20150825IPC to ICIP 1-7.pdf

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Atl IDACORP CompanY
LISA D. NORDSTROM
Lead Counsel
! [e-mail]
August 24,2015
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
Re: Case No. IPC-E-15-17
Long Term Program Contract with Siemens Energy, !nc. - Idaho Power
Company's Response to the First Production Request of the lndustrial
Customers of ldaho Power
Dear Ms. Jewell:
Enclosed forfiling in the above matter please find an original and three (3) copies of
ldaho Power Company's Response to the First Production Request of the lndustrial
Customers of ldaho Power. Conespondence and documents requested in the Industrial
Customers of ldaho Powe/s Request for Production No. 2 are voluminous and are still
being gathered; they will be submitted as a supplemental filing at a later date.
Very truly yours,
do-O fr*u''"''-
Lisa D. Nordstrom
LDN:csb
Enclosures
122'l W. ldaho St. (83702)
PO 8ox 70
Boise, lD 83707
LISA D. NORDSTROM (lSB No. 5733)
ldaho Power Company
1221West ldaho Street (83702')
P.O. Box 70
Boise, ldaho 83707
Telephone: [phone]
Facsimile: [phone]
I nord strom @ idahopower.com
'Aftorney for ldaho Power Company
IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR
APPROVAL OF LONG.TERM
MAINTENANCE PROGMM CONTMCT
WITH SIEMENS ENERGY, SALE OF
SPARE PARTS INVENTORY TO SIEMENS
ENERGY, AND DEFERML OF
ASSOCIATED COSTS
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
)
)
)
)
)
CASE NO. IPC.E-15-17
IDAHO POWER COMPANY'S
RESPONSE TO THE FIRST
PRODUCTION REQUEST OF
THE INDUSTRIAL CUSTOMERS
OF IDAHO POWER
COMES NOW, Idaho Power Company ("ldaho Powe/' or "Company"), and in
response to the First Production Request of the Industrial Customers of ldaho Power to
ldaho Power Company dated August 11, 2015, herewith submits the following
information:
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER - 1
REQUEST FOR PRODUCTION NO. 1: Please provide all discovery responses
along with the workpapers and attachments provided to all other parties.
RESPONSE TO REQUEST FOR PRODUCTION NO. 1: Copies of ldaho
Powe/s responses to discovery and attachments produced to date were provided to
counsel on July 27,2015.
The response to this Request is sponsored by Christa Bearry, Legal
Ad m in istrative Assistant, ldaho Power Com pany.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER - 2
REQUEST FOR PRODUCTION NO. 2: Mr. Mahlum, at page 6 of his direct
testimony has the following Question and Answer:
O. Did the Company issue a request for proposal for the
services provided for under the LTP Contract?
A. No. However, ldaho Power did contract with a
professional knowledgeable in long-term program contracts
who contacted multiple third-party providers of gas plant
maintenance as part of a formal request for information
process. Those third-party proposals were analyzed by both
the Company and the contracted professional and it was
determined that there are currently no other third-party
maintenance providers that could provide services
equivalent to those provided under the LTP Contract with
Siemens.
Please provide the names and positions of all those "professional knowledgeable
in long-term program contracts" that were contacted by the Company. Please also
provide all the "third-party providers of gas plant maintenance" that were contacted by
the knowledgeable professionals. Please provide a!! correspondence between the
knowledgeable professionals (emails, -notes, documents, etc.) and ldaho Power.
Please document all inputs used to "determine ... that there are currently no other third-
party maintenance providers. .. "
RESPONSE TO REQUEST FOR PRODUCTION NO. 2: Below is a list of names
of the "professiona![s] knowledgeable in long-term program contracts" that were
contacted by the Company.
Jeff Fassett - Consultant
IEM Energy Consultants lnc.
Mark Johnston - General Partner
Vista Energy, LP
Joe Brown
NAES Corporation
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REOUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER - 3
Scott MacCormack - Attorney
Davis Wright Tremaine LLP
David Hattery - Attomey
Stoel Rives LLP
Confidential Attachment 1 produced with the Company's response to the ldaho
Public Utilities Commission ("Commission") Staffs Request No. 2 provides allthe "third-
party providers of gas plant maintenance" that were contacted by Mr. Fassett of IEM
Energy Consultants lnc., the firm ultimately retained by ldaho Power to assist in the
evaluation of potentia! maintenance agreements. Please see the Company's response
to Staffs Request No. 2.d and confidential Attachment 1, which depicts the inputs used
to determine the field of equivalent third-party maintenance providers. The requested
correspondence and documents between the knowledgeable professionals and ldaho
Power will be provided at a subsequent date.
ln the course of preparing this response, it became apparent that Mr. Mahlum's
testimony could be interpreted to mean that a request for proposal ("RFP") was not
prepared. ldaho Power did contract with Mr. Fassett, who issued a Request for
lnformation contacting multiple third-party providers of gas plant maintenance that could
meet Idaho Powe/s needs. His evaluation resulted in the identification of no single
third-party vendor being able to both supply parts and service the turbines to the same
extent as Siemens Energy, Inc. ("Siemens"). The vendor with the closest level of
service to Siemens was Power Systems Mfg., LLC ('PSM'). Therefore, Mr. Fassett
prepared a RFP, which was issued by ldaho Power, for maintenance of the Bennett
Mountain and Danksin plants only, to evaluate the possibility of a hybrid approach to
maintenance of the Company's gas plants through a combination of a long-term service
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER.4
agreement as well as continued self-management of the Langley Gulch power plant.
The RFP invited both Siemens and PSM to respond. The responses were evaluated
and resulted in the recommendation for the Company to proceed with a long-term
maintenance contract with Siemens. Following the conclusion of the RFP, ldaho Power
began contract negotiations with Siemens with the aid of the consultant.
To make this more clear, the question and answer on page 6 of Mr. Mahlum's
direct testimony should read as follows (the additions have been underlined):
O. Did the Company issue a request for proposal for the
services provided for under the LTP Contract?
A. No. However, ldaho Power did contract with a
professional knowledgeable in long-term program contracts
who contacted multiple third-party providers of gas plant
maintenance as part of a formal request for information
process. Those third-party proposals were ana[lzed by both
the Company and the contracted professional and it was
determined that there are cunently no other third-party
maintenance providers that could provide services
equivalent to those provided under the LTP Contract with
Siemens. ldaho Power did issue a RFP for services for the
Bennett Mountain and Danskin plants onlv to evaluate the
possibilitv of a hvbrid approach to maintenance of the
Companv's oas plants throuqh a combination of a lono-term
service aoreement as well as continued self-manaoement of
the Lanolev Gulch power plant. The responses were
evaluated and resulted in the recommendation for the
Companv to proceed with a lonq-term maintenance contract
with Siemens. Because Siemens is the OEM for all of the
Company's gas plants and is the industry leader in gas plant
maintenance, the only available alternative to the LTP
Contract with Siemens would be the continuation of a
Company-managed maintenance program with technical
support and parts purchased from Siemens.
The response to this Request is sponsored by Trevor Mahlum, Area
Maintenance Leader, Idaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER - 5
REQUEST FOR PRODUCTION NO. 3: In ldaho Public Utilities Commission
case IPC-E-09-03, in which ldaho Power asked for a CPCN for Langley Gulch
Company, witness Mr. Porter stated;
O. Will ldaho Power have personnel capable of operating
a base load resource of this type?
A. Yes. ldaho Power will be able to operate and
maintain this combined cycle power plant. ldaho Power has
been operating natural gas combustion turbines since
Evander Andrews Unit Nos. 2 and 3 were constructed in
2001. The Company added Bennett Mountain in 2005, and
Evander Andrews Unit No. 1 in 2008. ldaho Powe/s
operations and maintenance staff is familiar with gas
operations and has developed extensive expertise with
Siemens F-Class gas turbines. ln addition, the combined
cycle power plant will be controlled by the Siemen's T-3000
system, which is the contro! system currently used to
operate the Company's existing gas turbines.
The combined cycle plant staff will consist of 18 personnel,
including 10 operators to provide 24 by 7 coverage, two
maintenance mechanics, two technicians, an engineer, a
chemist, clerk/materials coordinator, and an operations and
maintenance supervisor. These individuals will be hired at
various stages in the construction process so that they will
be familiar, as needed, with the design and construction of
the Plant and will receive training prior to commercial
operation.
The existing combustion turbine staff and the new combined
cycle staff wil! be combined to form a gas group, reporting to
one manager. This wi!! facilitate the sharing of knowledge
and expertise among the plants as well as allow the
Company to shift manpower as needed for maintenance.
Prior to commencing with Plant operations, personnel will
receive operating and maintenance training as part of the
contracts with Siemens and KiewiUTlC.
Operating and maintenance procedures will be developed
and implemented with Siemens and KiewiUTlC prior to
commercial operation of the PIant. [Vernon Porter, Idaho
Power Direct Testimony, !PC-E-09-03, p. 23-25.1
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER - 6
If the Commission approves the proposal for the Long Term Program (LTP) with
Siemens, what cost savings does the Company expect in personnel and other costs
that will no longer be provided by ldaho Power for each of the gas plants; Danskin,
Bennett Mountain, and Langley Gulch? How many personnel will remain in the 'gas
group?' What function (mechanic, technician, etc) will each of the remaining personnel
perform?
RESPONSE TO REQUEST FOR PRODUCTION NO. 3: If the Commission
approves ldaho Powe/s request for a LTP Contract with Siemens, the Company does
not expect any cost savings due to changes in personnel. At this time, Idaho Power
self-manages its natural gas fleet through a collaborative effort between the Company
and the original equipment manufacturer ("OEM"). The Company's OEM for all its
combustion turbines is Siemens. ldaho Powe/s combustion turbines are subject to
required maintenance outages at OEM-recommended intervals and each outage has
been contracted to Siemens for service on a case-by-case basis. Under the LTP
Contract, Siemens will continue to provide scheduled and unscheduled maintenance at
all three facilities but for an extended period of time while offering enhanced price
predictability. However, cunent ldaho Power perconnel will continue to perform day{o-
day operation and maintenance of the Company's gas fleet as well as pre- and post-
inspection work and other facility maintenance and repairs to maximize the availability
of the plant. Therefore, the Company does not expect any changes in the number of
personnel in the gas group or any changes to the activities they perform.
The response to this Request is sponsored by Courtney Waites, Senior
Regulatory Analyst, ldaho Power Company, and Randall Henderson, Finance Team
Leader ll, ldaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER - 7
REQUEST FOR PRODUCTION NO. 4: Ms. Waites, in Exhibit 1 of her direct
testimony uses a 7.860/o'Proposed Rate of Retum' as the discount rate to find the NPV
of Revenue lmpact for 5, 10, and 20 years. Please give explanation of the source of the
7.860/o discount rate, and explain rationale of why it was selected.
RESPONSE TO REQUEST FOR PRODUCTION NO. 4: The 7.86 percent
discount rate used to compute the present value revenue requirement impact presented
in Exhibit No. 1 is the rate of return approved in the Company's last general rate case,
Case No. IPG-E-11-08. Using ldaho Powefs approved rate of retum as the discount
rate correctly converts future revenue requirement amounts to present value dollars
under the Company's authorized capital structure.
The response to this Request is sponsored by Courtney Waites, Senior
Regulatory Analyst, ldaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER - 8
REQUEST FOR PRODUCTION NO.5: Mr. Mahlum, at page 13 of his direct
testimony states, "The pricing structure under the LTP Contract involves per-unit
initiation fees, .". Please fully define the meaning of "per-unit". Please describe how
the amount of the initialization fee was derived along with all workpapers and
documents supporting the calculation.
RESPONSE TO REQUEST FOR PRODUCTION NO. 5: The per-unit initiation
fees referenced in the direct testimony of Mr. Mahlum are identified in Section 3.7.1 of
the LTP Contract, provided as confidential Attachment 1 to the Company's Application.
Section 3.7.1 describes the Program lnitialization Fee due by ldaho Power to Siemens
upon the effective date of the contract. In Section 3.7.1, Siemens has identified the
portion of the fee attributable to each of the Company's gas plants. The initiation fee is
a component of Siemens' overall pricing structure and derived without input from ldaho
Power; therefore, the Company has no supporting documentation of the calculation. lt
was, however, a component of broader negotiations between ldaho Power and
Siemens and considered in ldaho Powe/s overall evaluation of the LTP Contract.
The response to this Request is sponsored by Courtney Waites, Senior
Regulatory Analyst, ldaho Power Company, and Randall Henderson, Finance Team
Leader ll, ldaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER.9
REQUEST FOR PRODUCTION NO. 6: Ms. Waites at page 3, beginning on line
20 of her direct testimony, states that "the contract price reflects a discount based on
ldaho Powe/s net book value of the initial spare parts." Please quantify and document
the genesis and calculation of the "discount." What is the fair market value of the spare
parts? What is the replacement cost of the spare parts? Please provide a copy of the
Company's pricing policy with respect to the sale of spare (surplus) parts. Please
provide copies of all PUC orders/letter advices or other documentation approving said
policy. Does this policy apply equally to vendors and/or ratepayers of the company? lf
not, please explain the rational for the different treatment.
RESPONSE TO REQUEST FOR PRODUCTION NO. 6: Exhibit G of the LTP
Contract, provided as confidential Attachment 1 to the Company's Application, states,
"!n consideration of the agreed upon title transfer of the lnitial Spare Parts from the
Buyer to the Seller, the fina! Gontract Price reflects a discount based upon the Buyers
net book value of the lnitial Spare Parts." As detailed in the "Summary by Vintage Yea/'
tab of the confidential attachment provided with the Company's Supplemental
Response to Staffs Production Request No. 1, the net book value of the lnitial Spare
Parts as of December 31,2014, was $21 ,911,824 on an ldaho jurisdictional basis.
A formal market valuation of the initia! spare parts was not performed due to
unique factors of the transaction. However, the recommendation of ldaho Powe/s third
party consultant knowledgeable in long-term program contracts, Jeff Fassett of IEM
Energy Consultants lnc., was that, in aggregate, net book value was a fair and
reasonable valuation of the initial spare parts.
Generally, at each outage interval, the major components of the initial spare
parts are inspected and removed if they show signs of wear beyond original equipment
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE INDUSTRIAL CUSTOMERS OF ]DAHO POWER - 1O
manufacturer recommended standards. Typically, many of these parts can be
refurbished by the manufacturer and can be returned or "cycled back" into the unit in a
subsequent outage. With the LTP Contract, ldaho Power has no need for the initial
spare parts; Siemens will provide all parts necessary for maintenance and repair of
ldaho Powe/s gas fleet. Upon execution of the LTP Contract, Siemens will retake title
of the initial spare parts and is expected to remove them from Idaho Powe/s facilitles
soon thereafter. ln consideration of the transfer of the initial spare parts to Siemens, the
contract price reflects a discount based on ldaho Powe/s net book value of the initial
spare parts, a component that was negotiated between the parties.
In addition, ldaho Code S 61-328 requires that the transaction be consistent with
the public interest and prohibits the transaction from causing the costs of or rates for
supplying (retai!) electricity to increase. A net book value basis for the transfer ensures
that customers will experience neither a gain nor loss associated with the transaction.
And finally, in addition to the financial benefit of reduced costs over the life of the
agreement, the transfer and sale of the initia! spare parts wi!! allow for the return of
spare parts ldaho Power would otherwise no longer use. The demand for these specific
parts is limited as the parts are no longer the latest technology and have a limited buyer
pool, limiting their market value, or, in some cases, the parts are obsolete.
Based on the 2013 list prices from Siemens, the most recent price list the
Company has received, the cost to replace the initia! spare parts would be
approximately $20.4 million. This does not, however, include the partial set of R2
blades in inventory at Bennett Mountain, which are now considered obsolete.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER - 11
ldaho Power does not have a pricing policy with respect to the sale of spare
(surplus) parts; therefore, there is no documentation from the Commission approving
the policy.
The response to this Request is sponsored by Trevor Mahlum, Area
Maintenance Leader, ldaho Power Company, and Courtney Waites, Senior Regulatory
Analyst, ldaho Power Company.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER - 12
REQUEST FOR PRODUCTION NO. 7: On page 6 beginning on line 7 of Ms.
Waites direct testimony she states:
O. Do you believe the transfer of ownership in the initial
spare parts to Siemens complies with ldaho Code S 61-328?
A. Yes. The transfer and sale of the initial spare parts to
Siemens is consistent with the public interest, will result in
lower overall costs to ldaho Power and lts customers, and
Siemens has the bona fide intent and financia! ability to
operate and maintain the initial spare parts in the public
service.
Please explain how the "spare parts" in question (reference ldaho Code
S 61-328(1)) are currently being "used in the generation, transmission, distribution or
supply of electric supply and energy... "
Please define the phrase "public service" as used by Ms. Waites on line 15 page
6 of her direct testimony. Please explain, in detail how Siemens will be "operate[ing]
and maintain[ing] the initial spare parts in the public seryice."
Please provide copies of all material refened to by Ms. Waites in responding to
this question.
RESPONSE TO REQUEST FOR PRODUCTION NO. 7: The initial spare parts
the Company is requesting approval to transfer to Siemens are capitalized parts ldaho
Power has on hand in anticipation of maintenance outages and therefore are
considered used in the generation, transmission, distribution, or supply of electric supply
and energy.
ldaho Code S 61-328(c) requires that Siemens "has the bona fide intent and
financial ability to operate and maintain said property in the public service." Exhibit G of
the LTP Contract, provided as confidential Attachment 1 to the Company's Application,
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER - 13
describes the procedures for Siemens' use of the initial spare parts upon execution of
the contract. Siemens may install the initia! spare parts in any one of ldaho Powe/s
combustion turbines covered by the LTP Gontract or, in its discretion, may take title to
the initial spare parts and transport the inventory, at its cost, to a destination of its
choosing. The initial spare parts are parts cunently installed by Siemens and will
continue to be installed by Siemens once transfened. The Company believes the initial
spare parts transaction wil! facilitate service at a lower cost than would otherwise exist
absent the provision of these initial spare parts under the LTP Contract. Consequently,
Siemens wil! be operating and maintaining them in "the public service" to the benefit of
customers in a context like that described in the statute.
The response to this Request is sponsored by Courtney Waites, Senior
Regulatory Analyst, ldaho Power Company.
DATED at Boise, ldaho, this 24h day of August 2015.
IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER - 14
CERTIFICATE OF SERVICE
t HEREBY CERTIFY that on this 24h day of August 2015 I served a true and
conect copy of IDAHO POWER COMPANY'S RESPONSE TO THE FIRST
PRODUCTION REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
upon the following named parties by the method indicated below, and addressed to the
following:
Commission Staff
Karl T. Klein
Deputy Attomey General
ldaho Public Utilities Commission
472 West Washington (83702)
P.O. Box 83720
Boise, ldaho 83720-007 4
lndustrial Customers of ldaho Power
Peter J. Richardson
Gregory M. Adams
RICHARDSON ADAMS, PLLC
515 North 27h Street (83702)
P.O. Box 7218
Boise, ldaho 83707
Dr. Don Reading
6070 Hill Road
Boise, ldaho 83703
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oreo@ richardsonadams. com
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IDAHO POWER COMPANY'S RESPONSE TO THE FIRST PRODUCTION
REQUEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER - 15
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