HomeMy WebLinkAbout20050816_1289.pdfDECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEG AL
FROM:SCOTT WOODBURY
DATE:AUGUST 11,2005
SUBJECT:CASE NO. P AC-05-2 (PacifiCorp)
2004 ELECTRIC INTEGRATED RESOURCE PLAN (IRP)
On January 21 , 2005 , PacifiCorp dba Utah Power & Light Company (PacifiCorp;
Company) filed its 2004 Integrated Resource Plan (IRP) with the Idaho Public Utilities
Commission (Commission). The Company s filing is pursuant to a biennial requirement
established in Commission Order No. 22299, Case No. U-1500-165. PacifiCorp states that its
IRP provides a framework for the prudent future actions required to ensure that PacifiCorp
continues to provide reliable, least cost service with manageable and reasonable risk to its
customers. The 2004 IRP provides guidance and rationale for significant resource procurements
over the next several years. The IRP was developed in a collaborative public process with
considerable involvement from customer interest groups, regulatory staff, regulators and other
stakeholders.
PacifiCorp serves approximately 1.6 million retail customers in a service territory
comprising about 136 000 square miles in portions of 6 western states: Utah, Oregon, Wyoming,
Washington, Idaho and California. This service territory has diverse regional economies ranging
from rural, agricultural and mining areas to urban, manufacturing and government service
centers.
Since the filing of the Company s 2003 IRP in January 2003 , PacifiCorp has
procured two natural gas resources via the issuance of supply-side solicitations, issued a request
for proposal (RFP) for renewable resources, and selected three new cost-effective programs from
a demand-side management (DSM) RFP. Looking forward, PacifiCorp expects its obligations to
DECISION MEMORANDUM
provide electricity to its customers will continue to grow, while at the same time its existing
resources will diminish. The 2004 IRP proposes a number of diverse actions over the first
years of the 20-year study horizon aimed to close the gap. Not taking action to close this gap,
the Company contends, would expose PacifiCorp and its customers to unacceptable levels of
cost, reliability and market risk.
Regarding new resource needs, the Company s Preferred Portfolio proposes the
addition of 177 MW of Class 1 DSM and 2 629 MW of thermal generation capacity. In addition
to the resources identified in the Preferred Portfolio, PacifiCorp will continue to procure up to
1200 MW of shaped capacity through front office transactions on a rolling forward basis, expects
100 MW of capacity through qualified facilities (QF) contracts, and will continue to procure the
1400 MW of economic renewable resources which were first identified in the 2003 IRP.
Furthermore, PacifiCorp will procure 250 MWa of base Class 2 DSM and pursue an additional
200 MWa of cost-effective DSM for a potential total for 450 MWa over the ten year horizon.
Results and key findings in the Company s IRP include:
The 2 629 MW of thermal generation capacity consists of four thermal
units in the east (two fueled with coal and two with natural gas) and one
natural gas unit in the west.
The most robust resource strategy relies on total resources creating a
diverse portfolio of resources including renewables and demand-side
management combined with natural gas and coal-fired generating
resources.
Two maj or issues hang over the most significant resource choices that
PacifiCorp must make: (i) the future cost of natural gas and (ii) the future
cost of or constraints on air emissions and carbon dioxide emissions in
particular. PacifiCorp believes it has adequately addressed these risks in
the analysis , based on its current understanding of these issues.
Demand-side management continues to be an important and cost-
effective resource for PacifiCorp. DSM additions resulted in new
generating resources being delayed. The first two east side resources are
delayed one year each, and a west side resource is delayed two years
pushing it beyond the 10-year portfolio planning window.
The present value revenue requirement (PVRR) for the group of lowest-
cost, risk-adjusted portfolios differed by only $48 million or 0.4%. This
narrow cost range indicates a degree of flexibility in specifying and
procuring needed resources during the Action Plan time horizon.
DECISION MEMORANDUM
In response to stakeholder comments, a detailed study was conducted to
determine the optimal planning margin for the PacifiCorp system. The
results in this study found the optimal planning margin for the PacifiCorp
system to be 15%.
Also in response to stakeholder comments , an evaluation of the wind
resources providing energy to PacifiCorp s system was conducted to
determine what the appropriate contribution to planning margin should be
for these resources. The evaluation resulted in a 20% contribution to
planning margin by wind resources.
PacifiCorp forecasts an average annual peak load growth rate of 80/0 in the east and
1.5% in the west, with a total peak growth of 3% per year over the forecast horizon. Given
uncertainties of economic growth and other factors, the net system growth in PacifiCorp s load
could vary. Over time, PacifiCorp expects its existing resources to diminish significantly
concurrent with an expected increase in supply obligations. Load and system peak growth
hydro relicensing and contract expirations will increase the gap between demand and supply.
Prompt and focused attention is needed to close this gap. Beginning in fiscal year 2009 the
system becomes capacity deficient and the deficit steadily grows to approximately 2800 MW by
fiscal year 2015.
The Company s IRP focuses on the candidate options that are considered realistic
feasible alternatives for balancing resource supply with electricity demand. Key resources that
may be economical and could feasibly be procured by PacifiCorp to meet customer needs
include:
Demand-side management programs
Distributed generation
Standby generation
Combined heat and power (CHP)
Supply-side resources
Renewables (wind-geothermal)
Coal (pulverized and integrated gasification combined cycle)
Natural gas (SCCT, CCCT with DF, IC aero SCCT)
Compressed air energy storage
Hydro pumped storage
Market purchases
Transmission
DECISION MEMORANDUM
PacifiCorp intends to implement many elements of its Action Plan utilizing a formal
and transparent procurement program. The IRP has determined a need for resources with
considerable specificity, and identified the desired portfolio and timing of need. The IRP has not
identified specific resources to procure, or even determined a preference between asset
ownership versus power purchase contracts. These decisions will be made subsequently on a
case-by-case basis with an evaluation of competing resource options. These options will be fully
developed using a robust procurement process, including, when appropriate, competitive bidding
with an effective request for proposal (RFP) process.
Prior to the issuance of any supply-side RFP, PacifiCorp will determine whether the
RFP should be "all-source" or if the RFP will have limitations as to amount, proposed
structure(s), fuel type or other such considerations. Benchmarks will also be determined prior to
an RFP being issued and may consist of the then-current view of market prices, a self-build
option, a contractual arrangement, or such other benchmark alternatives. Externalities will be
determined based on the form and format of each procurement process and it is anticipated that
the assumptions utilized will be consistent with what is in the IRP unless such assumptions are
not applicable or new-updated information becomes available to inform the process.
The combination of new resources identified in the Company s Preferred Portfolio
and the existing and planned resources results in a more diversified resource portfolio for
PacifiCorp. The capacity of PacifiCorp s existing, planned and IRP resources as a percent of
peak obligation (peak load plus firm sales) for fiscal year 2015 is as follows: coal 500/0, gas 27%
purchases 10%, hydro 6%, DSM 40/0, and renewables 3%.
On June 30, 2005, the Commission issued a Notice of Filing in Case No. P AC-05-
2 and established a comment deadline of July 29, 2005. Comments were filed by Commission
Staff and Mr. Jerry Williams of Nampa, Idaho. Mr. Williams believes that wind or solar
resources are the only viable course until hydrogen can be converted into power. He supports
the need for natural gas and coal for emergencies. The Commission Staff believes that the
process followed by PacifiCorp satisfies the Commission s IRP requirements. Staff recommends
that PacifiCorp s 2004 IRP filing, including the Action Plan, be acknowledged by the
Commission. Staff also recommends that PacifiCorp be directed to provide regular progress
reports to keep the Commission and Staff informed as to the Company s activities and progress
DECISION MEMORANDUM
on any request for proposals that are issued or any generation projects the Company is pursuing.
Staff Comments are attached.
COMMISSION DECISION
Pursuant to its biennial requirement, PacifiCorp has filed its 2004 Integrated
Resource Plan (IRP) with the Commission. Does the Commission wish to acknowledge and
accept the Company s filing?
Scott D. Woodbury
blslM:P ACEO502 sw2
DECISION MEMORANDUM
SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-0320
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Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE FILING BY
ACIFICORP DBA UTAH POWER & LIGHT
COMP ANY OF ITS 2004 ELECTRIC
INTEGRATED RESOURCE PLAN (IRP).
COMMENTS OF THE
COMMISSION STAFF
CASE NO. P AC-05-
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Filing and Notice of Comment Deadline issued on June 30, 2005 , submits the following COlll1nents.
BACKGROUND
On January 21 2005, PacifiCorp dba Utah Power & Light Company (PacifiCorp; Company)
filed its 2004 Integrated Resource PIan (IRP) with the Idaho Public Utilities Comnlission
(Commission). The Company s filing is pursuant to a biennial requirement established in
Commission Order No. 22299, Case No. U-1500-165. PacifiCorp states that its IRP provides a
framework for the prudent future actions required to ensure that PacifiCorp continues to provide
reliable, least cost service with manageable and reasonable risk to its customers. The 2004 IRP
provides guidance and rationale for significant resource procurements over the next several years.
STAFF COMMENTS WL Y 29, 2005
The IRP was developed in a collaborative public process with considerable involvement from
customer interest groups, regulatory staff, regulators and other stakeholders.
PacifiCorp serves approximately 1.6 million retail customers in a service territory
comprising about 136 000 square miles in portions of six western states: Utah, Oregon, Wyoming,
Washington, Idaho and California. This service territory has diverse regional economies ranging
from rural, agricultural and mining areas to urban, manufacturing and government service centers.
Since the filing of the Company s 2003 IRP in January 2003, PacifiCorp has procured two
natural gas resources via the issuance of supply-side solicitations, issued a request for proposal
(RFP) for renewable resources, and selected three new cost-effective programs from a demand-side
management (DSM) RFP. Looking forward, PacifiCorp expects its obligations to provide
electricity to its customers will continue to grow, while at the same time its existing resources will
diminish. The 2004 IRP proposes a number of diverse actions over the first 10 years of the 20-year
study horizon aimed to close the gap. Not taking action to close this gap, the Company contends
would expose PacifiCorp and its customers to unacceptable levels of cost, reliability and market
risk.
Regarding new resource needs, the Company s Preferred Portfolio proposes the addition of
1 77 MW of Class 1 DSM (dispatchable load control) and 2 629 MW of thermal generation
capacity. In addition to the resources identified in the Preferred Portfolio, PacifiCorp will continue
to procure up to 1 200 MW of shaped capacity through front office transactions on a rolling forward
basis, expects 100 MW of capacity through qualified facilities (QF) contracts, and will continue to
procure the 1 400 MW of economic renewable resources which were first identified in the 2003
IRP. Furthermore, PacifiCorp will procure 250 MWa of base Class 2 DSM (conservation) and
pursue an additional 200 MWa of cost-effective DSM for a potential total for 450 MWa over the
ten-year horizon.
Results and key findings in the Company s IRP include:
The 2 629 MW of thermal generation capacity consists of four thermal units
in the east (two fueled with coal and two with natural gas) and one natural
gas unit in the west.
The most robust resource strategy relies on total resources creating a diverse
portfolio of resources including renewables and demand-side managenlent
combined with natural gas and coal-fired generating resources.
STAFF COMMENTS JULY 29, 2005
Two maj or issues hang over the most significant resource choices that
PacifiCorp must make: (i) the future cost of natural gas and (ii) the future
cost of or constraints on air emissions and carbon dioxide emissions in
particular. PacifiCorp believes it has adequately addressed these risks in the
analysis, based on its current understanding of these issues.
Demand-side management continues to be an important and cost-effective
resource for PacifiCorp. DSM additions resulted in new generating
, resources being delayed. The first two east side resources are delayed one
year each, and a west side resource is delayed two years - pushing it beyond
the 10-year portfolio planning window.
The present value revenue requirement (PVRR) for the group of lowest-
cost, risk-adjusted portfolios differed by only $48 million or 0.40/0. This
narrow cost range indicates a degree of flexibility in specifying and
procuring needed resources during the Action Plan time horizon.
In response to stakeholder comments, a detailed study was conducted to
determine the optimal planning margin for the PacifiCorp system. The
results in this study found the optimal planning margin for the PacifiCorp
system to be 15010.
Also in response to stakeholder comments, an evaluation of the wind
resources providing energy to PacifiCorp s system was conducted to
determine what the appropriate contribution to planning margin should be
for these resources. The evaluation resulted in a 20% contribution to
planning margin by wind resources.
PacifiCorp forecasts an average annual peak load growth rate of 3.8% in the east and 1.5%
in the west, with a total peak growth of 3% per year over the forecast horizon. Given uncertainties
of economic growth and other factors, the net system growth in PacifiCorp s load could vary. Over
time, PacifiCorp expects its existing resources to diminish significantly concurrent with an expected
increase in supply obligations. Load and system peak growth, hydro relicensing and contract
expirations will increase the gap between demand and supply. Prompt and focused attention is
needed to close this gap. Beginning in fiscal year 2009 the system becomes capacity deficient and
the deficit steadily grows to approximately 2800 MW by fiscal year 2015.
The Company s IRP focuses on the candidate options that are considered realistic, feasible
alternatives for balancing resource supply with electricity demand. Key resources that may be
economical and could feasibly be procured by PacifiCorp to meet customer needs include:
STAFF COMMENTS JULY 29, 2005
Demand-side management programs
Distributed generation
Standby generation
Combined heat and power (CHP)
Supply-side resources
Renewables (wind, geothermal)
Coal (pulverized and integrated gasification combined cycle)
Natural gas (SCCT, CCCT with DF, IC aero SCCT)
Compressed air energy storage
Hydro pumped storage
Market purchases
Transmission
PacifiCorp intends to implement many elements of its Action Plan utilizing a formal and
transparent procurement program. The IRP has determined a need for resources with considerable
specificity, and identified the desired portfolio and timing of need. The IRP has not identified
specific resources to procure, or even determined a preference between asset ownership versus
power purchase contracts. These decisions will be made subsequently on a case-by-case basis with
an evaluation of competing resource options. These options will be fully developed using a robust
procurement process, including, when appropriate, competitive bidding with an effective request
for proposal (RFP) process.
Prior to the issuance of any supply-side RFP, PacifiCorp will determine whether the RFP
should be "all-source" or if the RFP will have limitations as to amount, proposed structure(s), fuel
type or other such considerations. Benchmarks will also be determined prior to an RFP being
issued and may consist of the then-current view of market prices, a self-build option, a contractual
arrangement, or such other benchmark alternatives. Externalities will be determined based on the
form and format of each procurement process and it is anticipated that the assumptions utilized will
be consistent with what is in the IRP unless such assumptions are not applicable or new-updated
information becomes available to inform the process.
STAFF COMMENTS JULY 29, 2005
The combination of new resources identified in the Company s Preferred Portfolio and the
existing and planned resources results in a more diversified resource portfolio for PacifiCorp. The
capacity ofPacifiCorp s existing, planned and IRP resources as a percent of peak obligation (peak
load plus firm sales) for fiscal year 2015 is as follows: coal 50010, gas 270/0, purchases 100/0, hydro
, DSM 4%, and renewables 3%.
STAFF ANALYSIS
Staff participated in many public input meetings held throughout the yearlong IRP
development process. Staff commends PacifiCorp for its diligent efforts and its thorough analysis.
Each IRP the Company prepares is more extensive than the one before. The 2004 IRP is no
exception. Staff also commends the Company for its willingness to consider input from interested
parties, but also for its conviction in standing firm in response to what have frequently been
extremely divergent interests of various stakeholders involved in the process.
As in its previous IRP, the process employed by PacifiCorp in the development of this IRP
was very thorough. Staff believes the analysis conducted by the Company exceeds that of the other
electric utilities regulated by the Commission. PacifiCorp considered a broad array of potential
new resources, including DSM, to meet future load requirements. The Company also performed a
comprehensive risk analysis examining such factors as changes in gas and electric prices, changes
in loads, variations in hydro conditions, and possible thermal outages. Additional risks that could
not easily be quantified through numerical analysis, such as changes in air emissions requirements
hydro relic ensing, and possible renewable portfolio standards, were also considered. Staff is
satisfied that the risk analysis performed by the Company encompassed all likely future risks and
was comprehensive enough to insure that risk was fairly balanced against cost in selecting the
preferred new resource portfolio.
The preferred resource portfolio selected in the IRP consists of a blend of thermal plants
gas-fired plants, renewables, load control programs and DSM. Except for 1 100 MW of wind
generation that the Company is currently trying to acquire, this remaining blend of resource types
was the,natural result of the analysis, not due to a preconceived beliefby the Company that a
diverse mix of resource 'types would be preferable. Staff believes that this natural result is
significant. Each new resource type offers its own unique advantages, and in combination, creates
the preferred set of resources. PacifiCorp ' s preferred resource portfolio is sulnmarized below.
STAFF COMMENTS JULY 29 , 2005
PacifiCorp Preferred Portfolio
Cool CCCT w/DF
DSM Summer Load Control
DSM Summer Load Control
Utah - S
Utah - S
Utah - N
East
East
WMAIN
West
West
383
575
383
525
560
586
525
560
West 586
Wind RFP
In the 2004 IRP, PacifiCorp began by sticking to its plans developed in the previous IRP to
acquire up to 1,400 MW of renewables generation over the next 10 years. The Company did no
new analysis to confirm whether 1,400 MW was still a reasonable target, whether its cost
assumptions were still accurate, or whether 1,400 MW could be acquired given the current political
and economic climate. Staff strongly believes that each new biennial IRP cycle presents both an
opportunity and an obligation to refresh assumptions, incorporate new information, consider
different alternatives and change course if necessary.
In any case, PacifiCorp issued an RFP in February 2004 seeking to acquire up to 1 100 MW
of renewable generation (most likely wind). To date, the Company has successfully negotiated only
one contract for the Wolverine Creek project in Idaho, representing only 64.5 MW. PacifiCorp has
cited the delay in renewing the federal production tax credit, and its short extension (December
2005), as one of the problems affecting the acquisition of renewable resources. In addition
PacifiCorp attributes the delay to higher steel prices and the weakness of the dollar in relation to the
Euro, which in turn, have caused steep increases in equipment prices. It is uncertain as to whether
there are any other reasons for the delay that are within the control ofPacifiCorp. It is also unclear
how much longer it will be before PacifiCorp is able to secure firm commitments for its targeted
amount of renewables. Finally, it is currently unknown as to whether the Company will be able to
acquire the quantity it is seeking and whether the price it will be required to pay will be consistent
with its IRP assumptions.
STAFF COMMENTS WL Y 29 , 2005
Consequently, the significant delay and uncertainty in filling what amounts to one of the
single largest portions ofPacifiCorp s portfolio going 'forward is troublesome. It indicates to Staff
that perhaps wind generation, in spite of its recognized advantages, is contingent upon so many
factors outside of the control of the utility and the developers that upfront costs and developlnent
risks are being underestimated. The difficulties being experienced call into question whether it is
wise to rely so heavily on quick acquisition of resources with so much development uncertainty.
its comments on the 2003 IRP , Staff expressed concern about whether the aggressive pace and
quantity of wind acquisition envisioned by PacifiCorp could be realized. Staff recommends that for
its next IRP, PacifiCorp incorporate what it is learning now and fully review and refresh its
planning assumptions for wind. A more explicit contingency plan would also be desirable
explaining what actions the Company will take if planned resources cannot be acquired in the time
frame or at the price envisioned. As it turns out, PacifiCorp is fortunate that it does not have to
have the entire 1 100 MW it is attempting to acquire available for several more years in the future.
Renewables, specifically wind and perhaps geothermal to the extent it is available, offer
price stability due to the absence of fuel costs and associated fuel price risk. However, wind
resources, by themselves, cannot meet all ofPacifiCorp s needs because they cannot be counted on
to deliver capacity during all the hours when capacity will be needed. In addition, Staff is uncertain
about how much new wind generation can be economically developed, particularly if production
tax credits are not renewed, and whether PacifiCorp will be competing with other utilities for a
limited resource.
Ongoing Resource Procurement Activities
In addition to the renewable resources the Company is currently seeking to acquire, the
2003 IRP identified the need to procure two gas-fired supply side resources. The Currant Creek
and the Lakeside projects were selected through RFP processes. Both projects are under
construction. The Currant Creek facility is nearly complete while the Lakeside proj ect is expected
to be operational in the summer of 2007.
PacifiCorp previously indicated that it intended to keep the Commission and Staff apprised
of key resource activities, including progress on the Procurement Program. The Company
anticipated providing Procurement Program status reports approximately every six months.
However, no such reports have ever been provided. Staff once again recommends that PacifiCorp
STAFF COMMENTS JULY 29, 2005
, keep the Commission and Staff informed as to its activities and progress on any requests for
proposals that are issued or on any generation projects the Company is pursuing.
Gas Price Assumptions
The IRP Base Case analysis utilized a June 2004 gas price forecast. Gas prices have
generally increased since the June 2004 forecast was completed. Use of a more recent gas forecast
would have increased the estimated costs for gas-fired generation, and consequently could have
changed the composition of the Preferred Portfolio. However, the Company states, use of a more
recent gas forecast would not have changed the choice of a gas-fired CCCT (combined cycle
combustion turbine) as the first supply sid~ resource in 2009. Moreover, despite using the June
2004 forecast, PacifiCorp did perform sensitivity analysis use a range of natural gas forecasts that
Staff believes adequately encompasses the higher, more recent gas forecast. The simple fact that
gas prices change unpredictably is precisely why a reasonable range of gas price futures is
examined in sensitivity analysis. In addition, Staff believes that it would be unrealistic to expect the
Company to redo its very extensive analysis using a more recent forecast and still be able to abide
by its schedule for completing and submitting the Plan.
Transmission
Although PacifiCorp gives some consideration to transmission constraints and the cost of
adding or upgrading transmission when evaluating generation alternatives, Staff is hopeful that a
more comprehensive examination of transmission could be included in future IRPs. While not a
resource itself, transmission can provide access to a greater variety of market purchases and to
lower cost generation alternatives. Staff recognizes the FERC restrictions utilities face in
communicating with their respective transmission sectors, and is also cognizant of the emergence
and ongoing fluctuation of various regional transmission project initiatives and translnission
organizations. Staff also realizes that non-firm transmission is difficult to incorporate in resource
planning. Nevertheless, Staff encourages the Company to continue to strive to improve its ability to
address the relative costs and risks of transmission investments, and align its transmission planning
and generation resource planning efforts. Staff notes that PacifiCorp has included coordination
with other regional entities to develop Grid West and participation in regional transmission
initiatives as an item in its IRP Action Plan.
STAFF COMMENTS JULY 29, 2005
Planning Reserve Margin
PacifiCorp has based its IRP analysis on a planning margin of 15%. Currently however, the
Company s planning margin is significantly less. Building to meet a 15 % reserve margin
obviously, would be more expensive than meeting a lower margin. The planning Inargin is
expected to cover WECC operating requirements (6-7%), regulating margin (1-2%), deviations in
expected load, and unplanned outages. In its work on the 2004 IRP, the Company conducted fairly
extensive analysis, both internally and using an external consultant, to determine an appropriate
reserve margin. Staff believes that a 15% planning reserve margin is reasonable.
Carbon Dioxide Regulatory Cost Assumptions
All participants involved in the IRP process, including PacifiCorp, seem to agree that there
is significant risk surrounding potential CO2 regulations that warrants continued consideration in
planning. Many parties are unable to agree, however, on the magnitude of those risks and the
assumptions that should be made for the IRP analysis, particularly for the base case. Clearly, it is
appropriate to analyze the effect of a reasonable range of CO2 regulatory costs. Staffbelieves the
Company s assumptions encompass a reasonable range of likely future costs. Staff also agrees with
the Company s decision to include CO2 regulatory costs in its base case assumptions despite the
fact that no CO2 legislation has yet been passed. Although the exact level and form of CO2
regulatory costs is still not known, it seems almost certain that there will eventually be some
CO2 regulatory costs. Thus, Staff believes it is appropriate to include CO2 costs in the base case.
Furthermore, Staff believes that the level of CO2 costs assumed for the base case is reasonable.
2011 Brownfield Coal Plant
Probably the single most controversial element of the 2004 IRP is the Company s plan to
procure 575 MW of coal generation in 2011. The plan consists of an additional generating unit at
an existing plant (i.
, "
brownfield"), most likely at the Hunter plant in Utah. The IRP Preferred
Portfolio also includes a second brownfield coal plant in Wyon1ing in 2014. Coal generation has
the advantage that PacifiCorp currently owns or controls existing thermal sites with room for
expansion and can make use of existing transmission corridors. The Company also has experience
with building, owning and operating thermal facilities. Coal currently has a cost advantage over
other types of base load generation, and exhibits less fuel cost risk than gas. However, the risks and
STAFF COMMENTS JULY 29, 2005
costs associated with the possible impact of future environmental legislation must be balanced
- against the advantages of coal. Staff believes that PacifiCorp has fairly weighed the positive and
negative aspects of coal, and that coal generation is an important and appropriate piece of the
Company s -Preferred Portfolio.
Cleaner Coal Technologies, IGCC
While Staff believes that coal generation is an important and appropriate piece of the
Company s Preferred Portfolio, Staff also recognizes that cleaner coal technologies, and IGCC
(integrated gasification combined cycle) in particular, are rapidly eD;1erging technologies. As IGCC
technology matures, its cost may come down. Yet even if IGCC costs continue to exceed
pulverized coal technology, customers may be willing to pay a premium for resources that are more
environmentally benign. Staff recommends that PacifiCorp continue to evaluate and investigate
IGCC in its next IRP. It is Staffs understanding that the Company has already commissioned a
detailed study of this resource to determine the viability of the technology.
Gas- Fired Generation
Despite recent substantial increases in the price of natural gas, PacifiCorp s IRP analysis
confirms that gas-fired generation still has a role to play for some applications. The Preferred
Portfolio includes two gas-fired plants on the east side of the Company s system-one in 2009 and
another in 2013. One gas-fired unit would be added on the west side of the system in 2012.
Gas-fired generation is less capital intensive, quick to construct and relatively easy to site
but is subject to fuel cost volatility. Staff believes that PacifiCorp fairly weighed the tradeoffs
associated with gas- fired generation in its IRP analysis. Gas-fired generation occupies a substantial
share of the Preferred Portfolio, but significant amounts of low fuel risk coal and no fuel risk
renewables balance the portfolio.
Demand Side Management
Delnand Side Management (DSM) programs, while comprising a smaller part of the
portfolio, are nevertheless an important piece. PacifiCorp intends to procure 200 aMW of Class 2
DSM (non-dispatchable conservation) over the next 10 years, in addition to the 250 aMW of
STAFF COMMENTS JULY 29 , 2005
conservation programs the Company is already pursuing as a result of the 2003 IRP. The Conlpany
plans to expand its offering of conservation programs in Idaho to be comparable to those in other
states.
Dispatchable load control (Class 1 DSM), while a relatively small part of the Preferred
Portfolio, is still important because it satisfies very short-term needs that are otherwise extremely
expensive to meet. The Preferred Portfolio includes 88 MW of load control in 2008 and an
additional 89 MW in 2013. These load control programs would most likely be associated with
summertime air conditioning. The Company plans to continue its highly successful irrigation load
control program in Idaho.
Staff believes that PacifiCorp s plans for DSM are reasonable. Staff is encouraged by the
Company s commitment to introduce a level ofDSM program offerings in Idaho that is comparable
to other states within its service territory.
Action Plan
PacifiCorp s IRP Action Plan is summarized on the following page. The Action Plan
describes efforts and activities the Company expects to undertake within the next 10 years.
Included in the Plan is continuation of efforts to meet its 1,400 MW target for new renewables
procurement of a gas-fired resource in Utah for the summer of 2009, and procurement of a coal
resource in 2011. The Plan also includes efforts to acquire additional amounts of summer load
control, as well as unknown amounts of distributed resources. Staff believes the Action Plan is
appropriate given the conclusions reached in the IRP.
STAFF COMMENTS JULY 29, 2005
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Acknowledgement
Staff believes it is very important to recognize that integrated resource planning is an
ongoing process. New plans are to be prepared and filed at two-year intervals. Consequently, this
IRP represents PacifiCorp s best effort to plan according to what is known at this point in time.
Staff fully expects that as conditions change and as new and better information becomes available
future IRPs will change accordingly. PacifiCorp acknowledges that the Action Plan is subject to
change as new information becomes available or as circumstances change. In fact, the Company
has expressed its intention to revisit and refresh the Action Plan no less frequently than annually.
The reality of integrated resource planning is that for most utilities, particularly PacifiCorp, by the
time one plan is submitted to the Commission for acknowledgement, it is almost tinle to begin
another planning cycle. Thus, Staff advises that if any other party in this case objects to some
portion of the IRP, it express its concerns and seek to influence the next IRP to be filed in 2005.
In Idaho, as in most states, the Commission "acknowledges" rather than "approves" a
utility s IRP. Other states where Pacifi Corp serves have similar IRP requirements and provisions
for acknowledgement; however
, "
acknowledgement" may be viewed differently 'in some states than
in others. Staff believes it may be helpful to explain what it believes is meant by acknowledgement
in Idaho. The following policy on integrated resource planning, adopted by the Commission in
Order No. 25260, Case No. GNR-93-3 may help shed light on what is meant by
acknowledgement:
POLICIES ADDRESSING INTEGRATED RESOURCE PLANNING. Each
electric utility regulated by the Idaho Public Utilities Commission with retail
sales exceeding 500 000 kilowatt hours in a calendar year shall employ
integrated resource planning. Each electric utility s integrated resource plan
must be updated on a regular basis (no later than biennially), must provide an
opportunity for public participation and comment, and must be implemented.
This plan constitutes the base line against which the utility s performance will
ordinarily be measured. The requirement for implementation of a plan does
not mean that the plan must be followed without deviation. The requirement
of implementation of a plan means that an electric utility, having made an
integrated resource plan to provide adequate and reliable service to its electric
customers at the lowest system cost, may and. should deviate from that plan
when presented with responsible, reliable opportunities to further lower its
planned system cost not anticipated or identified in new existing or earlier
plans and not undermining the utility s reliability. In order to encourage
prudent planning and prudent deviation from past planning when presented
with opportunities for improving upon a plan, an electric utility s plan must be
on file with the Commission and available for public inspection, but the filing
STAFF COMMENTS JUL Y 29 , 2005
of the plan does not constitute approval or disapproval of the plan having the
force and effect of law, and the deviation from the plan would not constitute
violation of the Commission s orders or rules. The prudence of a utility s plan
and the utility s prudence in following or not following a plan are matters that
may be considered in a general rate proceeding or other proceeding in which
those issues have been noticed.
Staff has always viewed "ac.knowledgement" as being closely related to the process
integrated resource planning, rather than the result.By acknowledging a utility's IRP, Staff believes
the Commission is endorsing the process the utility followed in developing the plan, but not necessarily
any actions called for in the plan. The process requires that the utility forecast loads, identify and
evaluate possible resource options, analyze risk, fairly weigh the benefits of both supply and demand
side options, and finally, to develop and implelnent an action plan. The results of the plan, including
the actions the utility proposes to take and the specific resources chosen to meet load, will be
scrutinized in due course when the utility seeks cost recovery. Presumably, if the utility has followed a
fair and thorough planning process, it will lead to a prudent, least cost, least risk result that can be
supported by the Commission.
CONCLUSIONS AND RECOMMENDATIONS
Staff believes that the process followed by PacifiCorp meets the Commission
requirements and that the end result of the IRP is reasonable. Staff recommends that Pa~ifiCorp
2004 Integrated Resource Plan, including the Action Plan, be acknowledged by the Commission.
Staff also recommends that PacifiCorp provide regular progress reports to keep the Commission
and Staff informed as to the Company s activities and progress on any requests for proposals that
are issued or on any generation projects the Company is pursuing.
Respectfully submitted this c)7 day of July 2005.
c:4~, U-mScott Woodbury .
Deputy Attorney General
Technical Staff: Rick Sterling
i: umisc :comments/paceO5 .2swrps
STAFF COMMENTS JULY 29, 2005