20050422Final Order No 29762.pdf

Office of the Secretary
Service Date
April 22, 2005
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE FILING OF IDAHO
POWER COMPANY'2004 ELECTRIC
INTEGRATED RESOURCE PLAN (IRP).
CASE NO. IPC-04-
ORDER NO. 29762
On August 24, 2004, Idaho Power Company filed its 2004 Integrated Resource Plan
(IRP). The biennial IRP is a planning document that generally sets forth how Idaho Power
intends to serve the electric requirements of its customers over the next 10 years. In Order
No. 22299 issued in January 1989, the Commission directed each electric utility to file a biennial
IRP that analyzes its customer base, load growth, supply-side resources, and demand-side
management (DSM) resources.Idaho Power s 2004 IRP addresses its planning forecasts
available resource options, potential resource portfolios, a risk analysis, a 10-year resource plan
and a near-term action plan. Idaho Power requests that the Commission accept its 2004 IRP.
On October 12, 2004, the Commission issued a Notice of the Company s IRP filing
and requested interested persons to file comments no later than December 3 , 2004. In response
to the Notice, the Commission received comments from 27 customers, the Commission Staff
Clean Energy Advocates (comprised of the NW Energy Coalition, the Natural Resources
Defense Council, Renewable Northwest Project, and Advocates for the West), Sempra Energy
Resources, and wind and solar developers.
On December 15 , 2004, Idaho Power supplemented its IRP with a study prepared by
Quantum Consulting. As described by Idaho Power, the focus of the Quantum study was to
identify cost-effective energy efficiency and DSM opportunities beyond those measures that are
designed to reduce the summer peak load. On December 23 , 2004, Idaho Power filed Reply
Comments. In this Order we accept Idaho Power s 2004 IRP for filing.
THE 2004 IRP
Idaho Power asserted that it worked with stakeholders for almost a year to develop
the 2004 IRP. To improve stakeholder and public participation, the Company formed the
Integrated Resource Plan Advisory Council ("Advisory Council") comprised of members of the
environmental community, major industrial customers, irrigators, state legislators, Commission
Staff, representatives from the Governor s Office, and others. The Company presented the draft
ORDER NO. 29762
IRP to the Advisory Council as well as developers of anaerobic digesters, geothermal generators
wind generators, and DSM advocates. The Council made significant contributions to the Plan.
The Company also made "live" presentations about the draft IRP at community meetings held
throughout its Idaho and Oregon service territories.
Idaho Power s 2004 IRP reflects a projected increase in customer households from
320 000 today to over 380 000 by the end of 2013. Idaho Power continues to utilize a resource
plan based upon a "worse than median" (70th percentile) water conditions.
The 2004 IRP places greater emphasis on conservation and demand reduction
programs than the 2002 IRP. Following a risk analysis of 12 different resource portfolios, Idaho
Power selected a diversified portfolio with nearly equal amounts of renewable generation and
traditional thermal generation as the "preferred" resource portfolio to meet its projected demand.
The preferred portfolio will increase the Company s power supply by approximately 800 aMW
and increase the capacity of the system by almost 940 MW over the 10-year planning horizon.
Of this increase, 124 MW are achieved through demand response and energy efficiency
programs.
1. The Preferred Portfolio . The Company s selected portfolio for the 2004 IRP is
composed of the following new resource and demand elements over the next ten years:
76 MW demand response programs (DSM)
48 MW energy efficiency programs (DSM)
350 MW wind-powered generation
100 MW geothermal-powered generation
48 MW combined heat and power (CHP) at customer facilities
88 MW simple-cycle natural gas-fired generation
62 MW combustion turbine, distributed generation, or market purchases
500 MW seasonal coal-fired generation
2. Near-Term Action Plan. The 2004 IRP also includes a near-term action plan that
sets out specific actions to be taken by Idaho Power prior to the next IRP due in 2006. The near-
term plan contemplates the following actions in each year:
2004 Issue Request for Proposal (RFP) for 200 MW wind generation
Issue RFP for 88 MW peaking resource
2005 Design and implement demand-side measures
Issue RFP for 12 MW CHP co-generation
Issue RFP for 100 MW geothermal generation
Select utility partner for seasonal ownership for coal plant
ORDER NO. 29762
2006 Bring 100 MW of wind generation on-line
Complete CHP design work with successful bidders
Upgrade 150 MW Borah-West transmission line
Expand DSM programs
Issue RFP for 500 MW seasonal-ownership coal plant
File 2006 IRP
Idaho Power has accomplished its near-term actions for 2004.
THE COMMENTS
1. Public Comments Several public commenters commended Idaho Power for
placing greater emphasis on energy efficiency, conservation and renewable resources. Several
customers urged Idaho Power to place additional emphasis on its net metering program using
technology such as solar or wind energies. One commenter recommended that Idaho Power
include modern reciprocating engine technology as an alternative to natural gas, simple-cycle
combustion turbines. This commenter maintained that the modern reciprocating engine is a
viable technology to meet intermediate and peak power production needs.
2. Wind Generation Comments. The Commission also received 23 form letters
urging Idaho Power and the Commission to investigate construction of a wind farm in Leadore
Idaho. In particular, Capital Enterprises urged the Commission to direct Idaho Power to
investigate the possibility of constructing a wind farm near Leadore and requested that the
Commission conduct five public hearings so that ratepayers can express their opinions.
3. Sempra Ener2V Resources Sempra stated that Idaho Power s proposed portfolio
is "well-balanced.In general, Idaho Power s IRP "presents a fair analysis of the costs and
benefits of different demand side and supply side resources." Sempra Comments at 1. Sempra is
currently conducting studies to determine the feasibility of constructing a coal-fired facility in
Idaho. Sempra observed that if built, its coal-fired facility would be compatible with Idaho
Power s proposed portfolio which included 500 MW of seasonal coal-fired generation. Id.
4. The Clean Ener2V Advocates. The Northwest Energy Coalition, the Natural
Resource Defense Council Renewable Northwest Project, and the Advocates for the West
submitted combined comments as the "Clean Energy Advocates." As an initial matter, the
Advocates praised the 2004 IRP as a "significant advance" for Idaho Power when it invited more
public participation in the development of the IRP. "Idaho Power should be commended for its
commitment to an open and robust public process
. .
. and to its demonstrated willingness to
pursue new levels of DSM and renewable resources. .
. .
Advocates Comments at 1. In
ORDER NO. 29762
particular, the Advocates noted that the creation of the Advisory Council greatly expanded the
public s participation in the IRP process and exceeded the Commission s expectations in the
2002 IRP Order. Id. citing Order No. 29189.
a. Conservation. The Advocates also commended Idaho Power for expanding its
energy efficiency and DSM programs. Despite the admirable increases in energy efficiency and
DSM programs, the Advocates asserted that Idaho Power portfolio "still lags behind
conservative estimates of feasible levels of cost-effective investment." Comments at 2. More
specifically, they noted that the Company s Quantum Consulting study found that implementing
a "moderate" funding scenario could result in 72 MW of on-peak savings from the residential
and commercial classes. The Advocates recommended that Idaho Power add the 72 MW of
additional savings to the 41 MW of potential peak savings already included in the 2004 IRP.
other words, Idaho Power should pursue a total of 113 MW of savings. Id. at 3.
While the Advocates recognize that the achievement of cost-effective energy savings
cannot happen overnight, it urged the Commission to support further efforts by Idaho Power to
ramp up its DSM programs and "require that the utility pursue all cost-effective and feasible
energy savings identified in the Quantum report and meet the (Northwest Power Planning
Council) goal" of obtaining annual savings equal to about 0.4% of Idaho Power s load. Id. at 4.
b. Renewables The Advocates were also pleased with Idaho Power s plan to acquire
350 MW of wind generation. The Advocates declared that the "recent volatility of gas prices
underscores the value of (acquiring) resources with no fuel costs.Id. at 5. Wind generation
provides long-term cost certainty and future risk reduction because of the lack of fuel costs. Id.
They also suggested that the Company s 2006 IRP include a discussion of the appropriate
discount rate to apply to renewable resources. They argued that discounting Idaho Power s fuel
costs for supply-side resources "at a discount rate of 7.2% (IRP at 68) is incorrect since it
assumed that fuel costs expenditures will be paid by customers on an annual basis through the
Power Cost Adjustment mechanism.Id. at 6. The Advocates asserted that the IRP's discount
rate for fuel costs should not be based on the Company s weighted average cost of capital.
Instead, it should be based on the lower, expected inflation rate. Moreover, (use of a) high
discount rate severely disadvantages new renewable resources, such as wind, because renewables
have high capital costs (but) no fuel costs.Id.
ORDER NO. 29762
c. Coal Generation. The Advocates alleged there are several reasons why Idaho
Power should not invest in large-scale conventional coal-fired power plants prior to the 2006
IRP. First, given the large capital investment needed for a coal plant, they suggested the
Company postpone any acquisition of coal-fired generation for at least a year. The Advocates
further recommend that the Company capture all cost-effective energy efficiency savings as
identified in the Quantum study before issuing a coal RFP. Id. at 6 (emphasis added). Second
the Advocates maintained that the 2004 IRP did not analyze "advanced" coal technologies such
as integrated gasification combined cycle (IGCC) plants. Analysis of advanced coal
technologies is even more important given the financial risks associated with greenhouse gas
emissions or possible carbon regulation. Consequently, the Advocates urged the Commission to
instruct Idaho Power "to analyze advanced coal technologies, with carbon capture and storage, in
the 2006 IRP analysis.Id.
In summary, the Advocates suggest that the Commission "acknowledge and accept
the IRP" but direct the Company to: (1) pursue investment in all cost-effective energy efficiency
resources in excess of levels called for in the 2004 IRP; (2) accelerate the acquisition of
renewable resources over the next two years to diversify the Company s energy portfolio; (3)
postpone the solicitation or acquisition of additional fossil fuel-based resources until after the
2006 IRP and after all other alternatives have been exhausted; (4) include an analysis of
advanced coal technology (with carbon capture and storage) as part of the 2006 IRP; and (5)
continue the open public process to develop the 2006 IRP. Id. at 7.
5. Staff Comments . The Staff also observed that the 2004 IRP represents an
improvement over previous plans. In particular, the Staff noted that the 2004 IRP is more
complete and contained a more thorough analysis. Staff also acknowledged that creation of the
Advisory Council expanded the IRP planning process to include additional stakeholders and the
public.
a. Conservation The Staff was pleased that the 2004 IRP reflects renewed emphasis
on cost-effective DSM programs. Implementation of effective DSM programs mitigates the
need for more supply-side resources. Staff noted that the two DSM programs and the four
energy efficiency programs included in the Company s preferred portfolio could reduce peak
demand by 124 MW. However, the Staff expressed some disappointment that the Company did
not include two other efficiency programs (commercial existing construction and residential
ORDER NO. 29762
existing construction) that were demonstrated to be cost effective and provide over 36 MW of
peak load reduction. Staff Comments at 8. Despite this shortcoming, Staff supported Idaho
Power s efforts to increase the role of energy efficiency, demand response, and variable pricing
used to shape customer demand. Id. at 10.
b. The RFP Process. The Staff next addressed the request for proposal (RFP)
process. Staff noted that "Idaho Power finds itself faced with needing to satisfy sufficient
deficits in both capacity and energy.Id. at 5. The 2004 IRP anticipates that the Company will
acquire additional generating resources by issuing multiple RFPs. Staff noted that a RFP that is
structured too narrowly may restrict the number of bids due to:the size and location of
renewable resources; timing differences between when resources are needed and when they can
be developed; and transmission constraints may limit access to some resources. Id. at 10. Idaho
Power may put itself in an untenable position if the RFP process is unsuccessful in attracting
viable bids for wind, gas-fired peaker, geothermal and CHP generation. Staff suggested that
Idaho Power devise a back-up plan in the event that the RFPs do not produce viable options.
Staff noted that the lack of a back-up plan may mean that gas-fired generation could be the only
supply resource that could be constructed and brought online to meet demand. Id. at 11.
c. Renewables The Staff recommended Idaho Power begin to independently
investigate the cost and availability of renewable resources, specifically wind and geothermal.
Staff suggested that there is a danger in relYing upon the claims of a few developers about cost
and availability of renewables within the Company s service territory. Id. at 11. The Company
should perform its own wind integration study "to determine the amounts of wind generation that
could be integrated into its system and the expected cost of integration.Id.
d. Transmission. Although the IRP includes an upgrade to the Borah-West path! in
2006, Staff suggested that the Company should perform a more thorough study to assess the
effectiveness of upgrading other transmission paths. In particular, Staff is interested in knowing
whether the lack of transmission is unreasonably restricting the Company s supply options and
whether the Company should consider upgrading transmission paths on the west side of its
system. Id. at 12. In addition, Staff recommended that Idaho Power continue to participate in
1 The Borah-West path is situated in Idaho Power s main transmission system located west of American Falls. The
150 MW upgrade "is moving forward" and will increase east-to-west transmission capability. This upgrade will
permit new east-side generation to serve load growth in the Boise area.
ORDER NO. 29762
the Rocky Mountain Area Transmission Study (RMA TS) to determine whether transmission
upgrades on the east side of its system makes sense in order to access wind and coal-fired
resources.
e. Coal Generation. Since the IRP process was initiated in 1989, Staff observed that
a coal plant has never been included in the Company s IRP. Given the large amount of coal-
fired supply (500 MW) included in the IRP, the capital intensive investment and long
construction time, Staff believed that the Company must carefully investigate the acquisition of
coal- fired generation. As part of this analysis, Staff suggested that the Company study other
alternatives such as adding additions to its existing coal-fired plants or joint ownership of other
coal plants. Id. at 13. Finally, Staff recognized that coal technology is rapidly advancing and
recommended that Idaho Power closely monitor new technologies.
THE IRP SUPPLEMENT
After the deadline for comments, Idaho Power submitted a "supplement" to its IRP
Application. The supplement consisted of the Quantum Consulting study which contained two
phases. The first phase examined the potential for summer capacity reduction from DSM
programs and energy efficiency programs. The results from the first phase of the study are
included in the IRP. The second phase examined other conservation measures focused on both
peak reduction and overall energy savings. Based upon 2002 data, Quantum established baseline
estimates for both the summer peak and annual energy sales by customer class.
Percentage
Contribution to Percentage of
Customer Class Summer Peak Demand Annual Ener2Y
Residential 30%30%
Irrigation 24%12%
Commercial 18%20%
Industrial 13%18%
Quantum study at ES 2.
Quantum estimated that of the Company s total peak demand in 2004 469 MW were
deemed to be applicable to peak demand reduction programs. Of this amount, 105 MW of
potential savings were estimated to be economic. Of the 105 MW of economical savings, about
ORDER NO. 29762
57% was attributable to the Company AC Load Control program for residential customers.Id.
at 6. Economic energy efficiency programs were estimated to be about 12% of the Company
2013 energy forecast. Quantum calculated that if Idaho Power implemented all cost-effective
energy efficiency measures, that the Company could potentially save 1 107 GWh of annual
energy. Id. at ES 3. Quantum estimated that this represents approximately 12% of Idaho
Power s 2013 energy forecast.
IDAHO POWER REPLY COMMENTS
Idaho Power filed its reply comments on December 23 , 2004. Idaho Power conceded
that it did not implement all six energy efficiency programs analyzed in its 2004 IRP. Idaho
Power intends to analyze the two construction efficiency programs and other cost-effective DSM
programs in the next or subsequent IRPs. Reply Comments at 4. Idaho Power expressed
concern about its ability to implement the four energy efficiency programs and the two DSM
programs all at the same time. Idaho Power insisted that it was prudent to "go slow" so that it
could gain experience in large-scale DSM programs. In essence, the Company indicated that it
wants to administer the six selected programs in a manner that maximizes customer participation.
Id.
RFP Process.While stating that Staff raised valid questions about the RFP
process, the Company noted that the answers to Staff s questions are not contained in the current
IRP. The Company stated that as it implements its near-term action plan, it "will compare the
bids received through the various RFP processes as well as compare the bids with the resource
cost described in Chapter 5 of the IRP.Id. at 7. The Company indicated that it will compare
the proposed resource costs received in the RFPs to the 30-year nominallevelized level fixed and
production costs contained in the IRP. This will ensure that the RFP costs "are reasonable and
consistent with the resource costs presented in the IRP.Id.
Transmission.Addressing the Staff s transmission comments, Idaho Power
acknowledge ( d) that it would have been helpful if the estimated costs, and the accompanying
discussion, concerning transmission upgrades to the Pacific Northwest interconnections would
. -
have been included in the 2004 IRP" as they were in the previous IRP. Id. at 8. The Company
asserted that transmission capability is an important part of its resource planning and a discussion
2 In Order No. 29702 issued February 4, 2005, the Commission approved the residential Air Conditioner Cycling
Program. When fully implemented in five years with 40 000 participants, the Company estimates a peak load
savings of 44.4 MW.
ORDER NO. 29762
of transmission capability will be included in the 2006 IRP (to the extent allowed by the FERC
Standards of Conduct negotiations). Id. Idaho Power is upgrading its Borah-West path (located
west of American Falls) as part of its near-term plan with an estimated cost of about $15/kW per
year.
The Company insisted that portion of the 2002 IRP discussing transmission is still
applicable today. In particular, Idaho Power specifically noted that its existing transmission
system between the Pacific Northwest and its system has "been largely optimized. No upgrades
can be identified which will result in significant improvements in capacity for relatively small
investments.Id. The Company stated that any significant increase in transmission capacity
will require construction of new transmission lines that "could be between 170 to 400 miles in
length.Id. at 8. When adding the costs of substations, Idaho Power estimates that the
construction costs for new transmission lines range from approximately $400 000 to $700 000
per mile which represents an incremental transmission cost between $45-90/kW per year. Id.
These transmission upgrade costs are approximately five times larger than Idaho Power
embedded transmission costs. Id. Constructing new lines could add 10 to 20 mils/kWh to the
Company s power purchase costs.
3. Coal Generation. Idaho Power also analyzed the interplay between transmission
capability and coal-fired generation. The Company concluded that the costs are nearly equal
when a coal plant is located at the mine. mouth and additional transmission is built, as compared
to locating the plant near the load and transporting coal to the plant.
ISCUSSI
The Commission has reviewed Idaho Power s 2004 Integrated Resource Plan (IRP)
and the comments in response to our Notice. We find that the Company s IRP contains the
necessary information and is in the appropriate format as directed by Order No. 22299.
further find that the comprehensive comments have been helpful and, therefore, find that public
hearings are not necessary.
Based upon our review and the comments of others, we find that the 2004 IRP is a
significant improvement over prior IRPs. In particular, we commend the Company for opening
the public process by creation of the Integrated Resource Plan Advisory Council. Involving the
Council and the public throughout the development of the IRP results in a significantly improved
ORDER NO. 29762
planning document. The Clean Energy Advocates, the Staff, and other public commenters all
recognized that the expanded public participation improved the final product.
are pleased to see that Idaho Power s 2004 IRP calls for 124 MW of demand
response and energy efficiency programs. Given the continuation of drought conditions in
Idaho, we believe that speedy implementation of the DSM and energy efficiency programs are
critical to serving Idaho customers. Though we are pleased with the efforts so far, we find that
Idaho Power could and should do more to implement conservation. We encourage the Company
to actively promote and expand participation in its AC Cycling, Irrigation Peak Clipping, and
other cost-effective conservation programs.
are also pleased to see that the Company s preferred portfolio includes larger
acquisitions of renewable resources namely wind and geothermal resources. However, the
Company s continued reliance on new gas-fired generation to meet summer peak causes us
particular concern for two reasons. First, natural gas prices continue to be volatile. Second, the
continued effects of the drought on irrigation pumping and other state actions that reduce the
amount of irrigation pumping creates uncertainty regarding the need for additional peaking
resources. We are also concerned about a possible over-reliance on natural gas peakers as a fall
back position due to a lack of transmission capacity.
Turning to the issue of transmission, the Company should expand its 2006 IRP to
include an analysis of possible transmission projects, associated costs and potential risks.
note that the Company concluded that coal generation costs are equal when comparing
transmission costs to coal transport costs. Yet transmission may have advantages by offering
fixed costs, improving the range of supply-side options, and producing revenue. The use of
zones in assessing the transmission component of various supply side resources could enhance
project assessment in the context of an RFP. Transmission upgrades may provide sYnergies with
other supply-side options.
Finally, we agree with Staff and the Advocates that Idaho Power must consider new
coal generating technologies now that it has included coal-fired generation in its IRP. The
Company s plan to add coal generation should include an analysis of adding additions to its
existing coal plants and an examination of joint venture opportunities.
ORDER NO. 29762
ACCEPTANCE OF FILING
Based on our review we accept for filing the Company s filed 2004 Integrated
Resource Plan. Our acceptance of the 2004 IRP should not be interpreted as an endorsement of
any particular element of the plan, nor does it constitute approval of any resource acquisition or
proposed action contained in the plan.
ORDER
IT IS HEREBY ORDERED that Idaho Power Company s 2004 Integrated Resource
Plan is accepted for filing.Acceptance of the 2004 IRP shall not be interpreted as an
endorsement of any particular element of the plan, nor does it constitute approval of any resource
acquisition contained in the plan.
IT IS FURTHER ORDERED that the 2006 IRP include transmission as a component
of its resource planning.The 2006 IRP shall also address new coal technologies and an
expanded examination of coal plant options.
IT IS FURTHER ORDERED that Capital Enterprises' request for public hearing is
denied.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) or in interlocutory Orders previously issued in this Case No. IPC-04-
may petition for reconsideration within twenty-one (21) days of the service date of this Order
with regard to any matter decided in this Order or in interlocutory Orders previously issued in
this Case No. IPC-04-18.Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code 9 61-
626.
ORDER NO. 29762
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this :LJ-
n...J.
day of April 2005.
JfJ~
MARSHA H. SMITH, COMMISSIONER
ENNIS S. HANSE , COMMISSIONER
ATTEST:
~tDJe D. Jewell
Commission Secretary
bls/O:IPCE0418 dh
ORDER NO. 29762