20051118Comments.pdf

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DONOV AN E. WALKER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5921
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, ID 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF A VISTA CORPORATION)
DBA A VISTA UTILITIES' 2005 INTEGRATEDRESOURCE PLAN (IRP). CASE NO. A VU-05-
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission, by and through its Attorney of
record, Donovan E. Walker, Deputy Attorney General, respectfully submits the following
comments in response to Order No. 29887, issued on October 6 2005.
BACKGROUND
On September 1 , 2005, Avista Utilities (Avista, Company) filed its 2005 Electric
Integrated Resource Plan (IRP) with the Idaho Public Utilities Commission (Commission)
pursuant to Order No. 22299. This is the Company s ninth Integrated Resource Plan. The
Commission requires regulated electric utilities to file an IRP every two years that projects future
load requirements and explains how the Company plans to deliver low-cost, reliable energy to its
customers.
STAFF COMMENTS NOVEMBER 18, 2005
ANALYSIS
Public Process
Avista s 2005 IRP was developed with the participation of its Technical Advisory
Committee (T AC). T AC members include customers , Commission Staff, consumer advocates
academics, utility peers, government agencies and other interested parties. The Company
sponsored seven TAC meetings, which were held between October 23 2003 and June 23 2005.
Each meeting focused on specific planning topics, reviewed the status and progress of planning
activities, and solicited ongoing input as the IRP was developed.
Staff actively participated throughout the process. 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 s comments in preparing the final IRP document.
Although participation in the 2005 IRP process was improved over previous plans, it
continues to be difficult to achieve full participation from a broad cross section of customers and
interest groups. Staff suggests that in future IRPs, Avista try making direct invitations to key
customers, customer group representatives, environmental organizations, and others to attempt to
obtain a more comprehensive and balanced representation on the Technical Advisory
Committee.
Load Forecast
A vista predicts its electricity sales to grow 2.1 percent annually through 2026. Absent
new generation, energy deficits would begin in 2010 with loads exceeding resource capability by
40 aMW. Energy deficits rise to 360 aMW in 2016 and 640 aMW in 2026. Load growth and
expiration of some long-term contracts account for the significant majority of increasing deficits
during this period. As a general guideline, the annual energy position is used to determine when
the Company needs to acquire additional base-load energy resources.
On a monthly basis, A vista expects to encounter energy deficits during some months in
all years of the forecast. In 2007, for example, the Company position is deficit in January,
March, August, September, October, and December even though the annual position is surplus
by 82 aMW. In other months, particularly during spring runoff, Avista is in a surplus position.
As usual, the Company plans to balance its monthly positions through short-term market
purchases or sales, exchanges or other arrangements. However, over the long term, the
STAFF COMMENTS NOVEMBER 18, 2005
Company s strategy is not to rely on long-term market purchases to serve future base load
requirements.
Avista currently has sufficient capacity resources, due primarily to the relatively large
amount of hydroelectric generation in its resource portfolio. However, capacity deficits begin in
2009 with the Company being short by 5 MW. Capacity deficits grow to 508 MW in 2016 and
901 MW by the end of the study in 2026. For the most part, future capacity requirements will be
met through the acquisition of new resources, which provide both capacity and energy.
Avista s capacity and energy positions are summarized in the table below.
2007
2008
2009
2010
2011
2016
2021
2026
118
256
508
673
901
Avista has added 35 MW of wind generation, 140 MW of gas-fired generation and 8 MW of
conservation to its portfolio since the 2003 IRP.
Staff believes that the load forecast prepared and used by Avista for its 2005 IRP is
reasonable. In addition to considering a base case forecast
, "
high" and "low" economic forecasts
were also prepared to evaluate plausible changes in load due to population change within the
Company s existing service area.
Plannill1! Reserve
Planning reserves accommodate situations at times when loads exceed expectations
because of adverse weather, forced outages, poor water conditions or other contingencies.
Historically, Avista s planning reserves have not been based on generating 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.
STAFF COMMENTS NOVEMBER 18, 2005
In addition to considering a simple planning reserve, A vista also considers what it calls
confidence interval planning." The Company uses a 90 percent confidence interval based on
the monthly variability of load and hydroelectric generation. This results in a ten percent chance
of the combined load and hydro variability exceeding the planned criteria for each month.
other words, there is a ten percent chance the Company would need to purchase energy from the
market in any given month. This level is similar to critical water planning on an annual basis but
is more precise, because it is based on the monthly chance of exceedance rather than an annual
figure.
In the 2005 IRP process, Avista also began studying "sustained peaking capacity," which
is a tabulation ofloads and resources over a period exceeding the traditional one-hour definition.
It is also a measure of reliability and recognizes that peak loads do not stress the system for just
one hour. Further study of this planning concept may be warranted in future IRPs because Staff
believes that 90 percent confidence interval planning could be overly conservative. Further
analysis of sustained peaking capacity should help the Company to better evaluate the adequacy
of its planned capacity resources.
Demand Side Mana2:ement
The 2005 IRP supports increasing conservation acquisitions from approximately 4.
aMW per year to 6.9 aMW per year. This equals a nearly 50 percent increase from the 2003
IRP, due primarily to higher avoided cost estimates used in the analysis. As in previous IRPs
Avista included a 10 percent adder over generation-based acquisition to reflect transmission and
distribution savings and the risk reduction values inherent in conservation resources. On a
cumulative basis, the acquisition of conservation will offset 69 aMW of new generation by 2016
and in 2026 customer loads are estimated to be 138 aMW lower due to conservation efforts.
Meeting these ambitious conservation targets will require increasing the incentives available
which will necessitate increases in conservation program funding. In addition to the recently
approved increase in the DSM tariff rider, the Company anticipates periodic future increases in
the tariff rider.
A significant change to the methodology used in the 2005 IRP was the use of a 20-year
hourly-avoided cost price signal. This required the development of unique hourly load shapes
for each conservation measure. This also allowed for analysis of load-shifting opportunities.
STAFF COMMENTS NOVEMBER 18 , 2005
Analyses for the 2005 IRP found potential savings in all customer sectors. However, the
increases over the 2003 IRP levels were derived mostly from additional efforts in the industrial
sector, with some increases in the commercial sector, and the residential sector remaining
relatively stable. The Company expects to acquire this resource through both utility-sponsored
programs and programs acquired on its behalfby third parties through a request for proposal
(RFP) process. The Company would also continue its support for regional efforts, such as the
Northwest Energy Efficiency Alliance. Avista expects to release an initial RFP for conservation
resources following Commission acknowledgement of the plan.
Staff finds the methodology and analysis used by the Company in its analysis of
conservation potential and resources to be thorough and comprehensive. As is customary for
efforts looking into the future, the analysis ofthe various measures relies upon numerous
assumptions. Staff generally finds the assumptions used by the Company to be reasonable and
appropriate. The Company actively sought outside review throughout the process, involving
interested parties from the conservation industry as well as the parties upon whom the
conservation measures would be performed. Staff from both the Idaho and Washington
Commissions, as well as other state agencies with interest in conservation provided input during
the analysis.
Preferred Resource Strate2:V
Avista s Preferred Resource Strategy (PRS) represents the Company s planned mix of
new resources over the 20-year IRP planning horizon. The PRS primarily includes wind
generation, coal-fired generation, and other small renewables. It also contains upgrades to
existing A vista generating plants and a significant increase in conservation acquisition from
today s levels. Significantly, the PRS does not recommend additional natural gas-fired
generation due to the high level of gas-fired generation already in the Company s portfolio, the
high price of natural gas, and the resource s tendency to introduce additional volatility into the
Company s portfolio. The capacity additions included in the PRS are shown in the table below.
STAFF COMMENTS NOVEMBER 18, 2005
Preferred Resource Strategy Cumulative Capacity Additions (MW)
,ti RSReSqurces 2007 2008 2009 2010 2011 2016 2021 2026
New Conservation
Plant Upgrades
Wind!100 138 163
Other Renewables 120 180
Coal 250 350 450
Market 125
Total PRS Resources 259 530 694 916
Wind is presented as its contribution to meeting system peak. The IRP assumes a peak contribution for wind
oJ25 percent. For example, the 100 MWvalue shown in 2016 equals400MW (400 x 25% = 100 MW).
Cumulatively, the PRS in 2016 consists of a total installed capacity of 400 MW of wind
250 MW of coal, and 80 MW of other small renewables. Resource requirements are 69 MW
lower because of conservation and 52 MW lower because of efficiency upgrades to existing
generating plants. By 2026, Avista plans to have added a total of 1 332 MW of new capacity,
which would be comprised of 650 MW of wind, 450 MW of coal, 180 MW of other renewables
and 52 MW of plant efficiency upgrades. Needs would be 138 MW lower because of
conservation programs.
Differences from the 2003 IRP
The 2005 PRS mix differs significantly from the resource mix chosen in the 2003 IRP as
shown in the table below.
Comparison between 2003 to 2005 IRPs
Time;;Period 'C?f)o'::\IRP 2005IRP'C,
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Coal 350 215
Wind 122
2007-2016 Gas 178 121
Other Renewables
Conservation and Plant Upgrades 105
Coal 770 388
Wind 188
2007-2026 Gas 178 121
Other Renewables 145
Conservation and Plant Upgrades 174
STAFF COMMENTS NOVEMBER 18, 2005
One of the most significant differences between the 2003 and 2005 plans is the replacement of a
significant portion of the coal-fired generation with wind and other renewable resource projects.
The 2003 IRP called for only 25 MW of installed wind and much more coal capacity. The 2005
plan commits to reducing greenhouse gas emissions by building significantly more renewable
resources than recommended in the 2003 IRP. Although not assumed in the base case, national
studies and proposed legislation for a federal carbon tax point to risks in relying too heavily on
coal-fired power.
Several factors explain the other differences between the 2003 IRP and the 2005 plan.
First, the acquisition of the second half of Coyote Springs 2 in January 2005 brought 140 MW of
natural gas-fired combined cycle combustion generation into the Company s portfolio. That
purchase fulfilled much of the 2003 IRP gas goal displayed in the table. Second, higher
forecasted natural gas and electricity prices have allowed resources that previously were
uncompetitive, namely wind and other renewable resources, to now become competitive. In
addition, wind integration studies and actual experience with integrating wind into the
Company s system lead A vista to believe that it can rely more heavily on this resource.
Avista s Plannin2: Assumptions
Results of the 2005 IRP analysis indicate that substantial amounts of wind would be cost-
effective within certain limits. However, Avista limited the amounts of wind its planning model
could choose to 400 MW in 2016 and 650 MW in 2026. The limitation reflects Company
agreement with the Northwest Power and Conservation Council (NPCC) that a limited amount of
economically viable wind potential exists in the Northwest. The NPCC estimates Northwest
wind potential to be 5000 MW. Avista serves approximately five percent of Northwest loads, so
the prorated Company share is 250 MW. Therefore, the 650 MW target by 2026 is substantially
higher than the Company s share of Northwest wind potential. Staff believes that it is reasonable
to limit the overall level of wind energy within Avista s resource portfolio.
Avista also limited the amounts of coal its planning model could choose to 250 MW in
2016 and 550 MW in 2026. Limits on more coal-fired power reflect the Company s concerns
about the risks of future carbon tax legislation and efforts to diversify its generation portfolio.
A vista currently relies on coal-fired generation to meet 18 percent of its needs, with 225 MW of
capacity and 185 aMW of energy. The PRS contains 250 MW of coal- fired generation entering
service in 2016. In 2026, coal-fired generation equates to 450 MW, or 30 percent of the
STAFF COMMENTS NOVEMBER 18 , 2005
Company s new requirements. Staff believes that coal is a reasonable element ofthe PRS, but
believes also that it is wise to limit its contribution.
The IRP accounts for transmission costs necessary to bring distant generation sources
into the Northwest (e., Montana coal and wind). To account for new transmission
construction, the capital and operating costs of the new transmission are appropriately added to
the costs of new generation resources.
The gas price forecast used by A vista in the IRP was developed in April 2005. It uses a
blend of NY ME X forward prices and Global Insight Inc.s Gas Escalation Forecast. NYMEX
monthly forward prices for Hemy Hub were obtained on April 6, 2005 , for 2007 through 2010.
Global Insight's escalation rates are used from 2011 through the duration of the forecast period.
Staff acknowledges that gas prices have changed dramatically in the past year, and recognizes
how sensitive the analysis of resource alternatives can be to gas price. Nevertheless, while the
most up to date forecast is desirable, Staff recognizes the practical necessity of locking in
assumptions during the analysis process. To the extent that Avista s gas forecast proves
inaccurate, Staff believes that the risk analysis performed by the Company adequately captures
reasonable fuel price variation.
A vista assumed that the federal tax credit for renewables would persist throughout the
20-year IRP timeframe, except in carbon tax scenarios where the credit terminates. Although the
Production Tax Credit (PTC) might eventually be eliminated or modified, Avista believes that
the PTC is a good alternative to a carbon-based fee, and it likely will remain absent carbon
legislation. Staff believes that federal production tax credits are unlikely over the entire 20-year
planning horizon, but that some type of carbon tax is likely. Thus, Staff believes Avista
assumptions are reasonable.
Risk Analysis
Avista made considerable analytical effort to evaluate the Preferred Resource Strategy
against several alternative strategies under various scenarios of load, hydro, wind and natural gas
prices. Overall, the Preferred Resource Strategy performed well, both in the Base Case and
under numerous scenarios. The chosen combination of resources provides for a significant
reduction of risk at a very modest impact to expected costs. The 2003 IRP Preferred Resource
Strategy was based predominantly on a mix of resources defined by weighting cost and risk at 50
STAFF COMMENTS NOVEMBER 18, 2005
percent each. Staff concurs that the Preferred Resource Strategy selected by the Company is
superior to the other resource strategies considered in the IRP.
Resource Acquisition
Though aggressive, A vista believes its target to acquire 400 MW of wind by 2016 and
650 MW by the end of2026 can be achieved. The Company assumes that it will acquire 150
MW of wind within its service territory, 250 MW of Northwest regional wind generation outside
of its service territory, and that another 250 MW of wind generation will be available from
outside the Northwest (e., eastern Montana or Wyoming). Further, Avista believes that taking
modest ownership shares in multiple wind projects will benefit its customers by reducing the
generation variability within its wind portfolio. This reduction in variability, the Company
believes, will lower integration costs, provide a higher level of dependable capacity, and help
lower power supply expense volatility.
To acquire a 400 MW portfolio of diversified wind generation assets by 2016, Avista
suggests it may begin acquiring this resource as early as 2007. The early start date reflects the
Company s belief that acquiring 400 MW of wind from multiple projects over a five-year period
beginning in 2010 may not be possible. While this acquisition schedule might bring new
generation into the portfolio slightly ahead of new load requirements, Avista believes that the
level should be modest and within an historical range of reasonable utility surplus.
New coal is forecast to enter the Company s portfolio in the 2012-15 timeframe at an
initial level of250 MW. Similar to the Company s assumptions around wind and renewable
resources, Avista believes that bringing new coal-fired resources into its portfolio by 2012 will
be a challenge. Lead times for green field coal development range between seven and ten years.
Some time might be shaved off of this estimate were the Company to join with partners in a
project already under way. The Company will have to remain flexible when acquiring this
resource given the need to work with partners to gain necessary economies of scale.
Staff supports the resource choice in A vista s PRS , but has some concern over whether
all of the planned resources can be acquired. For example, much of the wind and coal generation
must come from outside of Avista s service territory. This will require transmission additions
over which A vista will not have complete control. If the renewables cannot be acquired, and
because coal has such a long lead time, the default position may be to build more gas-fired
generation, none of which is included in Avista s plans due to high and extremely volatile gas
STAFF COMMENTS NOVEMBER 18 , 2005
pnces. Even the Company believes that acquiring the amount of wind and biomass included in
the PRS will be challenging, especially in light of its preference to acquire smaller portions of
geographically diverse projects.
Transmission
A portion of the Preferred Resources Strategy likely requires construction of a
combination of new and upgraded transmission capacity to integrate some new generation plants.
For example, existing transmission lines out of eastern regions in the Western Interconnect to the
Northwest do not have adequate capacity to integrate large coal or wind plant developments.
Therefore, acquiring additional transmission is critical to A vista s plans. Without new
transmission, the Company s future resource portfolio likely will be different than presented in
its 2005 IRP. Consequently, Staff recommends that the Company continue to work with regional
entities and other utilities to identify low cost solutions to move power across the Northwest.
In the 2005 IRP, A vista discusses some of the more significant transmission and
substation upgrade projects that have either been recently completed, are currently in progress, or
are planned for the future. Such projects are necessary to meet capacity requirements, upgrade
protective relaying systems, and to meet regional and national reliability standards. Because
transmission is so crucial to the Company s obligation to meet future loads, Staff believes that
the transmission planning discussion in the IRP is absolutely necessary to fully evaluate future
resource alternatives.
Action Plan Items
Avista s IRP contains a review ofthe 2003 IRP Action Plan including how the Company
addressed each item in the 2003 plan. The IRP also contains the Company s Action Plan for
2005. Significant 2005 Action Plan items are listed below.
Demand Side Management
1. Review the potential for cost-effective load shifting programs using hourly market prices.
2. Complete the conservation control project currently underway as part of the Northwest
Energy Efficiency Initiative for future evaluation as a potential conservation resource.
STAFF COMMENTS NOVEMBER 18, 2005
Supply Side Resource Options
1. Commission a study to assess wind potential in Avista s service territory.
2. Continue to monitor emissions legislation and its potential effects on markets and the
Company.
3. Research clean coal technology and carbon sequestration.
4. Assess biomass potential within and outside Avista s service territory.
5. Continue to study various coal plant locations, including local sites.
6. Work to maintain/retain existing transmission rights on the Company s transmission
system, under applicable FERC policies, for transmission service to bundled retail native
load.
7. Continue involvement in BP A transmission business practice processes and rate
proceedings to minimize costs of integrating existing resources outside of the Company
servIce area.
8. Continue participation in regional and sub-regional efforts to establish new regional
transmission structures (Grid West and TIG) to facilitate long-term expansion of the
regional transmission system.
9. Evaluate costs to integrate new resources across A vista s service territory and from regions
outside of the Northwest.
The 2005 Action Plan, Staff believes, is a reasonable set of actions that will allow A vista
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.
STAFF RECOMMENDATIONS
In summary, Avista has no immediate need for additional long-term resources. In fact
the Company does not anticipate a deficit in capacity until 2009. Furthermore, the Company
does not anticipate a significant deficit in annual energy until 2010. The Company believes it is
prepared, even under low water conditions, to sufficiently meet retail loads through at least 2009
while still maintaining adequate reserve margins.
However, while there are no needs for new resources until 2009, Staff believes that
A vista should be mindful of the long lead time associated with development of some resource
types, particularly coal with its transmission/coal transport requirements. In its next IRP, Staff
STAFF COMMENTS NOVEMBER 18 , 2005
recommends greater analysis of site-specific, rather than generic, resource alternatives. Staff
believes it would be wise for Avista to closely follow advances in clean coal technology despite
its current higher costs, and to explore the potential for joint projects with other regional utilities
that also have plans for future coal-fired generation. In addition, Staff recommends that in future
IRPs the Company attempt to consider the year-to-year rate volatility that would be caused by
various possible portfolios. Portfolios that may have the least cost, least risk over the long term
could be quite volatile in the short term. Customers are finding it increasingly difficult to cope
with large annual power cost adjustments.
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
and in selecting a reasonable portfolio of new resources. However, Staff believes it is important
to recognize that new resource additions are not needed for several years. Consequently, the
quantity and mix of A vista s resource selections will likely change in future IRPs as conditions
change, fuel prices become more certain, and technology advances.
Staff recommends that Avista s 2005 IRP be accepted and acknowledged.
Respectfully submitted this tBrh day of November 2005.
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Deputy Attorney General
Technical Staff: Rick Sterling
Lynn Anderson
Wayne Hart
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STAFF COMMENTS NOVEMBER 18, 2005
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 18TH DAY OF NOVEMBER 2005
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF IN CASE
NO. AVU-05-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
CLINT KALICH MANAGER
RESOURCE PLANNING
A VISTA CORPORATION
PO BOX 3727
SPOKANE, W A 99220-3727
MAIL: clintkalich~avistacorp .com
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SECRETARY
CERTIFICATE OF SERVICE