20040804Kalich Direct.pdf

DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL FOR
REGULATORY AND GOVERNMENTAL AFFAIRS
VISTA CORPORATION
O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
FACSIMILE: [phone]
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R. BLAIR STRONG
PAINE, HAMBLEN, COFFIN, BROOKE & MILLER LLP
717 WEST SPRAGUE AVENUE, SUITE 1200
SPOKANE, WASHINGTON 99201-3505
TELEPHONE: [phone]
FACSIMILE: [phone]
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
S. GEOTHERMAL, INC., an Idaho
corporation
IDAHO POWER COMPANY, an Idaho
corporation
Complainant
VS.
Respondent.
BOB LEW ANDOWSI AND MARK
SCHROEDER
Complainants
VS.
IDAHO POWER COMPANY, an Idaho
corporati on
Respondent.
CASE NO. IPC-04-
CASE NO. IPC-04-
DIRECT TESTIMONY OF
CLINT KALICH
FOR A VISTA CORPORATION
address.
I. INTRODUCTION
Please state your name, the name of your employer, and your business
My name is Clint Kalich. I am employed by Avista Corporation at 1411 East
Mission Avenue, Spokane, Washington.
In what capacity are you employed?
I am the Manager of Power Supply Planning & Analysis, in the Energy Resources
Department of A vista Utilities.
Please state your educational background and professional experience.
I graduated from Central Washington University in 1991 with a Bachelor of
Science Degree in Business Economics. Shortly after graduation I accepted an analyst position
with Economic and Engineering Services, Inc. (now EES Consulting, Inc.), a northwest
management-consulting firm located in Bellevue Washington. While employed by EES, I
worked primarily for municipalities, public utility districts, and cooperatives in the area of
electric utility management. My specific areas of focus were economic analyses around new
resource development, rate case proceedings involving the Bonneville Power Administration
integrated (least-cost) resource planning, and demand-side management program development.
In late 1995 I left Economic and Engineering Services, Inc. to join Tacoma Power in Tacoma
Washington. I provided key analYtical and policy support in the areas of resource development
procurement, and optimization, hydroelectric operations and re-licensing, unbundled power
supply rate-making, contract negotiations, and system operations.I helped develop, and
ultimately managed, Tacoma Power s industrial market access program serving one-quarter of
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A vista Corporation
the utility s retail load. In mid-2000 I joined Avista Utilities as a Senior Power Resource
Analyst. Early in 2001 I was promoted to my current capacity. I assist the Company in the areas
of resource analysis, dispatch modeling, resource procurement, integrated resource planning, and
rate case proceedings.
Why is A vista Corporation submitting testimony in this proceeding?
After reviewing the testimony submitted on behalf of complainants and Idaho
Power Company, it is evident that the decisions in this case may have precedential effect with
respect to other utilities that are subject to the Commission s jurisdiction. The purpose of my
testimony is to present A vista s views on some of the issues raised in this case.
What is the scope of your testimony in this proceeding?
My testimony will first discuss the ten-megawatt threshold for qualifying facility
(QF) projects to be eligible for administratively determined (published) avoided cost rates. I will
also briefly discuss the proposal by Idaho Power related to the possible impacts of deregulation
that might occur in the future. Finally, I will explain that while the 90%/110% bandwidth may
assist Idaho Power in scheduling its PURP A resources, the bandwidth will not protect A vista
customers against the additional costs associated with the absence of capacity with wind and
other non-firm resources. I recommend that a capacity discount be applied to these resources.
II. TEN MEGAWATT THRESHOLD
Does the Company support a change to the current ten-megawatt threshold
for QF projects that are eligible for published avoided cost rates?
No. Avista supports the ten-megawatt threshold adopted by the Commission that
determines eligibility based on a generator nameplate rating or dependable capacity. Federallaw
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pursuant to 18 C.R. 292.304(c), requires only that projects with a generating capacity of one-
hundred kilowatts or less have access to published avoided cost rates. The Commission recently
increased the eligibility level to ten megawatts. Expanding eligibility further for published
avoided cost rates by, for example, using average annual energy as proposed by U.S. Geothermal
would increase the financial and operational risks to the Company and its customers.
The administratively determined avoided cost rates were determined based on a base-load
surrogate resource that would deliver firm capacity and energy during both heavy-load and light-
load hours. If eligibility for published avoided cost rates were to be based on average energy,
(average megawatts or aMW) on a monthly or annual basis, it could lead to unintended
consequences for the purchasing utility and its customers.For example, a qualifying
cogeneration facility with more than ten megawatts of generating capacity could generate during
off-peak and off-season hours to sell up to ten average megawatts at published rates, and then
serve its own requirements or sell to other parties when the additional power that it generates is
more valuable.This behavior could deprive the utility of the QF power when it is most
valuable.
What were the reasons for adoption of a size distinction in determining
eligibility for published avoided cost rates?
In Order No. 26017, the Commission explained that tariff rates are used to
simplify and minimize the costs associated with negotiating avoided cost rates for small
qualifying facility developers. It stated
, "
we find that the costs of negotiation for projects larger
than 1 megawatt should not be so significant as to render an otherwise financially viable project
infeasible.Additionally, in the order, the Commission found that "reducing the threshold
Case Nos. IPC- E-04-08 and IPC- E-04-1 0
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A vista Corporation
correspondingly reduces the risks associated with published rates being set either too high or too
low.Finally, projects with a capacity exceeding ten megawatts are not precluded from
obtaining a utility contract; the Commission provides a methodology for developing avoided cost
rates for these larger facilities.
The IPUC adopted a methodology in Order No. 26017, to establish avoided cost rates for
qualifying facilities with a capacity in excess often megawatts. The order states that the:
. ..
proposed methodology would operate as follows. First, the utility would determine
through its least-cost plan model the cost of meeting load over the next twenty years.
Whenever a proposed QF project were offered to the utility, the latter would insert the
generation and capacity of the project into the model and determine what costs would be
avoided over twenty years.
In the case of A vista, the power supply model (AURORA model) used to develop
avoided cost rates for larger projects is the product of our Integrated Resource Planning process.
Technical Advisory Committee composed of customers and Commission Staffs from both
Idaho and Washington review the assumptions contained in the power supply model.
Does the Company use this approach when evaluating new utility
generation?
Yes.The methodology is the basis for all ongoIng utility power supply
evaluations.
Do you have any comments related to the Metered Energy Test proposed by
Idaho Power?
Yes.The proposed Metered Energy Test would be consistent with and
complementary to the existing threshold of a ten-megawatt generator nameplate rating or ten
megawatts of dependable capacity. A ten-megawatt threshold limits the QF capacity output to
Case Nos. IPC-04-08 and IPC-04-
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ten megawatt-hours (MWh) per hour. Therefore, application of a Metered Energy Test to limit
payment of published avoided cost rates to only the first ten MWh per hour would be consistent
with the existing ten-megawatt threshold previously adopted by this Commission.
In addition, any QF selling power at a published avoided cost rate should be required to
sell all of its generation output to the purchasing utility. This requirement would insure that the
utility and its customers are not providing a backstop, or minimum price, but a price that
represents the value of all output from the qualifying facility.
If a QF were to generate energy in excess of the ten-megawatt threshold, how
would the Company propose to compensate the QF for the additional energy?
The Company believes that any energy generated above the lesser of 1) the ten-
megawatt threshold, or 2) any stated contract hourly amount, should be purchased at a percentage
of market-based rates reflecting the purchasing utility s short-term avoided cost. I recommend
that the market-based rate be equal to eighty-five percent of the Mid-Columbia daily index, and
be capped at the published avoided cost rate. Providing all generation in excess of the contract
amount at a market-based price to the QF would provide compensation to the QF for all of its
generation. However, it would avoid a price signal that might reward a qualifying facility for
generating additional energy at times when it is of less value to the Company than the published
avoided cost rate (e., spring runoff).
Case Nos. IPC-04-08 and IPC-04-
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III.CONTRACT PROVISIONS FOR EVENT OF DEREGULATION
Does the Company propose to include stranded cost provisions in it PURP
contracts at this time?
No. The Commission has jurisdiction over retail end-use customers, and
determines avoided cost rates that are appropriate for QF facilities under PURP A. In the event of
retail deregulation, 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 resulting from PURP A 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 authority to address recovery of any PURP A-related stranded costs.
IV.CAPACITY ISSUE
Does the Company have any comments with regard to capacity and the
900 /1100/0 bandwidth issues raised in this case?
Yes. A vista is concerned that the 90%/110% bandwidth proposed by Idaho Power
will not address our concern that all QF developers deliver both capacity and energy in exchange
for the published avoided cost rate. The 90%/110% bandwidth only requires that resources meet
a monthly energy quantity. Capacity, on the other hand, is an instantaneous or near-
instantaneous product. If a resource such as wind cannot be expected with a high degree of
confidence to be available to the system at times of peak need, the 90%/110% bandwidth would
not eliminate the need for backup capacity. Wind and other non-firm resources should not be
eligible to receive the full, published avoided cost rate because of the absence of firm capacity
from these resources. A capacity discount is a good solution, as I will explain below.
Case Nos. IPC-04-08 and IPC-04-
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What capacity costs is the Company suggesting need to be addressed, and
what resource types would be subject to the costs?
The Company is concerned about the costs associated with two services that
historically have been referred to as capacity costs. The first is planning margin. The Company
must acquire adequate capacity to serve its customer loads in the event of adverse weather and/or
hydroelectric conditions. To meet this requirement, the Company carries capacity reserves equal
to approximately fifteen percent of its system peak demand. Firm resources generally provide
capacity that may be used to meet our planning margin requirements. Non-firm resources like
wind, on the other hand, do not provide capacity and require the Company to reserve additional
system capacity to meet these obligations.
The second capacity cost is generation following, sometimes referred to as integration
costs, for wind and other generators that are either not able to, or choose not to, accurately
forecast their production levels hour to hour. For these resources the utility system must be re-
optimized, at additional cost, to provide enough flexibility to respond to intra-hour and hour-to-
hour generation changes.
How would the Company go about quantifying a capacity discount
applicable to wind and other non-firm QF resources?
The Company is not proposing that the Commission approve a specific capacity
discount applicable to published avoided cost rates in this proceeding. One way to quantify such
a discount, however, is to consider what the Bonneville Power Administration ("BP A") charges
for the capacity products necessary to firm and shape wind resources. The BP A service requires
a combination of products that equals approximately sixteen dollars per megawatt-hour. This
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product contains the basic additional expenses that A vista would incur to deliver wind energy to
the BP A system for firming and shaping, and then have it redelivered back to our system as firm
energy including capacity. Exhibit 1 shows how the sixteen-dollar charge is developed.
If and when the Company is presented with a non-firm QF resource like wind, we believe
that the capacity discount issue should be addressed at that time.
Does this conclude your pre-filed direct testimony?
Yes it does.
Case Nos. IPC-04-08 and IPC-04-
Kalich, Di
A vista Corporation
DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL FOR
REGULATORY AND GOVERNMENTAL AFF AIRS
VISTA CORPORATION
O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
FACSIMILE: [phone]
R. BLAIR STRONG
PAINE, HAMBLEN, COFFIN, BROOKE & MILLER LLP
717 WEST SPRAGUE AVENUE, SUITE 1200
SPOKANE, WASHINGTON 99201-3505
TELEPHONE: [phone]
FACSIMILE: [phone]
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
S. GEOTHERMAL, INC., an Idaho
corporation
IDAHO POWER COMP ANY, an Idaho
corporation
Complainant
VS.
Respondent.
BOB LEW ANDOWSI AND MARK
SCHROEDER
Complainants
VS.
IDAHO POWER COMPANY, an Idaho
corporati on
Respondent.
CASE NO. IPC-04-
CASE NO. IPC-04-
EXHffiIT NO.
CLINT KALICH
FOR A VISTA CORPORATION
BPA Wind Firming and Shaping Service
100 MW Hypothetical Project 330/0 Capacity Factor (289 080 MWh)
Line No.Component
1 Transmission
2 Losses In 1
3 Integration Charge
4 Transmission Out
5 Losses Out
6 Total
, .
Quantity Price Total
(MN)(MNh)($/MN-Month) ($/MNh)($0005)
100 210 023 452
289 080 045 302
289 080 734
210 511 726
289 080 045 302
15.517
1 1.9% of delivered energy ~ $55/MNh
Line 1 - transmission necessary to move QF power to the BPA system
Line 2 -losses of 1.9% are applied to account for losses across BPA system
Line 3 - charge for shaping and firming service
Line 4 - transmission necessary to redeliver QF power back to A\hsta system
Line 5 -losses of 1.9% are applied to account for losses across BPA system
Line 6 - total of all costs
~Ol
Exhibit No. \.
C. Kalich
A vista Corporation
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