20030703Comments.pdf

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SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 1895
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF A VISTA CORPORATION)
DBA AVISTA UTILITIES' 2003 INTEGRATEDRESOURCE PLAN (IRP). CASE NO. A VU-03-
COMMENTS OF THE
COMMISSION STAFF
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 May 23 2003 submits the following comments.
On April 30, 2003 , Avista Corporation dba Avista Utilities (Avista; Company) filed its
2003 Electric Integrated Resource Plan (IRP) with the Idaho Public Utilities Commission
(Commission), The Company s filing complies with the Commission s direction in Order
No. 22299 Case No. U-1500-165, which requires Avista to file a biennial resource management
report (now IRP or Integrated Resource Plan) describing the status of the Company s electric
resource planning.
BACKGROUND
The Company views this IRP as a resource evaluation process, rather than a specific
resource acquisition plan. This is primarily because significant resource deficiencies are many
STAFF COMMENTS JULY 3, 2003
years into the future. The 2005 IRP will likely include more specific plans for addressing future
needs. The 2003 IRP is focused on developing a set of tools and methods within which various
potential resource decisions may be evaluated in future IRPs, requests for proposals, and other
resource planning analyses.
ANALYSIS
Load Forecast
Avista is projecting an overall average growth rate of retail electricity sales of 3.4 percent
per year over the 20-year planning period. On a monthly basis, the Company expects to encounter
energy deficits during some months in all years of the forecast. In 2004, for example, the
Company position is deficit in March, September and October, even though the annual position is
surplus by 94 aMW. In other months, particularly during spring runoff, the Company is in a
surplus position. As usual, the Company may balance its monthly positions through short-term
market purchases or sales, exchanges or other resource arrangements. However, over the long
term, the Company s strategy is to not rely on long-term market purchases to serve future base
load requirements.
AURORA Model
Avista acquired a computer model called AURORA to help develop this IRP. The IRP
says AURORA is an hourly production-cost model that dispatches resources, develops forward
market prices and incorporates Company-specific demand side management programs (DSM).
The Company says this model allows DSM programs to be evaluated against hourly market prices
in parallel with supply side resources.
The AURORA model apparently has not previously been used to evaluate DSM resources
and Avista has experienced some glitches in adapting the model to do this. However, the
Company says it has identified the problems and is in the process of correcting them. The
Company informed Staff on July 3 , 2003 that it would revise the DSM resource net market values
shown in Table 3.1 of the IRP and in Table Q.2 of the Technical Appendices.
I In a 7/1/03 e-mail from A vista, the Company acknowledged that its forecasted 20-year average sales growth rate of
2% per year stated on page 5 of the IRP is in error. Staff noted that Avista s forecasted growth rate is more than
40% higher than that which Idaho Power forecasted in its IRP and A vista provided a plausible explanation for its
higher growth rate.
STAFF COMMENTS JULY 3, 2003
Demand Side Mana2ement (DSM)
The IRP describes Avista s energy savings achieved through 24 years ofDSM programs.
Going forward, the IRP forecasts between 4 and 5 aMW of new DSM savings being achieved
annually after 2005. This amounts to over 6% of it forecasted load growth from 2004 through
2023.
A vista funds most of its DSM efforts through tariff rider surcharges in Idaho and
Washington, currently 1.95% and 1.48% of retail revenues, respectively. The IRP explains that
emergency DSM programs were used to respond to the 2001 regional energy crisis and notes that
by the end of2001 the Company s system-wide DSM tariff rider balance was a negative $12
million. As a result, the IRP says that through 2005 only 62% of the incoming DSM rider revenue
will be available for DSM programs and that the other 38% will be used to reduce the negative
balance. But the IRP also says that A vista plans to deliver more energy savings per dollar spent
on DSM than stated in its Schedule 90 goal.
According to the IRP, A vista s future DSM activities funded from its tariff rider are based
on three priorities:
1. Satisfaction ofleast-cost resource requirements and expectations?
2. Overall DSM portfolio that is cost-effective on a societal and utility basis.
3. Return its tariff rider balance to zero in a timely manner.
Tariffrider funds are also used by Avista for its participation in the Northwest Energy
Efficiency Alliance (NEEA). However, the energy savings achieved through NEEA's programs
are not included in the DSM savings that Avista lists or forecasts in its IRP. Staff believes the
future energy savings achieved through NEEA will ultimately be reflected in lower subsequent
demand forecasts. Avista s current obligation to NEEA ends in 2004 and the IRP says Avista will
evaluate next year whether to extend its participation.
2 In Appendix D, p, D-, under the Demand Side Management heading, the IRP erroneously said that the Company
focused its analytical efforts on understanding relatively low cost supply side resource options, In a 6/30/03 e-mail
the Company acknowledged that the words supply side resource should read as demand side resource.
STAFF COMMENTS JULY 3, 2003
In addition to DSM tariff rider revenues, Avista receives nearly $400 000 annually for
Conservation and Renewable Discount DSM program benefits from Bonneville Power
Administration. It will continue to receive this funding through 2006.
Supply Side Resources
As a general guideline, the annual energy position is used to determine when the Company
needs to acquire additional base-load energy resources. The first significant annual energy deficit
is expected in 2008. This deficit is forecasted to grow to 411 aMW by 2013 and 976 aMW by
2023. Load growth and reduced Mid-Columbia generation account for the significant majority of
increasing deficits during this period.
The Company is in a surplus capacity position through 2009. The Company currently has
sufficient capacity resources, due primarily to the relatively large amount of hydroelectric
generation in its resource portfolio. For the most part, future capacity requirements will be met
through the acquisition of new resources, which provide both capacity and energy.
Historically, Avista s planning reserves have not been based on unit size or resource type.
Instead, planning reserves have been set at a level equal to ten percent of the one-hour system peak
load, plus 90 MW. Together, these have equated to approximately a 15 percent planning reserve
margin during the Company s peak hour load. The Company s planning reserve level, while not
explicitly considered in the calculation, meets its operating reserve requirement levels of five and
seven percent for hydroelectric and thermal generation, respectively.
Avista contends that evaluation of the historical data shows that a superior planning
criterion is the use of a "confidence interval" based on 80 percent of the monthly variability in
load and hydroelectric generation. This means that for each month there is only a ten percent
chance that the combination of load and hydro variability would exceed the planning criteria.
other words, for a given month there is a ten percent chance the Company would need to purchase
some energy from the market. On a monthly basis, the 80 percent confidence level varies between
77 and 268 aMW. The average of the 80 percent confidence interval across the twelve months of
the year equals 153 aMW. This level is similar to critical water planning on an annual basis, but is
more precise since it is based on the chance of exceedance by month.
STAFF COMMENTS JULY 3, 2003
Staff believes that Avista s decision to employ 80 percent confidence interval planning is
acceptable. While not substantially different from its former planning criteria, it does provide
better assurance of resource adequacy by considering monthly, rather than annual, conditions.
Avista s risk analysis considered variability in hydroelectric generation, natural gas prices
and WECC loads. Possibly the greatest power supply risk the Company presently faces is
variation in hydroelectric generation. In evaluating possible new resource portfolios, lowest risk
was weighted at 50 percent and lowest cost at 50 percent.
The selection of hydro variability, load variability and gas prices as primary factors for risk
analysis is appropriate in Staffs opinion. Staff also concurs with the Company s decision to
equally weight lowest cost and lowest risk in choosing its preferred resource portfolio.
For the first ten years of the IRP timeframe (2004-2013), the IRP modeling process
selected a total of 411 aMW of new resources as follows:
. 149 aMW of CCCT
. 25 aMW of wind
. 197 aMW of coal
. 40 aMW of SCCT
This combination of new resources maintains planning reserve margins in excess of 12 percent
through 2009.
During the second ten-year period of the IRP planning horizon (2014-2023), the modeling
process recommended acquisition of coal generation due to improvements in technology and its
fuel costs relative to other resources. After 2013, only coal is selected as a result of a change in
the relationship between natural gas and coal prices. Natural gas prices over the IRP term increase
faster than coal, making coal generation less costly in later years. In total, between 2014 and
2023, an additional 566 aMW of coal resources are selected.
Staff is satisfied with the mix of resources selected by the Company. However, Staff
believes it is important to recognize that new resource additions are not needed for several years.
Consequently, the quantity and mix of Avista s resource selections will likely change in future
IRPs as conditions change, fuel prices become more certain, and technology improves.
In analyzing new resource options for this IRP, one notable conclusion made by the
Company is that wind cannot be relied on to meet peak load obligations. A vista contends it would
most likely need to invest in other capacity resources (e., simple cycle combustion turbines) to
ST AFF COMMENTS JULY 3, 2003
meet peaking requirements if significant wind resources are acquired. Alternatively, it could
purchase wind from other sources that already include shaping services. Given the uncertainty
around wind, Avista has elected to limit the preferred strategy to 75 MW of this resource, or
around 25 aMW of energy. However, the Company also proposes to continue the study of wind to
stay well informed on issues, potential declining costs, and any future opportunities. Staff agrees
that this is important, especially given the recent increase in wind development activity throughout
the Northwest.
In developing its IRP, A vista made a considerable analytical effort to evaluate the
Preferred Resource Strategy (the combination of new resources listed previously) against several
alternative strategies under various scenarios. Overall, the Preferred Resource Strategy performed
well, not only in the Base Case, but also under numerous scenarios. This chosen combination of
resources provides for a significant reduction of risk at a very modest impact to expected costs.
Avista believes that the Preferred Resource Strategy will meet not only the Company s load
obligations over time, but will also provide for reserve margins of at least 12 percent. Staff
concurs that the Preferred Resource Strategy selected by the Company is superior to the other
resource strategies considered in the IRP.
Summary of Shmificant Action Plan Items
Demand Side Management
1. Evaluate the cost effectiveness and resource potential of conservation voltage reduction on
the Company s system.
2. Acquire electric resources that are at least proportionate to the percentage ofDSM
revenues being expended.
3. Field a DSM portfolio that continues to be cost effective on a societal and utility cost basis.
4. Prepare contingency plans for future emergency responses to unexpected fluctuations in
wholesale electric markets.
5. Prepare for a reevaluation of continued participation in the Northwest Energy Efficiency
Alliance upon expiration of the current contract period (expiring at the end of2004).
STAFF COMMENTS JULY 3, 2003
Supply Side Resource Options
1. Pursue a new license for the Spokane River proj ects by filing a new license application by
July 31 2005.
2. Continue to evaluate the effects and costs of integrating wind generation into the
Company s electrical system.
3. Consider and evaluate the potential to add coal facilities to the Company s mix of existing
generating resources.
4. Determine the feasibility of entering into a medium-term firm power sale during the
Company s surplus years.
5. Initiate a study to determine the optimal reserve margin for the Company, including the
benefits of additional peaking capacity.
The 2003 Action Plan, Staff believes, is a reasonable set of actions that will allow the
Company to continue to meet its load obligations cost effectively, while also supporting the
preferred resource strategy identified in the IRP and improving the planning process going
forward.
In summary, Avista has no immediate need for additional long-term resources. In fact, the
Company does not anticipate a significant deficit in annual energy until 2008. Furthermore, the
Company does not anticipate a deficit in capacity until 2010. The Company believes it is
prepared, even under low water conditions, to sufficiently meet retail loads through at least 2007
while still maintaining adequate reserve margins.
Staff actively participated in each of the public meetings held during the course of A vista
development the 2003 IRP. Moreover, Staff was in close contact with Avista throughout the IRP
process and provided its opinions and input. Staff thoroughly reviewed the draft IRP and provided
extensive comments. The Company satisfactorily addressed Staff comments in the final IRP.
Staff believes that Avista has done a good job in assessing its load-resource conditions
incorporating demand-side management, evaluating new resource alternatives, analyzing risk
programs and in selecting a reasonable portfolio of new resources. More importantly, especially
since A vista does not need to acquire any new resources for some time, the Company has made
impressive strides in developing new tools and refining analysis techniques that Staff believes will
STAFF COMMENTS JULY 3, 2003
prove valuable in the future. Staff expects that the Company will continue to make further
progress in developing and applying these tools and techniques.
RECOMMENDATIONS
Staff recommends that Avista s 2003 IRP be accepted and acknowledged.
Respectively submitted this :3- day of July 2003.
~~IlScott Woodb ry
Deputy Attorney General
Technical Staff:Rick Sterling
Lynn Anderson
i :umisc/comments/avueO3 ,2swrpsla
STAFF COMMENTS JULY 3, 2003
CERTIFICA TE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 3RD DAY OF mLY 2003
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. AVU-03-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
CLINT KALICH
MANAGER OF RESOURCE PLANNING
& ANALYSIS
A VISTA CORP
PO BOX 3727
SPOKANE W A 99220-3727
KELLY NORWOOD
VICE PRESIDENT
A VISTA CORP
PO BOX 3727
SPOKANE W A 99220-3727
SECRETARY
CERTIFICATE OF SERVICE