20051219Decision memo.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
COMMISSIONER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEG AL
FROM:DONOV AN E. WALKER
DATE:DECEMBER 15, 2005
SUBJECT:AVISTA'S 2005 ELECTRIC INTEGRATED RESOURCE PLAN,
CASE NO. A VU-05-
On September 1 , 2005, Avista Utilities (Avista, Company) filed its 2005 Electric
Integrated Resource Plan (IRP) with the Idaho Public Utilities Commission (Commission). The
Company is required to file a biennial resource management report (IRP) describing the status of
the Company s electric resource planning.Order No. 22299.On October 6, 2005, the
Commission issued a Notice of Filing establishing a November 18, 2005 , deadline for filing
written comments. Order No. 29887. The only comments received were those of Commission
Staff and a joint filing by the Renewable Northwest Project and the NW Energy Coalition.
The 2005 IRP
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. The agendas and presentations
for all ofthe TAC meetings are located in Appendices A-C to the Company s Filing.
A vista predicts its electricity sales to grow 2.1 percent annually through 2026
growing to approximately 350 000 customers in 2007 and nearly 485 000 in 2026. Energy
deficits begin in 2010 with loads exceeding resource capability by 40 aMW. Energy deficits rise
to 360 aMW in 2016 and 640 aMW in 2026. Capacity deficits begin in 2009 with the Company
DECISION MEMORANDUM
being short by 5 MW. Capacity deficits grow to 508 MW in 2016 and 901 MW by the end of the
study in 2026. The Company requires new generation resources starting in 2009. The IRP
includes a reserve margin of approximately 15 percent.
Avista s Preferred Resource Strategy (PRS) contains the Company s forecasted
preferred mix of new resources over the IRP time horizon.The PRS is defined by three
generation categories: wind generation, coal-fired generation, and other small renewables. It
also contains upgrades to existing A vista resources and a significant increase in conservation
acquisition from today s levels. 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. In 2016 the PRS calls for total installed capacity comprised 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
resources. By 2026 total installed capacity equals 1 332 MW and is comprised of 650 MW of
wind, 450 MW of coal, 180 MW of other renewables and 52 MW of plant efficiency upgrades.
Needs are 138 MW lower because of conservation.
A vista s conservation acquisition is 50 percent higher than in the 2003 IRP. With the
additional funding recommended by the IRP, the Company expects conservation to lower load
growth in its service territory by 6.9 MW per year, totaling 138 MW over 20 years.
A vista is in the process of implementing a transmission upgrade plan to add over 100
circuit miles of new 230 kV transmission line to its system and will later increase the capacity of
another 50 miles. Avista is also constructing two new 230 kV substations and is reconstructing
three existing transmission substations. Related projects at six 230 kV substations are necessary
to meet capacity requirements, upgrade protective relaying systems, and to meet regional and
national reliability standards. In total, the Company will perform work in 11 of its 230 kV
substations or 85 percent of its system. Several of the more significant projects are described
more fully in the IRP. Transmission costs to integrate new resources into Avista s system were
estimated in the IRP by the Company s Transmission Department. Transmission costs were
reported as estimates based upon "engineering judgment" and are not "construction estimate
quality. As the size of the resource increases, the certainty of the associated cost estimate for the
transmission requirements to integrate it into the system diminishes. The estimated construction
DECISION MEMORANDUM
costs of new transmission associated with the integration of new generation varies from $10
million to $1.5 billion depending on location and project size.
The Company s IRP contains a review of the 2003 IRP Action Plan including how
the Company addressed each item in the 2003 plan. The IRP also contains the Company
Action Plan for 2005. Progress will be monitored and reported in the Company s 2007 IRP. The
2005 Action Plan includes specific items in four areas: renewable energy and emISSIons
modeling enhancements, transmission modeling and research, and conservation.
COMMENTS
NW Ener2\' Coalition and Renewable Northwest Project The Renewable
Northwest Project and the NW Energy Coalition submitted joint comments on November 18
2005. They were generally pleased with Avista s 2005 IRP stating that Avista s analysis led to
significant positive changes in its Preferred Resource Strategy compared with its 2003 Plan.
They commented that they were "thrilled" that the PRS identifies 650 MW of wind and 180 MW
of other renewables to be acquired, rather than the reliance on coal and gas envisioned in the
Company s 2003 Plan.The comments focus on Avista s analysis of energy efficiency,
renewable energy, coal, and greenhouse gas emissions.
The comments supported A vista s recognition of energy efficiency as a resource
rather than a decrement to load, and recommended using a more robust analysis in the next IRP
to show whether accelerating energy efficiency acquisitions at varying times through the
planning period would affect cost and risk. The comments were complimentary of the Company
for the depth of its renewables analysis and wind modeling in the IRP. With regard to coal, the
comments recommend, at the least, delaying any commitment to a new coal plant until further
research into IGCC and sequestration is undertaken. They state that while IGCC and
sequestration, as compared to a traditional pulverized plant, present some technology risks today,
that could change over the next five years. They state that the Company s analysis regarding
emissions is deficient for not including a carbon tax adder in the base case, as other Idaho
electric utilities do. The comments also suggested an analysis in the next IRP showing the cost
and risk of one or more portfolios that meet A vista s entire load growth with energy efficiency
and new renewable resources.
Commission Staff. Staff actively participated throughout the development process
of Avista s 2005 IRP, thoroughly reviewed the draft IRP, and provided extensive comments to
DECISION MEMORANDUM
the Company. The Company addressed Staff s comments in preparing the final IRP document.
Staff thoroughly reviewed the final IRP document and filed its comments in this case. After
review, Staff recommends that Avista s 2005 IRP be accepted and acknowledged.
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 Avista s resource selections will likely change in future
IRPs as conditions change, fuel prices become more certain, and technology advances.
With regard to the public process, Staff stated that participation in the 2005 IRP
process was improved over previous plans. However, Staff stated 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, A vista 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.
Staff believes that the load forecast prepared and used by A vista 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.Staff found the methodology and analysis used by the
Company in its analysis of conservation potential and resources to be thorough and
comprehensive. Staff generally found the assumptions used by the Company to be reasonable
and appropriate.
Staff compared the differences in the Preferred Resource Strategy (PRS) from the
2005 and 2003 IRPs. Staff commented that the most significant difference is the replacement of
a significant portion of the coal-fired generation with wind and other renewable resource
projects. Staff also pointed out several other factors that account for differences between the
2003 and 2005 plans. The acquisition of Coyote Springs 2 brought 140 MW of natural gas-fired
combined cycle combustion into the Company s portfolio, which fulfilled much of the 2003 IRP
gas goal. Additionally, higher forecasted natural gas and electricity prices have allowed
resources that previously were uncompetitive, such as wind and other renewables, to now
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become competitive. Also , wind integration studies and actual experience with integrating wind
into the Company s system lead Avista to believe that it can rely more heavily on this resource.
Staff commented that A vista made considerable analytical effort to evaluate the PRS
against several alternative strategies under various scenarios of load, hydro , wind, and natural
gas prIces.Overall, the PRS 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 PRS was based predominantly on a mix of
resources defined by weighting cost and risk at 50 percent each. Staff concurs that the PRS
selected by the Company is superior to the other resource strategies considered in the IRP.
Staff supports the resource acquisition 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. 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 more power across the Northwest.
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.
CO MMISSI ON D ECISI
Does the Commission wish to acknowledge and accept Avista s 2005 electric
Integrated Resource Plan filing?
DONOV AN E. WALKER
M:A VU-O5-08 dw2
DECISION MEMORANDUM