20030514Said Direct.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR AN
ACCOUNTING ORDER AUTHORI ZING THEINCLUSION OF POWER SUPPLY
EXPENSES ASSOCIATED WITH THE
PURCHASE OF CAPACITY AND ENERGY
FROM PPL MONTANA, LLC IN THEPOWER COST ADJUSTMENT.
CASE NO. IPC-
IDAHO POWER COMPANY
DIRECT TESTIMONY
GREGORY W. SAID
Please state your name and business address.
My name is Gregory W. Said and my business
address is 1221 West Idaho Street, Boise, Idaho.
By whom are you employed and in what
capaci ty?
I am employed by Idaho Power Company as the
Director of Revenue Requirement in the Pricing and
Regulatory Services Department.
Please describe your educational background.
In May of 1975, I received a Bachelor of
Science Degree with honors in Mathematics from Boise State
Uni versi ty .
Please describe your work experience with
Idaho Power Company.
I became employed by Idaho Power Company in
1980 as an analyst in the Resource Planning Department.
1985, the Company applied for a general revenue requirement
I was the Company witness addressing power supplyincrease.
expenses.
In August of 1989, after nine years in the
Resource Planning Department, I was offered and I accepted a
Wi th theposi tion in the Company I s Rate Department.
Company I S application for a temporary rate increase in 1992,
my responsibilities as a witness were expanded.While I
continued to be the Company I s witness concerning power
SAID, DI
Idaho Power Company
supply expenses, I also sponsored the Company I s rate
computations and proposed tariff schedules.
Because of my combined Resource Planning
Department and Rate Department experience, I was asked to
design a Power Cost Adjustment which would impact customers
rates based upon changes in the Company 1 s net power supply
I presented my recommendations to the Idahoexpenses.
Public Utilities Commission ("IPUC") in 1992 at which time
the IPUC established the PCA as an annual adjustment to the
I have sponsored the Company I s annual PCACompany I S rates.
adjustment for the years 1996 through 2003.In 1996 I was
promoted to Director of Revenue Requirement in the Pricing &
Regulatory Affairs Department, a position I currently hold.
In June of 1999, Mr. Ric Gale, Vice President
of Regulatory Affairs, asked me to lead a team of analysts
in the preparation of the Company s 2000 Integrated Resource
Members of the team included experts in the areas ofPlan.
load forecasting, hydroelectric generation, thermal
The plan wasgeneration, transmission, finance and pricing.
acknowledged by the Idaho Public Utili ties Commission on
In that plan, the Company stated that itDecember 12, 2000.
would issue a Request for Proposals ("RFP") to solicit
proposals for solutions to future anticipated deficiencies
at a cost to Idaho Power customers that would be less than
the costs of constructing a simple cycle combustion turbine.
SAID, DI
Idaho Power Company
Because the RFP was viewed as a continuation of the IRP
process, I was asked to lead the RFP process as well.
please outline the major topics you will
address in your testimony in this proceeding.
There are three major topics that comprise my
testimony.First, I will briefly summarize the events that
preceded the development of the power purchase agreement
between the Company and PPL Montana, LLC ("PPA"Second, I
will describe the principal provisions of the PPA.Finally,
I will discuss the treatment of PPA costs wi thin the Power
Cost Adjustment.
Could you please describe the events that led
to the development of the PPA?
The pursuit and execution of the PPA is a
part of the Company s strategy to replace the 250 MW of
capacity that was lost when changes in financial market
condi tions made it impossible for Garnet LLC to perform
under the terms and conditions of the Idaho Power - Garnet
LLC Power Purchase Agreement ("Garnet Contract"
) .
The
Company s strategy to acquire resources to replace the lost
Garnet Contract capacity was described in Idaho Power
Report to the IPUC On Replacing Garnet Power Agreement"
Garnet Report"
) .
On October 30, 2002, Idaho Power filed the
Garnet Report with the Commission and asked that the
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Idaho Power Company
Commission take administrative notice of the Garnet Report
in making its ultimate determination as to whether or not to
acknowledge the Company s 2002 Integrated Resource Plan.
Did the Commission acknowledge and accept the
Company s 2002 IRP, as supplemented with the Garnet Report?
On February 11, 2003, the IPUC in OrderYes.
No. 29189 acknowledged and accepted Idaho Power s 2002 IRP
filing.
please describe the findings of the Garnet
Report wi th regard to potential al terna ti ves to replace the
Garnet Contract.
Idaho Power investigated a number of
Thepotential alternatives to replace the Garnet Contract.
al ternatives include acquiring firm transmission rights and
firm wholesale purchases, energy exchanges, adding or
acquiring the output of generation resources located wi thin
the Company s control area, integration of demand-side
measures where cost effective , or a combination of these
alternatives.
What was the recommended replacement for the
Garnet Contract in the 2002 IRP Supplement?
Gi ven then-current forward prices and
estimates of future market-clearing prices, the recommended
replacement for the Garnet Contract was a combination of
The Garnet Reportfirm wholesale purchases and exchanges.
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Idaho Power Company
emphasized that successful negotiation and execution of firm
wholesale power purchase and exchange agreements prior to
any maj or changes in forward market prices were critical to
If either forward prices orthe success of this strategy.
the estimates of future market-clearing prices were to
increase substantially, then adding addi tional generation
resources wi thin Idaho Power s control area could become the
preferred strategy.
Has Idaho Power successfully negotiated a
firm wholesale power purchase?
Idaho Power has successfully negotiatedYes.
a firm wholesale power agreement with PPL Montana, LLC to
A copy of thereplace a portion of the Garnet Contract.
Agreement with PPL Montana, LLC (the "PPA") is attached as
Exhibi t 1 to my tes timony .
Could you briefly discuss why the PPA with
PPL Montana, LLC is worth pursuing.
Contracting with PPL Montana, LLC is
advantageous for two primary reasons.First, because of the
existing constraints on Idaho Power s ability to import
power on the west side of its system, power purchases on the
east side of the system are more easily facilitated.
Second, PPL Montana, LLC owns, operates and maintains
substantial generating resources.PPL Montana, LLC
purchased most of the generating assets sold by Montana
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Idaho Power Company
Power Company when the state of Montana restructured its
PPL Montana, LLC owns andelectric utili ty industry.
operates eleven hydroelectric plants with total generating
PPL Montana, LLC also owns and operatescapacity of 474 MW.
coal-fired generating capacity at the Colstrip Power Plant
and J. E. Corette Power Plant in excess of 500 MW.PPL
Montana, LLC' s ownership of generating plants on the east
side of Idaho Power Company s system and its favorable
credit rating made PPL Montana, LLC a good match for the
type of power acquisition Idaho Power is seeking.
In the first full paragraph on page 2 of the
PPA, the Confirmation Agreement, there is a reference to the
WSPP Agreement and Service Schedule C and the WSPP Credit
Please explain that reference.Annex dated 03/25/2003.
WSPP stands for Western States Power Pool.
The Western States Power Pool is an umbrella organization
which includes dozens of energy industry participants
(including Idaho Power and PPL Montana, LLC) who engage in
power purchase and sales transactions in the western United
To facilitate those transactions, theStates and Canada.
members of the WSPP have negotiated and published a model
power purchase and sale contract which addresses the usual
commercial terms and conditions that are required for these
The WSPP Agreement and thetypes of transactions.
accompanying service schedules, including Service
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Idaho Power Company
Schedule C, have been filed with the FERC and provide an
umbrella agreement under which regulatory filings can be
facilitated at the FERC.In the Confirmation Agreement,
Idaho Power and PPL Montana, LLC have agreed that the terms
and conditions contained in the WSPP agreement will be the
general commercial terms and conditions that will govern the
The transaction-specific arrangements are set out inPPA.
the Confirmation Agreement and the Credit Annex.The WSPP
Credit Annex referred to in the Confirmation Agreement was
individually negotiated between Idaho Power and PPL Montana,
LLC and modifies specific portions of the WSPP Agreement to
address the credit requirements of the parties to the PPA.
Could you briefly summarize the principal
provisions of the PPA?
The principal provisions of the PPA with PPL
Montana, LLC call for a firm power purchase for the heavy-
load hours, six days a week, sixteen hours a day (6X16) in
These are the timethe months of June, July and August.
periods identified in the Company s 2002 IRP as the times of
The term of thepeak resource need on Idaho Power s system.
PPA is June 1 through August 31 for each year beginning in
The quantity of energy purchased2004 and ending in 2009.
is 83 MW per hour, except for the month of August 2004,
which shall be 26 MW per hour.The price to be paid for
After adjusting for losses,this energy is $44.50 per MWh.
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Idaho Power Company
and with the exception of the August 2004 time period, Idaho
Power will actually receive approximately 80 MW per hour
under the PPA.
In addition to the cost of power under the
PPA, Idaho Power intends to purchase firm monthly
transmission serVlce across NorthWestern Energy
transmission system to Jefferson.At current rates in
NorthWestern Energy s OATT, the maximum charge for the
monthly firm transmission service to Jefferson is $3.10 per
kilowatt of reserved capacity per month.
Are there additional conditions of the
contract?
Yes.Usually power sellers are reluctant to
hold their prices firm for an extended period of time.
accommodate the need for time to pursue the Commission
approval process, Idaho Power has paid a deposit to PPL
Montana, LLC in the amount of $250,000.Idaho Power has 60
days from May 13, 2003 to obtain Commission approval of the
PPA.If the PPA is approved by the Commission wi thin the
60-day period, PPL Montana, LLC will refund the $250,000 to
Idaho Power and the PPA shall remain in effect.I f the
Commission does not approve the PPA wi thin the 60-day
period, then either party may terminate the PPA and Idaho
Power will forfeit the $250,000 deposit.
Paragraph 2 of the Confirmation Agreement
SAID, DI
Idaho Power Company
addresses the possibili ty that Idaho Power s transmission
reservation on Northwestern Energy s transmission system
Could you please address this section ofcould be "bumped.
the PPA?
In accordance wi th FERC requirements,
NorthWestern Energy s Open Access Transmission Tariff
OATT") provides that a long-term firm purchase of
transmission capabili ty has priority and can "bump " a
transmission reservation of shorter duration.Idaho Power
intends to purchase monthly firm transmission rights on
Northwestern Energy s transmission system for delivery of
Annual firmthe power under the PPA at Jefferson.
transmission service on Northwestern Energy s transmission
system is very expensive.Idaho Power owns long-term
for all of thetransmission capability (with renewal rights)
transmission capacity from Jefferson into the Idaho Power
Because Idaho Power owns all of thetransmission system.
transmission capacity from Jefferson into the Idaho Power
system, it is extremely unlikely that any party would desire
to purchase long-term firm transmission from anywhere on
NorthWestern s transmission system to Jefferson, and, thus,
preempt Idaho Power s shorter-term reservation and
subsequently prevent Idaho Power from taking delivery of the
As a resul t , Idaho Powerenergy under the PPA at Jefferson.
intends to purchase monthly firm transmission capacity
SAID, DI
Idaho Power Company
rather than annual firm transmission capacity.Paragraph 2
of the Confirmation Agreement addresses the unlikely
possibility that Idaho Power s reservation is "bumped.
places an obligation on PPL Montana, LLC to take additional
steps to deliver the power under the PPA to Idaho Power
under alternative arrangements.
How do the energy costs of $44.50 in this PPA
compare to other options the Company might have?
The costs associated with this PPA are
competitive and favorable when compared to alternative
Other energy costs that may be used forresource options.
comparison purposes include the Company s current avoided
costs for energy purchases from small QFs as established by
this Commission and forward market prices with added
transmission costs.
Idaho Power s current avoided costs for small
QFs as determined by the IPUC in Order No. 29124 are based
upon a surrogate avoided resource of a 230 MW combined cycle
Thecombustion turbine and were set September 26,2002.
levelized rate for a non-fueled project smaller than 10 MW,
coming on-line in the year 2004 for a contract length of 5
The levelizedyears is 43.78 mills/kWh ($43.78 per MWh)
rate for a twenty-year contract (a more likely scenario for
a QF contract) is $49.83 /MWh.The PPA rate of $44.50/MWh
for a peak hour summer peak period product compares
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Idaho Power Company
favorably to non-seasonalized QF contract rates.All of
Idaho Power s existing QF contracts use " seasonalized" rates
which provide significantly higher purchase prices in the
summer months.
On May 8, 2003, forward market bid/offer
quotes at Mid-Columbia for Q3 2003, heavy load hours, were
$45.50/MWh and $46. 50/MWh , respectively.Bid/ offer quotes
for the same product at Palo Verde were $62.00/MWh and
$64.25/MWh, respectively.Wi th an energy purchase at ei ther
of these hubs, additional costs would be incurred for
transmission to the Idaho Power system.It should be noted
that transmission from Mid-Columbia, if available, would
need to be routed through the northern part of the regional
inter-connected transmission grid since the Idaho Power
transmission system is constrained from the west.
How do the energy costs under this PPA
compare to the power costs under the Garnet Contract?
In the prefiled testimony of Commission Staff
Wi tness Sterling in Case No. IPC-01-, the Commission
Staff estimated the cost of Garnet to be nearly $77/MWh over
a ten-year period of time assuming gas prices of $3.75 per
This PPA, while not equivalent to the Garnet PPA inMMBtu.
its entirety, does provide for partial replacement of Garnet
at a lower price.
How do the energy costs under this PPA
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Idaho Power Company
compare to the costs of operating the Company s Danskin
combustion turbine at Mountain Home?
The cost of operating Danskin varies with the
At present, Idaho Power has purchasedcost of natural gas.
natural gas to operate Danskin during the heavy load hours
The proj ected Danskin operatingof July and August 2003.
cost (fuel costs, startup costs and variable O&M) for July
heavy load operation is $57. 85/MWh with a natural gas price
of $4.55/MMBtu.The proj ected Danskin operating cost (fuel
costs, startup costs, and variable O&M) for August heavy
load operation is $59 . 16/MWh with a natural gas price of
$4. 71/MMBtu.
In its final order acknowledging and
accepting the Company s 2002 IRP , the Commission directed
Idaho Power to consider the potential for cost-effective DSM
as an alternative to supply-side resources.I s the PPA
compatible with available DSM options?
In my opinion, the PPA dovetails very well
with the Company s ongoing efforts to develop DSM programs
targeting summer peak loads.As noted in the Company s 2002
IRP, the Company s peak load requirements occur during
summer months with a secondary peak occurring in November
The PPA is specifically targeted at theand December.
heavy-load hours during the peak summer months.The term of
the PPA runs from the summer of 2004 through the summer of
SAID, DI
Idaho Power Company
In accordance with Commission Order No. 29207, the2009.
Company is currently pursuing a pilot program to implement a
residential air conditioning cycling program.As noted in
Order No. 29207, the Energy Efficiency Advisory Group
EEAG") has concurred with the Company s proposal to use
energy efficiency rider funds collected under Idaho Power
Schedule 91, to finance the air conditioning cycling pilot
The air conditioning cycling program targetsprogram.
If it isheavy-load hours during June, July and August.
ul timately determined that an air conditioning cycling
program would be a cost-effective way to reduce critical
system peaks, such a program would address essentially the
same peak loads that are covered by the PPA, and could
potentially mitigate the continuing need for resources like
The Company is also discussing with the EEAGthe PPA.
addi tional DSM programs that would target irrigation usage,
another contributor to the Company s peak load during the
June, July and August period covered by the PPA.For all of
these reasons, I believe that the PPA is consistent with the
Commission s expectations regarding consideration of DSM
wi thin the Company s integrated resource planning process.
How does the Company propose that the costs
associated with this PPA be treated in the Company s Power
Cost Adjustment ("PCA"
The costs associated with acquiring firm
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Idaho Power Company
monthly transmission service from NorthWestern Energy
transmission system, will be booked in FERC account 565,
Transmission of Electricity by Others.These monthly
transmission costs will not flow through the Company s Power
Cost Adjustment (" PCA"
) .
Idaho Power s costs for power acquired
through this PPA will be booked in FERC account 555,
Purchased Power, and will appropriately flow through the
Company s PCA upon contract approval by the Commission.
Until the costs of the contract are included in a general
revenue requirement proceeding, any contract costs
associated with the PPA will be considered deviation from
the base and, therefore, only ninety percent of the Idaho
jurisdictional costs will be borne by customers.
Based upon your testimony in this proceeding,
what is the Company s recommendation with regard to the PPL
Montana Power Purchase Agreement?
The Company recommends that the Commission
approve the PPL Montana Power Purchase Agreement for
ratemaking purposes and authorize Idaho Power to include the
expenses associated wi th the power purchases under the PPA
in the Company s PCA.
Does this conclude your testimony?
Yes, it does.
SAID, DI
Idaho Power Company