20040206Storro Direct.pdf

DA VID J. MEYER
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
A VISTA CORPORATION
O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
FACSIMILE: [phone]
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF A VISTA CORPORATION FOR THE
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR ELECTRIC AND
NATURAL GAS SERVICE TO ELECTRIC AND
NATURAL GAS CUSTOMERS IN THE STATEOF IDAHO
CASE NO. A VU-04-
DIRECT TESTIMONY
RICHARD L. STORRO
FOR A VISTA CORPORATION
(ELECTRIC ONLY)
I. INTRODUCTION
Please state your name, employer and business address.
My name is Richard L. Storro. My business address is 1411 East Mission
Avenue, Spokane, Washington, and I am employed by the Company as the Director of Power
Supply.
What is your educational background?
I participated in a program with the College of Idaho and the University of
Idaho, where upon completion I received a Bachelor of Science degree in physics from the
College of Idaho and a Bachelor of Science degree in electrical engineering from the
University of Idaho, both in 1973.
How long have you been employed by the Company?
I started working for A vista in 1973 as a distribution engineer. I have worked in
various engineering positions, and have held management positions in line and gas
operations, system operations, hydro production and construction, and transmission. I joined
the Energy Resources Department as a Power Marketer in 1997 and became Director of
Power Supply in 2001. My primary responsibilities involve the oversight of both the short-
term and long-term planning and acquisition of power supply resources for the Company.
What is the scope of your testimony in this proceeding?
My testimony will provide an overview of Avista s resource planning and power
operations. I will provide an update on the Company s Cabinet Unit #2 upgrade, a status
report on the Company s license commitments at the Clark Fork River hydroelectric projects
and also on the current re-licensing effort for the Spokane River hydroelectric projects.
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Finally, my testimony will address the Company s Risk Management Policy and some
general comments regarding power supply resource management in relation to the
Commission s order in Case No. A VU-03-
A table of contents for my testimony is as follows:
Description Page
II.
III
Introduction
A vista s Resource Planning and Power Operations
Hydroelectric Projects Update
Risk Policy and Resource Management
I am sponsoring Exhibit No.5 and the schedules listed in the following table for
identification, which were prepared under my direction:
Exhibit No.
Schedule
II. AVISTA'S RESOURCE PLANNING AND POWER OPERATIONS
Would you please provide a brief overview of Avista s resource planning
and power supply operations?
Yes. The Company uses a combination of owned, leased and contracted
resources to serve its retail and wholesale load requirements. Dispatch decisions related to
these resources are made within the Energy Resources Department of A vista Utilities. The
Department conducts studies on a regular basis to determine the need for capacity and energy
resources on a short-term, medium-term and long-term basis. The Company enters into
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short-term and medium-term wholesale sales and purchases transactions to balance its
resources with load requirements. Longer-term resource decisions related to building new
resources, upgrades to existing resources, demand-side management (DSM) and long-term
contract purchases are generally made in conjunction with the Company s Integrated
Resource Plan (IRP) and RFP processes. The Company, however, also acquires resources
outside of an RFP process. Schedule No.1 of Exhibit No.5 provides additional details
related to Avista s resource planning and power operations, as well as a tabulation of its
projected loads and resources for the next twenty years.
Has the load forecast included in pages 8 and 9 of Schedule No.1 been
updated as compared to that recently filed in the Company s 2003 Integrated Resource
Plan (IRP) in Case No. A VU-03-02?
Yes. A vista prepared a new load forecast in fall of 2003 for the years 2005-
2014. In general, retail load projections have been reduced somewhat from those included in
the 2003 IRP.However, the Potlatch Lewiston plant load has been separated from their
generation sale amount. The Potlatch load had been included in the 2003 IRP load figures
net of Potlatch's generation. The effect of this change is an increase in load above the level
in the 2003 IRP.
Has the Company s forecast of available resources been updated as
compared to that recently filed in the 2003 IRP?
There has been no substantial change to the forecast of available resources.
The purchase of Potlatch generation, however, is now included in the Company s list of
resources.
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Please summarize the future net load and resource position for the
Company.
The Company remains in a nearly balanced energy position for 2005 through
2007 on an average annual basis. However, there are monthly and quarterly deficits and
surpluses within the years even though the annual averages are close to balanced. In general
terms, the Company s annual net resource energy position becomes deficient in 2008 and
beyond. The average energy resource deficiency is 22 aMW in 2008 and increases to 333
aMW in 2014. The Company s capacity position is either surplus or nearly balanced through
2007. The capacity deficiency is 33 MW in 2008 and increases to 481 MW in 2014.
How will the Company plan to meet the future needs for resources
beginning in 2008?
The Company plans to continue to pursue the preferred resource strategy laid
out in its recent 2003 IRP.The Company would expect to evaluate a mix of options
including medium-term market purchases in heavy load hour and light load hour time-blocks
generation ownership options, renewable resource options, demand-side resource options
and generation lease options or tolling! options. As stated earlier, longer-term resource
decisions related to building new resources, upgrades to existing resources, demand-side
management (DSM) and long-term contract purchases are generally made in conjunction with
the Company s IRP and RFP processes. As determined in the 2003 IRP, the Company
1 "Tolling" is an energy conversion service whereby a provider takes customer supplied natural gas and converts
it to an amount of electric energy which is delivered to the customer as determined by a defined conversion
ratio. The conversion ratio can be tied to the heat rate and variable operating costs of a generating plant. The
fixed cost of the plant can be covered in fixed fees charged by the tolling service provider. Tolling service may
be contingent on the operation of a specific generation plant.
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preferred resource strategy includes a mix of combined cycle combustion turbine, wind, coal-
fired, and simple cycle natural gas combustion turbine generation. The Company, however
is not precluded from acquiring resources outside of an RFP process.
The Company is currently in the process of concluding an RFP process for the
addition of a long-term renewable wind resource to its resource mix. The Company has
entered into a letter of intent agreement for 25-35 MW of wind generation capability. The
average annual energy is estimated to be 8-10 aMW. The Company is hopeful that an
agreement will be signed by March 31 , 2004
III. HYDROELECTRIC PROJECTS UPDATE
Could you provide an update on generation upgrades on the Clark Fork
River hydroelectric generation projects?
Yes. The Company is in the process of upgrading the Cabinet Gorge Project
Unit #2. This approximately $6.6 million capital project consists of removing the original
1952 propeller runner and replacing it with a modem design mixed-flow runner. Estimated
increases in capacity of up to 17 MW and energy of approximately 3 aMW are expected due
to the increased efficiencies and water flow from the new design. The Company expects the
project to be completed in March 2004. Mr. Falkner has included the costs associated with
the upgrade in his revenue requirement calculations, and Mr. Johnson has included the
benefits from the upgrade in his power supply adjustments.
The Company completed a similar upgrade project in 2001 for the Cabinet Gorge
Project Unit #3. The capacity of the unit was increased from 55 MW up to 72 MW and an
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estimated 4.5 aMW of additional energy can be produced as a result of the increased
efficiency.
The Company is continuing to look for opportunities for additional efficiency
upgrades, in conjunction with other maintenance work, on unit #4 at Cabinet and units #1 and
#3 at Noxon.
Could you provide an update regarding work being done under the
existing FERC operating license for the Company s Clark Fork River generation
projects?
Yes. The Clark Fork Settlement Agreement, signed in February 1999, was
subsequently incorporated into the 45-year FERC operating license for the Company
Cabinet and Noxon hydroelectric generating facilities issued on February 23 2000. Although
the new license became effective on March 1 , 2001 , implementation efforts under the
Agreement were already well underway at that time.With just over five years of
implementation efforts complete, the Clark Fork Project has made significant progress
toward meeting the goals, terms, and conditions of the Protection, Mitigation and
Enhancement (PM&E) measures. Specifically, the purchase of more than 1100 acres of
important bull trout, wetland, and associated upland habitat, will ensure protection of these
crucial resources. The fish passage program has reestablished bull trout connectivity between
Lake Pend Oreille and the Clark Fork River tributaries above Cabinet Gorge Dam. Over the
last four years, A vista has developed two experimental fish passage facilities, and has already
radio tagged and safely transported a total of 105 adult bull trout above Cabinet Gorge Dam.
Once the fish are transported, implementation staff monitor their movement and spawning
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efforts. Juvenile bull trout on their downstream migration are collected in tributary streams
and transported to the Clark Fork River downstream of Cabinet Gorge Dam. Recreation
facility improvements have been made to 19 different sites along the reservoirs. These
upgrades range from improved access, new signage and addition of interpretation and
education material, to the total redesign and reconstruction of 9 sites. Finally, tribal members
continue to monitor known cultural and historic resources located within the project
boundary, to ensure that these sites are appropriately protected.
When the new Clark Fork license was received, the high levels of total dissolved gas
occurring during spill periods at Cabinet Gorge Dam was an issue that remained unresolved.
A plan to mitigate the high total gas levels has been developed with stakeholders including
the Idaho Department of Environmental Quality. The plan calls for the modification of an
existing diversion tunnel with engineering studies to commence in 2004.The tunnel
modification would be completed by 2010 at an estimated cost of $37 million (including
AFUDC and inflation). If needed, the modification of a second tunnel would occur within 10
years of completion of the first tunnel at an estimated cost of $23 million (including AFUDC
and inflation).The second tunnel would be constructed only after an analysis of the
performance of the first tunnel and an evaluation of the environmental benefits.
photograph of the Cabinet Gorge project and the existing tunnels is provided as Schedule No.
The Company has not proposed an increase in rates in this filing related to these
expected costs. The Company plans to defer the costs and address recovery of them in a
future rate filing.
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Would you please give an update on the status of your efforts to relicense
the Spokane River Hydroelectric Project?
Yes.The Company is in the process of preparing to relicense five
hydroelectric generation projects located on the Spokane River. These projects, which are all
under one FERC license, include Long Lake, Nine Mile, Upper Falls, Monroe Street, and
Post Falls. The projects have a total generating capacity of 156 MW, and average annual
energy production of approximately 105 aMW. Our current license for these Spokane River
projects expires in July 2007, creating a deadline in July 2005 for filing a new application.
Weare developing that application using FERC's alternative licensing procedures. Since
2001 , we have been working with numerous stakeholders to understand and resolve issues
related to the Spokane River Project. That consultation has occurred within five technical
work groups and a lead, or plenary group. The first full season of field studies were
completed in 2003, and we are currently reviewing those results. Stakeholders are also
beginning to work on proposals for PM&E measures. Our goal is similar to what was
accomplished on the Clark Fork Project: a comprehensive settlement agreement defining the
terms and conditions of a new license based on a consensus of local, state and federal
agencies, tribes, and local citizens. We plan to have a draft license application completed at
the end of 2004.
The Company has not proposed an increase in rates in this filing related to these
expected costs. The Company plans to defer the costs and address recovery of them in a
future rate filing.
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A vista Corporation
IV. RISK POLICY AND RESOURCE MANAGEMENT
Could you please describe the purpose of the Company s Energy
Resources Risk Policy?
Yes. A vista Utilities uses a variety of techniques to manage its business risks.
The Risk Policy is one risk management tool. The overall purpose of the Risk Policy is to
provide general guidance to the Energy Resources workgroup with regard to the management
of the company s energy risk exposure, as it relates to electric power or natural gas resources.
The management of volumetric limits for the imbalance between projected loads and
resources for an 18-month forward period is part of the Risk Policy guidance. The Risk
Policy also provides structure for the appropriate management approvals for longer-term
transactions depending on the term and time of delivery into the future. The Company s Risk
Policy is included as Confidential Schedule No.3 of Exhibit No.
The purpose of the Risk Policy is not to develop a specific procurement strategy for
buying or selling power or natural gas fuel for generation at any particular time. Rather
several factors, including the variability associated with loads, hydroelectric generation, and
electric power and natural gas prices, are considered in the decision-making process with
regard to procurement of electric power and natural gas fuel for generation, consistent with
the Risk Policy. Those factors, and more specifically how they are taken into account with
respect to certain natural gas price hedges deferred to this case in the Commission s order on
the Company s PCA filing in Case No. A VU-03-, are discussed in more detail in Witness
Lafferty's direct testimony.
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The Commission, in the Company s recent PCA order, indicated that the
Company should present an acceptable risk management protocol for long-term sales
or purchases as part its PCA deferred case in its general rate case filing. Please
describe how the Company has addressed this issue.
The Company believes that the questions posed by the Commission and Staff
in the PCA case are more closely associated with resource procurement strategies rather than
risk management, per se. The Company believes that the information provided as part of this
general rate case, primarily in Mr. Lafferty's testimony, will serve to answer the questions
associated with the Company s resource procurement strategies and more specifically those
questions associated with medium-term natural gas hedges that were deferred from the PCA
case. The Company and Staff expect to have follow-up discussions following this general
rate case regarding resource procurement strategies and risk management, in general.
What is the scope of testimony of other Energy Resources witnesses?
Mr. Robert Lafferty will provide testimony concerning the prudence of the
Coyote Springs 2, Boulder Park and the Kettle Falls Combustion Turbine resource
acquisitions. Mr. Lafferty will also provide testimony addressing the issues deferred from the
Company s PCA case regarding the prudence of medium-term natural gas hedge transactions.
Mr. William Johnson will provide testimony regarding power supply pro-forma adjustments.
Mr. Clint Kalich will provide testimony regarding the Aurora power supply model, inputs
and assumptions.
Does that conclude your pre-filed direct testimony?
Yes it does.
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