20190509IPC to Staff Supplemental 9.pdf

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RECEIVED
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PO'I'ER.
An IDACORP Company
1221 W. ldaho St. (83702)
P.O. Box 70
Boise, lD 83707
May 9, 2019
VIA HAND DELIVERY
Diane M. Hanian, Secretary
ldaho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
Re: Case No. IPC-E-19-08
Recovery of Costs Associated with North Valmy Power Plant - ldaho Power
Company's Third Supplemental Response to the Second Production
Request of the Commission Staff
Dear Ms. Hanian:
Enclosed for filing in the above matter are an original and three (3) copies of ldaho
Power Company's Third Supplemental Response to the Second Production Request of
the Commission Staff.
Very truly you.
JULIA A. HILTON
Senior Counse!
[e-mail]
JAH:csb
Enclosures
C
Julia A.ilton
JULIA A. HILTON (lSB No. 7740)
LISA D. NORDSTROM (lSB No. 5733)
Idaho Power Company
1221West Idaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
Telephone: [phone]
Facsimile: [phone]
ihilton@id .com
I n ord strom @ ida hopower. com
Attorneys for ldaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
!N THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO INCREASE ITS RATES
FOR ELECTRIC SERVICE TO RECOVER
COSTS ASSOCIATED WITH THE NORTH
VALMY POWER PLANT
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CASE NO. IPC-E-19-08
IDAHO POWER COMPANY'S
THIRD SUPPLEMENTAL
RESPONSE TO THE SECOND
PRODUCTION REQUEST OF THE
COMMISSION STAFF
COMES NOW, ldaho Power Company ("ldaho Power" or "Company") and further
supplements its response to the Second Production Request of the Commission Staff to
ldaho Power Company dated April 1 1,2019, as follows:
IDAHO POWER COMPANY'S THIRD SUPPLEMENTAL RESPONSE TO
THE SECOND PRODUCTION REQUEST OF THE COMMISSION STAFF. 1
RECEIVED
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ID,iIiC F'UBLICTlLlrri:S COMMISSION
REQUEST NO. 9: Please provide a detailed explanation and supporting
documentation and analysis substantiating the statement quoted below from Harvey's
Direct Testimony, on Page No. 22. Please include a description and a breakdown of
the "certain costs" that could be reduced and why remaining cost categories could not
be reduced.
Therefore, it is unlikely that ldaho Power's exit from Unit 2
operations prior to 2025 would result in material savings
because the only payment obligation relief would come from
a reduction in certain costs associated with ldaho Power's
capacity reduction in Unit 2 operations.
SECOND SUPPLEMENTAL RESPONSE TO REQUEST NO. 9: Following the
Company's meeting with the ldaho Public Utilities Commission Staff ("Staff') and the
ldaho Conservation League ("lCL") on May 6,20'19, ldaho Power scheduled a follow-up
call to clarify certain information provided at that meeting with regard to the analysis
performed to evaluate the potential shutdown of the North Valmy power plant ("Valmy")
Unit 2 prior to 2025. This call was held on the morning of May 8, 2019. During the
follow-up call, ldaho Power committed to provide a written supplemental response
detailing the information it had just presented to Staff and ICL via telephone. The
following response provides this detail with regard to the Company's process for
analyzing the appropriate shutdown year for Valmy Unit 2.
Generally speaking, the Company utilized the capacity expansion functionality
within its AURORA modeling software to analyze whether or not exiting Unit 2 prior to
2025 would benefit customers. This evaluation was performed in conjunction with the
development of the Company's 2019lntegrated Resource Plan ("lRP").
IDAHO POWER COMPANY'S THIRD SUPPLEMENTAL RESPONSE TO
THE SECOND PRODUCTION REQUEST OF THE COMMISSION STAFF - 2
First, when performing preliminary IRP capacity expansion runs, the logic of the
model allowed Valmy Unit 2 to retire in 2025 or earlier. These preliminary runs reflected
updated operating costs but did not include fixed costs required to keep the plant open
(capita! and fixed operations and maintenance ("O&M") expenses) or Exit Fees
associated with ldaho Power exiting Unit 2 prior to 2025, as detailed in the North Valmy
Project Framework Agreement between NV Energy and ldaho Power dated as of
February 22, 2019 ("Agreement"). ln all 24 scenarios under this preliminary analysis,
the capacity expansion model did not shut down Unit 2 prior to 2025.
Based on the results of the preliminary analysis, when performing the final IRP
capacity expansion runs, ldaho Power left the Unit 2 shutdown date static at 2025 to
reduce model runtime. Given the magnitude of dollars associated with the Agreement
relative to replacement resources or potential shifts in timing of Jim Bridger power plant
("Bridger") retirements, ldaho Power did not believe the inclusion of the Agreement's
costs and savings would result in any material impact to the modeling results. For
example, per the terms of the Agreement, exiting operations of Unit 2 in 2019 would
equate to approximately $9.4 million in net savings.l When compared to the cost of
building a new resource to replace retired Valmy generation (such as over $55 million
for a 55 megawatt ("MW") reciprocating engine plus associated operating and fuel
expenses) or the relative cost savings of shutting down a unit at Bridger (roughly $20
million in cost savings per year), the Company did not believe the incorporation of these
net savings would impact modeling results for the final IRP runs.
1 This example assumes NV Energy exits Unit 1 in 2021 and Unit 2 in 2025, and reflects cost
savings associated with avoided capital and fixed O&M, net of incremental Exit Fees.
IDAHO POWER COMPANY'S THIRD SUPPLEMENTAL RESPONSE TO
THE SECOND PRODUCTION REQUEST OF THE COMMISSION STAFF - 3
To further validate the Company's conclusion, ldaho Power re-ran the capacity
expansion model under the planning gas, planning carbon scenario, with the full costs
and savings of the Agreement modeled, allowing Valmy Unit 2 to shutdown prior to
2025. As expected, this run did not result in any change to the shutdown date of year-
end 2025.
ldaho Power then ran an analysis with the full costs and savings of the
Agreement included, but this time forced Unit 2 to shut down in 2019 under planning
natural gas and carbon assumptions. The Company then compared the cost of this
portfolio to the cost of its proposed preferred portfolio from the IRP process, Portfolio
14, which includes a 201912025 shutdown for Valmy Units 1 and 2, respectively. This
resulted in higher portfolio costs of approximately $95 million for the Unit 2 2019 exit
portfolio under the Company's planning scenario. Of note, the portfolio resulting from
capacity expansion for this Unit 2 exit scenario delayed a Bridger exit date from 2022 to
2026 (at a cost of roughly $20 million per year) and identified a need for 55.5 MW of
reciprocating engines in 2024 at an estimated up-front cost of over $55 million, which
were notable differences compared to the proposed preferred portfolio. These two
resource actions were the primary drivers for the increased cost of this scenario relative
to the proposed preferred portfolio. ldaho Power believes this further supports the
conclusion that the net cost savings associated with an early retirement of Unit 2 would
not have impacted the modeling results.
Lastly, to further validate its Unit 2 shutdown analysis, ldaho Power is currently
running the capacity expansion model under the least favorable coal scenario (high
carbon, planning gas) with the full costs and savings of the Agreement modeled, as
IDAHO POWER COMPANY'S THIRD SUPPLEMENTAL RESPONSE TO
THE SECOND PRODUCTION REQUEST OF THE COMMISSION STAFF - 4
added validation that it would not be beneficial to shutdown Unit 2 pnor to 2025 even
under the most highly stressed future assumptions. The Company expects these
results to be available prior to filing its reply comments on May 17,2019.
Also stemming from the May 8, 2019, phone call, ldaho Power received a
question from ICL regarding differences between the Portfolio 14 presented in the
Company's public IRP slides posted to its website and the Portfolio 14 presented in its
supplemental response to Staffs Production Request No. 9 ("Response No. 9"). The
reason the portfolios appear to be different is because the slides posted to the website
reflect all Company actions associated with the portfolio, while the information provided
in Response No. 9 only contains the AURORA-selected actions determined by the
capacity expansion model. Therefore, the information provided in Response No. 9 does
not show the planned retirement of the Boardman facility ("Boardman") in 2020, or the
planned retirement of Valmy Units 1 and 2 in 2019 and 2025, respectively, because
these end-of-life dates were held static as described above. ln other words, the
Portfolio 14 referenced on the Company's website is identical to the Portfolio 14
referenced in Response No. 9, but planned retirements for Boardman and Valmy are
not displayed in the spreadsheet provided in Response No. 9.
The supplemental response to this Request is sponsored by Matt Larkin,
Revenue Requirement Senior Manager, Idaho Power Company.
DATED at Boise, ldaho, this gth day of May 2019.
LIA A.ON
Attorney for ldaho Power Company
IDAHO POWER COMPANY'S THIRD SUPPLEMENTAL RESPONSE TO
THE SECOND PRODUCTION REQUEST OF THE COMMISSION STAFF - 5
(
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 9th day of May 2019 I served a true and correct
copy of IDAHO POWER COMPANY'S THIRD SUPPLEMENTAL RESPONSE TO THE
SECOND PRODUCTION REQUEST OF THE COMMISSION STAFF upon the following
named parties by the method indicated below, and addressed to the following:
Commission Staff
Edward Jewell
Deputy Attorney General
ldaho Public Utilities Commission
472 \N esl Washington Street (837 02)
P.O. Box 83720
Boise, ldaho 83720-007 4
X Hand Delivered
_U.S. Mail
_Overnight Mail
_FAXX E-mail [e-mail]
Idaho Conseryation League
Benjamin J. Otto
ldaho Conservation League
710 North 6th Street
Boise, ldaho 83702
_Hand DeliveredX U.S. Mail
_Overnight Mail
_FAXX E-mail [e-mail]
Bearry,alAss
IDAHO POWER COMPANY'S THIRD SUPPLEMENTAL RESPONSE TO
THE SECOND PRODUCTION REQUEST OF THE COMMISSION STAFF - 6