crowley.pdf

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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

CASE NO. GNR-E-02-01

DIRECT TESTIMONY OF LARRY CROWLEY
FOR PLUMMER FOREST PRODUCTS – POTLATCH CORPORATION

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Q. Please state your name and business address.
A. My name is Larry Crowley and my business address is 5549 South Cliffsedge
Avenue, Boise, Idaho 83716.
Q. By whom are you employed and in what capacity?
A. I am the founder and Director of The Energy Strategies Institute, Inc., a consulting
company consisting of a network of experienced professionals with diverse experience
and interests, specializing in energy and utility matters. The Institute is dedicated to
developing and implementing practical solutions for energy service providers and
customers. The Institute provides regulatory and litigation support, industry restructuring
support including economic and financial analysis, and business and organizational
development analysis and implementation support. The Institute also offers assistance
and facilitation with energy and utility strategic planning initiatives, resource planning
studies, and strategic, financial and feasibility studies for mergers and acquisitions and
new business development. Regulatory services include costing/pricing studies,
preparation of direct testimony and testifying in support of the studies provided. The
Institute offers regulatory expertise with the preparation of exhibits and testimony for
jurisdictional separation and revenue requirement studies, class cost of service studies,
unbundled cost studies, and rate design studies. Major clients include The Washington
Group International, Boise, Idaho; Wisconsin Electric Power Company, Milwaukee,
Wisconsin; The US Department of Energy, Office of Renewable Energy and Energy
Efficiency, Washington, D.C.; and The International Energy Agency, Paris, France.
Q. Please describe your educational background and professional experience.
A. I have a Bachelor of Science degree in Economics from the University of
Maryland. My professional experience consists of over 30 years of senior-level

Crowley, Di
Plummer—Potlatch
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positions with a number of electric or dual fuel utilities. I have worked as Senior
Manager of Strategic Planning, Manager of Power Management and Manager of
Rates and Regulatory Affairs at Idaho Power Company. In addition, I was project
coordinator for all regulatory filings for Wisconsin Electric Power Company
located in Milwaukee, Wisconsin. My specific regulatory responsibilities have
included the development of jurisdictional and class cost of service studies, rate
design and analysis, rate case planning and coordination, wholesale power
planning, contracting and administration and developing load research programs.
During the past 25 years I have testified before the Idaho Public Utilities
Commission, the Oregon Public Utilities Commission, the Nevada Public Service
Commission, the Colorado Public Utilities Commission, the Wisconsin Public
Utilities Commission, the Michigan Public Service Commission and the Federal
Energy Regulatory Commission.
Q. On whose behalf are you testifying in this proceeding?
A. I am testifying on behalf of Plummer Forest Products and the Potlatch
Corporation.
Q. What is the purpose of your testimony?
A. The purpose of my testimony is to respond to the Commission’s Order No 29069
regarding “the reasonableness of the actual numbers comprising the avoided cost
formula.” Specifically, I have been asked to review and make a recommendation
regarding the reasonableness of the “first deficit year” used in the formula for
calculation of Avista’s proposed avoided cost rates.

Crowley, Di
Plummer—Potlatch
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Q. Please describe the importance of the “first resource deficit year” (“FDY”)
component in the calculation of avoided cost rates?
A. Identification of the first resource deficit year is the one of the most important
factors in calculating a utility’s avoided costs and thereby determining the
appropriate rate a QF will receive including credit for avoided capacity costs. For
example, if a utility’s first deficit year is projected to occur ten years in the future,
a ten year QF contract executed ten years prior to the first deficit year would
receive rates that recover little more than avoided fuel and other variable costs.
This would preclude the development of feasible QF projects due to the lack of
the ability to recover fixed costs, including financing costs, in the first years of
operation of the QF project.
Q. What is the FDY year assumption contained in Avista’s published rates for Non-
Fueled Projects?
A. Avista’s rates are based on an assumed FDY of 2010.
Q. What impact does this FDY assumption have on the calculation of Avista’s
avoided cost rates?
A. The first deficit year assumption has a particularly significant impact on QF
contracts for ten years or less. For these contracts, Avista’s avoided cost rates are
uniformly 40 percent less than the published rates for the other two Idaho utilities.
Even in the case of twenty year levelized contracts, Avista’s rates are roughly 25
percent below the rates of Idaho Power and PacifiCorp.
Q. When was the assumed first deficit year of 2010 established?

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Plummer—Potlatch
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A. It was established by the Commission in 1996 in Case No. WWP-E-92-2. That
case involved review and acceptance of Avista’s (then Washington Water Power
Company) 1995 Integrated Resource Plan. In Order No. 26699 the Commission
stated:
According to the Company’s medium growth electric forecast in Case No.
WWP-E-95-2, Water Power will not need additional energy resources
until the year 2010 (Executive Summary page 10; Appendix F pages 41,
47). The Commission notes that this calculation is generally consistent
with the Exhibit 19 first year deficit calculation and testimony of Water
Power witness H. Douglas Young in Case No. WWP-E-93-10. We find
the change in first deficit year to be reasonable and authorize its use for
avoided cost purposes.

Attached as Exhibit 501 is the three-page Appendix F referenced above.
Q. Is Avista’s projected 2010 first deficit year still accurate?
A. I assume the projection was realistic when it was made in 1995, but it is very clear
it is no longer accurate.
Q. What is your basis for this conclusion?
A. Avista’s own documents and actions demonstrate that the 2010 first deficit year
estimate is no longer valid.
Q. What documents are you referring to?
A. I am referring to Avista’s “2001 Electric Integrated Resource Plan” filing made in
May of 2001.
Q. What does the 2001 IRP indicate with respect to first deficit year?
A. It shows that Avista faced substantial deficits, both in capacity and energy in the
year 2000. Attached as Exhibit as Exhibit 502, is the summary of Requirements
and Resources in the 2001 IRP. It is very similar in format to the 1996 Exhibit F,

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Plummer—Potlatch
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Exhibit 501, referenced above. It shows a year 2000 peak deficiency of 394 MW
and an average energy deficiency of 260 AMW.
Q. Was Avista’s published avoided cost rate ever adjusted to correct the first deficit
year from 2010 to 2000?
A. The 2001 IRP states in part:
With the publication of the 2001 IRP, Avista will file revised avoided
costs to match the parameters in the IRP, including information received
from the 2000 RFP. Avista has 90 days after the IRP filing to file revised
numbers in Washington. The company will also file at about the same
time updated avoided cost numbers in Idaho. This will allow the company
to remain in compliance with the state’s requirements in their management
of the PURPA legislation. (Avista 2001 IRP, page H-11).

As yet Avista has not updated its avoided cost rate to include the correct first
resource deficit year as it indicated it would in its 2001 IRP.
Q. You stated earlier that Avista’s actions also demonstrate that the 2010 first deficit
year is invalid. What is your basis for this conclusion?
A. Avista has been building, and continues to build, substantial additional generating
capacity in an attempt to alleviate the resource deficiencies identified in the 2001
IRP. According to its earnings report for the second quarter of 2001, Avista was
constructing the 280 megawatt Coyote Springs 2 natural gas generation project
near Boardman, plus several small generation projects with a total capacity of 63
megawatts
Q. Will these construction projects eliminate the resource deficiency identified in the
2001 IRP?
A. No. My understanding is that Avista has sold, or is engaged in selling, one half of
its Coyote Springs generating project. Correcting the 2001 IRP for this

Crowley, Di
Plummer—Potlatch
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subsequent development, shows Avista with immediate peak and average
resource deficiencies.
Q. What is your recommendation for correcting this situation?
A. In accordance with the methodology established in Order No. 26699, which
determines the first deficit year based on the utility’s most recent IRP, the first
deficit year for Avista should be set at the year 2000.
Q. Have you reviewed the calculation of Avista’s avoided cost rates for non-fueled
projects based on an assumed first deficit year of 2000?
A. Yes. Attached as Exhibit 503 is a schedule of rates incorporating the year 2000
assumption.
Q. Does correcting the assumption with respect to first deficit year have a material
impact on avoided cost rates?
A. Yes. Exhibit 504 sets forth the calculation of avoided costs using a first deficit
year of 2010. When compared to Exhibit 503 it can be seen that using the correct
deficit year produces a rate of 70.49 mills/kWh for a 20 year contract while using
the current, incorrect, deficit year produces a rate of 52.90 mills/kWh for a
contract of the same length.
Q. Do these rates shown in Exhibit 503 appear to be reasonable?
A. Yes. Attached as Exhibit 505 are the comparable rate schedules for Idaho Power
Company and PacifiCorp. These companies use a first deficit year of 1998 and
1999 respectively. Employing this assumption for Avista brings Avista’s rates
very much in line with the other Idaho utilities.

Crowley, Di
Plummer—Potlatch
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Plummer—Potlatch
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Q. Finally, in your opinion, is determination of a first deficit year a useful component
of avoided cost calculation.
A. The primary purpose of this testimony is to show the correct Avista QF rate using
the current methodology and an appropriate first deficit year. I understand from
informal discussions, however, that other parties may offer criticisms of the first
deficit year component and suggestions for improvements. Given the fact that
Avista’s 1995 projected first deficit year obviously produced erroneous rates for
at least the last two years, I can understand why other parties would argue for the
elimination of this component of the methodology. I may comment on these
suggestions in my rebuttal testimony, if appropriate.
Q. Does that conclude your testimony?
A. Yes it does.