20161202IPC to Staff Supplemental 15.pdf

JULIA A. HILTON
Senior Counsel
[e-mail]
December 2, 2016
VIA HAND DELIVERY
Jean D. Jewell, Secretary
RECE IVED
2016 DEC -2 PH 3: 38
· :_·,: .• r· LJGLIC
. · ".'.Jf HJ!SSION
Idaho Public Utilities Commission
472 West Washington Street
Boise, Idaho 83702
Re: Case No. IPC-E-16-19
An IDACORP Company
Deferral and Recovery of Costs Associated with Participation in Energy
Imbalance Market -Idaho Power Company's Supplemental Response to
the Commission Staff's Production Request No. 15
Dear Ms. Jewell:
Enclosed for filing in the above matter please find an original and three (3) copies
of Idaho Power Company's Supplemental Response to the Commission Staff's
Production Request No. 15.
JAH:csb
Enclosures
1221 W. Idaho St. (83702)
P.O. Box 70
Boise, ID 83707
JULIA A. HILTON (ISB No. 7740)
Idaho Power Company
1221 West Idaho Street (83702)
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: [phone]
[e-mail]
Attorney for Idaho Power Company
R'=CE! /ED
2016 DEC -2 PM 3: 38
, 'f··; : UG LIC
I I ·.;-c. 0 QH "r· W~SION .• _; ,_.,. 'fl \11 '-'
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
DEFERRAL AND RECOVERY COSTS
ASSOCIATED WITH PARTICIPATION IN
AN ENERGY IMBALANCE MARKET
)
) CASE NO. IPC-E-16-19
)
) IDAHO POWER COMPANY'S
) SUPPLEMENTALRESPONSE
) TO THE COMMISSION STAFF'S
) PRODUCTION REQUEST NO. 15 _______________ )
COMES NOW, Idaho Power Company ("Idaho Power"), and supplements its
response to the Idaho Public Utilities Commission ("Commission") Staff's Production
Request No. 15 dated November 9, 2016, as follows:
IDAHO POWER COMPANY'S SUPPLEMENTAL RESPONSE TO
THE COMMISSION STAFF'S PRODUCTION REQUEST NO. 15 -1
REQUEST NO. 15: Please provide a copy of model inputs, model outputs, and
all reports completed as a result of the E3 study. This should include a comprehensive
list of assumptions (e.g. IPC participating generation resources bid into the market, gas
prices, electricity prices, costs, bid strategy/values etc.) used for each of the scenarios
modeled: base scenario, no APS or PGE, early coal retirement, and high RPS case.
SUPPLEMENTAL RESPONSE TO REQUEST NO. 15: In response to inquiries
by Commission Staff, Idaho Power requested that E3 model a high natural gas price
scenario in order to evaluate the economic benefits of Idaho Power's participation in the
energy imbalance market under varying conditions. This scenario was built upon the
model that E3 developed for Idaho Power in 2015 and kept all assumptions, other than
natural gas prices, consistent with the base case of the E3 study. E3's summary
document describing the assumptions used in the high natural gas price scenario and
resulting benefits to Idaho Power are attached.
The response to this Request is sponsored by Kathleen Anderson, Transmission
and Energy Scheduling Leader, Idaho Power Company.
DATED at Boise, Idaho, this 2nd day of December 2016.
JIAAHION~
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S SUPPLEMENTAL RESPONSE TO
THE COMMISSION STAFF'S PRODUCTION REQUEST NO. 15-2
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 2"d day of December 2016 I served a true and
correct copy of IDAHO POWER COMPANY'S SUPPLEMENTAL RESPONSE TO THE
COMMISSION STAFF'S PRODUCTION REQUEST NO. 15 upon the following named
parties by the method indicated below, and addressed to the following:
Commission Staff
Brandon Karpen
Deputy Attorney General
Idaho Public Utilities Commission
4 72 West Washington (83702)
P.O. Box 83720
Boise, Idaho 83720-0074
Industrial Customers of Idaho Power
Peter J. Richardson
Gregory M. Adams
RICHARDSON ADAMS, PLLC
515 North 27th Street (83702)
P.O. Box 7218
Boise, Idaho 83707
Dr. Don Reading
6070 Hill Road
Boise, Idaho 83703
Snake River Alliance
Ken Miller, Energy Program Director
Snake River Alliance
223 North Sixth Street, Suite 317
P.O. Box 1731
Boise, Idaho 83701
Idaho Conservation League
Benjamin J. Otto
Idaho Conservation League
710 North 5th Street
Boise, Idaho 83702
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[e-mail]
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IDAHO POWER COMPANY'S SUPPLEMENTAL RESPONSE TO
THE COMMISSION STAFF'S PRODUCTION REQUEST NO. 15 - 3
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-E-16-19
IDAHO POWER COMPANY
SUPPLEMENTAL RESPONSE TO
STAFF'S REQUEST NO. 15
Introduction
An IDACORP Company
Idaho Power Company
Energy Imbalance Market Analysis:
High Gas Price Sensitivity Scenario
Novemoer LUlb
Energy+Environmental Economics
© 2016 Energy and Environmental Economics, Inc. P a ge Ill
Idaho Power Energy Imbalance Market Analysis: High Gas Price Sensitivity Scenario
Idaho Power Company
Energy Imbalance Market
Analysis: High Gas Price
Sensitivity Scenario
November 2016
Pagel21
© 2016 Copyright. All Rights Reserved.
Energy and Environmental Economics, Inc.
101 Montgomery Street, Suite 1600
San Francisco, CA 94104
415.391.5100
www.ethree.com
Prepared For:
Idaho Power Company
Prepared By:
Jack Moore, Roderick Go, and Nora Xu
Energy and Environmental Economics, Inc. {E3}
Introduction
Table of Contents
1 Introduction ............................................................................................ 4
2 Sensitivity Scenario Assumptions ...................................................... 6
2.1 High Gas Price Scenario Specific Assumptions ............................. 6
2.2 All Other Assumptions ......................................................................... 7
3 Results .................................................................................................... 9
3.1 Sensitivity Benefits to IPC ................................................................... 9
© 2016 Energy and Environmental Economics, Inc. Pagel31
Idaho Power Energy Imbalance Market Analysis: High Gas Price Sensitivity Scenario
1 Introduction
In 2015, Idaho Power Company (IP() engaged E3 to analyze the potential
economic benefits of IPC's participation in the Western EIM. E3's summarized
the methodology, scenario inputs, and results of that analysis in a report titled
the "Idaho Power Company Energy Imbalance Market Analysis," provided to IPC
in February 2016. That report summarized E3's work to model IPC EIM
participation benefits, under a Base Scenario simulated for the year 2020, as
well as 3 parametric sensitivity scenarios: a Higher RPS Case, a limited
participation case where Portland General Electric (PGE) and Arizona Public
Service (APS) are not EIM participants, and a case that modeled accelerated
retirement of coal-fired generation in the Western Interconnection. The base
case indicates that EIM participation would produce $4.5 million in annual sub­
hourly dispatch cost savings for IPC, and the 3 sensitivity cases produced a range
of $4.1 to $5.1 million in annual savings for IPC.
In November 2016, IPC requested that E3 simulate EIM benefits for IPC under
one additional sensitivity scenario that utilizes the same input assumptions as
the previous Base Scenario, but assumes gas prices that are 30% higher than
those from the Base Scenario. This report summarizes the results of that
sensitivity scenario.
Page 141
Introduction
Section 2 of this document summarizes the modified assumptions utilized for
this gas price sensitivity scenario, and Section 3 describes the resulting impact
on EIM benefits for IPC under the high gas scenario.
© 2016 Energy and Environmental Economics, Inc. Pagel SI
Idaho Power Energy Imbalance Market Analysis: High Gas Price Sensitivity Scenario
2 Sensitivity Scenario
Assumptions
2.1 High Gas Price Scenario Specific Assumptions
IPC requested that E3 explore how EIM participation savings for IPC could
change if natural gas prices are higher than the levels modeled in the original
Base Scenario for IPC.
The Base Scenario for IPC assumed an annual average natural gas price of
$3.27/MMBTU for IPC area generators in the year 2020 (in 2015 dollars).1 Gas
prices for other locations across the Western Interconnection were modeled to
be consistent with this value based on historical locational basis differentials (or
spreads) and delivery costs. These gas prices were kept consistent in the BAU
and EIM cases, so that the EIM case would isolate the impact on IPC of
participating in the EIM under an otherwise identical set of conditions. This
same gas price was used for all three original sensitivity scenarios that E3
modeled for IPC.
1 Monthly 2020 hub prices came from OTC Global Holding Natural Gas Forwards & Futures (provided by SNL) for
selected hubs in the West region. As in the PGE EIM study, these data were translated from hub prices to BA-or
plant-specific burner tip prices using the mapping of pipelines, variable transport fees, and other adjustments
outlined in the NWPP Phase 1 assessment.
Pagel61
Sensitivity Scenario Assumptions
For the additional High Gas Price Sensitivity Scenario modeled for this
supplemental report, E3 increased natural gas prices for all locations in the West
by 30% relative to their values in the Base Scenario. Thus, for IPC area
generators, the average gas prices for 2020 increased by almost one dollar, from
$3.27/MMBtu in the Base Scenario, to $4.25/MMBtu in the High Gas Sensitivity
Scenario. An equivalent percentage increase was applied to gas prices for all
other Western locations. The High Gas Price Sensitivity Scenario utilized the
identical $4.25/MMBtu gas prices in both the BAU and EIM cases; thus, the
resulting EIM savings represent the impact of the EIM to IPC under a higher gas
price environment; they do not represent the impact that high gas prices would
have on IPC total procurement costs.
2.2 All Other Assumptions
As noted previously, all assumptions other than gas prices were kept consistent
between the High Gas Sensitivity Scenario and the Base Scenario. Those
assumptions are described in detail in E3's original EIM Analysis report for IPC.
The table below adds the high gas price scenario to the list of assumptions used
for the scenarios modeled in the original EIM study for IPC.
© 2016 Energy and Environmental Economics, Inc. Pagel71
Idaho Power Energy Imbalance Market Analysis: High Gas Price Sensitivity Scenario
Table 1. EIM Scenario Assumptions
1.Base 15% 33% 15% 35.0 $3.27 CAISO, PACW, PACE, NVE,
PSE, APS, PGE, IPC
2. No APS or 15% 33% 15% 35.0 $3.27 CAISO, PACW, PACE, NVE,
PGE in EIM PSE, IPC
3. Early Coal 15% 33% 15% 31.3 $3.27 CAISO, PACW, PACE, NVE,
Retirements PSE, APS, PGE, IPC
4. High RPS 20% 40% 20% 35.0 $3.27 CAISO, PACW, PACE, NVE,
PSE, APS, PGE, IPC
5. High Gas 15% 33% 15% 35.0 $4.25 CAISO, PACW, PACE, NVE,
Price PSE, APS, PGE, IPC
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Results
3 Results
3.1 Sensitivity Benefits to IPC
In the High Gas Price Sensitivity Scenario, EIM benefits for IPC were $5.0 million
in 2020, an increase of $0.5 million relative to the $4.5 million savings in the
Base Scenario, and within the range of savings covered by the original sensitivity
scenarios. The table below presents the simulated annual benefits of IPC
participation in the EIM in 2020 under each sensitivity scenario, including the
High Gas Price Sensitivity.
Table 2. Annual Benefits to IPC by Scenario, EIM (2015$ million)
Dispatch cost
Scenario savings to
IPC
Sensitivity Scenarios
No APS/PGE in EIM $4.2
Early Coal Retirement $4.1
High RPS $5.1
High Gas Price $5.0
*Dispatch cost savings for Sensitivity Scenarios are shown as alternatives to the Base case,
not cumulative additions. Reserves savings were not modeled.
In the Base Scenario, EIM savings for IPC had totaled $4.5 million, which was
comprised of a reduction in annual real-time procurement costs (real-time
© 2016 Energy and Environmental Economics, Inc. Pagel91
Idaho Power Energy Imbalance Market Analysis: High Gas Price Sensitivity Scenario
generator production cost plus real time imbalance cost of purchases and
revenue from sales} from $108.7 million in the BAU case to $104.2 million in the
EIM case (a 4% reduction}. In the High Gas Price Sensitivity Scenario, total
procurement savings in the BAU case (without IPC participation in the EIM}
were slightly higher, at $119. 7 million due to higher production cost on IPC gas
generators. However, in the EIM Case (of the High Gas Price Sensitivity
Scenario}, real-time procurement costs were $114.7 million, representing a
reduction of $5.0 million relative to the BAU case in which IPC did not
participate in the EIM. Thus, the higher gas prices had a slightly upward impact
on the savings that accrue to IPC from EIM participation (vs. non-participation}.
In both the Base Scenario and the High Gas Price Sensitivity Scenario, IPC has
both EIM purchases and sales, typically using its hydro flexibility to export to the
EIM during real-time intervals with higher prices, and purchase from the EIM in
low-priced intervals. In both scenarios, IPC is a slight net exporter to the EIM
over the full simulation year, but also reduce its total internal generation cost by
decreasing output on more costly gas generators and slightly increasing output
on more efficient baseload units.
The directional change of EIM benefits for IPC -that they are higher under a
higher gas prices scenario --is consistent with results produced in the PGE EIM
analysis, in which EIM Participation savings for PGE were larger under a high gas
scenario than in PGE's base scenario. It is also intuitively straightforward that
IPC would see greater EIM savings if gas prices are higher. This is due to two
factors: (a} when IPC purchases from the EIM and reduces output on its more
expensive gas generators, the cost savings per MWh is higher when gas prices
are higher; (b} additionally, when IPC obtains positive net market revenues from
Page I 10 I
Results
purchasing in low-priced intervals and selling in high-priced intervals, the total
potential for EIM net revenue for IPC can be larger in a high gas price
environment that, because higher gas prices can typically lead to larger overall
market spreads between different time intervals.
While the positive direction in EIM benefits under a high gas price case is
intuitive, the precise magnitude of how EIM savings will respond to larger or
smaller changes in gas prices may not be linear. EIM savings will depend on how
the gas price level affects the relative dispatch of gas, coal, and other units in
IPC's portfolio (as well as that of other EIM participants) in the hour-ahead time
frame, and the subsequent potential flexibility to move these units up or down
during the real-time intervals through EIM interactions.
© 2016 Energy and Environmental Economics, Inc. Pagellll