the
SAID, DI
Idaho Power Company
10-year planning period covered in the 2004 IRP.Because
of this increased
SAID , DI 13a
Idaho Power Company
capi tal budget pressure, the Company evaluated the most
prudent use of its resources and determined that other
short-term al ternati ves other than this proj ect could
meet the proj ected peak energy needs for the summer of
2007.
The Company determined that an additional 50
megawatts of market purchases and associated transmission
could be made for heavy load hours during the summer of
2007 from the eastern side of Idaho Power s system.This
firm energy purchase enables the Company to delay the
Project for one year while, at the same time, meeting the
capacity planning criteria established in the 2004 IRP.
This 50 megawatt east side purchase reduces the
overall proj ected peak-hour deficit to 61 megawatt which
falls wi thin the 75 megawatt deficit limit established by
the planning criterion in the 2004 IRP.Based on this
analysis , the Company adjusted the on-line date of the
Project to 2008.
What is the firm contract price for the
proj ect?
The firm contract price for the 170-megawatt
Project is $49,999 000.00.
Was this the only factor used to evaluate the
various bids?
A. No. All of the bids were evaluated on the
basis of price and non-price criteria that had been
SAID, DI
Idaho Power Company
identified prior to the bid opening.Included among the
criteria were fuel costs assumptions, transmission costs
and bidder experience and financial strength.
What fuel cost assumptions were used in
evaluating the bids?
Forecasted natural gas prices from the 2004 IRP
were used in the bid evaluation.Forecasted natural gas
prices have gone up substantially since the issuance of
the 2004 IRP, but the same price forecast was utilized in
the evaluation of all of the natural gas-fired proj ect
proposals and , as a result, proj ects with lower
guaranteed heat rates had lower fuel costs on a dollar
per megawatt basis.
Were there other material considerations used
in eval ua ting the bids?
The selected bidder had to demonstrateYes.
sufficient financial strength and experience to provide
Idaho Power with a high level of confidence that output
from the project would be available June 1, 2008.
In the Company s opinion, does Siemens Power
Generation, Inc. have the financial strength and
experience to assure that the proj ect will produce
electricity by June 2008?
Idaho Power can rely on the financialYes.
strength and experience of not only Siemens Power
Generation, Inc. but also of its parent company, Siemens
SAID , DI
Idaho Power Company
Corporation , to assure the performance of the agreement
and the successful completion of the proj ect.
Would you please describe what you believe are
the significant provisions of the turnkey construction
arrangement with Siemens Power Generation, Inc. for
acquisi tion of the proj ect?
One of the most significant attributes of the
Siemens turnkey proj ect is that Siemens will furnish all
of the labor , equipment and materials and perform all of
the engineering and construction of the proj ect.Unlike
the Bennett Mountain proj ect, Siemens will work directly
wi th Idaho Power.As a result, the "middle man " proj ect
coordinator has been eliminated with this proposal.
Completion of construction and all performance testing of
the proj ect, including guaranteed capacity and guaranteed
heat rate , are scheduled to be completed by April
2008.Proj ect ownership will transfer to Idaho Power at
that time provided that all Provisional Acceptance
Criteria identified in the agreement have been satisfied.
If that criteria is not met, Idaho Power has the
opportuni ty to assess liquidated damages against Siemens.
Are there other attributes of the proj ect that
you believe are important to the Commission
consideration?
The proj ect is located atYes, there are.
SAID , DI
Idaho Power Company
the Company s Evander Andrews Complex near the Company
existing 230 kV transmission system.Al though the
transmission system will require additional investment in
order to integrate the Proj ect , those improvements will
provide capacity during all seasons and improve the
reliabili ty of the Company s transmission system.
By selecting this proj ect, the Company will
expand an existing site and benefit from the anticipated
economies of using the present staff to operate the new
facili ty.Operations, in effect, will be centralized.
Environmental compliance reporting is
anticipated to be simplified by expanding generation at
an existing plant versus development of the facility at
an entirely new location.Local approval and acceptance
of the Proj ect at the Evander Andrews site is more likely
since combustion turbines are a permitted use in this
Elmore County location and the Company will not be
required to seek approval of a Conditional Use Permit in
order to construct the new facility.
Will a new substation be constructed as part of
this proj ect?
A new 230kV substation will be builtYes.
adj acent to the existing 138 kV substation at the site.
The two substations will be interconnected.
Is the Company providing a "commitment"
SAID, DI
Idaho Power Company
estimate for the capital cost portion for the proj ect?
Yes.The Company is willing to commit to the
Commission that the total cost of the proj ect to be
included in the Company s rate base will not exceed $60
million (Commitment Estimate) .This amount includes the
Siemens contract amount, plus additional costs the
Company knows it will incur but cannot precisely quantify
at this time.These additional costs include, but are
not limited to, sales taxes, Allowances for Funds Used
During Construction (AFUDC), the cost of Idaho Power
oversight of the project and the cost of capitalized
start-up fuel.The Commitment Estimate amount also
covers contingencies such as change orders.However , the
Commitment Estimate is subj ect to adj ustment to account
for documented legally-required equipment changes and
material changes in assumed escalation rates.
Transmission and substation costs are not included in the
Commi tment Estimate.
Were transmission and substation costs
considered when evaluating the total cost of the proj ect?
Yes.The total proj ect costs, including
estimated transmission and substation costs, were
evaluated within the selection process.However
transmission and substation costs have not traditionally
been included in the Company s commitment estimates for
SAID , DI
Idaho Power Company
power proj ect since those costs do not require issuance
by the Commission of a
SAID, DI' 18a
Idaho Power Company
Certificate of Convenience and Necessity.While the
Company is satisfied that the approximately $22.8 million
estimate for transmission and substation costs associated
with this Project is a reasonable upper limit estimate,
no defini ti ve studies have been completed and the Company
is not including transmission costs in its Commitment
Estimate.
How is fuel supply handled for the proj ect?
Because the Proj ect will ultimately be owned,
operated and maintained by Idaho Power Company, the
Company will coordinate the fuel supply and
transportation for the proj ect concurrently with the fuel
supply and transportation requirements of the existing
Evander Andrews units and the Bennett Mountain Power
Plant.Idaho Power has purchased firm fuel
transportation rights that can be used for all of the
Evander Andrews units.Idaho Power anticipates that
management of the fuel transportation and fuel supply
will be either by Idaho Power personnel or by Idaho Power
personnel in conj unction with a third party such as IGI
Resources, Inc.
Why does the Company s request include recovery
of AFUDC?
Even though the proj ect will be owned by
Siemens until ownership is transferred to Idaho Power in
SAID, DI
Idaho Power Company
April 2008, AFUDC is appropriate for recovery as a
Proj ect cost because the Company is helping to finance
the proj ect
SAID DI 19a
Idaho Power Company
by making progress payments during construction.Such
financing by the Company allows for a lower total cost to
customers than if Siemens were to finance the proj ect
a different manner.
How does the Company propose that the
Commission treat the costs associated with construction
and operation of the Project for ratemaking purposes?
Provided that the proj ect costs are less than
the Commitment Estimate of $ 60 million , Idaho Power
Company would expect the Commission to ultimately approve
the total proj ect investment to be included in the
Company s rate base for ratemaking purposes.Fuel costs
should be approved for PCA inclusion prior to full review
of operational costs in a general revenue requirement
proceeding.
How do the total costs of the selected proj ect
compare to other bids received by the Company in response
to the RFP?
The Siemens bid offered the lowest capital cost
per installed kilowatt of capacity of all the
short-listed bids.When proj ected transmission
interconnection costs and plant operating costs were
considered, the Siemens bid ranked lower, but
competi ti vely, with other bids in terms of lowest capital
However , when consideration of the non-pricecost.
SAID , DI
Idaho Power Company
attributes of the bids were included, the Siemens
proposal received the best combined price and non-
SAID DI 20a
Idaho Power Company
price score.On that basis, the Siemens proposal was
determined to be the most attractive bid.
What non-price attributes contributed to the
Siemens proposal rising above other bids with somewhat
lower overall capital costs?
The Siemens proposal ranked significantly
higher than the other bids in terms of site and community
attributes.These non-price attributes consider factors
such as permit status, land ownership/control, location
and regulatory requirements and community support.The
Siemens proposal also ranked slightly higher than the
other bids in terms of plant operation efficiency and the
impact of required transmission improvements on the
Company s transmission system.
The Company is requesting that the Commission
expedi te its review of this Application.Please explain
why.
Siemens has located an existing, new Generator
Step-Up Transformer (GSU) that is available for the
proj ect at significant cost savings in comparison to
identical transformers that are being manufactured today.
Company personnel has examined the available GSU and
determined that it is sui table for the proj ect.In order
to take advantage of the cost savings, the Company must
act expeditiously.Nonetheless, Idaho Power has advised
SAID , DI
Idaho Power Company
Siemens that a condition precedent to issuance of the
Notice to Proceed is receipt of an acceptable Certificate
of Convenience and Necessity from the Idaho Public
Utilities Commission.
Does this complete your testimony?
Yes.
SAID , DI
Idaho Power Company
(The following proceedings were had in
open hearing.
MS. MOEN:The witness is available for
cross-examination.
COMMISSIONER SMITH:Okay, Mr.
Richardson.
MR. RICHARDSON:Thank you,
Madam Chairman.Mr. Thompson will be conducting
cross-examination.
COMMISSIONER SMITH:Mr. Thompson.
CROSS-EXAMINATION
BY MR. THOMPSON:
Good morning,Mr.Said.
Good morning.
Mr.Said,this probably goes without
saying, but in this proceeding Idaho Power is asking the
Commission to grant the authority to construct the
Evander Andrews natural gas-fired peaking plant;
correct?
Yes.
And you state in your direct testimony
that the plant is justified based on the Company s 2004
Integrated Resource Plan; correct?
CSB REPORTING
Wilder , Idaho
SAID (X)
Idaho Power Company83676
Yes.
Mr. Said , on page 15 of your direct
testimony, starting at line 6 , you state that forecasted
natural gas prices from the 2004 IRP were used in the bid
evaluation process.Forecasted natural gas prices have
gone up substantially since the issuance of the 2004 IRP
but the same price forecast was utilized in the
evaluation of all the natural gas-fired proj ect
proposals; correct?
Yes.
And isn t it true that Idaho Power never
used an updated forecast of natural gas prices in its
evaluation of the various proposals that it received in
response to its RFP?
Tha t 's true.
Mr. Said, don t you think it's an
important question for the Company to ask what of all
possible peaking resources is the lowest cost for meeting
Idaho Power s peaking resource needs?
That decision is made in a different forum
than in an RFP evaluation.That sort of determination
made as part of the Company s Integrated Resource Plan.
In terms of evaluating individual bids that respond to an
RFP, the updating of gas prices wasn t as important
because all of the bids into the process consisted of
CSB REPORTING
Wilder, Idaho
SAID (X)
Idaho Power Company83676
gas-fired units and therefore, differentiating between
bids based on gas prices, the differences would be
similar regardless of the base gas price.
Thank you, ,and I think that answers part
of that question.The first part is do you think it is
an important question for the Company to ask?
In an IRP process, yes.
But you don t believe that the bid
evaluation process is the process through which the
Company sought to determine the answer to that
question?
That's correct.
Okay, and so the IRP is the correct
process?
Yes.
Given that you stated in your testimony
that natural gas prices have gone up substantially since
the issuance of the 2004 IRP , don t you think that the
2004 IRP is a poor tool to use to try to demonstrate that
the Evander Andrews plant is the least cost resource
al ternati ve for meeting Idaho Power s peak demand?
Well , again , as part of the Integrated
Resource Planning process, the addition of resources was
reevaluated as part of the 2006 IRP and ultimately
included as a committed resource in the 2006 IRP.
CSB REPORTING
Wilder, Idaho
SAI D (X)
Idaho Power Company83676
But isn t it also true that the 2006 IRP
simply assumes that the plant will be built?
It has that as a base load assumption.
The IRP team would have had the opportunity to remove
that if they didn t feel it was still a valid
assumption.
Isn t it true, though, that the 2006 IRP
does not demonstrate that the Evander Andrews plant is
the least cost resource al ternati ve?
It was not evaluated as a resource
al ternati ve amongst the al ternati ves that were reviewed
at that point in time.It was included as a known
acquisition.
Isn t it true that the draft 2006 IRP
stated that the forecasted trend of high natural gas
prices has reduced interest in future SCCT generation
plant?
Only if Mr.MS. MOEN:I obj ect to that.
Said has direct knowledge of that information is he able
to answer that question.I am not aware that he does
have direct knowledge of that.
Mr. Thompson.COMMISSIONER SMITH:
I think he does have directMR. THOMPSON:
In fact, I'd be happy to provide him a copyknowledge.
of the draft 2006 IRP.
CSB REPORTING
Wilder , Idaho
SAID (X)
Idaho Power Company83676
MR. THOMPSON:My question is, isn t it
true that that's what the 2006 draft IRP states?
That's possible.I don t recall.
MR. THOMPSON:I have two copies of the
draft 2006 IRP , one for Ms. Moen and one for Mr. Said.
(Mr. Richardson distributing documents.
MR. THOMPSON:And this is already part of
the record as Exhibit No. 205 of the Industrial
Customers.
MS. MOEN:Madam Chair, I see that this is
a draft to the IRP dated August 1st, 2006 and I don
think for purposes of the record and for purposes of this
examination that it's appropriate to take a draft
document that has already been submitted to this body in
final form.The content of the draft and the final
document I'm not assured are identical.
COMMISSIONER SMITH:Mr. Thompson.
MR. THOMPSON:That's true, they aren
identical which was identified in Dr. Reading
testimony, but still this statement is in the draft 2006
IRP which was provided in this proceeding and my point
not that it stayed in the final 2006 IRP , just that it
was in fact in the draft.
COMMISSIONER SMITH:Okay, I'm going to
allow the question.Ms. Moen , if the Company wishes to
CSB REPORTING
Wilder, Idaho
SAID (X)
Idaho Power Company83676
bring the final back , you may.
BY MR. THOMPSON:On page 46 of the draft
2006 IRP, I'm looking at the right-hand column, the last
sentence in the first paragraph.Mr. Said , doesn t it
state there,However, the forecasted trend of high
natural gas prices has reduced interest in future SSCT
generation plants
Yes, that language does exist.
And isn t it also true that the 2006 final
IRP states that given current and forecasted natural gas
prices, purchasing energy from the regional markets up to
the limits of the transmission system will most likely
more economical than operating the combustion turbines
an energy resource?
I don t have that document in front of me
but I would accept that it says that.
Given these statements, isn t it fair to
say that the 2006 IRP does not appear to favor the
construction of natural gas-fired combustion turbines?
I think it's fair to say that there are no
simple cycle combustion turbines proposed beyond the
Evander Andrews plant.
And it tends to show that those aren
favored on a going-forward basis because of high natural
gas prices?
CSB REPORTING
Wilder , Idaho
SAID (X)
Idaho Power Company83676
Well , that may be one of the factors.The
high gas prices certainly influence to an extent.
There s also a desire for a balanced portfolio going
forward which suggests the introduction of resources that
the Company doesn t currently have to provide that
balance , so there are a number of factors that go into
the decision as to which resources ultimately provide the
best overall fit for the Company and our customers.
MR. THOMPSON:Thank you, Madam Chair.
That's all that we have as far as cross examination on
Mr. Said's direct testimony and will save the rest for
the rebuttal.
COMMISSIONER SMITH:Thank you, Mr.
Thompson.
Mr. Walker.
MR. WALKER:Commission Staff has no
questions for Mr. Said's direct testimony.
Do the CommissionersCOMMISSIONER SMITH:
have any questions?
So Ms. Moen, do you have any redirect?
I have one question.MS. MOEN:
CSB REPORTING
Wilder , Idaho
SAID (X)
Idaho Power Company83676
REDIRECT EXAMINATION
BY MS. MOEN:
Mr. Said, are you aware whether members of
Boise and, I guess, Idaho Power s service territory
included members of the Industrial Customers of Idaho
Power as part of the IRPAC or the Integrated Resource
Plan Advisory Council?
Yes, they did.
MS. MOEN:I have no further questions.
COMMISSIONER SMITH:Okay, thank you, Mr.
Said.
THE WITNESS:Thank you.
(The witness left the stand.
Does the Company haveCOMMISSIONER SMITH:
any further direct witnesses?
MS. MOEN:No, that concludes the
direct.
I s there anyCOMMISSIONER SMITH:
agreement between the Staff and the Industrial Customers
as to who will proceed next?
I don t think we came to anMR. THOMPSON:
agreement.
It would be at theMR. WALKER:
Commission s discretion, Madam Chairman.
CSB REPORTING
Wi Ider, Idaho
SAID (Di)
Idaho Power Company83676
Mr. Sterling next.
COMMISSIONER SMITH:Let's take
MR. WALKER:In that case, Commission
Staff would call Rick Sterling to the stand.
RICK STERLING,
produced as a witness at the instance of the Staff,
having been first duly sworn , was examined and testified
as follows:
DIRECT EXAMINATION
Could you please state your name and spell
your last name for the record?
CSB REPORTING
Wilder , Idaho
My name is Rick Sterling,
And where are you employed?
The Idaho Public Utili ties Commission.
And in what capacity?
m a Staff engineer.
Did you prepare and file written testimony
Yes, I did.
And does that testimony consist of 73
BY MR. WALKER:
S-t-
this case?
STERLING (Di)Staff83676
pages?
Yes, it does.
Do you have any additions or changes to
, I do not.
Did you file any exhibits with your
Yes, I did.There are, it looks like, 13
exhibi ts with my testimony.
CSB REPORTING
Wilder, Idaho
And those are -- they start with Exhibit
No. 101 and go consecutively through Exhibit No. 113?
That's correct.
And do you have any corrections or changes
to your exhibits?
No, I do not.
If I were to ask you the questions in your
pre filed testimony today, would your answers be the
Yes, they would.
MR. WALKER:Madam Chairman, I move that
the direct testimony of Mr. Sterling be spread upon the
record as if read and that his exhibits numbered 101
through 113 be admitted into the record.
COMMISSIONER SMITH:Okay, if there s no
your testimony?
obj ection , we will spread the entire portion of
testimony?
same?
STERLING ,(Di)Staff83676
Mr. Sterling s testimony into our closed transcript and
the non-confidential pages into the public and closed and
we will admit Exhibits 101 through 113, noting that
several of them are also confidential.
MR. WALKER:And for the record, those
have been identified on yellow pieces of paper.
COMMISSIONER SMITH:Yes.
(Staff Exhibit Nos. 101-113 were admitted
into evidence.
(The following prefiled direct testimony
of Mr. Rick Sterling is spread upon the record.
CSB REPORTING
Wilder , Idaho
STERLING (Di)Staff83676
Please state your name and business address for
the record.
My name is Rick Sterling.My business address
is 472 West Washington Street, Boise, Idaho.
By whom are you employed and in what capacity?
I am employed by the Idaho Public Utili ties
Commission as a Staff engineer
What is your educational and professional
background?
I received a Bachelor of Science degree in
Civil Engineering from the University of Idaho in 1981
and a Master of Science degree in Civil Engineering from
the University of Idaho in 1983.I worked for the Idaho
Department of Water Resources from 1983 to 1994.
1988, I became licensed in Idaho as a registered
professional Civil Engineer.I began working at the
Idaho Public Utilities Commission in 1994.My duties at
the Commission include analysis of utility applications
and customer petitions.
What is the purpose of your testimony in this
proceeding?
There are three primary purposes of my
testimony:
To address whether Idaho Power has
demonstrated a sufficient need for a new
CASE NO. IPC-E-06-9
10/02/06 STERLING, R.(Di)
STAFF
gas-fired peaking plant,
2 )To address whether there are other , better
al ternati ves to meeting future load than
building a new generating plant , and
To address whether Idaho Power conducted a
fair Request for Proposals (RFP) process
and chose the best proposal.
Please summarize your testimony.
My testimony begins by reviewing Idaho Power
2004 IRP , which is the Company s basis for contending
that it needs to acquire a gas-fired peaking plant.
also look at the 2006 IRP to see whether changes in
loads , resources , fuel prices and other factors since the
2004 IRP still support a new gas peaking plant.Based on
my reviews, I conclude that a gas peaker is needed.
Next, I discuss a variety of other options for
addressing Idaho Power s peak loads, including
non-Company-owned generation, conservation , demand
response, transmission upgrades and others.I conclude
that while these are viable al ternati ves, they cannot be
relied on exclusively, and should continue to be pursued
in conj unction with a new gas-fired peaking plant.
Next, I review the RFP process followed by
Idaho Power.I discuss the method used to evaluate bids
and address the price and non-price differences between
CASE NO. IPC-E-06-
10/02/06
STERLING , R.(Di)
STAFF
the two top-ranked proposals.I conclude that Idaho
Power has not provided sufficient justification for
selecting a proj ect that is approximately $11 million
more costly than the second place proposal , and I
recommend that this difference in cost not be allowed
into rate base in the future.
Finally, I discuss the proposal selected by
Idaho Power.I recommend that only the proj ect contract
amount of $ 49.999 million be accepted at this time, and
that all additional amounts spent on the proj ect,
including transmission , be subj ect to future audit and
prudence review.
Because your testimony is lengthy, please
provide a table of contents for the aid of readers.
A table of contents is provided below:
Subj ect Page
BACKGROUND
NEED FOR POWER
Transmission Constraints . 12
OTHER RESOURCE ALTERNATIVES . 13
New Customer-Owned Generation . 13
PURPA QFs . 15
Market Purchases . 16
Conservation . 18
Demand Response . 19
CASE NO. IPC-E-06-
10/02/06
STERLING , R.(Di)
STAFF
Al ternati ve Rate Designs . 21
Transmission Upgrades . 22
Shoshone Falls . 23
REQUEST FOR PROPOSALS/OVERVIEW OF PROCESS . 24
Bids . 25
Evaluation of Bids . 28
Short List Analysis . 35
Analysis of Final Candidate Proposals . 36
PROJECT DESCRIPTION . 52
Operation
Fuel Supply and Transportation . 53
Water Supply and Wastewater Treatment . 55
Electrical Interconnection . 55
project permits
Environmental Impacts . 58
proj ect Ris ks . . 58
proj ect Benefits . 58
FUTURE NEEDS
CAPITAL COST COMMITMENT ESTIMATE . 61
. 67TOTAL EXPECTED POWER COST
., .
. 70SUMMARY AND RECOMMENDATIONS
BACKGROUND
What is Idaho Power seeking in its Application
in this case?
CASE NO. IPC-E-06-
10/02/06
(Di)
STAFF
STERLING, R.
On April 14, 2006, Idaho Power Company filed an
Application for a Certificate of Public Convenience and
Necessi ty to construct a new generating plant at the site
known as the Evander Andrews Power Complex near Mountain
Home, Idaho.Idaho Power requested that the Commission
issue an Order granting a Certificate of Public
Convenience and Necessity to construct the proj ect with
an upper limit of $60 million allowed for the Company
investment in the proj ect , excluding transmission costs
and subj ect to adj ustment for legally-required changes
and material changes in assumed escalation rates not
foreseen at the time of the Application.Idaho Power
also requested that the Order note that, in the ordinary
course of events, Idaho Power can expect to rate base the
prudent capital costs for this proj ect and to recover
prudent fuel costs in the Company s Power Cost Adj ustment
mechanism.
NEED FOR POWER
What is the basis for Idaho Power s request to
construct a new generating plant?
Idaho Power maintains that its decision to
construct the new generating plant is based on its 2004
Integrated Resource Plan (IRP).The IRP process
evaluated the Company s future loads and resources and
evaluated various options for meeting proj ected loads.
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The options for meeting load include: the purchase of
power from the
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STAFF
wholesale market; the acquisition of additional
generating resources; the implementation of pricing
options; and/or implementing demand-side management
programs.In short, the IRP is a planning process on how
Idaho Power intends to meet its statutory obligations to
serve its customers ' loads.
According to the 2004 IRP , what is Idaho
Power s strategy for meeting future loads?
Idaho Power s strategy for meeting future load
was described in the 2004 IRP as follows:
Fall 2004
Issue an RFP for an 88 MW combustion turbine
peaking resource (the proposed Evander Andrews
plant in this case)
Issue an RFP for a 200 MW wind resource
Proceed with the Borah-West transmission
upgrade
File a supplement to the 2004 IRP presenting
the results of the ongoing demand-side
management studies
File for an energy efficiency tariff rider with
the Oregon PUC
2005
Design demand-side measures in coordination
wi th the Energy Efficiency Advisory Group and
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STAFF
Public Utility Commissions
Issue an RFP for a 12 MW Combined Heat and
Power (CHP) resource
Issue an RFP for a 100 MW geothermal resource
For the most part, Idaho Power has followed the
plan as set forth above , although it has deviated
somewhat.The RFP for an 88 MW combustion turbine , the
subject of this case, was delayed until March 2005 rather
than being issued in the Fall 2004.The RFP for a wind
resource was issued in December 2004 , and was scaled back
to 100 MW due to the unexpected influx of PURPA wind
proj ects.An RFP for 12 MW of CHP has been delayed
indefini tely, and the RFP for the geothermal resource was
not issued until June 2006.
Do you believe that it is appropriate for Idaho
Power to base the need for a new peaking plant on its
2004 IRP?
At the time the Company began the RFP process
for a new peaking resource, the 2004 IRP was the best
information available to assess existing resources,
forecasted loads and potential new resource options.
However , because the 2006 IRP has just been completed, I
believe that the need for the plant must also be further
evaluated using the most up-to-date information
available.Wi thout a doubt, changes have occurred since
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STAFF
the 2004 IRP was prepared.Load forecasts have been
revised, fuel costs have increased and new resource costs
have been updated.
Do you agree that the 2004 IRP demonstrates a
need for the Evander Andrews proj ect?
Yes, the 2004 IRP shows peak hour deficits in
the months of May-September and November-December in
every year of the planning period under 90th percentile
water and 70th percentile load conditions (the conditions
adopted by Idaho Power for peak capacity planning) .See
Exhibit No. 101.Even under median water and load
condi tions, the Company proj ects deficits of
approximately 200 MW in the July-August time periods.
See Exhibit No. 102.When it was assumed that power
would be imported subj ect to the limits of Idaho Power
transmission capacity, the analysis shows peak hour
deficits beginning in the summer of 2006 and growing
rapidly thereafter.See Exhibit No.1 03.
By the time this testimony is filed, Idaho
Power will have submitted its 2006 IRP for Commission
approval. What does the draft 2006 IRP show with regard
to Idaho Power s need for peaking resources?
The addition of the Bennett Mountain plant, a
revised load growth forecast, and the impacts of peak
load reduction DSM programs have been included in the new
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STERLING, R.
load-resource balance.In addition, the analysis assumes
that the proposed new Evander Andrews plant is approved.
Exhibi t No. 104 indicates that under the planning
cri teria used to evaluate peak-hour conditions,
deficiencies exist during summer months throughout the
planning period.Summer deficiencies from 2006-2010 vary
between 350 to 400 MW even with the assumed addition of
the new Evander Andrews plant in April 2008 and the
expansion of the Shoshone Falls Project in 2010.For the
remainder of the planning period, deficiencies in July
increase from 450 MW to 1 800 MW in 2025.
Even with the recent addition of the Bennett
Mountain plant, the assumption of the new Evander Andrews
plant and the implementation of new DSM programs, the
Company s most recent load-resource balance still
demonstrates an inability to meet peak-hour loads in the
summer and winter beginning in 2009.
What does the preferred resource portfolio
consist of in the Draft 2006 IRP?
Over the next 10-year time horizon, the
preferred resource portfolio consists of a blend of wind,
geothermal and CHP through 2012, followed by increased
transmission capacity, a pulverized coal plant and a
coal-fired integrated gasification combined cycle (IGCC)
plant in the 2012-2017 time frame.The entire resource
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STAFF
STERLING, R.
portfolio is summarized in Exhibit No. 105.
Are there any gas-fired peaking plants included
in the preferred portfolio in the 2006 IRP?
No, there are none.In the draft 2006 IRP,
Idaho Power s existing gas-fired peaking resources at the
Evander Andrews Power Complex and the Bennett Mountain
facility continue to provide approximately 250 MW of
peaking resource capacity.Beginning in 2008, if
approved, the new peaking resource at the Evander Andrews
Power Complex (the unit for which Idaho Power is seeking
approval in this case) will contribute approximately 170
MW of additional gas-fired peaking capacity, bringing the
total gas-fired peaking capacity to approximately 420 MW.
The CHP called for in the plan is likely to be gas-fired
because the proj ects would presumably be located at
industrial facilities.
The four finalist portfolios selected for more
detailed risk analysis in the current draft of the 2006
IRP contain limited amounts of natural gas-fired
generation.With the possible exception of combined heat
and power (CHP) projects, which are likely to be natural
gas fired , there is only one natural gas fired resource
in the four portfolios.Finalist portfolio F-3 calls for
a 170 MW combustion turbine in 2018.The preferred
portfolio , F-2 does not include any resources
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specifically identified as natural gas-fired, however
the portfolio includes 150 MW of CHP.
If the 2006 IRP analysis were to be repeated,
this time assuming that the Evander Andrews proj ect
not already part of the existing resource portfolio,
would a natural gas fired peaking plant be selected?
In response to production requests (Staff
request No. 95), Idaho Power states that it is almost
certain that a gas fired peaking plant would have been
selected as part of the preferred portfolio.The Company
ci ted its continued growth in summertime peak-hour loads
and concluded that it needs either generation resources
internal to its system or additional firm transmission
capacity to markets with availability of firm summertime
peak-hour energy.
Al though Idaho Power may be correct in its
belief that a gas fired peaking plant would be selected,
the Company has not supported its belief by providing any
analysis.Wi thout any analysis, there is no way to
verify whether a gas fired peaking plant would , in fact,
still be selected.
Current gas prices, and those assumed in the
2006 IRP, are considerably higher than was assumed in the
2004 IRP.Consequently, IRP analysis today is much less
likely to select gas-fired plants due to high fuel costs
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and high fuel price volatility as evidenced by the fact
that there are no gas-fired facilities in the preferred
portfolio in the 2006 IRP.
Transmission Constraints
What does the 2006 IRP analysis show with
regard to the Company s ability to import power into its
system in order to meet peak hour deficits?
Exhibi t No. 106 indicates the amount of the
peak hour deficit that cannot be imported from the
Pacific Northwest over the existing transmission system
based on peak-hour planning criteria.In this analysis,
a deficiency exists in July 2007 due to the postponement
of the proposed Evander Andrews proj ect.Beginning in
2009 , long-term transmission deficiencies occur in summer
months and are expected to grow to approximately 1 550 MW
by 2025.
The durations of Idaho Power s northwest
transmission constraints are very limited, amounting in
some cases to relatively few hours during the months.
Al though these hours seem fairly minimal, the
consequences of the transmission constraints during these
hours could be severe.Unless some other means could be
found to either reduce peak hourly loads or increase
generation , load curtailment would be necessary.
Gi ven Idaho Power s load-resource balance under
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STAFF
various water and load conditions , and its transmission
constraints that limit its ability to import power during
critical times of the year, do you believe that a
gas-fired peaking plant is necessary?
Yes, I do.Wi thout it, I believe there could
be times when load could not be met, either with Idaho
Power s own resources or with resources from outside its
system.
OTHER RESOURCE ALTERNATIVES
New Cus tomer-Owned Generation
Are there customer-owned generation
al ternati ves to the proposed Evander Andrews plant?
Possibly.One al ternati ve would be to make a
firm wholesale purchase or exchange involving an existing
resource located wi thin Idaho Power s control area.
Except for PURPA proj ects , which I will discuss next,
these types of resources are generally few and far
between.
(**Confidential information follows**)
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STAFF
PURPA QFs
Do you believe that more PURPA QFs could
satisfy Idaho Power s need for new peaking generation?
Nearly all of the recent PURPA development has
been small wind proj ects.It is unknown how much
addi tional capacity might be developed and when such
development might occur.There is currently a moratorium
on development of new wind QFs larger than 100 kW until
wind integration issues can be resolved (Order No. 29839,
Case No. IPC-E-05-22).
Because nearly all new QFs are wind proj ects
however , it is unlikely that they could prove to be an
acceptable replacement even if they could be timely
developed.Wind generation is intermittent , thus there
is no guarantee that the generation would be available
during the peak hours when needed.I do not believe that
PURPA QFs, especially wind, are well suited to meet the
extreme peaking needs of Idaho Power.
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STAFF
Market Purchases
Are market purchases a reasonable al ternati ve
for meeting future peak loads?
According to Idaho Power, it may be possible to
purchase a custom-made product from a marketer that
provides structured products, but such a purchase would
require transmission from Mid-C across one or more of the
Bonneville Power , PacifiCorp, Avista or NorthWestern
transmission systems, in conjunction with transmission
across Idaho Power s transmission system from the Hells
Canyon Complex to its load center.Because one or more
of these paths are subj ect to congestion , energy
purchased at Mid-C cannot be used at all times to meet
the load requirements of Idaho Power.In addition
because custom-made products provide a significant amount
of optionali ty, they carry a significant premium to fixed
price term products as well as credit exposure to the
selling party according to Idaho Power.
Another al ternati ve would be to make firm
wholesale purchases and to acquire the necessary
transmission to deliver the energy to the east side of
Idaho Power s system.In fact, as stated in Company
wi tness Said's testimony, Idaho Power did just that for
the summer of 2007 to meet heavy load hour requirements.
Idaho Power made a 50 MW market purchase including the
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associated transmission.Al though such purchases may be
available from time to time, I do not believe it would be
wise to rely on them indefinitely to meet peak hour
needs, especially during a time when surplus generation
may be in short supply.Moreover , firm wholesale
purchases delivered to the east side of its system use an
increment of import capacity that , because it is being
used for a purchase , would be unavailable in the event of
a system emergency.
If it could, do you believe it would be wise
for Idaho Power to rely on the market to meet its peaking
needs?
Even if Idaho Power could rely on the regional
power market as an al ternati ve to building new
generation , I believe , as was demonstrated in 2000 and
2001, that relying on the market carries greater risk.
Over the long term, the market could arguably be the
least cost source for new supply.However, most
customers are unable or unwilling to tolerate the price
volatili ty that comes with significant exposure to the
market.Moreover, besides its effect on customers, the
risk of over-reliance on the market can potentially
weaken the financial strength of utili ties if extreme
price excursions occur.
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STAFF
Conserva tion
Do you believe that conservation is a viable
al ternati ve to adding a new generating resource?
Energy conservation should certainly be an
ongoing part of all utili ties ' strategies whenever cost
effective.In its 2004 IRP , Idaho Power identified six
programs for implementation , all of which were in place
and operating by the end of 2005.The two demand
response programs, Irrigation Peak Rewards and A/C Cool
Credi t, resulted in a reduction of summertime peak-hour
load of over 43 MW.The other programs, although they
will reduce peak load somewhat, are primarily targeted
towards achieving energy savings.
Conservation programs of the past, as well as
programs underway now , have certainly proven that energy
usage can be reduced cost effectively.However , even the
most successful conservation programs take time to have
an impact and can rarely keep pace with the increasing
load growth that must be met.Conservation programs
cannot, in my opinion , achieve enough demand reduction
nor can they achieve it quickly or reliably enough , to
realistically satisfy the Company s immediate need to
meet growing peak loads.Furthermore, traditional
conservation is usually spread over all hours and is not
necessarily focused on the super peak hours of need
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identified by Idaho Power.As a result, I do not believe
conservation can be considered a viable stand-alone
option to issuance of an RFP for new generation.
Demand Response
Is Idaho Power pursuing demand response
programs for the purpose of reducing peak-hourly loads?
Yes, the Company has implemented two programs
aimed primarily at peak load reduction.I discuss each
of them below.
1. A/C Cool Credit
Under this program, Idaho Power manages air
conditioning use between 1 p.m. and 9 p.m. for up to
days a month from June through August, turning it off no
more than 15 minutes at a time.The air conditioner
cycling program targets heavy-load hours between June and
August.After two summers of a pilot program, the second
season of full operation of the program is just now
concluding.Idaho Power will continue to ramp up the
program by increasing participation levels.The Company
expects the program to be fully implemented in 2009.
Through the end of July 2006, approximately 3600
customers were participating in the program.Idaho Power
reported in its 2005 DSM Annual Report that it expects to
achieve a 1.16 kW reduction per participant.
2. Irrigation Peak Rewards
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STAFF
This voluntary program targets irrigation
customers with pumps of 100 horsepower or greater with an
obj ecti ve of reducing peak electrical load during summer
weekday afternoons by providing control over load demand.
The program utilizes electronic time-activated switches
to turn off pumps of participating irrigation customers
during predetermined intervals.Participants are given a
demand credit based on the number of interruptions per
week.In 2005, Idaho Power reported that peak energy
savings amounted to approximately 40 MW.Resul ts for
2006 have not yet been reported.
Has Idaho Power explored a program to interrupt
large commercial , industrial and irrigation loads during
peak periods in exchange for credit?
During 2001 , in response to extremely high
market prices and low water conditions, Idaho Power
implemented an Energy Exchange program for its largest
commercial , industrial and large irrigation customers.
Participating customers were required to be able to
reduce their electrical load by 1000 kW at each meter
point.Under this voluntary load reduction program
Idaho Power offered to credit customers half of the then
current market price for each kWh reduced during declared
Exchange Events.An Exchange Event was a set of hours
during which Idaho Power would ask participants to reducetheir
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electric load during specific hours on specific days.
The Company reported that of 35 eligible
customers, only two customers participated, representing
five metering points.These five service points had the
combined potential of providing a maximum of 13 MW of
load reduction.Most customers , Idaho Power claims,
chose not to participate in the program because of their
inabili ty to curtail load or because the incentive
represents such a small part of the customers ' total
operating costs.Idaho Power chose to not request an
extension of the program.
Alternative Rate Designs
Are there al ternati ve rate designs that can
reduce peak hourly loads?
Time-of-use (TOU) rates and seasonal rates,
particularly for those customer classes whose summertime
usage is most responsible for causing the high hourly
peaks, are al ternati ve rate designs that can be viable
options., June 2004 , Idaho Power implemented seasonal
pricing for all residential , commercial and industrial
customers and established TOU pricing in addition to
seasonal pricing for all industrial customers.The
primary obj ecti ve in implementing these rates was to more
closely match prices to the actual cost of power, and to
more fairly charge customers based on their pattern of
usage. A secondary goal , however , was to encourage
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106 STERLING , R.
customers to shift usage from on-peak to off-peak hours.
Idaho Power is still exploring time-of-use
rates for residential customers.On March 22, 2005, the
Commission issued Order No. 29737 approving Schedule 4
the Energy Watch Pilot Program, and Schedule 5, the
Time-of-Day Pilot Program.The programs are offered in
conj unction with an AMR pilot proj ect involving
approximately 23,500 customers in Idaho Power s Emmett
and McCall operating areas.On March 3 , 2005, the
Company requested that the Company be allowed to continue
to offer the Time-of-Day and Energy Watch pilot programs
until April 1, 2007.So far , the Company has not done an
assessment to determine the extent to which peak hour
loads have been shifted.
Transmission Upgrades
Idaho Power has contended that the primary
reason for needing new generation to be located near its
load center is because of transmission constraints on
imports from the Northwest.Are transmission upgrades a
viable al ternati ve to the Evander Andrews plant?
I would characterize transmission upgrades as a
necessary component, rather than an al ternati ve, in Idaho
The Company hasPowers plans to meet future peak loads.
been upgrading portions of its transmission system to
reduce constraints.The Brownlee to Oxbow proj ect was
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107 STERLING, R.
completed in late 2003.It increased the Brownlee East
capacity by approximately 100 MW.Even with this
improvement , however , Idaho Power s transmission system
is still constrained at certain times for imports of
energy from the Pacific Northwest.Idaho Power is
presently upgrading the capacity of the Borah-West path.
This will increase the Borah-West transmission capacity
by 250 MW and is scheduled for completion in May 2007.
The increased transmission capacity will be available to
serve Idaho Power s native load requirements with new
generating resources located east of the Borah-West
constraint (eastern Idaho)
In its 2006 IRP , Idaho Power has expanded its
analysis of possible transmission proj ects, associated
costs, and potential risks.Based on its analysis, the
preferred portfolio in the draft 2006 IRP incorporates a
285 MW transmission upgrade from McNary (Mid-C) to Boise.
Shoshone Falls
As early as 1993, Idaho Power identified an
upgrade to its Shoshone Falls plant as one means of
helping to meet future load, but the , upgrade has yet to
be started.What is the status of the proposed proj ect?
It was initially anticipated that capacity
expansion of the Shoshone Falls plant would be completed
in conj unction with its scheduled FERC relicensing
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STAFF
108
application to be filed in 1997 , and that the expansion
would be completed in 2004.However , rather than
modifying the re-licensing application, Idaho Power
decided to wait until a new license was issued before
proceeding with permitting for the Shoshone Falls
upgrade. Idaho Power received the new license on August
, 2004.On August 17 , 2006, Idaho Power filed for an
amendment to its recently issued license seeking
permission to expand the plant to provide an additional
50 MW.During July, when the Company s future peak
generation needs are greatest , the upgrade would provide
18 MW under the 90 percent water condition used for
capaci ty planning.
Do you believe that the other resource
alternatives that you just discussed can collectively
substi tute for a new gas fired peaking plant?
No, I do not.While I believe each of these
other al ternati ves is important , all of them are either
already being pursued and are a part of the Company
plan going forward, or they cannot be counted on with
certainty.There may be room for increased efforts,
particularly with regard to conservation and demand
response, but I believe a new peaking resource is still
necessary.
REQUEST FOR PROPOSALS/OVERVIEW OF PROCESSQ. Please provide a brief overview of the request
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for proposals (RFP) issued by Idaho Power.
As called for in its 2004 IRP , Idaho Power
issued the RFP on March 30, 2005.The RFP sought
proposals for a turnkey electric generation resource
located wi thin the Company s service territory to meet
peak energy demands beginning no later than April 1
2007. Idaho Power anticipated acquiring 88 MW of
deli vered capacity, but stated that based on present
market conditions of combustion turbines, it was willing
to consider acquiring resources from 80 MW to 200 MW.
The RFP clearly stated that power purchase agreements
where legal title of the generating facilities is not
conveyed would not be considered in the RFP.Combustion
turbines were identified as the preferred technology.
The RFP stated that the primary need for the new resource
is to provide electricity during peak energy requirements
for the Treasure Valley load center.Idaho Power invited
respondents to offer proposals to locate turnkey
generating facilities at 1) the Evander Andrews Power
Complex site located near Mountain Home, 2) the Bennett
Mountain Power Plant site also located near Mountain
Home, or 3) at a site of the respondent's choosing.
Bids
Please summarize the response Idaho Power
recei ved to its RFP.
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Idaho Power received 31 proposals from nine
companies by the June 2 , 2005 RFP deadline.Generating
units ranged in size from 71 MW to 171 MW.The proposals
included large and small frame combustion turbines
aeroderi vati ve combustion turbines, and reciprocating
englnes.Proj ects were proposed at four sites, including
the existing Evander Andrews site and the Bennett
Mountain site.Both new and secondary market machines
were proposed.All of the bids proposed to use natural
gas for fuel.
Did Idaho Power prepare a self-build option?
No, it did not.
Why not?
Idaho Power Company previously issued an RFP
for a peaking resource in February 2003.A self-build
proposal was prepared during that RFP.However , because
the Company does not maintain a significant power plant
design and construction workforce, the self-build option
represented Idaho Power as a general contractor that
subcontracted for materials, design and labor.Idaho
Power ultimately determined that not only were bids
received in the 2003 RFP process competitive, but also
that the selected (**Confidential**) bid for the Bennett
Mountain proj ect was superior to the self-build option.
Wi th the 2005 RFP , the Company was convinced that based
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upon recent experience with the 2003 RFP process, it
would receive sufficient competi ti ve bids, the Company
had reasonable benchmarks for peaking unit prices, and
that expenses associated with self-build bid preparation
could be avoided.
Do you agree with the Company s decision not to
include a self-build option?
Yes, I do.If Idaho Power had prepared a
proposal in which it acted as a general contractor and
subcontracted for engineering, materials and
construction , I have no reason to believe it could build
the proj ect less expensively than a contractor who
specializes in building power plants.
Do you believe that the number and variety of
proposals received was sufficient to give reasonable
assurance that all realistic options could be considered
and that a competi ti ve price could be obtained?
Yes , I do.Each of the nine companies
submi t ting bids had previous experience developing
similar proj ects.Moreover, the 31 bids included several
types and sizes of equipment.Approximately one-third of
the bids were for aeroderivative units close to the 88 MW
capaci ty sought in the IRP , approximately one-fourth were
for small frame units in the 70-100 MW size range, and
the remainder were large frame units in the 150-170 MW
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STAFF
range. In addition, there was one bid for reciprocating
engines. There were considerably more bids received in
this RFP than in previous RFPs for the Bennett Mountain
and Dans kin proj ects
Eval ua tion of Bids
Please briefly describe the bid evaluation
process used by Idaho Power.
To review and score proposals, Idaho Power
assembled an evaluation team consisting of six employees
- three from the Power Production business unit, one from
Power Supply Reporting, one from Load Research , and one
from the Pricing and Regulatory Services business unit of
the Company.In addition , two advisors - one from the
Company s Legal Department and one from Power Engineers,
a third party consultant - provided guidance to the
evaluation team.
The evaluation team ranked the proposals using
the procedures and criteria outlined in an Evaluation
Manual prepared prior to the receipt of bids.Idaho
Power prepared the Evaluation Manual with the assistance
of Power Engineers, its consultant.The Eval ua tion
Manual identified the criteria upon which the proposals
would be scored, assigned a maximum number of points to
each criterion , and provided a scoring guide to be used
in determining how points would be awarded for each
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cri terion.
(**Confidential information follows**)
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STAFF
How were non-price scores determined?
proposals and collectively awarded a single set of points
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To evaluate the bids based on non-price
cri teria, Idaho Power s evaluation team reviewed the
to each proposal in each category.Scores for all
(Di) 30
STAFF
factors were then totaled for each bid.
Do you believe that the non-price criteria used
in the evaluation were reasonable?
I believe the evaluation criteria were
reasonable and not intended to favor one proposal over
another.The criteria were established prior to the
receipt of bids with the guidance and assistance of a
third-party consultant.However, many of the non-price
criteria required subjective judgment in point factoring,
which made them prone to bias.
Were all of the exact evaluation criteria and
the points associated with each made known to bidders in
advance?
No, all of the price and non-price scoring
cri teria , including the methods by which scores would be
awarded, were kept confidential , both before bids were
submi tted and after the evaluation process was complete.
Although details of the price evaluation methodology were
not disclosed , bidders should have obviously known that
price would be a maj or factor in the scoring.The
non-price evaluation criteria were not nearly as well
known by bidders, although the RFP did give some
indication of what criteria might be used.For example,
the RFP stated " Proj ects that provide advantageous
si ting, demonstrated community acceptance , completedenvironmental analysis,
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STAFF
completed archaeological analysis, and completed
permi tting may be viewed favorably in the selection
process." Reference RFP page 14.
The RFP also included the following in its list
of non-price attributes to be considered in the
evaluation of proposals:
Provide an advantageous proj ect location
considering: grid location , zoning, community
acceptance, use of existing IPC operation and
maintenance personnel , local water supply and
other environmental impacts; and
Demonstrate enhancement of IPC system
reliability, integrity, and utilization
through application of mature technologies.
Reference RFP page 22.
Do you believe that all evaluation criteria and
methods should be kept confidential in the future?
No, I do not.Obviously, I believe that bids
should be kept confidential and that price information
should not be publicly divulged at any time in the
evaluation process.However, I see no compelling reason
for the exact price and non-price evaluation
methodologies and criteria to be kept confidential.
all bidders know in advance what criteria and methods
will be used to evaluate their proposals, I believe they
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are more likely to make proposals that more closely match
the utility s needs and preferences.By keeping
evaluation criteria confidential, competition between
bidders is stifled.I recommend that all evaluation
cri teria and methods be divulged in future RFPs.
Were transmission costs considered in
evaluating bids?
Yes, transmission costs were considered when
evaluating all bids.The transmission cost estimates
were based on studies performed by Idaho Power
Transmission business unit ("Delivery Studies were
developed for each of the four different sites included
in the bids and for various proposed equipment sizes.
proj ects of similar size at the same proposed locations
were consistently assigned the same transmission costs.
Al though considered in the bid analysis , transmission
costs have not been included in the Company s Commitment
Estimate.
Did the RFP inform bidders of the likely
transmission cost differences based on where proj ects
might be located?
Respondents were advised in the RFP that
proposals for projects to be located at sites other than
Evander Andrews or Bennett Mountain that depend on
transfer of energy across the transmission constraints
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118 STERLING, R.
for delivery to the Boise area will have an extremely
heavy
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burden to demonstrate to Idaho Power s satisfaction that
sufficient transmission capacity can be made available in
time to meet the April 1, 2007 provisional acceptance
deadline.The RFP included approximate transmission
pricing information based on proximity to the Boise area.
Four cost zones were identified.Costs of $3 to $10
million were estimated for the zone encompassing the
Boise-Caldwell area.An estimated cost of $15 to $25
million was given for the zone reaching from the greater
Boise area to Ontario.Costs of $20 to $40 million were
estimated for the zone between Boise and Midpoint
(including the Mountain Home area) .Finally, costs of
$30 to $60 million were estimated for sites east of
Midpoint.
Do you believe bidders took this information
into account when preparing their bids?
Absolutely.There were only four locations at
which proj ects were proposed to be bui 1 t - the Evander
Andrews and the B~nnett Mountain sites near Mountain Home
that were identified in the RFP , and two other sites.
Both of the other sites were wi thin the zone encompassing
the Boise load center in which transmission costs were
expected to be lowest.Some bidders apparently
recognized that their proposals could win an immediate
price advantage of from $17 to $30 million over the
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Evander Andrews and Bennett Mountain sites if they found
si tes
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close to Boise.
What natural gas price was used in performing
the price analysis?
Gas prices were assumed to be $4.61 per MMBtu
in 2007 and were escalated throughout the life of the
proj ect.These were the same gas prices assumed by Idaho
Power in its 2004 IRP.
Were the gas prices assumed in the cost
analysis critical to the results?
Because the same gas price was utilized for all
proj ect proposals , proj ects with lower guaranteed heat
rates had lower fuel costs on a cost per MWh basis.
However , because variable costs were only used to
determine relative variable cost scores, the exact gas
price used was not critical as long as it was the same
for all proposals.
Short List Analysis
Please describe how Idaho Power developed a
short list of proj ects and completed further analysis of
the short list proposals.
After the stage 2 screening was completed , the
top fifteen proposals (from four different bidders) were
short-listed and meetings with representatives of the
short-listed entities were held in October 2005.The
Company sent a document to each of the short-listed
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bidders detailing the Company s understanding of each
respective bid.The review of those documents and the
meetings with bidder s enabled Idaho Power to clarify
bids, such as defini ti vely determining what things were
or were not included in the bid , so that a revised
second-round analysis could be completed.A copy of
Idaho Power s summary of the fifteen short-listed
proposals, along with a summary of the price and
non-price factor scores is attached in confidential
Exhibit No. 108.
Following the meetings with the short-listed
bidders and based on the results of the second-round
evaluations, the Company pursued final negotiations with
two bidders who had each submitted three different
proposals.
Analysis of Final Candidate Proposals
Were the final candidate proposals modified
before Idaho Power made its final analysis of the
proposals?
During the final stage of the analysis, Idaho
Power decided to delay the proposed on-line date of the
project from June 2007 until April 2008.As a result,
the two finalist bidders were requested to modify their
bids to reflect the revised on-line date.The six
modified bids were then compared in the final analysis.
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A summary of the six finalist bids is attached as
confidential
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Exhibit No. 109.Based on the final analysis, the RFP
evaluation team made its recommendation to the Company
management , who in turn recommended to the IdaCorp Board
oE Directors that the Siemens Power Generation , Inc.
Evander Andrews bid be selected.
(**Confidential information follows**)
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PROJECT DESCRIPTION
Please describe the proposed Evander Andrews
plant.
The proposed Evander Andrews plant will be a
nominal 170 MW natural gas fired, simple cycle power
plant to be located at the existing approximat~ly 40-acre
Evander Andrews Power Complex located north of I-
approximately two miles northwest of the City of Mountain
Home.In 2001 , Idaho Power built two 45-MW simple cycle
combustion turbines at the site, which were formerly
sometimes referred to as the "Danskin Plant. The
proposed proj ect' s combustion turbine is a single Siemens
Westinghouse model 501F (also known as SGT6-5000F).
Operation
Please describe the expected operation of the
proposed Evander Andrews plant.
I f approved, the Evander Andrews plant will be
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operated to meet peak-hour loads primarily in the summer
and winter.The plant is currently scheduled to be
available to meet peak loads in April of 2008.While
there may be occasional opportunities to market the
output of the Evander Andrews plant when it is not needed
to meet the Company s own load , Idaho Power does not
anticipate marketing a significant amount of the plant'
output.The opportunity for sales of surplus energy will
depend on the difference between the market price of
power and the Evander Andrews plant's cost of production.
Because Evander Andrews is a simple cycle plant, its
dispatch cost is higher than combined cycle plants in the
region; consequently, it may not often be cost effective
to operate the plant to make off-system sales.
Fuel Supply and Transportation
As a part of this Application , Idaho Power is
requesting that it be allowed to include the proj ect' s
cost of fuel, fuel storage and fuel transportation for
recovery through the existing Power Cost Adj ustment (PCA)
mechani sm.Do you agree that this is appropriate?
A maj or component of the operating costs of a
combustion turbine generating plant is the cost of
natural gas fuel.Staff agrees that reasonable fuel
expenses should be approved for PCA recovery prior to
full review of normal operational costs in a general
reven ue
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requirement case.Operation of the plant will displace
other more costly power supplies to the benefit of Idaho
Power customers; therefore, costs should be included in
the PCA.This is consistent with the manner in which
fuel costs are handled for the Bennett Mountain and
Danskin plants.
How will natural gas be delivered to the plant?
A natural gas fuel supply will be delivered
from the Williams Northwest Pipeline via an existing
pipeline to the Evander Andrews site.Idaho Power has
not yet negotiated or entered into any agreements for the
purchase of natural gas fuel supplies for the proposed
Evander Andrews plant.
How does Idaho Power manage the risk associated
with purchasing natural gas for fuel?
Idaho Power has an Energy Risk Management
Policy and natural gas is listed as a permitted
commodi ty; however , the policy does not specifically
address acquisition of natural gas.An internal Risk
Management Committee regularly quantifies, assesses, and
manages the Company s risk in accordance with the Risk
Management Policy.
Idaho Power also has gas hedging guidelines for
the existing Evander Andrews/Danskin Power plant.If the
new Evander Andrews plant is approved, I would expect the
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Company to develop its fuel procurement strategy for both
natural gas and transportation capacity as well as
expanded hedging guidelines and risk management
strategies for all of the Evander Andrews plants and the
Bennett Mountain plant.
Does Idaho Power have adequate fuel
transportation rights on the Williams Pipeline to
accommodate the proposed plant?
Idaho Power already possesses firm fuel
transportation rights that can be used for both the
existing and new Evander Andrews plant and the Bennett
Mountain plant.Sufficient transportation rights to
serve the Evander Andrews plant are available without a
pipeline expansion.
Water Supply and Wastewater Treatment
What is Idaho Power s plan for water supply and
wastewater treatment?
Water would be used by the plant primarily for
evaporative cooling, which is normally only required in
the summer months.Water can be supplied by an existing
well at the Evander Andrews site.Wastewater from the
plant will be retained in an existing retention pond and
then pumped out for irrigating landscaping.
Electrical Interconnection
What transmission work would have to be done
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order to interconnect the proposed plant?
In order to interconnect the proposed plant, a
de-energized 132 kV transmission line between the Bennett
Mountain plant and the Mora substation near Boise would
have to be rebuilt to 230 kV.The route of this line
passes in the vicinity of the Evander Andrews site.
addi tional transmission improvement would be needed
between the Evander Andrews plant and the existing
Bennett Mountain plant.The estimated total cost for the
transmission work is estimated at $26 million, with
approximately $22 million allocated to the Evander
Andrews proj ect for the generator interconnection and the
remaining $4 million allocated to Idaho Power Delivery to
correct existing operational concerns.At this point,
costs are based on a feasibility study and are only rough
Detailed costs would be developed in a Designestimates.
Study.The $22.8 million amount for transmission
discussed in the Company s application is simply the
ini tial $22 million amount escalated by the one year the
proj ect was delayed.The cost of this transmission
upgrade is not included in the proj ect commitment
estimate and could be higher or lower.
Project Permits
Please discuss the alr quality rermi t that will
be required for the proposed plant.
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144 STERLING, R.
Certainly one of the most critical permits
needed by the proj ect is an air quality permit (Permit to
Construct)issued by the Idaho Department of
Environmental Quality (DEQ).Idaho Power has not yet
made an application for such a permit; however, the
Company s environmental consultant has completed the
necessary studies to prepare an application for a permit.
The studies indicate that the expected emission from the
proposed plant will be less than half the emissions from
the recently completed Bennett Mountain plant.I have
discussed the permit with DEQ staff and they do not
expect Idaho Power to have any difficulty in obtaining a
permi t. The time needed to obtain a permit was estimated
by DEQ to be approximately 160 days.
Will the proj ect require a Conditional Use
Permit?
A gas-fired combustion turbine is a permitted
use within the existing zoning designation where the
Evander Andrews proj ect is located.Consequently, Elmore
County will not requlre a Conditional Use Permit.
Will other permits be required?
Yes , but because two smaller gas-fired turbines
are already operating at the Evander Andrews site,
addi tional required permits will be minor.Permits will
be necessary for such things as transporting materials
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145
and equipment on public highways; disposing of excavated
materials; insuring compliance with construction noise
and building permits.
Environmental Impacts
What will be the most significant environmental
impact of the proposed proj ect?
The most significant environmental impact of
the Evander Andrews proj ect will be air emissions.The
primary pollutants from gas-fired plants are NOx and
carbon dioxide.The DEQ Permit to Construct will specify
emission limits for the proj ect.
Project Risks
What are some of the risks associated with the
Evander Andrews proj ect?
There will be some ris k associated with the
Evander Andrews proj ect simply because it uses natural
gas for fuel.As evidenced by the past several years,
gas prices can be quite volatile.The proj ect would
increase the amount of gas-fired generation in Idaho
Power s fleet to 422 MW.Owning gas-fired generation
could perhaps ultimately lead to slightly greater rate
stabili ty than if the same output were purchased from the
market, but Idaho Power cannot escape gas price risk.
Project Benefits
What would be some of the benefits of the
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Evander Andrews proj ect?
There are several notable benefits to the
proposed Evander Andrews proj ect.First, the cost of the
proj ect, although slightly higher than the recently
completed Bennett Mountain proj ect, is still quite
attracti ve, primarily due to the availability of
combustion turbines at bargain prices.Turbine prices
are currently very low because equipment destined for new
plants now has nowhere to go due to numerous plant
cancellations, the financial difficulties of many
developers, and the demise of others.
Second, the Evander Andrews proj ect appears to
have strong local acceptance.This would be the third
gas-fired combustion turbine proj ect in the Mountain Home
area.I am not aware of any local opposition.
Third , the new proposed Evander Andrews plant
would be located at the site of an existing plant
(Dans kin), and is only a few miles from the Bennett
Mountain plant, enabling sharing of operational staff and
equipment.
Finally, the Evander Andrews plant will be
fully dispatchable and available for use by Idaho Power
at any time.If another entity owned the plant and Idaho
Power purchased output under a power purchase agreement,
thi~ would not be possible.
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FUTURE NEED
The proposed Evander Andrews proj ect would add
170 MW of peaking capacity to Idaho Power s portfolio,
yet the 2004 IRP upon which the RFP was based indicated
need for only 88 MW of peaking capacity.Will this extra
peaking capacity be needed in the future?
Idaho Power s peak load is growing at a rate of
about 80 MW per year.The Company s average load is
growing at about half that rate.Idaho Power is
currently in the process of finalizing the 2006 IRP
which more closely examines both the magnitude and timing
of the Company s future resource needs.The 2006 IRP
does not call for any near-term additions of peaking
generation resources, although it does call for expansion
of some demand reduction programs.In addition , it calls
for completion of the 100 MW RFP for wind , completion of
the 100 MW RFP for geothermal , possibly the issuance of
an RFP for 50 MW of CHP, a 225 MW upgrade to the
McNary-Boise transmission line, and continued
investigation into the possibility of jointly developing
a coal proj ect.The additional peaking capacity provided
by the proposed Evander Andrews plant will help to
satisfy peak load requirements in the future and enable
the Company to add mostly base-load generation that will
be used to meet both peak and average load growth.
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CAPITAL COST COMMITMENT ESTIMATE
Please discuss Idaho Power s capital cost
Commi tment Estimate.
Idaho Power has negotiated a contract with
Siemens Power Generation Inc. containing a firm price for
the completed project in the amount of $49,999,000.
Based on this contract, Idaho Power states that it is
able to make a reliable estimate of the total capital
cost of the proj ect.This estimate, which Idaho Power
has termed a "Commitment Estimate " is a good faith
estimate of the proj ect' s total capital cost based on the
contract with Siemens plus certain additional costs the
Company knows it will incur but cannot quantify with
precision at this time.These additional costs include
(but are not limited to) sales taxes , AFUDC, the cost of
Idaho Power oversight of the proj ect and the cost of
capitalized start-up fuel. These additional costs would
be approximately the same regardless of which proposal
Idaho Power had selected.The Commitment Estimate also
covers contingencies such as change orders and other
unforeseen events.Idaho Power s Commitment Estimate for
the project is $60 million, or about $10 million more
than Siemens contract amount.
Idaho Power states that it will commit to
procure and install the Evander Andrews proj ect for the
Commi tment Estimate. The Commitment Estimate would also
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be subj ect to adj ustment to account for documented
legally required equipment changes, such as to comply
with new air quality laws for example, and for extreme
changes in inflation and prices.If the final capital
cost of the proj ect exceeds the Commitment Estimate,
Idaho Power states that it will absorb the extra cost.
The Company will include in its Idaho rate base only the
amount actually incurred up to the Commitment Estimate.
If the proj ect is approved for rate base
treatment , Idaho Power has pledged to provide the
Commission with periodic percentage of completion and
cost expenditure reports during the construction phase.
The final report on the proj ect will compare the actual
completed cost to the Commitment Estimate.
What is not included in Idaho Power
Commitment Estimate?
The Commitment Estimate does not include the
cost of constructing or upgrading transmission facilities
to interconnect the proj ect with the Company s existing
transmission system.The studies needed to fully define
interconnection and transmission upgrade costs have not
been completed.However, Idaho Power s Transmission
Business Unit Delivery) has provided a preliminary upper
limi t estimate of $22.8 million to interconnect the
proj ect .
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Do you believe that the Commitment Estimate of
$60 million is reasonable?
Yes, I believe that the Commitment Estimate for
the proj ect is reasonable.The Commitment Estimate for
the Bennett Mountain plant, which was a nearly identical
plant completed in 2005 , was $54.0 million, excluding
transmission.The Bennett Mountain plant produces about
8 less megawatts than the proposed Evander Andrews plant
but emits nearly twice as much NOx.I think both
proj ects, due to an ongoing abundance of turbines
available in the market, reflect excellent prices by
standards of the past several years.Siemens is able to
construct the proj ect at significantly lower costs than
similar proj ects constructed just a short time ago.The
commi tment cost of $ 60 million for the 170 MW Evander
Andrews proj ect is just $11 million more than the $ 49
million cost of the 90 MW Danskin proj ect completed in
September 2001.
Are you willing to accept costs up to the
Commitment Estimate for future inclusion in rate base?
The Idaho Power-Siemens contractNo, I am not.
amount of $49 999,000 is a known amount that, except for
possible change orders, will not change once Idaho Power
takes ownership of the plant.Moreover , the amount was
established through a competitive bidding process that
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151 STERLING, R.
the Staff finds acceptable.Consequently, I am willing
to accept cost up to this amount in rate base.However
those costs above the $49,999,000 contract amount , up to
the Commitment Estimate of $ 60 million, cannot be
quantified with precision at this time according to Idaho
Power.Furthermore, those expected costs might not be
subj ect to a competi ti ve bidding process, or to the
advance scrutiny of the Commission or its Staff.
Consequently, I recommend that these expected costs (up
to a maximum $ 10 001,000) be subject to audit by the
Commission Staff , and that the Commission withhold rate
base consideration of these costs until after the proj ect
is constructed and the audit is completed.
Idaho Power has provided a Commitment Estimate
of $ 60 million for construction of the proposed Evander
Andrews proj ect and has estimated that transmission costs
to interconnect and integrate the plant into its system
will be an additional $22.8 million.The $22.8 million
is not included in the $ 60 million Commitment Estimate,
however.Why did Idaho Power not provide a similar
commitment estimate for transmission costs, like it did
for plant construction?
As explained by Company witness Said in his
direct testimony, a Certificate of Convenience and
Necessi ty is only required for construction of new
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generation facilities.Such a certificate is not
required for construction of transmission facilities in a
terri tory already served by the utility.
Do you agree?
Yes Idaho Code ~61-526 requires certificates
of public convenience and necessity for generation
proj ects but not for extension of existing transmission
systems.Thus, once the new transmission line has been
buil t and is used to provide power to customers, Idaho
Power will presumably seek to include these transmission
costs in rate base.At that time, a judgment of whether
transmission costs have been prudently incurred would be
made.
However , whether a certificate is required or
not, I see little difference in the reason for requiring
a commitment estimate for new generation plant or for a
new maj or transmission addition needed to deliver that
generation.I believe it is necessary and prudent to
obtain a commitment estimate for transmission as well,
for two reasons.First, with a transmission cost
estimate of $22.8 million , transmission costs represent
about 27.5 percent of the entire proj ect cost.Second,
the plant is inextricably linked to the transmission.
other words, the plant is not useful without the upgraded
transmission that Idaho Power says is necessary to bring
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generation to the Treasure Valley load center.
Would you be willing to accept the Company
estimate of $22.8 million for transmission costs as a
commi tment estimate?
No, the $22.8 million estimate for transmission
is only a preliminary cost estimate based on the initial
feasibili ty study; therefore, the estimate is not
precise. A more detailed analysis would be required in
order to establish a commitment estimate.In fact, based
on its response to Staff production request No. 94, even
Idaho Power itself is not willing to provide a commitment
estimate for transmission at this time.As stated by the
Company, II Idaho Power Company is unable to provide a
commi tment estimate for transmission costs that would be
incurred to integrate the proposed new Evander Andrews
generating plant, similar to the Commitment Estimate
offered for the plant construction. ... At the present
time , only feasibility and technical studies have been
completed for the transmission improvements required to
integrate the new facility into the Company
transmission system.
Furthermore, even if transmission costs are
more accurately determined and a commitment estimate
provided in the future , I would still recommend that the
Company not be allowed to recover costs in excess of the
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154
lower cost proposal.Because the excess costs are due
primarily
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STAFF
to transmission, I would expect this amount to be
deducted from the transmission cost commitment estimate.
Are there other ways to help insure that
transmission costs will be reasonable?
Yes , it is likely that Idaho Power would
solici t bids for the maj ori ty of the required
transmission work rather than complete the work using its
own staff.As long as the job, including materials, is
competi ti vely bid , it is reasonable to expect that a
competi ti ve price would be obtained.While this doesn
guard against the possibility of transmission costs
greatly exceeding the estimate, it at least offers some
protection that transmission costs will be reasonable.
Nevertheless, I still believe that Idaho Power should
develop and be bound by a commitment estimate for
transmission.
TOTAL EXPECTED POWER COST
What is the total expected power cost for the
proposed Evander Andrews plant?
Based on Idaho Power s economic analysis of the
proposal, including the estimate of $22.8 million for the
cost of transmission and the Siemens contract amount of
$49.999 million, the 30-year fixed levelized cost of
energy from Evander Andrews will be $4.23 per kW-month.
The 30-year levelized dispatch cost would be $61.09 per
MWh using the Company s assumed gas prices. The total
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cost of power is the sum of these two components.
Why didn t Idaho Power compute a total power
cost in dollars per MWh rather than computing two
separate cost components?
In order to compute the total power cost as a
single dollars per MWh figure, an assumption must be made
about the plant capacity factor i. e., the percentage of
time the plant is expected to operate.While it is easy
to assume a capacity factor , the assumption is invariably
going to be wrong because plants such as Evander Andrews
are usually operated in response to deviations from
normal water , load, or market conditions.For peaking
plants that are expected to operate relatively few hours
per year , this approach produces a total power cost that
seems very high because fixed costs get spread over very
few hours in the year.Moreover , this high cost per MWh
is frequently misused when it is compared to the cost of
other resources or al ternati ves with much higher capacity
factors.
It is also extremely important to recognize
that the price of energy computed for analysis purposes
is highly dependent on the cost of gas that is assumed in
the analysis.Idaho Power s analysis assumed a starting
gas price of $4.61 per MMBtu, with prices in future years
based on various forecasts available to the Company.
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These estimates may be reasonable based on today s gas
prices and forecasts, but prices could turn out to be
much different than assumed in the analysis.Because
each of the proposals considered by Idaho Power in the
final analysis proposed to use gas as fuel , the effect of
different gas prices was similar on each proposal's cost
except to the extent some proj ects may have been more
efficient than others.
Can you compare the total cost of power from
the proj ect to other market al ternati ves?
It is difficult to make a comparison to other
market al ternati ves because it could be argued that the
market is not really an al ternati ve to the Evander
Andrews plant due to transmission constraints.However,
just for the sake of comparison , I asked Idaho Power to
make estimates of the monthly heavy load hour prices for
the next five and ten-year periods.The Company
estimated average 5-year heavy load hour price is $68.
per MWh , and the average 10-year price is $70.24 per MWh.
These prlces are almost certainly lower than the total
costs of the Evander Andrews plant because its estimated
dispatch cost alone is $ 61 per MWh.The addition of
fixed costs would increase that total substantially.
Are avoided cost rates for PURPA contracts a
fair comparison to expected costs of the Evander Andrews
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plant?
I do not believe avoided cost rates used for
PURPA QF contracts is a fair comparison to the cost Idaho
Power will pay for power from the Evander Andrews plant.
Avoided cost rates are computed using a combined cycle
combustion turbine rather than a simple cycle turbine
like Evander Andrews.Avoided cost rates are not really
comparable to the Evander Andrews power costs because
they represent the price of two very different products.
Avoided cost rate computations assume that the plant is
operated nearly all of the time, not just during a
limited number of peak hours in the summer and winter.
Avoided cost rates are reflective of the cost of base
load generation , while Evander Andrews is dedicated to
providing peaking capacity.
SUMMARY AND RECOMMENDATIONS
Are you convinced that Idaho Power has
demonstrated a genuine need for the Evander Andrews
plant?
Yes , I am convinced that peaking power is
needed by Idaho Power beginning in the summer of 2008,
and that construction of a peaking plant is the Company
best al ternati ve.Under the right set of circumstances,
I believe it might be possible for Idaho Power to find
enough al ternati ves that collectively could eliminate, or
at least defer, the need for the Evander Andrews plant.
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159 STERLING, R.(Di)
STAFF
However , some of the possible al ternati ves - such as new
industrial cogeneration , increased PURPA development , or
significantly increased participation in DSM and demand
response programs - are mostly outside of the control of
the Company.Relying on them would be very risky.
Do you believe that the request for proposals
the criteria used by Idaho Power to evaluate bids, and
analysis of the bids was fair to all proposals?
I believe that the RFP was fair and that the
evaluation criteria were reasonable.However, because
some of the non-price evaluation criteria were subj ecti ve
and because some of the scores would likely be different
based on what is known today, I do not believe that the
process produced a fair outcome.In addition, I
recommend that in future RFPs Idaho Power be required to
di vulge all criteria and methods that will be used to
evaluate proposals so that bidders can more effectively
compete.
Do you recommend that the Commission issue to
Idaho Power a Certificate of Public Convenience and
Necessi ty to construct the new Evander Andrews plant?
Yes, with reservations.I believe that in the
ordinary course of events the Commission may authorize
the rate basing of the amount of the Siemens Evander
Andrews Agreement amount of $49,999,000.I recommend
CASE NO. IPC-E-06-
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160 STERLING , R.(Di)
STAFF
that the actual amount of capital costs to be rate based
above the
CASE NO. IPC-E-06-
10/02/06 161 STERLING, R. (Di) 71a
STAFF
bid price of $49,999,000 up to the Commitment Estimate of
$ 60 million be subj ect to review in a subsequent case.
In addition , I recommend that Idaho Power be ordered to
develop a commitment estimate for the cost of
constructing the transmission and substation facilities
necessary for the Evander Andrews plant.
(**Confidential information follows**)
If the Commission approves a Certificate
of Convenience and Necessity for the proj ect and rate
base treatment in the normal course of events, I
recommend that Idaho Power be ordered to provide the
Commission with periodic percentage of completion and
cost expenditure reports during the construction phase.
What is your recommendation with regard to fuel
for the Evander Andrews plant?
I recommend that Idaho Power be allowed to
include the proj ect' s cost of fuel , fuel storage and fuel
transportation for recovery through the existing Power
Cost Adj ustment (PCA) mechanism.
Do you have any other recommendations?
I also recommend that the Company be strongly
encouraged to diligently continue to investigate and,
where warranted, begin implementing conservation , demand
CASE NO. IPC-E-06-9
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162 STERLING, R.(Di)
STAFF
response and pricing options that could potentially
displace or defer the need for additional future peaking
generation.
Does this conclude your direct testimony in
this proceeding?
Yes , it does.
CASE NO. IPC-E-06-
10/02/06
163 STERLING, R.(Di)
STAFF
(The following proceedings were had in
open hearing.
COMMISSIONER SMITH:Okay, Mr. Sterling is
available for cross?
MR. WALKER:Yes, he s available for
cross.
COMMISSIONER SMITH:Mr. Thompson or
Mr. Richardson , do you have questions for Mr. Sterling?
MR. THOMPSON:Yes, we do, just a few
questions.
CROSS-EXAMINATION
BY MR. THOMPSON:
Good morning,Mr.Sterling.
Good morning.
Mr.Sterling,page your testimony,
starting at line 14 , you state that after reviewing the
Company s 2004 IRP and the 2006 IRP , you believe that a
gas peaker is needed; correct?
Yes.
Then on page 7 at line 22 , you state that
because the 2006 IRP has just been completed, you believe
that the need for the plant must also be further
evaluated 'using the most up-to-date information
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available; is that right?
Yes.
And do you believe that significant
changes have occurred since the 2004 IRP was prepared?
Yes, I do.
Can you expand on those changes, some of
those changes?
Well , one thing obviously that has already
been brought up is that natural gas prices are -- natural
gas price forecasts are different than they were in 2004.
The other thing that's probably most significant is Idaho
Power s load forecast has probqbly been modified between
the 2004 and the 2006 IRP.
Thank you, and on page 10 of your
testimony, starting at line 4, you point out that no
gas-fired peaking plants were selected to be included in
the Company s 2006 IRP; correct?
That's correct, there are none in what'
called the preferred portfolio.
And then on page 11 , you also point out
Idaho Power s statement that if Evander Andrews were not
part of the resource stack in the Company s 2006 IRP, it
would be "almost certain a gas-fired peaking plant would
have been selected. Do you see that?
Could you refer me to a line number,
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please?
Yes, it looks like line 8 and
Yes , that's actually Idaho Power
response to a production request of the Commission Staff
where they stated that.
And could you please read lines 16 through
21 your testimony on page II?
Al though Idaho Power may be correct in
its belief that a gas-fired peaking plant would be
selected, the Company has not supported its belief by
providing any analysis.wi thout any analysis, there is
no way to verify whether a gas-fired peaking plant would,
in fact, still be selected.
And Mr. Sterling, don t you believe that
the Company should offer an analysis of whether current
information would lead them to select a natural gas-fired
peaking plant since they are seeking to build the Evander
Andrews plant in this proceeding?
Well , I certainly would have preferred
that an analysis be prepared specifically for this
particular plant, but one was not.
Mr. Sterling, your testimony is not
intended to substitute for an analysis by Idaho Power of
its need for an Evander Andrews, for the Evander Andrews
plant based on current information, is it?
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, it isn
MR. THOMPSON:That's all that we have for
Mr. Sterling.Thank you.
COMMISSIONER SMITH:Ms. Moen.
BY MS. MOEN:
CROSS-EXAMINATION
Mr. Sterling, in line with those same
questions, would you please turn to page 9 of your
testimony?On line 9, you testify, II For the remainder of
the planning period , deficiencies in July increase from
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450 megawatts to 1 800 megawatts in 2025. Do you see
Yes , I do.
that?
Could you please read lines 12 to 17?
Even with the recent addition of the
Bennett Mountain plant , the assumption of the new Evander
Andrews plant and the implementation of new DSM programs,
the Company s most recent load-resource balance still
demonstrates an inability to meet peak-hour loads in the
summer and winter beginning in 2009.
Thank you, Mr. Sterling.
MS. MOEN:Madam Chair , the nature of
Mr. Sterling s testimony and , as a result, the nature of
167 STERLING (X)Staff83676
my cross-examination is going to be revealing some cost
differences between the selected bidder and another
bidder and under those circumstances, I request that
anyone who has not signed a confidentiality agreement in
this case be requested to leave the hearing.
COMMISSIONER SMITH:That would be you
(**Confidential**), and that would be you, Mr. Fadness.
MR. FADNESS:I did sign it right before
the hearing.
COMMISSIONER SMITH:Well , you should have
been added to my list.m assuming the Company is
letting its own employees be here without being on my
list.
MS. MOEN:And we have requested that they
sign an agreement and they have done so.
COMMISSIONER SMITH:Okay, it would have
been cleaner if they would have been added to my list.
All right, I think you have your room, and just to
confirm that Mr. Fadness has checked the speakers and
they re off.
MR. FADNESS:I did check and they re off
yes.
COMMISSIONER SMITH:Thank you.
BY MS. MOEN:Mr. Sterling, on page 47
lines 17 to 19 of your testimony, you note that the
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combination of higher transmission cost and lower plant
cost accounts for the (**Confidential**) higher cost for
Evander Andrews; is that correct?
Yes , I see that.
And is it true that this
(**Confidential**) difference considers only power plant
investment and transmission investment?
Yes, that's true.
Would you accept the premise that fixed
operating costs for a new facility located at an existing
plant may be lower than the fixed operating costs for
new facility located at a new and undeveloped site?
Yes.
Would it be prudent for Idaho Power to
ignore fixed operating costs associated with owning and
operating and managing a proposed facility located at
different sites?
No, it would not.
Therefore, when determining the cost to
the Company and its customers, the Company should
evaluate both capital and operating costs attributed to a
facility; correct?
It should evaluate all costs.
The (**Confidential**) cost difference
that you identify as the difference between the two
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potential sites doesn t consider the fixed operating
costs of either facility, does it?
, it does not.
So it only shows the difference in cost
between the capital price difference between the two
proj ects; correct?
That's correct.
Okay.Do you recall whether Commission
Staff had requested what the fixed operating cost
differential may be between the two facilities?
I don t recall whether we requested it
formally in a production request.I do recall, however,
that on at least one occasion , and probably twice,
think we verbally asked the Company what the difference
was in the overall cost between the top two ranked
proposals.
And do you recall what that minimum
difference was in fixed operating costs?
No, I don t believe we ever got a
response.
MS. MOEN:May I please advance?
COMMISSIONER SMITH:Yes.
(Ms. Moen distributing documents.
MS. MOEN:What I'm distributing and would
request be marked as Exhibit No.5 for Idaho Power is a
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request made to Idaho Power by the Commission Staff.
(Idaho Power Exhibit No.5 was marked for
identification.
BY MS. MOEN:Request No. 92 requests,
Please explain in detail and quantify as accurately as
possible the benefits from the economies of centralizing
operations at one location. Mr. Sterling, could you
please read the first paragraph to that response?
Expanding plant operations at an existing
Idaho Power location offers several benefits.The
Company estimates that approximately (**Confidential**)
in fixed operating costs would likely, be saved by
locating the new plant at an existing Company-staffed
site.That figure represents costs for additional labor
and plant overheads if sites other than Evander Andrews
or Bennett Mountain were chosen.
Thank you.Could you also go to the
middle of the second paragraph?There s a sentence
starting li The addition of these new employees... II .
You d like me to read that?
Yes, please , to the end of that paragraph.
The addition of these new employees would
increase the (**Confidential **) that was used in the
initial analysis.These estimated staffing requirements
assume peaking operations at the new plant.However,
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conversion of the facility to a base load operation in
the future would require more employees to cover ongoing
24 -hour operation.
And then do you agree with me in the next
paragraph the second sentence says, "At least three
addi tional vehicles would be required - a pickup,
forklift and a small utility truck"
Yes, that is what it says.
Now , again , the Commission Staff didn
include the impacts of these fixed operating costs on the
overall cost of the two bids even though you had
knowledge that those fixed operating costs would exist;
is that correct?
Tha t 's true.I would like to point out,
though, simply because I've read this response doesn
necessarily mean I agree with the (**Confidential**)
figure that's contained in the response.I simply am
agreeing that we did not include those costs in the
(**Confidential**) number that's cited in my testimony.
But you have testified, correct , that it
is prudent for the Company to consider those costs?
Yes.
Have you had an opportunity to look at
Exhibi t 2 of the direct rebuttal testimony submitted in
this matter by Greg Said and Mike Youngblood?
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Yes, I have, although I don t have a copy
up here on the witness stand with me.I do at the
table.
MS. MOEN:May I approach the witness,
please?
COMMISSIONER SMITH:Yes, you may.
(Ms. Moen distributing documents.
BY MS. MOEN:Mr. Sterling, are you aware
tha t the intent of Exhibit 2 is to determine the true
investment differential that exists between the two bids
when you consider both operating costs along with the
fixed investments?
Yes, I am aware that that's the intent of
this exhibit.I would add, and maybe this will speed
things up a little, conceptually I agree with the Company
that these costs should have been included; however,
don t agree with the exact figure that is shown on this
exhibi t.We have -- Staff has done its own analysis and
come up with its own figure and again, I don t have the
exact number here on the stand, but we believe the
correct number is approximately (**Confidential**) rather
than the (**Confidential **) shown on this exhibit.
But at least (**Confidential**) less than
the (**Confidential**) you indicated in your original
testimony?
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That's true.
Okay.Now , on page 47 of your testimony,
lines 23 to 24, you indicate that in your judgment, it'
not worth spending an extra (**Confidential**) to have
the plant located near Mountain Home instead of near
Boise; is that correct?
Yes, that is what my testimony says.
Now , based on the analysis either
conducted by the Company or based on your analysis, the
difference between the two plants is somewhere between
maybe (**Confidential**) and (**Confidential**),
depending on the analysis, and not the almost
(**Confidential**) when both fixed and operating costs
are considered; correct?
Well, let me clarify a little bit.The
(**Confidential**) figure that I said we have computed
a minimum.It could actually be even a little higher
than that, so it's probably, we believe, at least
(**Confidential**) .
So in your analysis and the Company
analysis, would you agree that the evaluation of
non-price attributes represents an assessment of risk
that's not easily quantified , is it?
No, that's one of the reasons why we have
non-price attributes is because they re difficult to
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quantify in terms of dollars.
Okay, would you agree that environmental
issues and land ownership and the status of land use
controls and community acceptance of a proj ect are some
legi timate and realistic non-price attributes that merit
evaluation?
Certainly.
And is it possible in some circumstances
that certain non-price factors or attributes associated
wi th a proj ect could outweigh differences in capital and
fixed operating costs between two proj ects?
Yes , that's certainly possible.
How much do you think it's worth to Idaho
Power and its customers that when the Company needs
electrical energy it can be assured they re able to
commission a resource without being concerned that air
quali ty issues might curtail or even prohibit use of that
resource?
m not sure what you re looking for.
Numerical value or a dollar value?
Well , do you think it's an issue that the
Commission or that the Company needs to consider?
MR. WALKER:Your Honor , I'm going to
obj ect to that question.I think it calls for
speculation on his part on a contested issue in the case
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here.
COMMISSIONER SMITH:Ms. Moen.
MS. MOEN:Your Honor, the witness has
already testified that the Staff has done an analysis of
certain non-price issues, in particular , operating costs,
and it only seems reasonable that the Staff would have
some opinion or direction as to the value of other
non-price attributes associated with a facility.
COMMISSIONER SMITH:Mr. Walker.
MR. WALKER:I do believe that's a
mischaracterization.He was testifying as to the fixed
cost which is a cost attribute, not a non-price
attribute.
COMMISSIONER SMITH:Ms. Moen.
MS. MOEN:The question that I would like
to have answered relates to the value of a non-price
attribute and the difference in cost between the two
facilities identified by the Company of
(**Confidential**) and the (**Confidential**) identified
by the Staff.
COMMISSIONER SMITH:Mr. Walker , if the
wi tness has an opinion , he will be able to give it.
he doesn t, I guess he ll tell us that, so I'm going to
allow the question.
THE WITNESS:Could you please restate the
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question?
Certainly.BY MS. MOEN:Mr. Sterling,
you indicated that the differences in characteristics of
the two facilities may not be worth (**Confidential**) or
almost (**Confidential**).That's on page 47 , lines 23
to 25 of your testimony.You said II It is not worth
spending an extra almost (**Confidential**) to have the
plant located near Mountain Home instead of
(**Confidential**) . II Assume the difference in cost
(**Confidential**) or (**Confidential**), is it worth it
assuming air quality differences to spend the extra money
to be assured that a plant can be commissioned?
Well , first let me say using a
(**Confidential**) cost difference or even a
(**Confidential**) cost difference, the Staff has not
gone back through the evaluation manual and the
evaluation process to see how the scoring would have come
out had the cost difference been properly reflected, so I
can t say whether with that cost difference non-price
factors could have outweighed the price difference.
don t know.We didn t do that analysis.
Well , just putting the price difference
aside, is it legitimate for the Company to consider
whether or not a plant could be commissioned when it'
evaluating the merits of two facilities?
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Yes, I believe we ve already -- I'
already agreed to that.
Okay.Do you think it's reasonable for
Idaho Power to enter into a real estate agreement if it
wouldn t know the monthly rent for a facility?
Not necessarily.I think there was an
estimate provided by the City (**Confidential**) for the
site, the (**Confidential**) site.d also point out
that it was my understanding that a similar arrangement
was made for the Bennett Mountain proj ect with the City
of Mountain Home , so I'm puzzled as to why Idaho Power
would have such a concern leasing property from the City
(**Confidential**) when it didn t appear to have any
concern leasing property from the City of Mountain
Home.
And are you certain that at the time the
Bennett Mountain facility was constructed Idaho Power did
not have knowledge of the terms of that lease?
I didn t say Idaho Power didn t have
knowledge.
But if the Company didn t have knowledge
of term leases, would it be responsible or prudent for
the Company to enter into a real estate agreement?
Well , it certainly might be.Wi th
estimate of what the lease was, and I recall in this case
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the estimate was $27 000 a year, you know, even if that
was double that amount, comparing it to an $ 8 0 million
proj ect with operating costs during the year of a couple
million , probably, $27 000 as an estimate, even if that
could be grossly in error , I just don t think that's a
big risk.
You recommend on page 72, lines 6 to 11 of
your testimony, that the transmission cost commitment
estimate be reduced by the (**Confidential**) to reflect
the additional cost of the Evander Andrews proposal over
the second place proposal due to the higher transmission
cost; am I characterizing that correctly?
Yes.
And you ve already indicated the
(**Confidential**) differential only includes the capital
cost differences; correct?
That's correct.
And there may be some operational and
development costs associated with the (**Confidential**)
site.Have you reviewed testimony with regard to some
the air quality concerns that exist at the
(**Confidential**) site that don t exist at the Evander
Andrews site?
I have reviewed some of the air quality
lssues.I don t agree that there are no concerns at the
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Mountain Home site, but both sites , I think, have some
concerns.
On page 71, lines 9 and 10 of your
testimony, you indicated that you believe --
COMMISSIONER SMITH:Ms. Moen?
MS. MOEN:ll let you get to that
point.
COMMISSIONER SMITH:Ms. Moen , are we now
past the proprietary part of your cross?
MS. MOEN:Yes, we are, Madam Chair.
COMMISSIONER SMITH:Okay; so let's take a
five-minute break here.
(Recess. )
COMMISSIONER SMITH:So Ms. Moen, let'
get started.
BY MS. MOEN:Mr. Sterling, I only have a
few questions left.If you would turn , please, to page
71 of your testimony and lines 9 and 10 say, believe
that the RFP was fair and that the evaluation criteria
were reasonable. You didn t find anything imprudent
about the RFP evaluation criteria , did you?
No, I did not.I think the RFP and the
cri teria that were used were reasonable, although I would
have disagreed somewhat with some of the scores and some
of the assumptions in the way Idaho Power applied and
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evaluated those criteria.
On page 70 of your testimony, lines 19 to
22, you say you re convinced that peaking power is needed
by Idaho Power beginning in the summer of 2008 and that
construction of a peaking plant is the Company s best
alternative, so in your estimation , there s nothing
imprudent in the Company s decision to build a peaking
resource; is that correct?
No.
Generally, do you believe the Company
should be permitted to recover its prudently-incurred
costs for constructing a new facility and interconnecting
that facility to its transmission system?
m sorry, I was stuck on the last
question.The question before I think you said is that
correct and I said no, but I intended to agree with the
statement that you made.
That there s nothing imprudent in the
Company s decision to build a peaking resource?
Right.
And do you believe the Company should be
permi tted to recover its prudently-incurred costs for
constructing that facility and interconnecting it to its
system?
Yes, to the extent the Commission
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determines what costs are prudent.
Okay, and do you think a cap should be
placed on the amount the Company is able to recover if
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it's made a prudently -- if the decision it has made
Yes, I do believe a cap is appropriate.
Even though a decision and the costs
associated with that are determined to be appropriate and
Well , it depends on which costs we
I think in terms of capital costs and the
cost to build the plant, there I think a cap is
There are some other costs that might also
be incurred that are uncertain at this time.Those
costs, I think , would have to be determined to be
prudent, whatever they might be.
MS. MOEN:I have no further questions.
prudent?
COMMISSIONER SMITH:Thank you , Ms. Moen.
Mr. Walker , do you have any redirect?
MR. WALKER:Yes, I do.
prudent?
talking about.
appropriate.
182 STERLING (X)Staff83676
REDIRECT EXAMINATION
BY MR. WALKER:
Mr. Sterling, you mentioned a number of
(**Confidential**) in response to a question from the
Company.Are there any other cost risks that could
significantly increase this cost differential between the
two projects?
Yes , there are.
MR. WALKER:Actually, this does touch --
COMMISSIONER SMITH:He left.Okay, I
guess we re all just going to have to be more careful to
say that up front.Mr. Walker.
BY MR. WALKER:Could you give us a couple
of examples of that?
Probably the most, the biggest example
probably is transmission.The transmission cost to
interconnect this proj ect if it was located at the
Evander Andrews site is roughly a third of the whole
proj ect cost, but yet , Idaho Power has indicated that
it's trying to get an estimate of plus or minus 20
percent.20 percent of 22.8 million is almost $5 million
worth of costs that could potentially be higher than
what's been estimated.
Another example is in the fixed operating
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