20030929Said Direct Testimony.pdf

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PUBLIC
UTILITiES cOt1MISSION
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR A
CERTIFICATE OF PUBLIC CONVENIENCE
AND NECESSITY FOR THE RATE-BASING
OF THE BENNETT MOUNTAIN POWER
PLANT
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CASE NO. IPC-O3-
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
Manager 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 from Boise State University.
1999,1 attended the Public Utility Executive s Course at
the University of Idaho.
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 theposition in the Company s Rate Department.
Company s application for a temporary rate increase in 1992,
my responsibilities as a witness were expanded.While I
SAID, DI
Idaho Power Company
continued to be the Company witness concernlng power supply
expenses, I also sponsored the Company s rate computations
and proposed tariff schedules.
Because of my combined Resource Planning and
Rate Department experience, I was asked to design a Power
Cost Adjustment (PCA) which would impact customers ' rates
based upon changes in the Company s net power supply
I presented my recommendations to the +dahoexpenses.
Public Utili ties Commission in 1992 at which time the
Commission established the PCA as an annual adjustment to
I have sponsored the Company s annualthe Company s rates.
PCA adjustment in each of the,years 1996 through 2003.
In 1996, I was 'promo ted to Director of
At year-end 2002', I was promoted toRevenue Requirement.
the senior management level of the Company.
During 1999 and 2000, I directed the
preparation of the Company s 2000 Integrated Resource Plan
(IRP) .I managed the Request for Proposals (RFP) process
that resulted from the Near-Term Action Plan identified in
I also participated in the preparationtha t Resource Plan.
The RFPof the 2002 IRP and subsequent 2003 RFP process.
issued as part of the Near-Term Action Plan outlined in the
2002 IRP report has resulted in the selection of the
Mountain View Power , Inc. proj ect as the Company s preferred
addi tion of a new peaking resource.
SAID, DI
Idaho Power Company
please outline the major topics you will
address in your testimony in this proceeding.
There are four major topics that comprise my
First, I will briefly describe the history thattestimony.
preceded Idaho Power s issuance of the RFP on February 24,
2003.Second, I will describe the bid evaluation process
that led up to the selection of the Mountain View Power
Inc.(MVP) as the winning bidder.Third, I will qiscuss
some of the significant provisions of the agreement with MVP
for the Bennett Mountain Power plartt (" Proj ect"
) .
Finally,
I will discuss the Company s proposed ratemaking treatment
of the costs associated with the Proj ect.
What are the major , events that preceded the
selection of the MVP proposal'?
The maj or events leading up to the selection
of the MVP proposal are the issuance of the 2002 IRP in June
2002, the supplement to the 2002 IRP often called the
Garnet Report" filed in October 2002, the Commission
acknowledgement of the 2002 IRP as supplemented with the
Garnet Report in February 2003, the issuance of the current
RFP in February 2003 and Commission approval of the PPL
The 2002 IRP, theMontana, LLC contract in July 2003.
Garnet Report and the PPL Montana contract are all on file
wi th the Commission and as such, Idaho Power requests that
the Commission take administrative notice of these
SAID, DI
Idaho Power Company
documents.
What were some of the assumptions that formed
the basis of the 2002 IRP?
The first assumption of the 2002 IRP was that
In addition tothe Garnet facility would be constructed.
that assumption, the Company also shifted its emphasis from
the median water planning criteria to the evaluation of a
ili percentile water and 70ili percentile load condition.
This shift in emphasis resulted in less reliance on market
purchases during periods of low water and a greater need for
resource acquisition.
Based upon those assumptions, what did the
Company conclude was required to satisfy future loads in the
planning horizon?
The Company planned to continue seasonal
market purchases in June, July, November and December in the
near term, to integrate demand-side measures where
economical , to issue an RFP for a 100 megawatt resource to
be available in 2005, to purchase up to 250 megawatts of
seasonal capacity and energy beginning in June 2005, to
proceed with the Brownlee to Oxbow transmission line to be
ln service in 2005 and to upgrade the Shoshone Falls proj ect
to be in service in 2007.
How was the 2002 plan modified as a result of
Garnet's inability to acquire acceptable financing for its
SAID , DI
Idaho Power Company
proj ect?
At the request of the Commission, the Company
supplemented its 2002 IRP with the Garnet Report in October
2002.In the supplemental Garnet Report, the Company
identified alternatives to the Garnet project including
potential purchases from the east side of our system.The
Garnet Report also stated that the Company was seriously
considering increasing the 2003 RFP to approximat~ly 170
megawatts.
Has the Company been able to acquire any of
the alternatives to Garnet discussed in the 2002 IRP
supplemental Garnet Report?
Yes, on May 13,' 2003' the Company applied to
the Commission for approval or a' Power ' Purchase 'Agreement
The PPA with PPL Montana, LLC(PPA) with PPL Montana, LLC.
calls for an 83 megawatt firm power purchase for the heavy
load hours, six days a week , sixteen hours a day (6X16) in
the months of June , July and August beginning in June 2004.
Adjusting for losses, the 83-megawatt purchase replaces
approximately 80 megawatts of the Garnet project, which was
anticipated to provide up to 250 megawatts during the same
In July 2003, the Commissionsummer season peak hours.
approved the PPL Montana, LLC Power Purchase Agreement.
When did the Company issue its most recent
RFP?
SAID , DI
Idaho Power Company
The most recent RFP was issued on
February 24, 2003.
please describe the 2003 RFP issued by the
Company.
Because the Company was unsure of the extent
to which the Garnet proj ect could be replaced, the Company
Ra ther thanissued a somewhat flexible RFP request.
requesting 100 megawatt proposals as suggested in the
original 2002 IRP , the Company allowed bidders to propose
projects up to 200 megawatts.In the RFP, the Company
advised bidders it was willing to consider either Power
Purchase Agreements or build and transfer arrangements.
Discussions at the pre-bid meeting covered the assumption
that for a PPA to be successful it would need to provide
significant savings to the Company s customers as a result
of the bidder s ability to operate the plant as a merchant
plant and sell the output from the plant to third parties
whenever the Company was not utilizing it.
Please describe the response the Company
received to the RFP.
The Company received 21 Notices of Intent to
Ul tima tely, the Company receivedbid proj ects into the RFP.
11 bids, including simple cycle combustion turbine
proposals, combined cycle combustion turbine proposals and a
The proposals were about evenly spli biomass proposal.
SAID, DI
Idaho Power Company
between build and transfer proposals and PPAs.
Did the Company engage an independent third
party to review the Company s RFP and bid evaluation
process?
Yes, as in our 2000 RFP evaluation, the
Company utilized R. W. Beck as an independent third party to
assist in the development of the 2003 RFP and evaluation
criteria and to provide further assistance in the ,review and
evaluation of bids.
please describe the 'process that led up
acceptance of the proposal from Mountain View Power, Inc. as
the successful RFP respondent.
The Idaho Power RFP, team received all bids by
April 28, 2003, including, a self-build' proposal 'epa:r;ed'
under a joint teaming arrangement consisting of Black &
Veatch, TIC and a separate group wi thin Idaho Power s Power
On April 29, 2003 the RFP evaluationSupply Department.
team opened the proposals and began the initial screening
process based on predetermined price criteria and non-price
cri teria methodology established with the assistance of R. W.
In May 2003, based upon ini tial screening, the topBeck.
five proposals were short-listed and face-to-face meetings
with representatives of the short-listed entities were
The Company sent a document toscheduled for June 2003.
each of the short-listed bidders detailing the Company
SAID, DI
Idaho Power Company
understanding of that bidder s bid.Those "Company
understanding " documents, prepared for the review and
concurrence of the bidders, became the basis for face-to-
face discussions with each of the short-listed bidders.
Following the face-to-face meetings with the short-
listed bidders, the Company pursued final negotiations with
two bidders, Mountain View Power , Inc. and the Idaho Power
These two bidders offered the bestSelf-Build team.
proposals based upon the price and non-price criteria.
Addi tional face-to-face meetings were conducted and final
modifications to bids were accepted through September 12,
Based on the final negotiations, the RFP evaluation2003.
team made its recommendation to the Company s management and
on September 17 , 2003 the Company s management recommended
to the IdaCorp Board of Directors that Mountain View Power,
Inc. be selected as the successful bidder.On September 18,
2003, the Board of Directors approved the selection of the
Mountain View Power , Inc. proposal to construct the Bennett
Mountain Project.
please give a general description of the
Proj ect.
The Project will consist of a Siemens-
Westinghouse 501FD simple-cycle natural gas-fired combustion
turbine rated at 162 MW's, together with typical balance of
The proj ect is currentlyplant facilities and equipment.
SAID , DI
Idaho Power Company
scheduled to begin generating in the summer of 2005.The
Proj ect will be located on an almost ten (10) acre s~te
wi thin the Mountain Home Industrial Park in Mountain Home,
The City has issued a Conditional Use Permit for aIdaho.
The Industrial Park site maypower plant for the si te.
accommodate an additional future generating unit and the
Project can also be modified to operate as a combined cycle
plant at some point in the future.
The Project will be connected to the
Company s existing 230 kV transmission system that passes
approximately four (4) miles north of the Project.
A natural gas fuel supply will be delivered
from the Williams Northwest Pipeline that passes less than
one (1) mile from the site.
Water for generation will be supplied by and
purchased from the City of Mountain Home, Idaho.The City
has constructed a network of wells, lines and storage
facili ties and has substantial water supply capacity and
priority water rights.
The Proj ect' s waste water will be discharged
to the City of Mountain Home s sewer system.
The Project will operate in compliance with
all appropriate DEQ air and water quality standards.
Maps showing the location of the proj ect are
attached to the Company s application.
SAID , DI
Idaho Power Company
proj ect?
What is the firm contract prlce for the
The firm contract price for the 162-megawatt
proj ect is $44.6 million.
What fuel cost assumptions were used in
evaluating the bids?
Gas prices were assumed to be $4.52 per
million BTU in 2005 and were escalated throughout ,the life
of the proj ect.The same gas price was utilized for all
natural gas-fired proj ect proposals and, as a result,
proj ects with lower guaranteed heat rates had lower fuel
costs on a dollar per megawatt basis.
What capacity factor was used to evaluate the
bids?
While the RFP team looked at costs for a
number of capacity factors, bids were evaluated assuming a
20 percent capacity factor reflective of peak hour
production in the five months June, July, August, November
and December only.
Were there other material considerations used
in evaluating the bids?
The selected bidder had to demonstrateYes.
the financial strength and experience to provide Idaho Power
wi th a high level of confidence that output from the proj ect
would be avai lable June 1, 2005.In addition , the Company
SAID, DI
Idaho Power Company
Tax Department was consulted because of potential bonus tax
depreciation benefits that could be derived based upon
percentage of completion of power plants by December 31
Bidders were encouraged to prepare their construction2004. '
schedules to maximize the tax benefits while at the same
time ensure that they would not complete the project too far
in advance of the Company s identified need in June 2005.
Mountain View Power, Inc. was very cooperative in proposing
a schedule that would complete 95% of the proj ect by year-
end 2004, but ownership of the project would not be
transferred until April 2005.
Would you please describe what you believe
are the significant provisions of the turnkey construction
arrangement with Mountain View Power, Inc. for acquisition
of the Proj ect?
One of the most significant attributes of the
MVP turnkey Project is that MVP has contracted with Siemens-
Westinghouse Power Corporation (SWPC) to furnish all of the
labor, equipment and materials and to perform all of the
engineering and construction of the Proj ect .The contract
with MVP provides that if MVP defaults, Idaho Power can
step-through" MVP and work directly with SWPC to complete
As a result, Idaho Power can rely on SWPC andthe proj ect.
the financial strength and experience of both SWPC and its
parent, Siemens Corporation, to assure the performance of
SAID, DI
Idaho Power Company
the contract and the successful completion of the Proj ect.
As I have mentioned, Mountain View Power, Inc. will
have the project approximately 95% complete by year-end
2004.Liquidated damages will occur if the Siemens-
Westinghouse gas turbine has not been delivered to the site
by December 1, 2004.Completion of construction and all
performance testing of the proj ect, including guaranteed
capacity and guaranteed heat rate,are scheduled ,to be
completed by April 1, 2005.Project ownership will transfer
to Idaho Power at that time provided that all Provisional
Acceptance Criteria identified in the contract have been
If not, liquidated damages will be owed.satisfied.
back-loaded paYment schedule insures ,that Mountain View
Power, Inc. and SWPC have, adequate incentive to 'see the
Proj ect through to completion.
Are there other attributes of the Project
that you believe are important to the Commission
consideration?
The Proj ect is located approximately 4 miles
southwest of the Company s existing 230 kV transmission
sys tem.The transmission system will require additional
investment in order to integrate the Project.However, the
total cost of this Project (on a revenue requirement basis)
including transmission costs is lower than the alternatives.
Mountain View Power, Inc. has worked closely wi th the
SAID, DI
Idaho Power Company
Mountain Home community to galn support for the proj ect.
selecting this Proj ect, the Company will have two expandable
si tes at which to place additional gas-fired resources in
the future if future IRPs identify such resources as the
resource of choice.
Is it likely that the Company will need
addi tional peaking resources in the future?
Yes.The 2002 IRP identified the need for
approximately 450 megawatts of capacity and energy to
satisfy deficiencies found primarily in three summer months
and two winter months.The plan was to utilize 250
megawatts from the Garnet Project, acquire another 100
megawatts via an RFP and establish market purchases of
approximately 100 megawatts.The Garnet Project will not be
built and the PPL Montana Contract has replaced only 80
Wi th the additionmegawatts of that 250-megawatt project.
of this 162-megawatt Project, 242 megawatts of required
That leaves approximatelycapaci ty will have been acquired.
208 megawatts to be acquired via the market or development
of additional proj ects .That 208 megawatt amount is 108
megawatts greater than the level of planned market purchases
in the 2002 IRP and exceeds the Company s comfort level for
resource adequacy.
Is the Company providing a "commitment"
estimate for the capital cost portion for the Project?
SAID, DI
Idaho Power Company
Yes.The Company is willing to commit to the
Commission that the total cost of the Project to be included
in the Company s rate base will not exceed $54.0 million.
This amount includes the $44.6 million MVP contract amount,
plus additional costs the Company knows it will incur but
These addi tionalcannot precisely quantify at this time.
costs include, but are not limited to, sales taxes, AFUDC on
progress paYments made to MVP during construction ~ the cost
of Idaho Power oversight of the proj ect, and the cost of
capitalized start-up fuel.The Commitment Estimate amount
also covers contingencies such as change orders and other
unforeseen circumstances.Transmission costs are not
included in the Commitment EstimatfC'
Were transmiss ion costs ' considered 'wheT):
16'
evaluating the total cost of the 'prbj ect?
Yes.The total Proj ect costs including
estimated transmission costs were evaluated within the
selection process.However , transmission costs have not
traditionally been included in the Company s commitment
While the Company isestimates for power projects.
satisfied that the approximately $11.6 million estimate for
transmission costs associated with this Proj ect is a
reasonable upper limit estimate, no definitive studies have
been completed and the Company is not including transmission
costs in its commi tment estimate.
SAID, DI
Idaho Power Company
How is fuel supply handled for the Proj ect?
Because the Project will ultimately be owned,
opera ted and maintained by Idaho Power Company, the Company
will coordinate the fuel supply and transportation for the
Project concurrently with the fuel supply and transportation
Idaho Power hasrequirements of the Danskin Power Plant.
purchased firm fuel transportation rights that can be used
Idaho Power an~icipatesfor both Danskin and the proj ect.
that management of the fuel transportation and fuel supply
will be either by Idaho Power persannel,or by Idaho Power
personnel in conjunction with a third party such as IGI,
Inc.
How does the Company'propose that the
Commission treat the costs associated with, const'ruction and
operation of the proj ect for ratemaking purposes?
Provided that the Project costs are less than
the commitment estimate of $54.0 million, Idaho Power
Company would expect the Commission to approve the total
Proj ect investment to be included in the Company s rate base
Fuel costs should be approved forfor ratemaking purposes.
PCA inclusion prior to full review of operational costs in a
general revenue requirement proceeding.
Why does the Company s request include
recovery of AFUDC?
Even though the proj ect will be owned by
SAID, DI
Idaho Power Company
Mountain View Power , Inc. until ownership is transferred to
Idaho Power in April 2005, AFUDC is appropriate for recovery
as a Project cost because the Company is helping to finance
the Proj ect by making progress paYments during construction.
Such financing by the Company allows for a lower total cost
to customers than if Mountain View Power, Inc. were to
finance the proj ect in a different manner.
How do the costs of the Proj ect compare to
alternative resources?
Due to a current abundance of turbines
available in the market, Mountain View Power, Inc. is able
to construct the proj ect at significantly lower costs than
similar proj ects constructed just a short time ago.The
commitment cost of $54.0 million for the 162-megawatt
Bennett Mountain Proj ect is just $5 million more than the
$49 million cost of the 90-megawatt Danskin project
Including the upper endcompleted in September , 2001.
estimate of $11.6 million for the cost of transmission and
all capital costs associated with the Project, the Company
estimates that the ten-year present value cost per megawatt
hour will be approximately $78 based upon a 20 percent
The 20 percent capacity factor assumes thecapaci ty factor.
Proj ect will only be utilized during the peak hour need
periods identified in the 2002 IRP.The $78 per MWh figure
also assumes that the additional transmission capability
SAID, DI
Idaho Power Company
constructed to accommodate the Project is only used to move
power from the Proj ect .This cost will be reduced whenever
the plant is utilized to a greater extent than assumed in
this analysis.However, even at $78, the cost of the
Proj ect is very similar to the ten-year cost of $77 per
megawatt hour cost that was anticipated for the Garnet
contract.Unlike the Garnet proj ect, this Project will be
available year round rather than just during certa in months
of the year.Whereas the Garnet contract offered
significant discounts from total project costs in order to
retain a merchant role for their proj ect, current-day
projects can be developed at lower costs such that today
undiscounted project costs are'imilar to discounted Garnet
costs.Ultimately, as market conditions changed, mercpant
proj ects were considered risky and t'he Garnet proj ect could
16 'not obtain acceptable financing.It should also be noted
that the Garnet contract evaluation assumed gas prices of
$3. 75 per MMBtu whereas the RFP evaluation process assumed
gas prices of $4.52 per MMBtu in 2005.The total first year
fuel plus variable O&M cost for the Proj ect is expected to
be $57.55 per megawatt hour compared to the $44.50 per
megawatt hour cost (not including transmission cost) of the
PPL Montana PPA.However, it is important to remember that
the PPL Montana PPA is a take or pay contract whereas this
Project is dispatchable.If the resource is not needed,
SAID , DI
Idaho Power Company
fuel costs can be avoided.
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
Is the proj ectas an alternative to supply-side resources.
compatible with available DSM options?
In my opinion, the Project 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 and December.The Project is specifically
targeted at the heavy-load hours during the peak summer
mon ths Not all of the Company s anticipated deficiencies
The potential to utilizeare satisfied by the Project.
cost-effective DSM alternatives still exists.In accordance
wi th Commission Order No. 29207, the Company is currently
pursuing a pilot program to implement a residential air
condi tioner cycling program.As noted in Order No. 29207,
the Energy Efficiency Advisory Group ("EEAG") has concurred
wi th the Company s proposal to use energy efficiency rider
funds collected under Idaho Power s Schedule 91, to finance
the air conditioner cycling pilot program.The air
conditioner cycling program targets heavy-load hours during
June, July and Augus t .If it is ultimately determined that
SAID , DI
Idaho Power Company
an air conditioner cycling program would be a cost-effective
way to reduce critical system peaks, such a program would
address essentially the same peak periods of time that are
the primary concern addressed by the Proj ect, and could
potentially mitigate the continuing need for additional
resources similar to this proj ect.The Company has also
recently announced the launch of a new DSM program that
would target irrigation usage, another contributor, to the
Company s peak load during the June, July and August period
covered by the Proj ect.This program pays financial
incentives to irrigation customers, that modify existing
irrigation systems or install new efficient irrigation
systems.For all of these reasons, '1; believe t'hat the
Proj ect is consistent with the Commission s expecta tiops
regarding consideration of DSM wlthin the Company
16'integrated resource planning process.
The Company is requesting that the Commission
expedite its ,review of this Application,Please explain
why.
In order to meet the Apri I 1, 2005
provisional Acceptance Date under the Agreement, Mountain
View Power has indicated it needs to receive a notice to,
proceed on or before December 31, 2003.Idaho Power has
advised Mountain View that a condition precedent to issuance
of the notice to proceed is receipt of an acceptable
SAID , DI
Idaho Power Company
Certificate of Public Convenience and Necessity from the
Depending on when ' theIdaho Public Utili ties Commission.
Certificate is issued, MVP may need to adjust the completion
date and possibly the price of the Project.
Does this complete your testimony?
Yes.
SAID , DI
Idaho Power Company