19901213Vol II Hearing.pdf

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/7894-
ORIGINAL
r
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO RATE BASE THE
INVESTMENT REQUIRED FOR THE
REBUILD OF THE SWAN FALLS
HYDROELECTRIC PROJECT
BEFORE THE IDAHO PUBLIC UTILITIES c~š~øNÜFILED 0
'90 DEC 13 lPl ~ 21
CASE ¡~~HOIf6B~e90-2
UTILITIES COMMISSION
'\
BEFORE
COMMISSIONER DEAN J. MILLER (Presiding)
COMMISSIONER PERRY SWISHER
COMMISSIONER RALPH NELSON
PLACE:Commission Hearing Room
472 West Washington
Boise, Idaho
DATE:November 28, 1990
VOLUME II - Pages 22 - 68
7ølEOR/CKCOURT REPORTING
537 W. Bannock
Suite 205
P.o. Box 578
Boise, Idaho 83701
'-[phone] /
. . . We offer .. BaonDaa
Microtranscription™ by
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APPEARANCES
For the Staff:MICHAEL S. GILMORE. Esq.
Deputy Attorney General
472 West Washington
Boise. Idaho 83720
For Idaho Power
Company:
EVANS. KEANE. KOONTZ. BOYD
SIMKO & RIPLEY
by LARRY D. RIPLEY, Esq.
Idaho First Plaza-Suite 1701
101 South Capitol Boulevard
Boise. Idaho 83702
For the Industrial
Customers of Idaho
Power Company:
DAVIS WRIGHT TREMAINE
by PETER J. RICHARDSON, Esq.
400 Jefferson Place
350 North Ninth Street
Boise, Idaho 83702
-and-
DAVIS WRIGHT TREMAINE
by GRANT E. TANNER, Esq.
1300 S. W. Fifth Avenue
Sui te 2300
Portland, Oregon 92701
(Of Record)
For Idaho ConsumerAffairs. Inc.:HAROLD C. MILES
316 Fifteenth Avenue South
Nampa, Idaho 83651
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
APPEARANCES
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1 I N D E X
3 EXAMINATION BY PAGE
4 Jan B. Packwood
(Idaho Power)
Mr. Ripley (Direct)
Prefiled Direct Testimony
Rebuttal Testimony
Mr. Mi les (Cross)
Mr. Richardson (Cross)
Mr. Gilmore (Cross)
Commissioner Swisher
Commissioner Nelson
Commissioner Miller
Mr. Ripley (Redirect)
Mr. Miles (Recross)
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WITNESS
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14 EXHIBITS
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17 FOR IDAHO POWER COMPANY:
PAGE
18 Order Amending License from the
Federal Energy Regulatory
Commission concerning Swan Falls
(35 pages)
Premarked
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16 NUMBER
1.
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2.Before the Department of Water
Resources, Memorandum Dec ision
and Order (4 pages)
Premarked
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3.Premarked
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Swan Falls Hydroelectric Project,
Commi tment Estimate
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Letter from Steven L. Herndon to
Ronald A. Corso, dated March 16,
1990, with attàchments (8 pages)
Premarked4.
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
INDEX!
EXHIBITS
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I 1 EXHIBITS (Continued)
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I 3 NUMBER PAGE
I 4 FOR THE IDAHO POWER COMPANY:(Continued)
5 5.Letter from Ronald A. Corso to Premarked
I Steven L. Herndon,dated
6 March 26,1990
I 7 6.Swan Falls Hydroelectric Project,Identified 24
Commi tment Estimate with attached
8 Summary (7 pages)
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I HEDRICK COURT REPORTING EXHIBITS
P.O.Box 578.Boise,ID 83701
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BOISE, IDAHO, WEDNESDAY, NOVEMBER 28, 1990, 4:05 P. M.
COMMISSIONER MILLER: All right, we're going
to take up now Idaho Public Utili ties Commission
Case IPC-E-90-2. Madam Reporter, would you enter into the
record the appearances of the parties who have appeared
here today, noting that they are the same as in the Milner
case we've just completed with the exception of
Mr. Gilmore who appears for the Commission Staff.
Wi th that, are there any preliminary matters
before proceeding to evidence? If not, Mr. Ripley, are
you prepared to call your first witness?
MR. RIPLEY: Yes, we'd call Mr. Packwood.
JAN B. PACKWOOD,
produced as a wi tness at the instance of the Idaho Power
Company, having been first duly sworn, was examined and
testif ied as follows:
DIRECT EXAMINATION
BY MR. RIPLEY:
Q Mr. Packwood, did you have cause to be
prepared for this proceeding certain direct testimony
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
PACKWOOD (Di)
Idaho Power Company
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consisting of 12 pages?
A Yes, I did.
Q And if I asked you the questions that are
set forth in that testimony, would your answers be the
same today?
A
Q
3,4 and 5?
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testimony?
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Yes, they would.
And with that testimony are Exhibits 1, 2,
That's correct.
And they are, of course, identified in your
Yes, sir.
In addition to that direct testimony, have
you prefiled certain rebuttal testimony consisting of
seven pages?
A Yes.
Q And if I asked you the questions that are
set forth in that rebuttal testimony, would your answers
be the same today?
A Yes, they would.
Q In addition, Mr. Packwood, in the Milner
proceeding, the Commissioners expressed a desire to have a
more def ini tive -- I hate to use that word, I won't. I
wi thdraw that word.
A More level of detail.
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
PACKWOOD (Di)
I daho Power Company
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Q -- more level of detail insofar as your
Exhi bi t 3 is concerned. Did you go back to the files of
the Company insofar as the information that had been made
available to the parties and Staff for inspection and
obtain a greater degree of information insofar as the
commi tment estimate is concerned?
A We went and got the same summary sheet for
the Swan Falls project that was just handed out for the
Milner project.
Q BY MR. RIPLEY: And does that document
consist first of the cover sheet again, which is the same
as Exhibit 3, and then one, two, three, four, five, six
pages of underlying detail?
A Yes, it does.
MR. RIPLEY: I would ask that that be marked
for identif ication as Exhibit NO.6.
COMMISSIONER MILLER: So ordered.
(Idaho Power Company Exhibit No. 6 was
marked for identification.)
Q BY MR. RIPLEY: Just very briefly as you did
in the Milner proceeding, could you describe what the
underlying documentation reflects insofar as Swan Falls is
concerned?
A The proposal in this, I want to say docket,
is this a docket, in this hear ing is to br ing to the
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HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
PACKWOOD (Di)
Idaho Power Company
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Commission as the Commission requested the, again, what we
have characterized to be a commitment cost estimate for
the redevelopment of Swan Falls, an event that at this
point in time, very similar to Milner because of other
extenuating circumstances, now is a non-deferrable option
for redevelopment, and as our application and my testimony
states, we're explaining that proposal and looking for
Commission guidance, recognizing that in this case. since
it's an existing plant, we are not applying for a
certificate. As my understanding is, we're complying with
pr ior orders.
MR. RIPLEY: That presents our direct case,
Mr. Chairman.
COMMISSIONER MILLER: Thank you,
Mr. Ripley.
MR. RIPLEY: Of Mr. Packwood. I'm sorry, we
do have another wi tness .
(The following prefiled direct and
rebuttal testimony of Mr. Jan B. Packwood is spread upon
the record.)
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HEDRICK COURT REPORTING
P.O. Box 578, Boise. ID 83701
PACKWOOD (Di)
I daho Power Company
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Q. Please state your name, business address and
present position with Idaho Power Company (Idaho
Power) .
A. My name is Jan B. Packwood and my business address
is 1220 W. Idaho street, Boise, Idaho. I am Vice
President of Power Supply for Idaho Power.
Q. What is your educational background?
A. I graduated in 1966 from the University of Nevada
with a degree in electrical engineering. In
August, 1984, I received the degree of Master of
Business Administration from Boise State
Uni versi ty.
Q. Please outline your business experience.
A. I served four years as a commissioned officer in
the united states Army, following graduation. My
military experience included assignments as a
Company Commander in the Federal Republic of
Germany and the Republic of Vietnam as well as
eight months of technical engineering with the
Army Material Command. I am registered as a
Professional Engineer in the states of Idaho and
Nevada.
I joined Idaho Power in 1970 as an Associate
Engineer in the Company i s Central Division in
Boise. My duties included designing electrical
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transmission and distribution systems to meet
customer and Company needs. In 1973, I advanced
to Division Engineering Supervisor where I oversaw
the design efforts of a 12 employee engineering
department.
In 1975, I was transferred to Twin Falls as
Assistant Electrical Superintendent. A year
later, I became the Electrical Superintendent and
was responsible for all construction, operation
and maintenance wi thin the Company' s Southern
Division. I moved back to Boise in 1980 and
assumed similar responsibilities as the Electrical
superintendent of the Company's Central Division.
I became Manager of Substations in 1983 with
responsibility for the mechanical, electrical,
control, system protection and communication
functions of the Company' s generation,
transmission and distribution stations. In 1985,
I became Superintendent of Engineering with
responsibili ty for all the non-generation
engineering functions of the Company.
In 1986, I assumed the position of Assistant
to the President and Chief Executive Officer with
special projects assigned by the CEO.
I returned to engineering and operations in
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1988 as Senior Manager of Power Supply with
responsibility for resource planning, system
planning, high voltage lines and stations,
generation engineering, wholesale marketing and
contract development and administration. In 1989,
I was elected to my current position as Vice
President of Power Supply with added
responsibility for power production, power
operations, thermal generation and environmental
affairs.
Q. What is the purpose of your testimony in this
proceeding?
A. My testimony will explain Idaho Power Company's
proposal for the reconstruction of the Swan Falls
powerhouse and generating facilities. Questions
concerning the effect of rate basing the Swan
Falls Proj ect should be directed to Mr. James L.
Baggs, Manager of Rates for Idaho Power Company.
Q. Please generally describe the Company's Swan
Fall's Project.
A. The exìsting 10. 4-megawatt (MW) powerhouse at Swan
Falls will be retired and the Project will be
redeveloped. The redeveloped Project will consist
of a new powerhouse, containing two generating
units with a total rated capacity of 25 MW¡ a new
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swi tchyard; a new transmission line; and other
existing proj ect works.
The Project, upon completion, will consist of:
(1) the 25-foot- high, 1,218-foot-Iong concrete
and rockfill Swan Falls dam;
(2) the Swan Falls reservoir with a surface area
of 900 acres and a total storage capacity of
4,800 acre-feet;
(3) a spillway with crest elevation of 2,300 feet
above mean sea level with 12 bays, each
provided with radial gates 31 feet wide and
14.5 feet high;
( 4) a powerhouse at the east abutment of the Swan
Falls dam containing two identical horizontal
pit turbine-generating units, each with a
rated capacity of 12. 5 MW;
(5) a substation located on the upper deck of the
powerhouse, equipped with a 13. 8/138-kilovolt
(kV), 30,OOO-kilovolt-ampere, 3-phase
transformer;
(6) a 1,400-foot-Iong, 120-foot-wide (bottom
width) tailrace;
(7) a 1. 2-mile-Iong, 138-kV transmission line
connecting to an existing 138-kV transmission
line owned and operated by the licensee; and
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(8) appurtenant facilities.
Q. Has the Company received an Order from the Federal
Energy Regulatory Commission amending the license
for the Swan Falls Hydroelectric Facility?
A. Yes, Exhibit 1 is a copy of the Order Amending
License issued by the Federal Energy Regulatory
Commission for the Swan Falls Project.
Q. Please describe the Company' s recent efforts in
regard to the FERC license for the Swan Falls
Project.
A. The original Swan Falls license expired June 30,
1970. Idaho Power operated the Project on annual
license renewals until such time as the Proj ect
was relicensed on December 22, 1982. The license,
as issued on December 22, 1982, provided for a
complete rebuild and uprate of the Project to 25
MW with an expiration date of June 30, 2010. In
January of 1985, Idaho Power proposed to postpone
the complete rebuild of the Proj ect until such
time as the additional capacity would be needed.
On April 30, 1987, the FERC issued its Order
deleting the authorization to add the 14.6 MWs of
new capacity and reduced the license period by 10
years to June 30, 2000.
In January of 1989 a safety and operational
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report prepared by an independent consultant
indicated that the old power plant facility needed
to be replaced by the year 1994. In response to
those safety concerns, in April of 1989 Idaho
Power filed an application to amend the License
and again requested authority from the FERC to
rebuild the Project. In its Application to FERC,
the Company requested and received a full 40-year
license which expires June 30, 2010. The Portland
Regional Office of FERC rates the Swan Falls
facili ty as having a high downstream hazard
potential.
Q. Please describe the status of the Company's water
rights for the Swan Falls Project.
A. In 1982, the Company applied for a permit for a
water right for the additional generation in
connection with the Project. On April 10, 1989,
the Idaho Department of Water Resources issued a
Memorandum Decision and Order issuing a permit for
a water right. Exhibi t 2 is the Department's
Memorandum Decision and Order.
The Company's existing water rights at Swan
Falls, as well as. the projects upstream, are
defined in the Swan Falls Agreement between the
State of Idaho and Idaho Power Company. A copy
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Idaho Power Company
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was filed with this Commission in Case No. U-1006-
244. Basically, the rights are defined at a non-
subordinated level of 3900 cfs in the sumer, and
5600 cfs in the winter, as measured at the MUrphy
USGS gauging station downstream of Swan Falls Dam.
The Company's water rights above those flows are
subject to subordination to new depletionary uses
if they comply with state law, including new
criteria adopted as part of the Swan Falls
settlement. These new criteria are found in Idaho
Code § 42-203C.
As part of the Swan Falls settlement package,
the Idaho State Water Plan was amended to reflect
the 3900 cfs and 5600 cfs flows. The Water Plan
minimum flow carries a priority date of the year
it was imposed. Therefore, the water Plan minimum
is a very junior priority.
The Swan Falls Agreement contemplates that
the State of Idaho will assert the Company's
rights as necessary to protect the minimum f~ows
established by the Agreement. As the oldest hydro
rights on the river, the water rights associated
with the Swan Falls Project are critical to the
ability of the state and the Company to protect
the minimum flows established by the Agreement and
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the Water Plan. It is, of course, essential that
the Swan Falls' Project remain in existence.
Protection of flows at the Swan Falls site is
also of great importance to flows in the river
both above and below Swan Falls. While the
operation of FERC Project No. 1971 (the Hells
Canyon complex) is subordinated to upstream
depletion, there is little exposure to major
depletions above Brownlee and below Swan Falls.
Therefore, protection of the company's rights at
the Project has the effect of assuring a water
supply at its downstream plants. The same is true
of the upstream plants, since the water rights at
those plants are def ined by the Agreement in terms
of flows at the Murphy gauge.
Q. Please briefly explain the process by which Idaho
Power Company estimates the cost for the
construction of hydroelectric projects.
A. Large hydroelectric projects involve design and
construction which must be customized to the
particular site. As a result, preliminary
estimates contain many unknowns in both the final
project layout and scope. Detailed engineering to
finalize the layout and scope in order to obtain a
more precise estimate would result in extremely
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high front end costs on all projects. In the
event a particular proj ect was not built, a
significant expenditure would be lost and would
have to be written off. Changes required as part
of the environmental and regulatory review process
could also result in the need to completely
redesign a project, thus radically changing the
original preliminary estimate.
To avoid this, the FERC License Application
is prepared on the basis of preliminary layouts
and without final design or a precise calculation
of required materials (i.e. concrete, fill dirt,
etc. ). This estimate which the Company has termed
the "FERC Application Estimate" is subject to
revision as the project is finally designed.
Q. Recognizing that the Idaho Public utilities
Commission has stated that the Company must
provide a more accurate cost estimate than the
"FERC Application Estimate", how does the
Company' s Application in this proceeding meet this
requirement?
A. For most hydroelectric projects, including the
Swan Falls Project, the first major expenditure of
funds, other than for engineering design, is the
purchase of the hydroelectric turbines and
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generators. After completion of design and
solicitation of bids for the turbines and
generators, the Company is in a better position to
make a cost estimate for the project. This
estimate, which the Company has termed a
"Commitment Estimate", is the Company' s best
estimate of cost before the award of any contract
plus an additional amount of 25% to establish a
cost ceiling for the project. The Company has
committed to building the project for either the
amount of the Commitment Estimate (as it may be
adjusted to account for documented changes in
escalation rates or scope) or the actual cost of
the facility, whichever is less. If the final
costs exceed the "Commitment Estimate", the
Company will absorb the extra costs, and will
include in its Idaho ratebase only the amount up
to the Commitment Estimate.
Q. You have stated that the Commitment Estimate may
be adjusted to account for documented changes in
escalation rates or scope. Please provide some
examples.
A. Examples of possible scope changes which could
affect the project ceiling are: (1) Force Majeure
or acts of God impacting the construction; (2)
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Design optimization for which increased energy
more than offsets the increase in initial
investment; (3) Foundation or site conditions
significantly more expensive than indicated by
exploratory drilling.
Q. What is the Company's Commitment Estimate for
constructing the Swan Falls Hydroelectric
Facility?
A. Exhibit 3 is the Swan Falls Project Cost Estimate
and Commitment Estimate for (1) the
decommissioning of the old powerhouse, (2) FERC
required renovation of the old powerhouse
structure for historical purposes, and (3)
construction of the new powerhouse.
Q. As the Project is constructed, will the Commission
be provided with construction updates?
A. Updated Project cost estimates will be submitted
to the Commission as part of the Company's
Quarterly Report of Construction Projects and will
include any scope or escalation changes.
Q. Has Idaho Power Company been required to
accelerate its construction schedule due to the
physical deterioration of the Swan Falls Facility?
A. Idaho Power has been required by FERC to establish
an expedited construction schedule to insure
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stabilization of the existing powerhouse by
April 1, 1994, with concentration on compressing
the schedule to January 31, 1994. Exhibit 4 is
Idaho Power's letter, dated March 16, 1990, that
submitted a revised schedule and plan, and Exhibit
5, FERC's letter, dated March 26, 1990, is the
approval of the revised schedule and plan.
Q. Is it in the public interest for the Commission to
authorize the construction of the Swan Falls
Hydroelectric Facility?
A. Yes, the reconstructed Swan Falls facilities
should be added to the Company's ratebase upon
completion of the reconstruction. The Proj ect has
been, and will continue to be, integral to Idaho
Power's Snake River hydroelectric system and wiii
continue to be used to serve retail and firm
wholesale load. Reconstruction of the Swan Falls
facilities is also integral to retention of
Idaho's water resources for the public interest of
the state. The Project is a non-deferrable
resource in that the physical state of the plant
requires current, not future, reconstruction and
rehabilitation of the resource to maintain safety
and operational standards.
Q. Does this complete your testimony.
A. Yes it does.
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Q.
A.
Q.
A.
Q.
A.
Q.
(
Please state your name and business address.
My name is Jan B. Packwood and my business address
is 1220 W. Idaho street, Boise, Idaho.
Are you the same Jan B. Packwood that submitted
direct testimony in this proceeding?
Yes I am.
Are you in agreement with the analysis performed
by Mr. Thomas Faull concerning the estimated
annual O&M costs for the Swan Falls Project?
No. The method used by Mr. Faull was to look at
only 4 years of O&M costs. Also, Mr. Faull based
his estimated O&M cost on a curve of $/KW for
plants by size of plant and ignored the importance
of plant age on operating costs. This fails to
recognize the manpower required for operation of
the plant, which is a primary cost. New plants
such as Swan Falls are built so that the O&M cost
is lower because they do not need to be manned 24
hours per day.
Mr. Faull notes that Idaho Power made many
decisions and commitments relative to the Swan
Falls project prior to its application in this
case. He further suggests that "It is only as a
resul t of chance that it now appears that those
decisions may have turned out to be marginally
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prudent (at least as determined by my analyses)."
His recommendation is that if his analyses are in
error, then Idaho Power "should be imputed to have
known that the project was not cost effective" and
should be penalized. Do you agree with Mr.
Faull's characterization?
No. Considerable planning and commitments are
required to bring a project to the construction
phase. Large hydroelectric projects involve
engineering design which must be customized to the
particular site. Idaho Power has been involved in
planning and analyses 'related to the development
of the Swan Falls Project for a number of years.
This has required and continues to require a firm
commitment to the project. It remains the
responsibility of the Company to fulfill this
role, but there comes a time in the planning
process, prior to the first major expenditure of
funds, when the Company must seek a Commission
determination that the decision to construct the
project is reasonable and prudent and that such
construction is in the public interest. It is my
understanding that this procedure is consistent
with Commission requirements.
Do you agree with Mr. Faull's conclusion that the
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Swan Falls project capacity is too small?
No. Mr. Faull's conclusion that the Swan Falls
project capacity is too small is based upon a
capacity factor analysis which would be used only
in preliminary feasibility analyses. The designed
capacity factor should be high for the Swan Falls
plant because flows are fairly uniform through
most of the year.
How was the Swan Falls plant sized?
An economic' analysis of possible plant and unit
sizes was performed for the FERC License
Application phase of the project. This analysis
maximized the project's generation per unit of
cost. The maximum flow of 14,700 CFS (7,350
CFS/unit) was selected as the project's optimum
size. A flow in excess of this amount occurred
only 17 percent of the time based on 60 years of
daily flow records.
Is hydro plant sizing subject to FERC
requirements?
Yes. Under the Electric Consumers Protection Act
(ECPA), FERC's analysis of whether the resource is
being fully developed is a significant part of the
FERC process of determining whether, and to whom a
License should be issued. The FERC analysis of
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plant sizing is a critical part of the licensing
process.
Q. Please comment on Mr. Faull's understanding that
Idaho Power did not make a rigorous comparison
between vertical shaft Kaplin turbines and bulb-
type turbines.
A. Idaho Power did make a study in February, 1984,
for turbine-type selection and found the pit-type
bulb turbine plant was less expensive by 18
percent, for the same energy generation.
Q. Please comment upon Mr. Faull's analysis
concerning the use of a request for proposals and
negotiation process rather than the standard firm
bid process.
A. The "Foremost" reason he gives for his preference
is that the "design engineer is constrained to
'guessing' about the best combinations of size,
arrangement, and timing, wi th minimal input from
suppliers". Idaho Power experience as well as
that of major consultants in the hydroelectric
design field is not only beyond "guessing" at such
parameters but can make a much more detailed
analysis than could a developer or manufacturer
who could not even be assured of recovering his
bidding design costs . Idaho Power believes that
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the detailed design and bid process has many
advantages over the single negotiated package
procedure including:
1. Project design can be tailored to the
needs of the owner rather than the developer's
contract.
2. Contingencies to cover development risk
are not required because the purchase and
contracting is phased to the design progress.
3 . Developer markups on equipment purchased
from the manufacturers are eliminated.
4 . The owner retains control of the
combination and quality of equipment purchased by
buying major equipment separately and analyzing
each component based on maximizing the benefit to
the project per dollar spent.
5. Changes to the proj ect can be made based
on site conditions without having to renegotiate
the proj ect development package.
6. Proposals received for the development or
any part of the package are competitive proposals
where bidders have eliminated contingency amounts
to cover later negotiation. Negotiations with a
preferred bidder do not give the bidder the
competitive incentive to improve his proposal.
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Would you comment on Mr. Faull's opinion that the
specified speed increaser may be a sole source
item, and that purchase through negotiations may
be more cost effective for an equal or better
product?
Yes. Regarding the speed increaser, the current
state of the art is the use of double-helical
epicyclic-gear drives because of the compact
design required by the limited space in the
generator pit. Several companies manufacture this
type of gear drive. Idaho Power did considerable
research into the gear drives to be certain of the
proper selection criteria. If the speed increaser
had not been specified and selection had been made
through negotiations, my opinion is that it would
have been more difficult, more time consuming, and
more costly for a speed increaser that would
provide the desired performance for 50 years.
Considerably more coordination with the primary
equipment suppliers would also be required since
the speed increaser fits within the bulb and
connects directly to both turbine and generator.
Would you comment on Mr. Faull's objection to the
limited numer of bidders for the turbine,
generator, speed increaser, and governor and his
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opinion that three of the four firms provided
courtesy bids?
A. Yes. Idaho Power did prequalify only four bidders
based on previous experience in the pit-type bulb
turbine. The four prequalified companies were the
only ones in the world with the experience in
similar type and size equipment. Two bids were
wi thin 1. 8 percent of one another, and the third
and fourth bids were more than 30 percent above
the low bid. Idaho Power's procedures for
obtaining bids were appropriate and prudent.
Q. In summary, do you believe that the Company has
complied with the Commission's directives
concerning the rebuild of the Swan Falls project?
A. Yes.
Q. Does this complete your testimony.
A. Yes it does.
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(The following proceedings were had in
open hear ing . )
COMMISSIONER MILLER: Mr. Miles, do you have
questions?
MR. MILES: Oh, excuse me. I was trying to
find Mr. Packwood's rebuttal testimony and are you
examining Mr. Packwood both on his direct and his rebuttal
at the same time?
COMMISSIONER MILLER: Yes, sir.
CROSS-EXAMINATION
BY MR. MILES:
Q Mr. Packwood, welcome to the Swan Falls
battleground. If you would turn to Page 7 of your direct
testimony, my question is based on -- you say on Line 2,
"Basically the rights are defined at a non-subordinated
level of 3900 cfs in the summer and 5600 cfs in the
winter, as measured at the Murphy USGS gauging station
downstream of Swan Falls Dam."
My question is if the Swan Falls Snake River
flow studies now being conducted as authorized by Public
Law 100-216 indicate a flow greater than 3900 cfs is
required to maintain the river depth around the 86 Snake
River islands of the Deer Flat National Wildlife Refuge,
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would the 25 megawatt generators you propose accomodate
this flow?
A What would that f low be?
Q Well, as I understand it, there is a
conference between some of the parties to this scoping
studies, and as I understand it, the f ish and game people
or I mean the U. S. Fish and Wildlife Service recommended
6000 cfs; so your generators would accommodate that?
A The turbine capacity is 14,700 second feet.
Q i see, 14,700 cfs?
A Yes, sir.
Q Referring to Page 8, on Line 8 you're
referring to exposure to major depletions above and below
Swan Falls. My question is --
~
COMMISSIONER SWISHER: No, above Brownlee
and below Swan Falls.
MR. MILES: Oh, excuse me, thank you.
Q BY MR. MILES: I f there is further
development on the Oregon Slope by pumping water from the
Snake River, how will this activity affect the downstream
hydro generation of Idaho Power Company's Hell's Canyon
complex?
A Whatever is pumped out won't go through the
project.
Q Have you made any estimation how much that
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reduction would be?
A It's not clear to me where that diversion
would occur, by whom or in what amounts.
Q Well, subject to your check, I've been
advised by the Oregon Department of Water Resources that
about three years ago there was a decreed water rights for
about 1000 cfs on the Oregon Slope, and in view of the
fact that this could increase because the Snake River
forms the border between Idaho and Oregon in some areas, I
was wondering if Idaho Power Company has determined just
what this additional agricultural development would be and
how it would affect the Hell's Canyon complex.
A I'm unaware as to whether we've done that
calculation.
Q I see. If you would please turn to Page 11,
you have explained to my satisfaction about the, using two
of the old 40-year old generators in the present Swan
Falls powerhouse, but for the record I would like to ask,
could Idaho Power Company renovate the old powerhouse so
it could still use two of the older generators for peaking
purposes?
A We looked at that option and found it
impractical, and really, the judgment of such
determination becomes the cost of retaining it should be
offset by any added benefit in generation, and as we
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explained to you, that was not the case. That's 50-year
old equipment with antique control systems. To keep those
in service would increase the planned staffing of the
plant, it would have space ramif ications.
There's a limit to the flow that could pass
between those two, the two turbines you've suggested, such
that you can only gain a four percent improvement and
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13 percent of the water will still go by or 13 percent of
the time there will be flows in excess of the turbine
capac i ty; so it's not pract ical and it's not economical,
and I guess the third consideration was that the draft
tubes and turbine bays for the old equipment are the
cornerstone or the centers tone , if you will, of the dam
stabilization strategy we have adopted there to keep the
thing in place for another, hopefully, 50 years.
Q In other words, you would have to fill those
bays full of concrete as well as the other six of them?
A That's my understanding, yes, sir.
Q I see. What is the reason that you couldn't
take 100 percent of the f lows in the high water period?
A The optimization process that got some
discussion in the previous case at Milner and is an issue
here, also, how do you size your generators to the flows
is an economic iteration where you look at each added
increment of generation and the benefit you derive from
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that. When you plot those on a graph, you generally get a
very smooth curve that has a most efficient recommendation
and then the cost for the benefit gains start to falloff
again.
It's like anything in life, you can get
80 percent of it real reasonably. You can get 85 percent
wi th a little more cost. By the time you're up there
trying to get 97, 98, 99 percent, you're putting in
equipment that's used so infrequently that it's not
cost-effective. That really is the optimization process
that Staff witness Faull describes when he says the range
of reasonableness is 45 to 65 percent.
In the case of the two projects we viewed
here, the optimal size happens to fall at both ends of
that range. At Milner it was at 38 percent which he found
outside his range and at Swan Falls it's at 75 percent,
which is again outside his range, but our sizing was based
on detailed engineering studies that said that was the
most economical size.
MR. MILES: Thank you. I have no further
questions.
COMMISSIONER MILLER: Mr. Richardson.
MR. RICHARDSON: Thank you, Mr. Chairman.
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CROSS-EXAMINATION
BY MR. RICHARDSON:
Q Exhibi t 106 is labeled at the bottom
"Attachment 3, Supplement to Initial Application." What
ini tial application was this exhibit a supplement to?
A You've lost me with the Exhibit 106. I need
a little help.
MR. RIPLEY: Exhibit 6, Pete.
MR. RICHARDSON: Excuse me, Exhibit 6,
forgive me.
MR. RIPLEY: If I could assist
Mr. Packwood just in the interest of time.
COMMISSIONER MILLER: Go ahead, Mr. Ripley.
MR. RIPLEY:Isn't that the supplement that
was attached to the initial application of the Company
that was filed with the Commission?
THE WITNESS: I've yet to find it in my
book. Bear with me a minute.
MR. RIPLEY: Okay.
COMMISSIONER MILLER: My impression is that
the first page of Exhibit 6 is what was attached to the
application and the subsequent pages are new; isn't that
it?
MR. RIPLEY: Yes.
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MR. RICHARDSON: With that understanding,
that answers my question, Mr. Chairman.
THE WITNESS: I still haven't found it.
Q BY MR. RICHARDSON: Do you have Exhibit 6 in
front of you?
COMMISSIONER SWISHER: Here.
THE WITNESS: Why didn't you say the one we
just had maybe you did and I was looking. I do now.
Q BY MR. RICHARDSON: I just want to ask you a
couple of questions to make sure I understand Exhibit 6.
A I i ve got it. I didn't recognize I had it.
Q On Exhibit 6, Page 3, towards the very
bottom of Page 3, right above the bottom total line that
says "Total Construction Costs" are two lines that read
"Contingency" and "Escalation," do you see those two
lines?
A Yes, I do.
Q How do those two lines for contingency and
escalation relate to Line 32 on Page 1 of Exhibit 6?
A They are additive.
Q Is Line 32 on Page 1 the 25 percent
contingency you refer to in your testimony?
A Yes, it is.
Q So the contingencies and escalations on
Page 3 are in addition to the contingencies and escalation
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that you refer to in your direct testimony?
A That's correct.
Q Still on Page 1 of Exhibit 6, Line 4, you
refer to procurement contracts at $19 million; correct?
A Yes, I do.
Q Okay, turn to Page 2 of Exhibit 6.
Approximately halfway down the page is a line reading, I
believe the abbreviation stands for total procurement
contracts?
A Yes, it does, 15,677,000.
Q Can you explain the difference in the total
numbers on Page 1 and Page 2?
A The difference would be the contingency that
you previously referenced from Page 3 added to the
procurement contract to form the total that appears on
Page 1.
Q The total from Page 2, 15 million to
19 million is what percentage?
A It would be 10 percent for each 15 I would
guess.
Q So there's a 10 percent internal escalator
or contingency, then, plus another 25 percent; correct?
A I guess I would need a moment to get a
li ttle help from my engineers on that if we want that
level of exactness. I don't want to misstate that, if I
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have, and the engineer is here that can help me with it if
you want that clarified.
MR. RICHARDSON: I would like that
information with the indulgence of the Chair.
COMMISSIONER MILLER: Let's 'take a minute
and we'll allow Mr. Packwood to confer with his helper.
(Off the record.)
COMMISSIONER MILLER: Let's go back on the
record. Mr. Packwood, have you been able to clarify this
for us?
THE WITNESS: Yes, it is as I've stated. We
don't have the precise breakdown, but the difference
between the 19.1 million on the face sheet and the
15.6 million on Page 1 of the summary consists of tax,
contingency and escalation costs.
Q BY MR. RICHARDSON: And the difference is
approximately 22 percent, would you agree, not 10 percent?
A Having not calculated it, I assume that's
right.
MR. RICHARDSON: That's all I have,
Mr. Chairman.
COMMISSIONER MILLER: Thank you,
Mr. Richardson. Mr. Gilmore.
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CROSS-EXAMINATION
BY MR. GILMORE:
Q Yeah, let me follow up in the same area
Mr. Richardson was just talking about. Why is there a
25 percent cap in the Swan Falls case and there's only a
five percent cap in the -- I mean, not cap.
Why is there a 25 percent contingency at the
bottom of your calculations for the Swan Falls case and
only a five percent at the bottom of your calculations for
Milner?
A The design and procurement process with
Milner is further along and the uncertainties have been
removed on a number of items through the actual award of,
bidding process and award of contract. Here we're in a
much more preliminary stage. The engineers attempt to
apply their judgment for contingencies and I think it's
pointed out in Mr. Faull's testimony that this is a common
practice.
The additional contingency, the 25 percent
as we discussed yesterday, covers force majeure, major
design optimization changes for which there are offsetting
benef its and unforeseen site circumstances. The biggest
remaining contingency down at Swan Falls at this stage
from an engineer estimate perspective are those site
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condi tions, because the site for the new powerhouse is
covered currently by the old powerhouse.
The drilling program can go around the edge
of that, but can't foresee with perfect certainty what
lies underneath and that's the level of comfort the
engineers were willing to concede to at this point in
time. That figure will become tighter as the process
rolls along. The dilemma is, as the Commissioners have
pointed it out, if you don't want reconnaissance
est imates, then we have to do more design to remove the
uncertainties to give you what we call commitment
estimates, thus the large contingency here versus the
small one at Milner.
Q When you i re talking about site
uncertainties, do you mean whatever bedrock or absence of
bedrock or quality of bedrock?
A Yes, exactly.
Q And you just don't know yet?
A We know from the geography there, from the
geotechnical exploration, that there is rock and there is
sand, but the exact quantities that you'll be confronted
.with in the foundation plan are unknown.
Q Okay. Let me now address another topic
which are the water rights associated with the Swan Falls
Dam, and I assume that even though you're probably not a
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water lawyer that as a vice president in charge of power
suppl Y you have some general understanding of how the
Company views the water rights at Swan Falls?
A I struggle mightily to answer yes to that
question.
Q Okay. You descr i be the Company as hav ing an
unsubordinated water right of 3900 cfs in the summer and
5600 hundred in the winter at Swan Falls, just generally
in your testimony at Pages 6 and 7 and 8.
A Yes.
Q And then you say the State Water Plan has
been amended to reflect similar priorities, I mean similar
amounts, in the summer and winter, 3900 in the summer,
5600 in the winter, but you also say that the Company IS
water right is senior and the State Water Plan's water
right is junior; so do you view those or does the Company
view those as distinct water rights, one senior in time
and one junior in time?
A We certainly view our water right, our being
the original Swan Falls, as the most senior on the river
and controlling. I guess I can't accurately answer how we
would view the State Water Plan. My use of the word
junior as I use junior means that it's late in time and
subject to all prior rights and, therefore, very tough to
defend.
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Q So would it be the Company's position in
order to preserve the value of that water right is that
you cannot walk away from the Swan Falls Dam?
A Absolutely.
Q And that's one of the reasons why it's
important to go to a rebuild?
A That's the huge and tangible side of this
equation at Swan Falls.
Q A walk-away might cost you 50 or 60 or 70
years in priority for that water?
A And the water itself.
Q And the water itself.
A Yeah.
COMMISSIONER SWISHER: These costs should be
assigned, under the FERC report these should be legal
costs, then, rather than construction costs?
THE WITNESS: For a contingency fee lawyer.
COMMISSIONER SWISHER: Yes.
Q BY MR. GILMORE: Have you toured the Swan
Falls facility yourself, walked through it?
A Sure.
Q I know you have a description on Pages 29
and 30 of your Exhibit 1 on the quality of the plant, but
could you just descr i be in words whether you could
continue using that plant or why you can't?
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A Two problems, really. First, Swan Falls is
an absolutely amazing plant builtin the first decade of
this century. To see electrical equipment wi thin 20 years
almost of the invention of electricity that's operated for
70 to 80 years is almost mind-boggling, but that equipment
is to the point where if you touch the insulation it's on
the verge of turning to dust and the economic and real
life in the electrical components is gone.
Likewise, the state of the art on concrete
SO years ago is not what it is today. There are concrete
~eterioration problems. The thing that brought Swan Falls
back to a head was safety concerns that manifested
themselves during last operating year where our operators
observed cracking conditions which were duly reported to
FERC. They've all been instrumented at this point in time
and they're observed on an hourly, daily and monthly
basis, and when there is movement, we lower the
reservoir. Everything there, the falling efficiencies,
the increasing O&M costs, points to a plant that i s totally
worn out.
COMMISSIONER SWISHER: Mr. Packwood, they
didn't even wash the sand I'm told at that time.
THE WITNESS: That's our understanding.
Q BY MR. GILMORE: What would it cost to
refurbish the existing plant, any ideas?
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A I don't know.
Q Do you think it could be done from an
engineering viewpoint?
A We looked at a rehabilitation as opposed to
a redevelopment as we characterize this and it was really
1 ike punching a tar baby. Every time you looked under or
behind something, the best you could decide to do is you
could have ended up with something that looks like the
original Swan Falls, in fact, we will under the
redevelopment, but virtually everything of note would have
had to have been replaced inside.
Q If the Company is going to preserve its
water rights at Swan Falls by continuing to generate at
Swan Falls, would it be a fair statement that the total
amount of money that you describe in your cap or the
possibili ty of that amount being spent is not all the cost
of additional generation; that is, in order to continue to
generate at Swan Falls, would you have had to spend a
certain base amount of money?
A Again, Staff witness Faull spoke to that. I
didn't think to go through and try to figure out for my
own information how much would have to be spent to do
nothing. I think witness Faull said four million. I
really don i t know; but there is a cost, certainly.
Q So not all of the costs we're looking at are
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costs of getting that new generation?
A That's correct.
Q Could you explain why Swan Falls is at the
high end of this range of reasonable generation factors,
whatever you want to call them, and Milner is at the low
end? It's a pretty wide gap.
A Yes, it is and again, I'm sympathetic to
everyone that's placed in a position of estimating these
things. If you build a power plant on a spring-fed
stream, for example, there i s no reason in the world you
shouldn't have a 100 percent capacity factor, even though
the range of reasonableness across a wiqe sample is 45 to
65 percent.
The difference between Swan Falls and Milner
is the location on the river. Flows are much more steady
and predictable at Swan Falls, so you can be more
eff icient, than they are at Milner. You have the complete
stream recharge, of course, has occurred by the Hagerman
area and you have a much more predictable river; so we are
at both wide ends of that spectrum.
MR. GILMORE: I have no further questions.
COMMISSIONER MILLER: Thank you,
Mr. Gilmore.
Commissioner Swisher.
COMMISSIONER SWISHER: Well, just one
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quickie.
EXAMINATION
BY COMMISSIONER SWISHER:
Q When I first thumbed through this, I saw the
order amending the license and I saw the language in there
and I didn't make the bridge, I didn't read that closely.
In the Exhibit 1, and it's just a passing interest, but it
could be important in the future, is the design of the
rebuild at Swan Falls such that if anadromous fish are
reintroduced into the basin at Brownlee that there would
be the ability to create f ish passage at Swan Falls?
A Tough question. Fish passage is not
provided for in our redevelopment.
Q It is not?
A It would have to be designed and added on if
that becomes a reality.
Q But is the design of the dam such that it
acknowledged this concern on the part of the Interior
Department?
A I honestly don't know.
Q You don't know?
A I can't answer that.
COMMISSIONER SWISHER: And I had nothing
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else. Mr. Gilmore's cross took care of my concerns.
COMMISSIONER MILLER: Commissioner Nelson.
EXAMINATION
BY COMMISSIONER NELSON:
Q This is just off the top of my head, but
Mr. Gilmore's questions do make me wonder if you can
achieve this 75 or 80 percent capacity with the 25
megawatts and I expect your answer to be, well, the
engineers looked at this, but why wouldn't you go to 35 or
40 megawatts there and settle for 65 percent?
A That was the same thing Mr. Miles was
unrelenting on, that we generate from everything that
passed and it's simply a diminishing returns type of
approach. There is enough variation that you don't, it's
not economically feasible to size for the absolute peak,
and unless you size for the absolute peak, you i re always
going to lose something, and right now we lose, we have
bypasses, if I'm using the term right and this is
something I don't have a real good feel for, it's a fact
I've learned from reading the materials, it's about
17 percent of the time there will be spill there and for a
plant that's a pretty high capacity factor, but it's
simply the benef it gained or the costs incurred are not
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offset by the benef it gained to try to get that last bit.
Q And I know you've discussed this some, but
the thing that jumps out at you when you look at this
application compared to Milner is that you're talking
about twice as much money a kW here than you are there and
is that all in maintaining the historical value there, the
old power plant?
A No. If you peruse that face sheet of
Exhibi t 3, the total new powerhouse components are about
60 million. The decommission of the old powerhouse is
3.4 mill ion, and by the time you get through the
restoration, the total restoration, of the old powerhouse,
you've got 842,000, brings you a total of the Swan Falls
project estimate at this stage with the contingencies as
were pointed out by Mr. Richardson around 65 million, and
again, here you have engineers trying not to be hung by
the weight of their own words when they don't have the
knowledge to give you the greater certainty we're all
trying to wring out of them, the 25 percent does raise the
price.
It's interesting to note, however, in the
pricing debate that has gone on in both these cases, by
the different criteria we're all applying, they come
wi thin the realm of reason, at least calculable realm of
reason, of being comparable to the other standards all the
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1 different parties are trying to suggest.
2 COMMISSIONER SWISHER: It was a dam built,
3 Mr. Packwood, by a non-utility, by a mining man.
4 THE WITNESS: Mining company.
5 COMMISSIONER SWISHER: And with no thought
6 to any cost sharing with irrigation or with any other use
7 of the water.
8 THE WITNESS: Our older hydro engineers
9 absolutely cry at the thought of this moving into a modern
10 era. This is a very, very interesting facility.
11 COMMISSIONER NELSON: Okay, thank you.
12
13 EXAMINATION
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15 ' BY COMMISSIONER MILLER:
16 Just one question, really. The scope ofQ
17 this project appears substantial; that is, it involves the
18 retirement of the existing powerhouse, the construction of
19 an entirely new powerhouse, as I understand it, with new
20 generators. As I understand it, also, a new swi tchyard,
21 some mile or so of transmission line and is there spillway
22 work on the dam?
23 Spillway work was completed in earlier yearsA
24 and is not part of this project as we present it to you.
25 So I gather the extensive nature of theQ
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project, the question that occurred to me, I'm sure
everyone else has thought about it and already resolved
it, is this a, shall we view this as a project which
increases the capacity of an existing facility or is it
more like the construction of a new facility?
A The answer is yes. I think there's pieces
of both there. Certainly Staff witness Miller in the last
case talked about the internalization of what we used to
call the externalities on these projects. At least on
hydro plants under FERC jurisdiction, that internalizing
is definitely occurring since the passage of ECPA, and as
you read through articles and you read what the state
historic and preservation off icer wants, he wants the old
village set aside as a small Williamsburg and they want
when they come to the top of the rim to see what was there
100 years ago. You accommodate all those interests and
you don't do that at little cost; so you're right, there's
a new plant that i s sitting in a historical monument, if
you will, that's not going to look terribly different from
when the original was completed and that carries a cost
premium.
COMMISSIONER MILLER: Okay, redirect?
MR. RIPLEY: Just one question.
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REDIRECT EXAMINATION
BY MR. RIPLEY:
Q You stated ECPA. For the reporter, could
you
A Electric Consumers Protection Act, sorry.
COMMISSIONER MILLER: Is that it?
MR. RIPLEY: Yes, sir.
COMMISSIONER MILLER: Mr. Packwood
MR. MILES: Mr. Chairman, in light of a
question that Mr. Gilmore brought up, for the record I
would like to have it clarified by Mr. Packwood. I have
one question I'd like to ask him regarding those water
rights.
COMMISSIONER MILLER: All right, let's take
your one quest ion.
CROSS- EXAMINATION
BY MR. MILES:
Q Reading from Page 36 of the current Idaho
State Water Plan, it says, "The 8400 cfs claimed right is
reduced by the agreement to that f low available after
satisfying all applications or claims that demonstrate
water was beneficially used prior to October 1st, 1984,
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even if such uses would violate the minimum flows
established in Policy 5A," and Policy 5A that pertains to
the Swan Falls states, "3900 cfs from April 1st to
October 31st and 5600 cfs from November 1st to March 31st
measured at the Murphy gauging station."
Do you interpret that any applications or
claims by irrigators made prior to October 1st, 1984, even
if such uses would violate the minimum flows established
in Policy 5A, would compromise Idaho Power Company's water
rights at Swan Falls?
A I' don't believe they would, but you have me
at a real disadvantage. I am not that familiar with the
document you're holding. I'd probably defer to Staff
wi tness Eastlake.
MR. MILES: Well, I could give this to
Mr. Ripley if he would like for you to read it or look at
it.
MR. RIPLEY: I i m sure we have a copy. I
think the point is, Mr. Miles, that the witness you're
asking the question of is stating that he can i t answer
your question right now from the stand.
MR. MILES: Well, I would like to see that
point thoroughly investigated so we can be sure Idaho
Power Company's even reduced 3900 cfs at Swan Falls isn't
compromised any further.
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1 COMMISSIONER MILLER: All right, thank you,
2 Mr. Miles.
3 MR. MILES: Thank you.
4 COMMISSIONER MILLER: Now, Mr. Packwood,
5 thank you.
6 (The witness left the stand.)
7 MR. RIPLEY: We call Mr. Baggs.
8 COMMISSIONER MILLER: Let's see, we're not
9 going to finish today. Since we're not going to finish
the case today, why don't we quit for the day, resume at
9: 30 and then we will finish the evidentiary presentations
and then have oral argument on both cases; would that be
agreeable to the parties?
MR.. RICHARDSON: That's fine with us,
Mr. Chairman.
COMMISSIONER MILLER: All right. We'll see
17 you in the morning.
18 (The Hear ing recessed at 4: 45 p. m. )
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