20030822Decision Memo.pdf

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DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL STAFF
FROM:SCOTT WOODBURY
DATE:AUGUST 7, 2003
RE:CASE NO. A VU-03-02 (Avista)
2003 ELECTRIC INTEGRATED RESOURCE PLAN (IRP)
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. 0-1500-165, 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.
A VISTA 2003 IRP
At this time, Avista states it has no immediate need for additional long-term
resources. The Company does not anticipate a significant deficit in energy, on an annual average
basis, until 2008. The Company does not anticipate a deficit in capacity until 2010. The
Company views this IRP as a resource evaluation process, rather than a specific resource
acquisition plan.
As reflected in a summary of its filing, for this IRP the Company undertook a
significant effort in computer modeling. This effort was initiated with the acquisition of
AURORA, an hourly production-cost model that dispatches resources and develops a set
forward market prices based. on numerous conditions. This effort was substantiated through the
development of numerous spreadsheet-based models, and the incorporation of a linear
programming (LP) module.
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For the fIrst 10 years of the IRP timeftame (2004-2013), the IRP modeling process
selected a combination of combined and simple cycle combustion turbines, wind and coal
resources. During the second 10-year period of the IRP planning horizon period (2014-2023),
the modeling process pointed toward acquisition of coal generation due to improvements and
technology and its fuel costs relative to other resources. Given no need for immediate resources
the Company will continue to evaluate available options for future generating requirements.
Included in the Company s IRP filing is a 2003 Action Plan which details the studies
and actions the Company will take between now and the 2005 IRP. The Company s 2003 action
pl~ contains the following elements:
Public Process
1. Propose changes to wurc on the IRP /RFP process that will provide
improvements.
2. Continue to manage the free-flow of information with TAC participants.
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 of DSM
revenues being expended.
3. Field a DSM portfolio that continues to be cost-effective on a societal and utility
basis.
4. Prepare contingency plans for future emergency responses to unexpected fluc-
tuations in wholesale electric markets.
5. Prepare for a re-evaluation of continued participation in the Northwest Energy
Efficiency Alliance (NEEA) upon expiration of the current contract period
(expiring at the end of 2004).
6. Convene a T AC meeting in the fall of 2003 to discuss the various alternatives for
integrating DSM into the 2005 IRP process.
Supply-Side Resource Options
1. Pursue a new license for the Spokane River projects by filing a new license
application by July 31 2005.
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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.
6. Continue to assess the cost-effectiveness of new resource additions.
7. Continue to work with Commission Staff on methods whereby the Company can
acquire resources with development timelines beyond one or two years and
increase the probability for full rate recovery.
Resource Management Issues
1. Analyze the uncertainty of decisions as the Company conITonts risks and
opportunities.
2. Continue to assess the electric marketplace and its effect on the Company.
On May 23 , 2003, the Commission issued Notices of Filing and Comment Deadline
in Case No. A VU-03-02. The deadline for filing written comments was July 3 , 2003. The
Commission Staff was the only party to file comments.
Commission Staff Analysis and Recommendation
Staff in its analysis addresses the Company's IRP load forecast , its use of the
AURORA model, demand-side management (DSM), supply-side resources, and the Company
near term Action Plan. Specific comments of Staff on the Company s IRP can be summarized as
follows:
Load Forecast
Staff notes that A vista is projecting an overall average growth rate of retail electricity
sales of 3.4% per year over the 20-year planning period. On a monthly planning basis, the
Company expects to encounter energy deficits during some months in all years of the forecast.
The Company may balance its monthly positions through short-term market purchases or sales,
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exchanges or other resource arrangements.Over the long-term, however, the Company
strategy is to not rely on long-term market purchases to serve future base-load requirements.
Demand-Side Management IDSM)
Staff notes that the Company s 2003 IRP describes A vista's energy savings achieved
through 24 years of DSM programs. Going forward, the IRP forecasts between four and five
aMW of new DSM savings being achieved annually after 2005. This amounts to over 6% of its
forecasted load growth ITom 2004 through 2023. Avista funds most of its DSM efforts through
tariff rider surcharges in Idaho and Washington, currently 1.95% and 1.48% of retail revenues
respectively.
According to the Company s IRP, A vista's future DSM activities funded ITom its
tariff rider are based on three priorities:
1. Satisfaction of least -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.
In addition to DSM tariff rider revenues, Avista receives nearly $400 000 annually for
Conservation and Renewable Discount DSM program benefits ITom Bonneville Power
Administration. It will continue to receive this funding through 2006.
Supply-Side Resources
As a general guideline, the annual energy position of A vista is used to detennme
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.
As reflected in the Company s IRP, Avista 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.
A vista contends that evaluation of the historical data shows that a superior planning
criteria is the use of a "confidence interval" based on 80% of the monthly variability in load and
hydroelectric generation. This means that for each month there is only a 10% chance that the
DECISION MEMORANDUM
combination of load and hydro variability would exceed the planning criteria. In other words
for a given month there is a 10% chance the Company would need to purchase some energy ITom
the market. On a monthly basis, the 80% confidence level varies between 77 and 268 aMW.
The average of the 80% confidence interval across the 12 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 believes that Avista s decision to employ 80% confidence interval planning is
acceptable. While not substantially different ITom its former planning criteria, Staff believes that
it does provide better assurance of resource adequacy by considering monthly, rather than
annual, conditions.
Avista's risk analysis considered variability and hydroelectric generation, natural gas
prices and WECC loads. For the first 10 years of the timeITame (2004-2013), the IRP
modeling process selected a total of 411 aMW of new resources as follows:
1:1 149 aMW of Combined Cycle Combustion Turbines (CCCT).
1:1 25 aMW of wind
1:1 197 aMW of coal
1:1 40 aMW of Single Cycle Combustion Turbines (SCCT)
This combination of new resources contains planning reserve margins in excess of 12% through
2009.
During the second lO-year period of the IRP planning horizon (2014-2023), the
modeling process recommended acquisition of coal generation due to improvements and
technology and its fuel costs relative to other resources.
Staff is satisfied with the mix of resources selected by the Compariy. 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, Staff states, is that wind cannot be relied on to meet peak load obligations. Avista
contends that it would most likely need to invest in other capacity resources (e., Simple Cycle
Combustion Turbines) to meet peaking requirements if significant wind resources are required.
Alternatively, it could purchase wind from other sources that already include shaping services.
DECISION MEMORANDUM
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. The Company proposes to continue the study of
wind to stay well informed on issues, potential declining costs, and any future opportunities:
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. Staff concurs that the preferred resource strategy
selected by the Company is superior to the other resource strategies considered in the IRP.
Staff notes that it actively participated in each of the public meetings held during the
course of Avista's development of its 2003 IRP. Moreover, Staff states that it was in close
contact with A vista throughout the IRP process and provided its opinions and input. Staff states
that it thoroughly reviewed the draft IRP and provided extensive comments. Staff believes that
the Company satisfactorily addressed its comments in the final IRP.
Staff believes that A vista 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 Avista does not need to acquire any new resources for some time
Staff believes that the Company has made impressive strides in developing new tools and
refIning analysis techniques that Staff believes will prove valuable in the future. Staff
recommends that A vista's 2003 IRP be accepted and acknowledged.
Commission Decision
Staff recommends that Avista's 2003 IRP filing be accepted and acknowledged.
Does the Commission concur? Does the Commission wish to provide any further comment or
direction to the Company?
Scott Woodbury
VldIM:AVUEO305
DECISION MEMORANDUM