20070917_2054.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
CO MMISSI 0 NER SMITH
CO MMISSI 0 NER RED FO RD
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:NEIL PRICE
DATE:SEPTEMBER 10, 2007
SUBJECT:ACKNOWLEDGMENT OF P ACIFICORP'2007 ELECTRIC
INTEGRATED RESOURCE PLAN (IRP); CASE NO. PAC-07-
INTRODUCTION AND BACKGROUND
On May 30, 2007, PacifiCorp filed its 2007 Integrated Resource Plan (IRP) with the
Commission pursuant to the biennial filing requirement mandated in Order No. 22299, as
modified in Order No. 30262. On August 17 , 2007, the Company filed an "Errata to 2007 IRP"
in order to correct errors in its original IRP filing.
On July 2, 2007 , the Commission issued a Notice of Filing, Notice of Modified
Procedure and Notice of Comment Deadline and solicited comments on the IRP. Subsequently,
the Staff, along with Monsanto Company and one member of the public filed comments within
the comment period.
THE 2007 INTEGRATED RESOURCE PLAN
Prior to submitting its IRP , PacifiCorp studied 12 separate portfolios in order to
identify a portfolio that demonstrated, through projected statistical analysis, superior
performance in terms of estimated cost, customer rate impact, cost versus risk balance across five
different CO2 cost adder levels and supply reliability. See PacifiCorp 2007 IRP at 6, 139.
Ultimately, the Company settled upon a preferred portfolio that would include the acquisition of
the following energy resources:
- 2 000 MW of renewable resources by 2013
100 MW of load controls beginning in 2010
West-side combined cycle combustion turbine ("CCCT") in 2011
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- High-capacity-factor baseload resources to PacifiCorp s eastern system in
2012 and 2014
Eastern system CCCT's in 2012 and 2016
Firm market purchases to meet system needs beginning in 2010
Transmission AdditionslUpgrades between 2010-2014 to support
resources
Id. at 7.
A. Forecast Load Growth
PacifiCorp estimates that customer loads will grow at an average rate of 2.
annually from 2007 to 2016. Id. at 4 (Figure 1.1). PacifiCorp s eastern system (Idaho, Utah and
Wyoming) continues to display a significantly higher rate of energy growth than its western
system, with an annual average energy growth rate of 3.2% and 0., respectively. The annual
growth for the Idaho service area over that same 10-year period is estimated to be 1.3%. Id. at 3
(Table 1.1).
The Company currently forecasts a summer peak resource deficit beginning in 2008
to 2010 depending on whether a 12% or 15% planning reserve ("PR") margin is used. Id.
2009, the Company will become energy deficient on an annual basis, based on a 12% planning
reserve margin. Id. Beginning in 2010, its system will operate at a 791 MW deficiency, again
based upon a 12% PR margin. Id. The energy resource deficit will increase to 2,400 MW by the
year 2012 and 3 000 MW by 2016. Id.
B. Modeling and Risk Analysis
1. IRP Modeling
PacifiCorp employed two distinct modeling tools during its portfolio analysis: (1)
Capacity Expansion Module (CEM); and (2) Planning and Risk (PaR) Module. Id. at 5. The two
analytical models assisted the Company in arriving at the "least-cost optimization (of) resource
options" and "develop risk-adjusted portfolio performance measures.Id. The Company
modeling approach consisted of "resource screening, risk analysis portfolio development and
detailed production cost and stochastic risk analysis.Id.
In order to predict the most desirable resource options, PacifiCorp used the CEM to
develop and analyze 16 separate "alternative future scenarios" involving a mixture of several
variables, including potential CO2 regulatory costs, natural gas prices , wholesale electricity
prices, retail load growth and the scope of renewable portfolio standards. Id. at 6, 139. The
DECISION MEMORANDUM
Company views the preferred resource portfolio as one that manifests itself under a "reasonably
wide range of potential future" scenarios. Id. Once those resource option portfolios were
effectively identified, the PaR Module was then used to simulate the potential risk and cost of
each through a random sampling process of the following variables: loads , commodity natural
gas prices, wholesale power prices, hydro energy availability and thermal unit availability. Id.
2. CO2 Emissions
PacifiCorp s IRP also addressed the potential costs/effects of CO2 emIssIOn
compliance. Id. at 6. According to the Company, the costs associated with CO2 emission
compliance are not normally amenable to statistical analysis. Id. Thus, rather than attempting to
ascertain a specific cost, the Company elected to treat the potential emission costs as "a scenario
risk" in its overall IRP analysis. Id. The initial risk/analysis portfolios were analyzed under five
different CO2 cost adder levels - $O/ton, $8/ton, $15/ton, $38/ton, and $61/ton (adjusted for
projected 2008 dollars) - in order to determine which portfolio was most prevalent across a
reasonably wide range of potential futures.Id.
C. Action Plan
Prior to the 2011-2012 period, PacifiCorp plans to address its projected resource
deficits through the procurement of additional renewable resources, demand-side programs and
market purchases. Id. at 3. The Company has made requests for proposal ("RFP") for additional
base load resources, renewable resources and demand-side resource programs benefiting the
eastern portion of its service area. Id.
Faced with the likelihood of energy deficiencies, PacifiCorp has taken recent steps
toward increasing its resource production. In June 2006, PacifiCorp converted its Currant Creek
facility from a single-cycle combustion turbine to a combined-cycle combustion turbine
CCCT"
).
Id. at 61. It will add another CCCT to its Lake Side facility this month. Id. These
additions will be offset by the expiration of two resource procurement contracts, a 400 MW
agreement with TransAlta Energy Marketing and a 575 MW BP A peaking contract, in June 2007
and August 2011 , respectively. Id.
The IRP professes the Company s commitment to the following additional measures
in order to meet future resource needs:
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Wind Renewal:
Continue to develop renewable resources, including wind power. PacifiCorp
has acquired 346 MW of wind power toward the fulfillment of its 2004 IRP
goal of procuring 400 MW by 2007. The Company states that it will
continue to acquire additional renewable resources on its way toward
procuring a total of 1,400 MW of renewable resources by the year 2010 and
000 MW by the year 2013. PacifiCorp has recently added two wind
projects, Leaning Juniper 1 and Marengo.
Energy Efficiencies:
Increase its commitment to so-called "energy efficiency" initiatives. The
Company will continue to run programs to acquire 250 aMW of cost-
effective energy efficiency and an additional 200 aMW if cost-effective
initiatives can be identified.
Load Control:
Expand upon its existing load control programs. PacifiCorp anticipates a
system-wide average load growth of 2.5 percent per year from 2007 through
2016 throughout its service area. Average load growth from its Idaho
customers should be around 1 percent per year. The Company anticipates
further expansion of its existing 150 MW of irrigation and air conditioning
load control program in Utah and Idaho. In 2010, a 100 MW irrigation load
controL program will be added and will be split between its eastern and
western systems.
Integrated Environmental Issues:
Continue to study and address contemporary environmental issues. The
Company asserts that it will assume a leadership role in discussions with
stakeholders involving global climate change issues; and continue to
investigate the development of carbon reduction technology, specifically
clean coal, sequestration and nuclear power.
Transmission:
Address existing problems affecting transmission of resources to customers.
The Company plans an expansion of its transmission system and an upgrade
in its transmission infrastructure and flexible resources, such as natural gas
in order to meet the anticipated customer loads found in the preferred
portfolio.
DECISION MEMORANDUM
Diversification:
Diversification of base load and intermediate load resources. The Company
reiterated its desire to add approximately 1 700 MW of base load resources, a
mix of thermal resources and market purchases, to its eastern system between
2012 and 2014. Further, it will seek to acquire an additional 200 to 1 300
MW of thermal and market purchase resources to benefit its western system
between 2010 and 2014.
Id. at 10 221 , 224-27(Table 8.2).
COMMENTS
Public Comments
On July 6, 2007, Gerald Fleischman submitted comments Via an e-mail to the
Commission. Mr. Fleischman commended PacifiCorp for its "increase in renewable energy
input in its most recent Integrated Resource Plan." Mr. Fleischman also recommended that the
Company attempt to procure all of its renewable energy resources from within the State of Idaho
and utilize "compressed energy storage" as a substitute for its natural gas inventory.
Monsanto Company Comments
On August 21 , 2007, Monsanto Company ("Monsanto ) submitted written comments
to the Commission. While Monsanto acknowledged that PacifiCorp had "fulfilled its
responsibility to provide a planning document that can serve as framework for PacifiCorp
planning decision " it urged the Commission to "continue to follow the (Commission s) . . .
practice of accepting IRP filings without approval or endorsement." Comments at 1-
Monsanto s concerns begin with its contention that the IRP document currently
serves as a "supporting document" for PacifiCorp s current request for new rate adjustments. Id.
at 2. As such, Monsanto believes that the IRP process should be afforded an increased level of
scrutiny by the Commission and Staff. Monsanto is also concerned that the "capital projects
resulting from the (IRP) do not reflect all states interest equally.Id. The Company opines that
review participants within the states of Oregon and Utah have a disproportionate amount of
influence upon PacifiCorp s capital procurements, expenses that are "borne by ratepayers in all
states.Id. at 3. Monsanto argues that a more "balanced and inclusive Plan that reflects the
interest of all six states" is needed. Id.
Monsanto also urged PacifiCorp to acknowledge the risk of "negative economIC
impact" as a "mitigating factor" to be utilized during the energy portfolio development process.
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Monsanto believes that PacifiCorp s failure to include "negative economIC impact" should
negate any of the recommendations included in PacifiCorp IRP. Id. at 4.
The Company offered the following additional comments to PacifiCorp s 2007 IRP:
1. PacifiCorp should be required to increase its demand-side reduction
programs.
2. PacifiCorp should avoid the development of new gas-fired generation
sources due to anticipated increased volatility of gas price and supply in
2008; and the uncertainty of whether LNG can adequately "offset either
declining production or expansion in demand for western gas. . . ." Thus
Monsanto questions PacifiCorp s projected future cost of fuel.
3. "Monsanto supports the development of environmentally-responsible
coal-fired generation over "gas-fired generation.The Company
believes that given the relative supply available for coal, the use of "clean
coal technology is likely much less risky than continued development of
gas-fired generation.
4. PacifiCorp should investigate the integration of nuclear power within its
energy system, utilizing "the same modeling options as those currently
contained within the Company s (PacifiCorp) Plan.
5. PacifiCorp has failed to demonstrate that its increased reliance on front
office transactions (wholesale market) is a cost effective alternative to
other regional resources.
6. PacifiCorp should take a "leadership role" in developing emission control
programs. However, such programs should be balanced against the
potential "economic impact to industrial customers in Idaho and the
overall impact to the Idaho economy.
Id. at 4-
Staff Comments
Staff recognizes that PacifiCorp prepared this IRP amid disparate jurisdictional
environments, specifically in regard to resource acquisition and greenhouse gas regulation.
Throughout the development period for the IRP, there were nearly 40 participants providing
input, including Commission representatives from all states within the Company s jurisdiction
except for California. While this is not the first IRP to address constrained resource
procurement, the 2007 IRP does represent the first of such plans in which state policies, such as
renewable portfolio standards (RPS), have been in place within its service territory. Staff
DECISION MEMORANDUM
believes there is still additional work that needs to be done toward reconciling varying state
initiatives within the planning process, in conjunction with potential federal carbon legislation.
PacifiCorp continues to expand its analysis of potential portfolios, employing
multiple modeling tools, an abundance of in-house, public, and consultant data, and an array of
stochastic and deterministic scenarios to identify and to test the robustness of the preferred
portfolio. PacifiCorp utilizes an iterative approach to determine the preferred resource
acquisition path. An initial round of 12 resource portfolios were assessed under various cost and
risk scenarios that highlighted uncertainty in various assumptions, such as fuel prices, load
growth and emissions costs. Certain portfolios then went through a secondary screening process
based on sensitivity to changes in what the Company terms "secondary variables and other
resource selection factors.PacifiCorp 2007 IRP at 124. These scenarios consist of such
conditions as adjusting the planning reserve margin and construction costs.
Staff is satisfied with the breadth of future risks that were incorporated into the
Company s analysis with the caveat that evolving regulatory environments will require the
Company to further expand its analysis prior to the next IRP filing. It is Staff s opinion that
resource acquisition will become further constrained for PacifiCorp, and may expose certain
jurisdictions, especially Idaho, to resource decisions based less on economics and more on
politics. The avenues the Commission has available to mitigate this concern are through the IRP
planning process, the request for proposals (RFP) process for resource procurement, and the
MSP and allocations process. Staff is currently an active participant in developing the IRP, but
not the RFP process. Staff believes that it is imperative that the Commission become more
involved in these areas to assure that the ratepayers of Idaho are well represented.
Planning Constraints
Staff noted that the 2007 IRP planning process has proceeded amid a time during
which the Company agreed to a variety of commitments both system-wide and within each of its
various state jurisdictions. See Order No. 29998. PacifiCorp s commitments included the
acquisition of 400 MW of cost-effective renewable resources (Commitment 40); increase and
upgrade transmission capabilities (Commitments 34 and 35); and investigate clean-coal and
emissions reducing technologies (Commitments 41 through 43 and 122).
As of 2007, the Company is slightly behind on its renewables acquisition target of
400, though 335 MW in new wind projects are expected to be online by the end ofthe year. For
DECISION MEMORANDUM
the 2007 IRP, the 400 MW ofthe targeted 1 400 MW has been included as a committed resource
though the timing of procurement for the remaining block was subject to further evaluation.
Staff argues that acquisition of these resources conforms to the commitments made
but at a cost much higher than anticipated. This is evident with the three large wind projects
expected to be online this year, each of which have capital costs far in excess of those used as
assumptions in the IRP. Given the amount of wind already acquired and the fact that the
preferred portfolio contains an additional 600 MW of wind resources, there is a potential that the
portfolio selected would have been different had modeled costs been more in line with actual
costs obtained in the RFP. Also, state initiatives limiting CO2 emissions and mandating the
establishment of a renewable portfolio standard (RPS) have accelerated the Company
investigation into clean coal.
Nevertheless Staff finds that the Company has effectively addressed the
requirements of the Idaho Commission. Staff points specifically to the inclusion of transmission
resources in the 2007 IRP and treatment of demand-side management programs as an
improvement spurred by Commission directives.
Renewable Resources
Staff presumes that the 2007 IRP indicates that the Company s preferred portfolio
contains additional renewable resources beyond those identified in the 2004 IRP. The IRP states
that PacifiCorp will continue to acquire additional renewable resources on its way toward
procuring a total of 400 MW of renewable resources by the year 2010 and 2 000 MW by the year
2013. Staff acknowledges that the 2 000 MW of renewables may not solely entail wind
facilities, though it is assumed that the majority will be wind. However, Staff continues to
support cost effective wind generation to serve Idaho customers, noting that the absence of fuel
costs and carbon emissions are as important now as they ever have been with ongoing fuel price
volatility and likely emissions mitigation requirements.
Thermal Resources
Staff notes that thermal resources figure heavily into PacifiCorp s future resource
mIX, as it becomes increasingly capacity and energy constrained.The preferred portfolio
contains both combined cycle combustion turbine (CCCT) gas units and supercritical pulverized
coal facilities. Due to greater efficiencies and lower emissions super-critical pulverized coal was
selected rather than sub-critical pulverized coal.
DECISION MEMORANDUM
Staff finds that the inclusion of CCCT' s in the preferred portfolio is a suitable means
for the Company to address both energy and capacity needs efficiently. Staff opines that
CCCT's provide greater operational flexibility, lower heat rates , and enjoy economies of scale
over SCCT's. Staff is actively evaluating the Company s gas procurement and risk management
policies and will provide input into Company strategies. Staff acknowledges that the Company
took an earnest approach at capturing gas price volatility when analyzing potential portfolios.
Staff further recommends that the Company address modifications to its 2007
resource acquisition strategies on a state-by-state basis in the form of periodic updates to its 2007
IRP.
Demand-Side Measures
Staff finds that the methods employed by the Company properly incorporate energy.
efficiency measures into the planning process. Staff encourages the Company to closely monitor
demand-side opportunities with the intent to expedite expansion of DSM prior to its 2010-2011
time frame should the possibility arise. Staff maintains that DSM can be an effective, cost-
efficient means at the Company s disposal to meet its load obligations. As an example, the
Company has had great success with the Irrigation Load Control program in Idaho, and has
enacted a pilot curtailable option this year. Staff also recommends that the Company investigate
critical peak pricing programs to augment its existing time-of-use schedule. Staff considers the
deployment of advanced metering to be an indispensable part of that investigation.
Action Plan
PacifiCorp s Action Plan details the steps that the Company intends to take in order
to acquire the identified resources and further improve the IRP process. Staff concludes that the
identified course of action is appropriate given the analysis and conclusions reached in the 2007
IRP.
Acknowledgement
Staff reiterated that the Commission "acknowledges" rather than "approves" a
utility s IRP, referring the Company to Commission Order No. 25260 for an explanation of the
term "acknowledge" in Idaho.
Staff feels that the 2007 IRP represents PacifiCorp s best effort to plan according to
what is known at this point in time and fully expects that as conditions change and as new and
better information becomes available, future IRP's will change accordingly. Staff believes that
DECISION MEMORANDUM
the IRP can no longer be looked upon as choosing resources based solely on cost/risk metrics.
Political initiatives are now an important part of the planning process. Staff plans to look closely
at all utility IRP's chosen portfolios, action plans and RFP's to assure that the most economical
resources are acquired.
Recommendation
Staff believes that PacifiCorp has adequately met the Commission s requirements
with regard to its 2007 IRP filing. While not endorsing the proposed action plan, Staff believes
that PacifiCorp has performed extensive analyses, provided sufficient opportunities for public
input and that the end result is representative of the best information available to the Company at
the time of preparation. Staff therefore recommends that the Commission acknowledge the 2007
Integrated Resource Plan. Given the increasing role of jurisdictional resource mandates in the
planning process, Staff further recommends that future IRP's incorporate a section devoted to the
impacts, if any, of state policies on the selection of preferred portfolios.
COMMISSION DECISION
Does the Commission wish to accept and acknowledge PacifiCorp s 2007 IRP filing?
vV CJ-:---
Neil Price
M:PAC-O7-np2
DECISION MEMORANDUM