20100618RMP Comments.pdf

IN TH MATTER OF A REVIW OF THE )
SUROGATE AVOIDABLE RESOURCE )
(SAR) METHODOLOGY FOR )
CALCULATING PUBLISHED AVOIDED )
COST RATES )
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CASE NO. GNR-E-OQ..~.U(\ P' ,.,~. N~S10'"N\\Jl\'l ~Vt"'" rloY'. t
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ROCKY MOUNTAI POWER'S
COMMENTS REGARING THE
COMMSSION STAFF'S STRA WM
WI SAR PROPOSAL
On May 27, 2010, the Idaho Public Utilty Commission ("Commssion") Sta
prepared a Strawman Wind SAR Proposal ("Strawman") at the direction of the
Commission and issued it to Paries in Case No. GNR-E-09-03 for comments. In
response to Staffs request, Rocky Mountan Power ("RMP") hereby submits its
comments addressing the Sta s Strawman Wind SAR Proposal in ths case.
I. Backround
Sta s Strawman Wind SAR Proposal utilzes the same spreadsheet model as the
curent SAR methodology. Under the curent SAR methodology the proxy resource is a
natual gas-fired combined-cycle combustion tubine and major cost assumptions are
developed uniformly for all Idaho utilities using regional data from the Nortwest Power
and Conservation Council ("NPCC"). Under the wid SAR methodology, the same type
of approach is taen; however, the categories of assumptions have been modified and
expanded and the assumptions for the wind tubines are general, not specific to anyone
tubine manufactuer or utilty. A comparson between the curent SAR methodology and
the Strawman for the categories of assumptions included in each methodology is shown
below:
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SAR Methodology
. Capital Costs
. Fixed O&M Costs
. Varable O&M Costs
. Fuel Costs
Wind SAR Methodology
. Capita Costs
. Fixed O&M Costs
. Varable O&M Costs
. . Transmission Costs
. Tax Credits
. Wind Integration Costs
. Wind Forecasting Costs
. Renewable Energy Credits
. Other Assumptions
. Oter Contract Terms
In general, RM supports the Commssion's directive to consider developing a separate
SAR methodology for intermittent resources such as wind and retaining the existing SAR
methodology for thermal and/or non-intermttent QF projects. The Strawman proposal by
Staff is a strong first step in achieving tht directive. As RM addressed in its intial
comments, each methodology should use inputs and assumptions for its specific surogate
avoided resource from an independent source, such as the NPCC, with specific
adjustments or sources of assumptions that are unque to each utility. Ultimately, the
methodology, as applied to a utilty, should only represent costs that are being avoided by
that specific utility. The result would estblish two sets of avoided costs, one for
intermittent wind resources and one for non-intermittent (e.g., thermal) resources. The
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followig sumarzes the changes proposed by RM in its intial comments to
accommodate the intermittent wid resources cost and operating characteristics and
reflect costs actully avoided by RMP.
I. Use existing Idaho approved SAR spreadsheet modeL.
2. Wind SAR methodology cost inputs and assumptions should come from an
independent source. Because the existing SAR methodology uses the NPCC inputs
and assumptions, it is recommended that the Wind SAR methodology would also use
the NPCC curent wind assumptions but also apply utilty specific adjustments such
as the impact of being a multi-state utility where a proxy resource may be located
outside of Idaho with different characteristics such as capacity factor, wind
integration costs, and lack of avoided tranmission costs. These assumptions and
inputs would be updated on a regular schedule as the NPCC provides updates and/or
as utility specific adjustments change and are approved by the Commission.
3. The methodology would be applicable to QF projects coming online in 2010-2012
where there is certty regarding federal ta credits and other ta treatments. Afer
2012, the assumptions should be revisited to address any change to federal and/or
other ta treatments as well as the underlying assumption tht a specific ty of
resource is being avoided.
4. The Company agrees with stas assessment that there should be an adjustment to
tae into account unavoidable integration costs. The Company addresses what that
rate should be below, but generally, the Company believes that the curent SAR wind
integration chage adjustment understates the Company's costs.
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5. Monthly on-peak and off-peak scalars would stil apply to the resultat avoided cost
pnces
6. Contract terms for intermittent resources includig the mechancal availability
gurantee ("MAG") provision would remain in the power purchase agreement as well
as other contractul terms and conditions designed to protect customers.
7. Environmental attbutes or Renewable Energy Credits ("RECs") from the QF
resource would be assigned to the utilty since the utility receives the RECs from its
surogate wind resource. As discussed below, an adjustment should be included to
tae into consideration the fact that RM customers receive RECs for the entire life
of RMP's surogate wind resource (initially 25 years), as compared to the RECs tht
RM customers will receive only over the QF contract term.
RMP has organzed its comments to address each of the individual categories of
assumptions proposed in the Strawman.
Capital Costs
As Staf points out, the plant costs including capita and O&M and capacity factor
have the greatest impact on avoided cost pricing under the wind SAR methodology.
Market conditions are continualy changing and as recent times have shown, tubine
availabilty has increased and prices have declined. Staf s Strawman employs capita
cost assumption from NPCC Sixth Power Plan of $2,149 per kW in 2010 dollars that
reflect a sampling of regional as-built projects and pre-constrction estimates without
regard to a specific equipment manufactuer. RM fids Staffs Strawman assumption
acceptable for capital cost at the curent time.
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Fixed O&M Costs
The Strawman uses a fixed O&M of $40.93 per kW (2010$) from the NPCC
Sixth Power Plan with an escalation of 1.90% per year. Ths assumption came from the
NPCC, which used their Fift Power Plan value for fixed O&M of $20 per kW and
escalated forward based on the escalation of wind plant capital costs for the period 2004
through 2008. RM believes this number is too high based on the fixed O&M costs
observed for its own projects as well as data extracted from the EPRI TAG database,
adjusted for current market conditions. The Company proposes using a fixed O&M cost
more indicative of RMP specific avoided costs and closer to the range of its IR value of
$31.35 per kW (2010$).
Variable O&M Costs
The Strawman employs a varable O&M cost of $2.05 per MWh (201 0$) to
account for land lease or rent costs. The Company's actu and planed wind resources
include wind resources located on Company-owned land. As such, the Company's O&M
costs do not include these costs and, therefore, they should not be included as an avoided
cost. The Company has an expressed preference for locating generation facilities on
Company-owned land due to the lower cost for customers.
Transmission Costs
The Strawman proposes to apply a transmission cost associated with the proxy
wind resource based on the assumption that the Idaho utilities are multi-jurisdictional
and, as such, the avoided wind resource could be located in geographically remote areas
not close to load, which would require transmission costs to move the resource to load.
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Ths is a signficant divergence from the curent SAR methodology where no
transmission cost is assumed for the avoided gas resource.
The assumption that avoided wind resources will also avoid transmission costs is
not valid. In fact, wind resources planed through the Company's IRP process are
located in Wyoming and the purchae of energy and RECs from a QF located in Idao
will not alter planed transmission enhancements associated with RM's transmission
system. RMP strongly disagrees with having a universal non-utilty specific transmission
cost adder for the surogate avoided resource and suggests that any transmission cost
adder should be specific to the utility and the geographical location of that utilty's
avoided resource. For RM, the avoided wind resource is a resource located in Wyoming
with a 35% capacity factor. As stated above, a QF located in Idao will not avoid any
transmission related costs. Furhermore, transmission upgrades required to enhance the
trsfer of power from Idaho to RM's system have aleady been committed to. This
fuer demonstrates that QFs located in Idaho will not avoid tranmission costs.
Tax Credits
The Strawman applies three federal tax credit options: production ta credit of
$21 per MWh for the first ten year of production; investment ta credit of 30%; and no
ta credit at alL. The Company agrees that these ta treatments and others as available
should be considered; however, the wind SAR methodology should be applicable at ths
time to QF projects coming online in 2010-2012 where there is certinty regarding
federal tax credits and other ta treatments. The Company agrees with the use of the
30% investment ta credit assumption and, after 2012, the tax-related assumptions should
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be revisited to address any change to federal and/or other ta treatments or changes to the
Company's plans for renewable resource acquisition.
Wind Integration
Staff has proposed having a wind integration charge apply as par of their
Strawman with the cost being based on the curent wid integration charge for each of
the three Idaho utilities. RMP agrees with Stas assessment. An adjustment to the QF
price should be made for wind integration since wid integration costs are not avoidable.
However, the Company believes the Strawman proposal of $6.50 per MWh is too low.
For RM, the appropriate utility specific wind integration cost is $11.72 per MWh
(2010$) as determined by the Company's IRP for its planed wind resource additions.
RM's wid integration cost of $11.72 per MWh reflects the Company's most recently
completed wind integration analysis and is consistent with the NPCC's Sixth Power Plan
value of$l1.69 per MWH (2010$).
Wind Forecasting Costs
The Strawman proposal includes an anua wind forecasting charge to be included and
has proposed an anual fee of $3,500 per site. The Company fids this to be a reasonable
assumption.
Renewable Energ Credits ("RECs")
Under the Strawman proposal, Staff has proposed a decision logic for the QF to select
which SAR methodology they could use: (l) when wind SAR rates are higher than gas
SAR rates, the QF, regardless of technology, can chose either SAR methodology
assumng RECs go to utility with wind SAR and stay with QF for gas SAR; or (2) when
gas SAR rates are higher than wind SAR rates, wind QFs must use the wid SAR
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. .
methodology. There is some slightly flawed logic in ths. The Company's avoided wind
resource results in RM customers receiving RECs for the entire life of the resource
(initially 25 years). For a wind QF, RM customers should receive RECs in all cases.
Under option (l), a gas turbine cogeneration plant that qualifies as a QF could select the
wind SAR rates, yet would not be deemed renewable and generate no RECs. Ths
defeats the purose of comparg a QF to a similar avoided resource. The Company
suggests that if ths selection option is to be provided to the QF project that limits be
placed around what QF technology would qualify for the wind SAR methodology and
that technologies other than wid may need additional avoided cost adjustments to reflect
the specific performance and operating characteristics of the technology. In addition,
because customers receive REC benefits for the entire life of the Company's avoided
wind resource (initially 25-years), there should be an adjustment to tae into account that
customers will only receive RECs over the QF contract term. This incremental cost to
customers as a result of the wind QF should be reflected as a downward QF contract price
adjustment based on an assumed REC value and the difference between the QF contract
term and 25 years.
Other Resource Assumptions
Capacity Factor - One of the resource assumptions that is not addressed in detal in the
Strawman proposal is the surogate avoided resource capacity factor. Under the
Strawman, a capacity factor of 30% is used, which comes from the NPCC Sixth Power
Plan. A 30% capacity factor is materially lower than the Company's futue planed wind
resources. The Company's avoided wind resource is a resource located in Wyoming with
an assumed capacity factor of 35%. Utilzing a capacity factor of 30% for the surogate
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will overstate avoided costs as applicable to RMP. As acknowledged by Sta in their
proposal, capacity factor is one of the major assumptions that affects avoided cost pricing
in the wid SAR methodology. Therefore, RM proposes that capacity factor be a utility
specific assumption and that for puroses of the wind SAR methodology, a capacity
factor of35% be used in the calculations ofRM's avoided cost.
Financial - The Strawman proposes using financial assumptions specific to the individual
utilities. RMP is agreeable to this approach. The Company's IR model reflects
PacifiCorp's corporate inflation rate s~hedule and a single escalation rate value is used.
Ths value, 1.9 percent, is estimated as the average of the anual corporate infation rates
for the period 2009 to 2030, using PacifiCorp's June 2008 infation cure. However, the
Strawman assumes the Company is avoiding a wind resource beginng as early as 2010.
Ths is not the case. The Company's next planed wind resource that can be considered
avoidable is a 2017 wind resource located in Wyoming with a capacity factor of 35%.
Any payments made to a QF in advance of 2017 should be based on market with avoided
wind cost payments beginnng in 2017.
Dispatchability - The Company agrees with Staff regarding dispatchabilty. In the wind
SAR methodology, since the avoided resource and the QF have similar capacity and
dispatchabilty characteristics, there is no need to make adjustments to account for
differences. '
Other Contract Terms
Mechancal Availabilty Guaantee ("MAG") - The Commission has already established
the use of two separate contract performance mechasms for these two decidedly
different QF projects - Mechancal Availabilty Guarantee for intermittent wind
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. .
resources and the "90/110" performance band for thermal/baseload resources. These two
performance mechansms should remain and establishment of a separate SAR for a wid
QF and for a thermal/aseload QF will align stadard QF contracting terms for each tye
of QF resource. In addition, there should be no changes to contractul terms or conditions
that results in incremental risk to customers.
Time-of-Dayand Seasonal Factors - Staff has proposed continuing to use the Monthy
Price Multipliers as ordered for RM in Docket PAC-E-07-13. RM agrees that the
time-of-day and seasonal shaping factors better reflect the value of the energy delivered
to its system and supports the use of this as par of final pricing for a QF under the wind
SAR methodology. As such, a QF would only receive the time of day and seasonal
factors in their energy payments if actual deliveries occured at those times, not on a
prospective basis.
Rocky Mountan Power appreciates the opportunty to provide comments on Staffs
Strawman proposal, and we look forward to working with the Commssion and Staff to
fuer refie the SAR methodology.
Please let me know if you have any fuher questions.
Very Truly Yours,~~Jeffrey K. Larsen
Vice President, Regulation
Rocky Mounta Power
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CERTIFICATE OF SERVICE
I hereby certify that on ths 18th of June, 2010, I caused to be served, via E-mail, a tre
and correct copy of Rocky Mounta Power's Comments Regardig the Commssion
Stas Strawm Wind SAR Proposal in GNR-E-09-03 to the followig:
Krstine A. Sasser
Deputy Attorney General
Idaho Public Utilties Commission
472 West Washigton
P.O. Box 83720
Boise, Idao 83720-0074
Krs.sassercmpuc.idaho.gov
Rick Sterling
Idaho Public Utilties Commssion
472 West Washington
P.O. Box 83720
Boise, Idaho 83720-0074
Rick.sterlingcmpuc.idaho. gov
Randy Lobb
Idaho Public Utilities Commission
472 West Washington
P.O. Box 83720
Boise, Idaho 83720-0074
Randy.lobbcpuc.idaho. gov
Kelly Norwood
A vista Corporation
1411 East Mission Avenue
P.O. Box 3727
Spokane, Washington 99202
kelly.norwoodcmavistacorp.com
Thomas H. Nelson
Renewable Energy Coalition
P.O. Box 1211
Welches, OR 97067-1211
nelsoncmthnelson.com
JohnR. Lowe
Renewable Energy Coalition
12050 SW Tremont Street
Portland, OR 97225
jravenesanarcoscmyahoo.com
(1rI\JJ_D ~IY~ t
Coordinator, Administrative Services