Loading...
HomeMy WebLinkAbout20040820Gale Rebuttal.pdf:. :' f 1,/ f. J! '";,11'11 '1' "/ F!H""tf' ,... , ', H~ " H lJU - .."', -..., j " ' ! ',-" UtI! jTi,:r,::i "- ; I L,,) L u tl tif S S J ON BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION U . s. GEOTHERMAL, INC.,an Idaho corporation, Complainant, vs. IDAHO POWER COMPANY,an Idaho corporation, Responden t . BOB LEWANDOWSKI and MARK SCHROEDER, Complainants, vs. IDAHO POWER COMPANY,an Idaho corporation, Responden t . CASE NO. IPC-O4- CASE NO. IPC-O4- IDAHO POWER COMPANY DIRECT REBUTTAL TESTIMONY JOHN R. GALE Please state your name and identify the party upon whose behalf you are presenting testimony. My name is John R. Gale. I am testifying on behalf of Idaho Power Company. Are you the same Mr. Gale that presented direct testimony in this proceeding. Yes. What issues will you address in your rebuttal testimony? My testimony will clarify the Company position on several issues identified by Staff and intervenors in their direct testimony. I will also address a number of alternative approaches proposed by Staff and intervenors to resolve issues raised by Complainant' testimony. What clarifications to the Company s position need to be made? I will begin wi th the testimony of Commission Staff Wi tness Sterling. In his testimony on page 19, Mr. Sterling discusses the provision (Section 14.1) in the Company s Firm Energy Sales Agreement (FESA) that protects Qualifying Facilities (QF's) if they are unable to perform due to a forced outage. Mr. Sterling describes this provision as "allowing a 72-hour grace period during which the QF' s abili ty to perform is excused. GALE, DI - REB Idaho Power Company Mr. Sterling goes on to recommend that the 72-hour grace period be extended to 30 days. In fact, Section 14. 4 . 1 of the Company s proposed contract provides QF' s wi th grace period" that will last as long as the forced outage exists. The 72-hour time period is the minimum length of the grace period," not the maximum. Under Section 14.1 of the contract, when the QF notifies Idaho Power that it is suspending deliveries because a forced outage has occurred, its minimum delivery obligation is adjusted to recognize the impact of the forced outage. Section 14.1 provides that the generation suspension due to the forced outage must last at least 72 hours. It could last longer if the forced outage actually lasts longer. Why does Idaho Power include the 72-hour minimum forced outage? The 72-hour minimum is included to discourage abuse of the forced outage suspension provision. Wi thout some minimum outage period, a QF would be incented to declare a forced outage every time some minor "hiccup occurred. The intent is not to preclude adjustments for legitimate forced outages but to discourage unreasonable numbers of declarations of forced outage which could result in a burdensome amount of accounting and contract administration activities. Does the Company consider the 72-hour period GALE, DI-REB Idaho Power Company to be the only reasonable length of time to include in the FESA? No.While 72 hours seems reasonable, a shorter period would be workable, so long as it is not so short as to defeat the purpose of the minimum outage period. Commission Staff Wi tness Sterling recommends that the 90%-110% bandwidth proposed by the Company be expanded to 80%-120%. Does the Company have a posi tion on Mr. Sterling s recommendation to expand the lower and upper boundaries? The purpose of setting an upper and lower boundary is to provide QF' s wi th an economic incentive to deliver energy at the times and in the amounts they commi t ted to deliver, thereby providing at leas t some firmness to the energy the Company purchases from QF' s. Increasing the upper and lower bounds from + / - 10 percent to +/- 20 percent reduces the firmness and weakens the Company s ability to plan for a specific amount of energy from the QF each month. Idaho Power has signed four QF contracts (one wind proj ect, one hydro proj ect, one wood waste project and one industrial waste project) that include the 90%-110% bandwidth. It is apparent that at least some QF developers, representing a variety of technologies, believe they can plan their generation schedule to successfully operate wi thin that range. It is also important to remember GALE , DI-REB Idaho Power Company that if a QF project does not meet its commitment within this bandwidth, the agreement is not terminated. Instead the bandwidth only provides a financial incentive for the project to set the estimated monthly generation levels at reasonable, attainable levels for that specific facility and then perform accordingly. The use of a commi tment level bandwidth is an improvement over the pre-2003 "firm" energy contracts where the QF's can deliver energy in any amount at any time and there is virtually no way for the Company to plan how much energy it will receive each month from individual QF' s. The Company believes the 90%-110% bandwidth is reasonable because it encourages a realistic commi tment but does not create a QF barrier. Section 6.2. 1 of the Company s proposed FESA allows the QF developer -to.' revise its monthly Net Energy amounts, six months after the initial operation date, months after the operation date, and then every two years thereafter. Mr. Sterling suggests that the Company proposed two-year interval be reduced to six months. Does the Company have a posi tion on Mr. Sterling s proposal? Since the filing of my direct testimony, Idaho Power has continued to negotiate with various addi tional QF developers. Many have sugges ted that in addi tion to the dates proposed in the original agreements (six months after the Operation Date, one year after the GALE, DI - REB Idaho Power Company Opera tion Date and then every two years for the remainder the FESA) , it would also be reasonable to allow the proj ects to revise the estimated monthly generation at the Operation Date. The Company has reviewed this request and agrees it would be reasonable and consistent wi th the intent of establishing a level of firmness wi thin these agreements. With this addition, the Company is proposing to allow the QF proj ects to revise their energy estimates three times during the first year of operation. This change recognizes that no ma t ter how perfect the plans and engineering may be, it takes some actual run-time to truly determine what a generation facility s output will actually be. However, after this first ini tial year, a viable " firm" generation facili ty should have most of the bugs worked out. After the first year, the Company believes that the two-year period it has proposed is preferable to the shorter six-month period proposed by Mr. Sterling because the longer period adds more "firmness " to the QF's commitment. The two- year interval allows the Company to more easily integrate the QF resource into its biennial IRP resource planning process. It is also important to note that the estimated generation requirement is only for total monthly kWh It is not measured hourly, daily or weekly. Therefore, a proj ect has considerable flexibili ty in a given month to vary its GALE, DI - REB Idaho Power Company generation on a daily basis. For a project with greater risk of generation deviations, it may be prudent not to estimate generation at the maximum output but instead to estimate generation at a lower level to allow a "cushion" for potential times of reduced generation. Finally, as I noted in my prior answer concerning the 90%-110% bandwidth, pre-2003 QF contracts contained no enforceable energy commi tment on the part of QF' s so even the more frequent six-month adjustment option proposed by Mr. Sterling would be an improvement over prior practice. If the Commission is inclined to require a more frequent adjustment interval, the Company would propose a one-year commitment on the part of the QF rather than the six months proposed by Mr. Sterling. In discussing the methodology for determining whether a particular QF meets the Commission s 10 MW criteria for qualification for published rates, PacifiCorp Witness Hale and Avista Witness Kalich both suggest that a 10 MW nameplate capaci ty limi t be combined wi th the 10,000 kWh per hour metered energy limi t described in your direct testimony. Is that a workable arrangement? Yes, it is. As I stated in my direct testimony, Idaho Power currently combines these two tests in several current Commission-approved contracts and this combination has worked well. Based on this experience, I GALE, DI - REB Idaho Power Company believe uslng both nameplate and metered energy in combination to determine entitlement to the published rates as suggested by Mr. Hale and Mr. Kalich is reasonable. Do you still believe that it is important for the Commission to issue an order defining how the 10 MW limi t should be computed? Yes. It is cri tical that the Commission do so. This case has demonstrated that there is substantial disagreement and uncertainty as to the Commission s intent regarding the appropriate methodology to be used to determine if a particular QF meets the Commission s 10 MW cri teria. For example, u. s. Geothermal is requesting that the Commission look at its specific type of generating technology to determine how the 10 MW capaci ty limi t would be computed. Presumably, each generating technology, i. e . , wind, biomass, hydro, etc. would also like to have the 10 MW limi t determined on a basis that is specifically tailored its characteristics. I am convinced that a technology-by-technology analysis would inj ect an unreasonable level of complexi into the process and this complexity will inevitably result in the filing of addi tional complaints before this Commission.It is also important not to lose sight of the fact that the reason the Commission decided to include the 10 MW limit was to standardize the process for smaller GALE, DI-REB Idaho Power Company proj ects.A technology-by-technology approach is not conducive to achieving that goal. The uncertainty associated wi th the methodology for determining the 10 MW limi t is further evidenced by the testimony presented by several parties noting that nameplate capaci ty should not be used because it is subj ect to varying defini tions and interpretations. Some parties have also expressed concerns wi th using metered energy as the primary test of capaci ty. In the final analysis, the current uncertainty will not be resolved until the Commission explicitly determines how it wants to determine the capaci ty of a QF generating facili ty. If the Commission does not make that determination, we run the risk of continuing ad hoc determinations and the potential' for addi tional complaint proceedings. In your opinion, is this complaint proceeding the best forum for establishing the methodology for determining how the 10 MW criteria will be established? Not necessarily.If the Commission believes a more thorough analysis of this issue is desirable, it may be preferable to remove this 10 MW calculation issue from this case and address it in greater detail in a separate proceeding. It would seem to me that both utili ties and QF' s would have a vested interest in resolving this matter GALE, DI-REB Idaho Power Company expedi tiously and a workshop format could be useful in identifying, and perhaps resolving, the issues. If the Commission were to remove the 10 MW calculation issue from this proceeding, how should the Commission address u. S. Geothermal's "grandfathering request? If the Commission were to bifurcate this proceeding to address the computation of the 10 MW limi t in grea ter detai 1 in a separate proceeding, it would probably be reasonable to "grandfather " u. S. Geothermal. The Commission could then limi t the issues to be decided in this case to the 90%-110% issue and the stranded cost issue. The Commission should condi tion any grandfathering as follows: (1) the "grandfathered" U. S. Geothermal agreement would not 15 ' be precedential,(2) U. S. Geothermal would not be permi t ted to compel any other Idaho utili ty to purchase its excess energy, but it could sell excess generation to third parties,( 3) U. S. Geothermal would agree that Idaho Power would receive its pro rata share of U. S. Geothermal's total generation in both heavy-load and light-load hours. If the Commission does not desire to bifurcate this proceeding, are there any other issues relating to "grandfathering " that you believe the Commission should consider? Mr. Sterling, in his testimony, identified GALE, DI - REB Idaho Power Company several reasons why he did not believe that "grandfathering was appropriate in this case. While I believe the reasons he cited are all valid, I believe the key consideration is the fact that Idaho Power and U. s. Geothermal have never entered into a contract. From the very beginning of the negotiations, there have been fundamental differences between Idaho Power and U. s. Geothermal. There has never been a meeting of the minds between the parties. U. S . Geothermal has always known that there was a possibility that the contract the Commission would ultimately be willing to approve might be materially different than the contract U. s. Geothermal seeks. U. s. Geothermal's decision to proceed with development activities while it litigated this case was a business decision it made. Both PacifiCorp and Avista urge the Commission to confirm that a QF proj ect must sell its entire output to a single utility. Do you have any comment on this proposal? Idaho Power, like Avista and PacifiCorp, believes it would be inconsistent wi th the policy considerations underlying the Commission s decision to cap the entitlement to published rates at 10 MW to allow a QF to build a 30 MW facility and then compel Idaho Power, Avista and PacifiCorp each to purchase 10 MW at the published rates. While the Company anticipates that transmission costs GALE, DI-REB Idaho Power Company would likely minimize the viability of such artificial schemes, the concern is a real one. Idaho Power would agree that if a QF developer constructs a project with a capacity in excess of 10 MW and compels a utili ty to purchase its output under PURPA, the Commission should not allow that same QF to use PURPA to compel another Idaho jurisdictional utility to purchase generation from the same facility. Would such a limitation discourage the development of larger independent power production proj ects in Idaho? No, it would not. First, the larger QF can compel a utili ty to purchase all of its energy at PURPA rates determined by using the IRP methodology. Second, the larger independent power project developer is not prevented 15,from constructing a merchant generating facili ty and selling energy on the wholesale market or selling to the utility in response to a Request for Proposals ("RFP". Idaho Power draft 2004 IRP shows that Idaho Power is planning to issue several RFP' s for wind, geothermal and combined heat and power proj ects in the next few years. In addi tion, when you consider the transmission cost the QF will incur to move its excess energy from the proj ect si te to third-party transmission interconnection points on the transmission system, in most instances the control area utili ty will have a slight price advantage in acquiring excess energy from GALE, DI-REB Idaho Power Company merchant generator interconnected to its system. In their testimony, Wi tnesses Hale and Kalich both expressed concern that if a QF is not obligated to sell all of its output to a single utili ty, the QF might sell less valuable light-load-hour energy to the utility and sell more valuable heavy-load-hour energy to a third party. Should this issue be addressed in Firm Energy Sales Agreements? I agree that QF contracts should not permit the QF to use its PURPA rights to require a utility to purchase less valuable light-load-hour energy while at the same time selling more valuable heavy-load-hour energy at market prices. In his direct testimony, Mr. Kalich explains why Avista does not propose to include a stranded cost provision in its PURPA contracts at this time. Does his explanation satisfy Idaho Power s concerns? Not really. Mr. Kalich states that if retail deregulation comes, "the Company believes that the Commission has the authority to approve charges for end use retail customers that would provide an opportunity for recovery of cost obligations resul ting from PURPA contracts. If deregulation does occur at the retail level, it will be important that legislation address stranded cost issues, and/ or the Commission retain all necessary authori ty to GALE, DI-REB Idaho Power Company address recovery of any PURPA related stranded costs. Certainly if deregulation unfolds precisely as Mr. Kalich describes and the Commission receives and exercises the authority to ensure that the Company recovers its stranded costs resul ting from PURPA contracts, there would be no issue. Under those circumstances, under the Company proposed contract language contained in Section 23.2, there would be no QF contract termination because Idaho Power would be able to fully recover its costs associated wi th the QF agreement. What is not covered by Mr. Kalich' explanation is the si tuation where the legislation Commission action does not provide for recovery of stranded PURPA expenses. If that were to occur, the Company needs to be able to assert that the government has confiscated its property. Unless the Commission expressly accepts or rej ects the proposed contract language, Idaho Power is concerned that it will face the argument that was raised in 1999 (See Exhibit 204) that a change in the regulatory environment is simply a business risk and does not consti tute confiscation. Mr. Sterling also addresses the Company stranded cost provision (Section 23.2) in his testimony. Like Mr. Kalich, he argues that the clause is unnecessary to protect the Company s interests. Do you have any comment on Mr. Sterling s testimony in this regard? Yes. Like Mr. Kalich, Mr. Sterling states GALE, DI-REB Idaho Power Company that because the Commission has ordered Idaho Power to enter into these contracts and the Commission has approved the payments as prudently incurred expenses for ratemaking purposes, the provision is unneeded. Unfortunately, we have no way of knowing today how retail deregulation might be imposed. If it unfolds as Mr. Sterling and Mr. Kalich anticipate, Section 23.2 would never be used. Nevertheless, until the Commission issues an order ei ther approving or disapproving the contract language Idaho Power has requested, I am advised by my legal counsel that there is some remaining risk that the Company will be vulnerable to future assertions that it voluntarily waived its right to claim confiscation of its property. Finally, if the Company s concern at this point so remote and so unlikely, ' it's difficul t to understand why it is viewed as such a barrier to QF financing. As I noted in my direct testimony, three QF developers have already signed contracts containing this language, and all three will need to obtain proj ect financing. None of the three indicated that the contract provision in question would present an unreasonable barrier to their obtaining proj ect f inanc ing On page 6 of his testimony, Mr. Kalich expresses concern that the 90%-110% bandwidth proposed by Idaho Power does not adequately address the lack of capaci GALE, DI-REB Idaho Power Company associated with intermittent energy resources like wind. Mr. Kalich correctly notes that intermittent resources like wind do not provide capaci ty and will impose addi tional costs on utili ties for reserve planning and integrating intermittent resources. Both Mr. Sterling and Mr. Kalich discuss possible discounts to be applied to published avoided cost rates as a way to compensate utili ties for these addi tional integration costs. Idaho Power agrees that when a larger scale wind or solar resource presents itself, it would be appropriate to consider an integration charge for intermi ttent resources. However, in this case we are presented wi th two small wind resources. Requiring them to purchase integration services from the Bonneville Power Administration or computing an Idaho Power- specific integration charge would be extremely burdensome for these small projects. As an alternative, the Company providing these two wind resources the opportuni ty to receive published rates for a portion of their generation. These two wind developers will determine the amount of energy they are willing to commit each month based on their knowledge of their particular proj ect' s efficiency and reliabili ty. In the interim, Idaho Power believes this is a reasonable approach that encourages the development of local wind resources wi thout unduly increasing utili ty cost. Does this conclude your rebuttal testimony? GALE, DI-REB Idaho Power Company Yes. GALE, DI-REB Idaho Power Company CERTIFICATE OF SERVICE I HEREBY CERTIFY that on the 19th day of August, 2004 , I served a true and correct copy of the DIRECT REBUTTAL TESTIMONY OF JOHN R. GALE upon the following named parties by the method indicated below, and addressed to the following: Scott Woodbury Deputy Attorney General Idaho Public Utilities Commission 472 W. Washington Street O. Box 83720 Boise , I D 83720-0074 Conley E. Ward Givens Pursley LLP 601 W. Bannock Street O. Box 2720 Boise, ID 83701-2720 Daniel Kunz, President S. Geothermal, Inc. 1509 Tyrell Lane, Suite B , Boise, ID 83706 Peter J. Richardson Richardson & O'Leary PLLC 99 East State Street, Suite 200 O. Box 1849 Eagle, ID 83616 Don Reading Ben Johnson Associates 6070 Hill road Boise, I D 83703 James F. Fell Stoel Rives LLP 900 S.W. Fifth Avenue , Suite 2600 Portland , OR 97204 Bob Lively PacifiCorp One Utah Center, 23rd Floor 201 S. Main Street Salt Lake City, UT 84140 CERTIFICATE OF SERVICE, Page Hand Delivered S. Mail Overnight Mail FAX Hand Delivered S. Mail Overnight Mail FAX Hand Delivered S. Mail Overnight Mail FAX Hand Delivered S. Mail Overnight Mail FAX Hand Delivered S. Mail Overnight Mail FAX Hand Delivered S. Mail Overnight Mail FAX Hand Delivered S. Mail Overnight Mail FAX R. Blair Strong Paine, Hamblen , Coffin, Brooke & Miller, LLP 717 W. Sprague Ave., Suite 1200 Spokane, WA 99201-3505 Clint Kalich Manager of Resource Planning and Analysis A vista Corporation - MSC- O. Box 3727 Spokane, W A 99220-3727 CERTIFICATE OF SERVICE, Page 2 Hand Delivered S. Mail Overnight Mail FAX Hand Delivered S. Mail Overnight Mail FAX (Jtf YL-- BARTON L. KLINE