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HomeMy WebLinkAbout20060417Said direct.pdf, , ' BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY FOR A CERTIFICATE OF CONVENIENCE AND NECESSITY FOR THE RATE-BASING OF THE EVANDER ANDREWS POWER COMPLEX EXPANSION PROJECT CASE NO. IPC-O6- 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 in Mathematics with honors from Boise State Uni versi ty.In 1999, I 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 increase.I was the Company witness addressing power supply expenses. In August of 1989, after nlne years in the Resource Planning Department, I was offered and I accepted a posi tion in the Company s Rate Department.Wi th the 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 concerning 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 expenses.I presented my recommendations to the Idaho Public Utilities Commission in 1992 at which time the Commission established the PCA as an annual adjustment to the Company s rates.I have sponsored the Company s annual PCA adjustment in each of the years 1996 through 2003. In 1996, I was promoted to Director of Revenue Requirement.At year-end 2002 , I was promoted to Manager of Revenue Requirement. 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 that Resource Plan.I have also participated in the preparation of subsequent IRPs and in several RFP processes. I was the Company s principal witness in its applications for a Certificate of Convenience and Necessi ty for both the original Evander Andrews Power Plant Project and the Bennett Mountain proj ect. SAID , DI Idaho Power Company please outline the major topics you will address in your testimony in this proceeding. There are four maj or topics that comprise my testimony.First, I will briefly describe the history that preceded Idaho Power s issuance of the RFP on March 30, 2005.Second, I will describe the bid evaluation process that led to selection of Siemens Power Generation, Inc. (Siemens) as the winning bidder.Third, I will provide a general description of the proposed expansion of the Evander Andrews Power Plant (proj ect) .Finally, I will discuss the Company s proposed ratemaking treatment of the costs associated with the Project. What were the major events that preceded the selection of the Siemens proposal? The maj or events leading up to the selection of the Siemens proposal were the issuance of the 2004 IRP in August 2004, the Commission s acceptance of the Company 2004 IRP for filing on April 22 , 2005 (Order No. 29762) and issuance of the combustion turbine peaking resource RFP in March 2005.The 2004 IRP is on file with the Commission and , as such , Idaho Power requests that the Commission take administrative notice of that document. What drives the need for Idaho Power to acquire additional resources? Customer growth is the primary driving force SAID, DI Idaho Power Company behind Idaho Power Company s need for additional resources. The number of households in the Company s service territory is expected to increase from about 320,000 at the time the 2004 IRP was prepared to over 380,000 by the end of the 10- year planning period of that IRP.Idaho Power must acquire addi tional physical resources to meet the electrical energy demands of these additional customers. please describe the major factor that formed the basis of the 2004 IRP. Idaho Power has an obligation to serve its customers ' loads regardless of the water conditions that may occur.The 2004 IRP was prepared by evaluating the adequacy of the Company s resources to meet customer needs based upon planning criteria that included 7 oth percentile water conditions and 70~ percentile load conditions.This "worse- than-median " level of water criteria received both public input and regulatory support during the 2002 IRP process. Use of these criteria lessens the Company s reliance on market purchases during periods of low water and produces a greater need for resource acquisition than pre-2002 analyses that were based upon median water conditions. Based upon this assumption, what did the Company conclude was required to satisfy future loads in the planning horizon? Idaho Power examined 12 resource portfolios SAID, DI Idaho Power Company as part of the 2004 Integrated Resource Plan.Five of those portfolios were selected for additional risk analyses. Ul timately, the Company, with the support of the IRP Advisory Council , selected a balanced portfolio containing renewable resources , demand-side measures and thermal generation to meet the proj ected electric demands over the next ten years.The 2004 IRP identified specific actions in the Near-Term Action Plan to be taken by the Company prior to the next IRP in 2006. What specific actions did the 2004 IRP Near- Term Action Plan recommend? The 2004 IRP Near-Term Action plan called for the issuance of RFPs for 200 MW of wind resource, for 100 MW of geothermal resource, for 12 MW of Combined Heat and Power resource and for 88 MW of a combustion turbine peaking resource.In addition, the 2004 IRP called for proceeding with the Borah-West transmission upgrade and designing and developing demand-side measures in coordination with the Energy Efficiency Advisory Group (EEAG) and the Public Utili ty Commissions of Idaho and Oregon. In addition to the combustion turbine peaking resource RFP , has Idaho Power issued other RFPs consistent with those recommendations? Yes.Idaho Power issued an RFP for renewable wind-powered generation on January 13, 2005.The Company SAID , DI Idaho Power Company RFP evaluation team has notified the wind generation bidders who have been selected for the short list.Information concerning the transmission requirements of the short-listed wind proposals has been solicited from those bidders.That information will be used to further evaluate the proposals. On January 18, 2006, the Company issued a draft RFP for a geothermal-powered generation resource. Idaho Power solicited comments concerning that geothermal proposal and intends to issue a formal RFP for a geothermal resource this spring. The 2004 IRP Near-Term Action plan also called for issuance of an RFP for 12 MW of a Combined Heat and Power (CHP) resource.Has that RFP been issued? No.The 2004 IRP envisioned , in the Near- Term , acquisition of 12 MW of a CHP resource and, later acquisi tion of an additional 36 MW of CHP-generated electricity to be on-line in 2010.However , the Company is presently negotiating with a cogenerator who proposes to provide the Company with CHP-generated power in excess of the amounts identified in the 2004 RFP.For that reason the Company has not issued an RFP for this resource. The 2004 IRP also stated that the Company would proceed wi th upgrading the Borah-West transmission line.What progress is the Company making in upgrading that line? SAID , DI Idaho Power Company Idaho Power is presently upgrading the capacity of the Borah-West path.The transmission improvements will increase the Borah-West transmission capacity by 250 MW and are expected to be completed in May 2007. What demand-side measures does the 2004 IRP identify for the Company to pursue as part of the Near-Term Action Plan? In its 2004 IRP, the Company identified six DSM resources to pursue as part of its Near-Term Action Plan.These resources included two demand response programs and four energy efficiency programs.Each of these programs targeted summer peak loads. please describe the progress that the Company has made toward the implementation of these six DSM programs. The six DSM programs included in the Company s 2004 IRP final resource portfolio were designed wi th input from the EEAG and successfully implemented during 2005. Funding for these DSM efforts was provided through an increased Energy Efficiency Rider, Schedule 91 , which became effective June 1 , 2005. Idaho Power launched the Irrigation Peak Rewards and A/C Cool Credit programs in accordance with Order Nos. 29665 and 29702, respectively.The two demand SAID, DI Idaho Power Company response programs achieved a combined peak demand reduction in 2005 of 43 MW at the meter level or 48.7 MW at the generation level, which was approximately 124% of the 2004 IRP target for demand response resources in 2005. The Company expanded and modified the Irrigation Efficiency (now known as Irrigation Efficiency Rewards) and Industrial Efficiency programs to acquire the energy savings identified in the 2004 IRP for those two The ENERGY STAR~ Homes Northwest Programcustomer classes. was expanded to achieve the energy savings identified in the 2004 IRP under the name Residential Efficiency (New Construction) . The Company launched the Building Efficiency Program in 2005 to acquire the energy savings identified in the 2004 IRP under the name Commercial Efficiency (New Construction) In 2005, these four energy efficiency programs achieved a combined energy savings of 13,946 MWhs at the meter level or 15,466 MWhs at the generation level, which was approximately 93% of the 2004 IRP target for energy efficiency programs in 2005. Has the Company filed with the Oregon Public Utility Commission (OPUC) a request for authorization to implement an energy efficiency tariff rider in Oregon? Yes.The Company received authorization to SAID , DI Idaho Power Company implement an Energy Efficiency Rider, Schedule 91 , in Oregon effective August 31,2005.The Oregon Schedule 91 mirrors the current Idaho Schedule 91.The Company has also received authorization from the OPUC to operate the Industrial Efficiency, Irrigation Peak Rewards, Irrigation Efficiency Rewards, Building Efficiency and ENERGY STAR Homes Northwest programs in Oregon. Has the Company continued to assess the potential for additional cost-effective DSM as an alternative to supply-side resources beyond the resources identified in the 2004 IRP analysis? Yes.Based on the recommendation of the 2004 IRP Advisory Council, the Company commissioned an expanded assessment of DSM resources beyond those that target the summer peak within the residential and commercial customer classes.Quantum Consulting Inc. completed the Idaho Power Demand-Side Management Potential Study in the fall of 2004 and the Company filed the study with the Commission on December 15, 2004 as a supplement to the 2004 IRP.The results of this study will provide guidance in the design of two DSM retrofit programs for the commercial and residential customer classes.Both of the DSM retrofit programs will be analyzed as part of the Company s 2006 IRP as potential base-load demand-side resources. Please describe the 2005 peaking resource RFP SAID , DI Idaho Power Company issued by the Company. Among the actions recommended by the 2004 IRP was the acquisition of a targeted 88 MW simple-cycle, natural gas-fired combustion turbine.Consistent with the recommendations of the 2004 IRP, the peaking resource RFP requested proposals for an 80 MW - 200 MW turnkey electric generation resource located wi thin the Company s service terri tory that would meet anticipated peak energy demands. The flexibility in plant capacity permitted under the RFP allowed the developers to respond to the RFP with their most cost-effective proposals.The RFP directed respondents to locate the proposed facility at either the Company s Evander Andrews Power Complex or the Bennett Mountain Power Plant si te or at a site of a respondent's choosing. Please describe the response the Company received to the peaking resource RFP. The Company received 31 proposals from nlne companies that offered generation units ranging in size between 71 MW and 170 MW.The proposals included large and small frame combustion turbines, aeroderivative combustion turbines and reciprocating engines located at four proposed si tes.Both new and secondary market machines were proposed and evaluated by the Company. Did the Company engage an independent third party to review the Company s RFP and bid evaluation SAID , DI Idaho Power Company process? Yes, as in our previous RFP evaluations, the Company utilized an independent third party to assist in the development of the 2005 peaking resource RFP and evaluation cri teria and to provide assistance in the review and evaluation of bids.Power Engineers acted as independent consul tant for this RFP. please describe the process that resulted in selection of the proposal from Siemens Power Generation, Inc. as the successful RFP respondent. The Idaho Power RFP team received all the bids on or before the June 2, 2005 submission deadline.The Company did not prepare a self-build proposal.On June 3, 2005, the RFP evaluation team opened the proposals and began the initial screening process based on predetermined price cri teria and non-price criteria established with the assistance of Power Engineers.In September 2005, based upon initial screening, the top fifteen proposals received from four different companies were short-listed and face-to- face meetings with representatives of the short-listed enti ties were scheduled for October 2005.Prior to these scheduled meetings, the Company sent a document to each short-listed bidder summarizing the Company s understanding of the bidder s proposal. Whom did the Company ultimately select as the SAID , DI Idaho Power Company preferred bidder? Following the meetings with the short-listed bidders, the RFP evaluation team selected Siemens as the preferred bidder due to that company s ranking based upon the pre-determined price and non-price criteria set out in the Evaluation Manual developed for this RFP.The RFP evaluation team made its recommendation to the Company management on November 22 , 2005 and on March 16, 2006, the Company s management recommended to the Idaho Power Board of Directors that Siemens be selected as the preferred bidder. Board authorization of the expenditure of funds for construction of the new Evander Andrews Power Plant by Siemens is expected next month. Please give a general description of the proj ect. The proj ect will consist of a new Siemens- Westinghouse SGT6-5000F simple-cycle, natural gas-fired combustion turbine rated at 170 MW with ultra dry low NO combustion system, together with typical balance of plant facilities and equipment.The proj ect is currently scheduled to begin generating in June of 2008.The Pro j ec t will be located at the existing approximate forty (40) acre Evander Andrews Power Complex located in Elmore County, north of Mountain Home , Idaho.The site currently hosts two 45 MW gas-fired units owned by Idaho Power. SAID, DI Idaho Power Company The Project will be interconnected to the Company s 230 kv transmission system located approximately seven miles from the Evander Andrews site.The combustion turbine will connect to an existing gas line at the site for fuel supply.Sufficient capacity exists in this gas line to accommodate the requirements of the existing facilities and the new Project and no upgrades are anticipated. Water for generation will be pumped from an existing well on the Evander Andrews premises.Both substantial water supply capacity and prior water rights exist for the existing and proposed facilities.The Project's waste water will be discharged to an existing waste water system located on the site.The Project will operate in compliance with all appropriate DEQ air and water quality standards.A map showing the location of the Project is attached to the Company s Application for a Certificate of Convenience and Necessity filed concurrently with this testimony. The Company s 2004 IRP Ten-Year Resource Plan recommends that this Project be on-line in 2007.Why is the Project delayed by one year to 2008? Idaho Power must make significant additional investment in its generating resources and its transmission and distribution infrastructure over the 10-year planning period covered in the 2004 IRP.Because of this increased SAID , DI Idaho Power Company capi tal budget pressure, the Company evaluated the most prudent use of its resources and determined that other short-term alternatives other than this Project could meet the proj ected peak energy needs for the summer of 2007. The Company determined that an additional 50 megawatts of market purchases and associated transmission could be made for heavy load hours during the summer of 2007 from the eastern side of Idaho Power s system.This firm energy purchase enables the Company to delay the Proj ect for one year while, at the same time, meeting the capacity planning criteria established in the 2004 IRP. This 50 megawatt east side purchase reduces the overall projected peak-hour deficit to 61 megawatt which falls within the 75 megawatt deficit limit established by the planning criterion in the 2004 IRP.Based on this analysis, the Company adjusted the on-line date of the Project to 2008. What is the firm contract price for the Proj ect? The firm contract price for the 170-megawatt Project is $49,999,000.00. Was this the only factor used to evaluate the various bids? No.All of the bids were evaluated on the basis of price and non-price criteria that had been SAID, DI Idaho Power Company identified prior to the bid opening.Included among the cri teria were fuel costs assumptions, transmission costs and bidder experience and financial strength. What fuel cost assumptions were used in evaluating the bids? Forecasted natural gas prices from the 2004 IRP were used in the bid evaluation.Forecasted natural gas prices have gone up substantially since the issuance of the 2004 IRP, but the same price forecast was utilized in the evaluation of all of the natural gas-fired project proposals and, as a result, projects with lower guaranteed heat rates had lower fuel costs on a dollar per megawatt basis. Were there other material considerations used in evaluating the bids? Yes.The selected bidder had to demonstrate sufficient financial strength and experience to provide Idaho Power with a high level of confidence that output from the project would be available June 1 2008. In the Company s opinion, does Siemens Power Generation, Inc. have the financial strength and experience to assure that the Proj ect will produce electricity by June 2008? Yes.Idaho Power can rely on the financial strength and experience of not only Siemens Power Generation , Inc. but also of its parent company, Siemens SAID, DI Idaho Power Company Corporation, to assure the performance of the agreement and the successful completion of the Proj ect. Would you please describe what you believe are the significant provisions of the turnkey construction arrangement with Siemens Power Generation , Inc. for acquisi tion of the proj ect? One of the most significant attributes of the Siemens turnkey Project is that Siemens will furnish all of the labor, equipment and materials and perform all of the engineering and construction of the Proj ect.Unlike the Bennett Mountain project, Siemens will work directly with Idaho Power.As a result, the "middle man " project coordinator has been eliminated with this proposal. Completion of construction and all performance testing of the Project, including guaranteed capacity and guaranteed heat rate, are scheduled to be completed by April 1, 2008. Project ownership will transfer to Idaho Power at that time provided that all provisional Acceptance Criteria identified in the agreement been satisfied.If that criteria is not met, Idaho Power has the opportunity to assess liquidated damages against Siemens. Are there other attributes of the Project that you believe are important to the Commission consideration? Yes, there are.The Proj ect is located at SAID , DI Idaho Power Company the Company s Evander Andrews Complex near the Company existing 230 kV transmission system.Al though the transmission system will require additional investment in order to integrate the Project, those improvements will provide capacity during all seasons and improve the reliabili ty of the Company s transmission system. By selecting this Proj ect, the Company will expand an existing site and benefit from the anticipated economies of using the present staff to operate the new facili ty.Operations, in effect, will be centralized. Environmental compliance reporting is anticipated to be simplified by expanding generation at an existing plant versus development of the facility at an entirely new location.Local approval and acceptance of the Project at the Evander Andrews site is more likely since combus tion turbines are a permi t ted use in thi s Elmore County location and the Company will not be required to seek approval of a Conditional Use permi t in order to construct the new facility. Will a new substation be constructed as part of this proj ect? Yes.A new 230kv substation will be built adjacent to the existing 138 kv substation at the site.The two substations will be interconnected. Is the Company providing a "commitment" SAID, DI Idaho Power Company estimate for the capital cost portion for the Project? 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 $60 million (Commitment Estimate) This amount includes the Siemens contract amount, plus additional costs the Company knows it will incur but cannot precisely quantify at this time. These additional costs include, but are not limited to, sales taxes, Allowances for Funds Used During Construction (AFUDC), the cost of Idaho Power oversight of the project and the cost of capitalized start-up fuel.The Commitment Estimate amount also covers contingencies such as change orders.However , the Commitment Estimate is subj ect adjustment to account for documented legally-required equipment changes and material changes in assumed escalation ra tes .Transmission and substation costs are not included in the Commitment Estimate. Were transmission and substation costs considered when evaluating the total cost of the Proj ect? Yes.The total Proj ect costs, including estimated transmission and substation costs, were evaluated wi thin the selection process.However , transmission and substation costs have not tradi tionally been included in the Company s commitment estimates for power project since those costs do not require issuance by the Commission of a SAID , DI Idaho Power Company Certificate of Convenience and Necessity.While the Company is satisfied that the approximately $22.8 million estimate for transmission and substation costs associated with this Project lS a reasonable upper limit estimate, no definitive studies have been completed and the Company is not including transmission costs in its Commitment Estimate. How is fuel supply handled for the Proj ect? Because the Project will ultimately be owned operated and maintained by Idaho Power Company, the Company will coordinate the fuel supply and transportation for the Proj ect concurrently with the fuel supply and transportation requirements of the existing Evander Andrews units and the Bennett Mountain Power Plant.Idaho Power has purchased firm fuel transportation rights that can be used for all of the Evander Andrews uni ts .Idaho Power anticipates that management of the fuel transportation and fuel supply will be ei ther by Idaho Power personnel or by Idaho Power personnel in conjunction with a third party such as IGI Resources, Inc. Why does the Company s request include recovery of AFUDC? Even though the Project will be owned by Siemens until ownership is transferred to Idaho Power in April 2008, AFUDC is appropriate for recovery as a Proj ect cost because the Company is helping to finance the Project SAID , DI Idaho Power Company by making progress paYffients during construction.Such financing by the Company allows for a lower total cost to customers than if Siemens were to finance the Proj ect in a different manner. How does the Company propose that the Commission treat the costs associated with construction and operation of the Project for ratemaking purposes? Provided that the Project costs are less than the Commitment Estimate of $60 million , Idaho Power Company would expect the Commission to ultimately approve the total Project investment to be included in the Company s rate base for ratemaking purposes.Fuel costs should be approved for PCA inclusion prior to full review of operational costs in a general revenue requirement proceeding. How do the total costs of the selected Proj ect compare to other bids received by the Company in response to the RFP? The Siemens bid offered the lowest capital cost per installed kilowatt of capacity of all the short- listed bids.When proj ected transmission interconnection costs and plant operating costs were considered, the Siemens bid ranked lower, but competitively, with other bids in terms of lowest capital cost.However, when consideration of the non-price attributes of the bids were included, the Siemens proposal received the best combined price and non- SAID, DI Idaho Power Company price score.On that basis, the Siemens proposal was determined to be the most attractive bid. What non-price attributes contributed to the Siemens proposal rising above other bids with somewhat lower overall capital costs? The Siemens proposal ranked significantly higher than the other bids in terms of site and community attributes.These non-price attributes consider factors such as permit status, land ownership/control , location and regulatory requirements and community support.The Siemens proposal also ranked slightly higher than the other bids in terms of plant operation efficiency and the impact of required transmission improvements on the Company transmission system. The Company is requesting that the Commission expedite its review of this Application.Please explain why. Siemens has located an existing, new Generator Step-Up Transformer (GSU) that is available for the proj ect at significant cost savings in comparison to identical transformers that are being manufactured today. Company personnel has examined the available GSU and determined that it is suitable for the Project.In order to take advantage of the cost savings, the Company must act expedi tiously.Nonetheless, Idaho Power has advised Siemens SAID , DI Idaho Power Company that a condition precedent to issuance of the Notice to Proceed is receipt of an acceptable Certificate of Convenience and Necessity from the Idaho Public Utili ties Commission Does this complete your testimony? Yes. SAID , DI Idaho Power Company