20050715Lafferty Direct and Exhibits.pdf

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DAVID J. MEYER
VICE PRESIDENT, CHIEF CONSEL FOR
REGULATORY AND GOVERNMENTAL AFFAIRS
VISTA CORPORATION
O. BOX 3727
1411 EAST MISSION AVENUE, MSC-
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
FACSIMILE: 509-495-8851
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION OF
IDAHO POWER COMPANY FOR AN
ORDER TEMPORARILY SUSPENDING
IDAHO POWER'S PURPA OBLIGATION
TO ENTER INTO CONTRACTS TO
PURCHASE ENERGY GENERATED BY
WIND-PO WERED S MALL POWER
PRODUCTION FACILITIES
ON BEHALF OF
VISTA CORPORATION
CASE NO. IPC-05-
DIRECT TESTIMONY
OF ROBERT J.
LAFFERTY
I. INTRODUCTION
Please state your name, employer and business address.
My name is Robert J. Lafferty and I am employed as Manager, Wholesale
Marketing & Contracts at Avista Corporation (Avista or Company) and my business
address is 1411 East Mission Avenue, Spokane, Washington.
and professionalPleaseeducationalbackgroundstate your
experience.
I began my career at Avista Corp. in 1974 after graduating from
Washington State University with a Bachelor of Arts degree in Business Administration
and a Bachelor of Science degree in Electrical Engineering. In 1979, I passed the
Professional Engineering License examination in the state of Washington. I have served
in a variety of positions in the engineering, marketing, and energy resources departments.
I began work in the energy resources area (electricity and natural gas) in March 1996, and
have held various positions involving the planning, acquisition and optimization of
energy resources.Since December 2003, I have served as Manager, Wholesale
Marketing & Contracts where my responsibilities include acquisition and management of
long-term electric resources.
What is the scope of your testimony in this proceeding?
My testimony will address the unique characteristics of wind resources
and the current circumstances that indicate that it is time to reassess how avoided costs
should be computed for intermittent wind-powered resources. I will explain why A vista
joins in Idaho Power s Petition that the Commission temporarily suspend the obligation
to enter into new contracts with Qualifying Facilities (QFs) to purchase wind-powered
Lafferty, Di
A vista Corporation
generation output at Commission approved published prices and terms. This suspension
would be for a period of time during which an investigation would be conducted to
consider the impacts and costs associated with integration of substantial amounts of wind
resource.
What recent circumstances have manifested themselves with regard to
acquisition of intermittent wind-powered resources in the state of Idaho?
Idaho Power, in its Petition, indicates that it has received contacts
representing a significant amount of QF wind resource since the issuance of Order No.
29646. Idaho Power states that it has received approvals for contracts totaling 61.5
megawatt (MW), have pending contracts before the Commission of contracts
representing 21 MW, and have further inquiries representing an additional 193 MW of
wind resource. This represents a total of 275.5 MW of wind resource. This amount
exceeds Idaho Power s Integrated Resource Plan acquisition goal for wind resource in
2005 of 200 MW. Idaho Power expresses concern regarding the incremental system
impacts, including those to reliability, and associated system costs that may result from
the acquisition of such large amounts of wind. Idaho Power notes in its Petition, at the
time that the Commission adopted the combined cycle combustion turbine as the
surrogate avoided resource for setting avoided costs , that neither the Commission nor
Idaho Power had much experience with the integration of intermittent wind resource.
A vista has also been gaining experience with regard to integration of intermittent
wind resources. On November 18, 2004, Avista began receiving the dynamic signal that
integrated 35 MW of wind resource that it had acquired for a ten-year contact term. This
represents A vista s first experience dynamically integrating a substantial wind resource
Lafferty, Di
A vista Corporation
into its system. The quantity and speed with which wind resources are being proposed in
Idaho points toward a need now to review the potential impacts and to assess the
appropriate
resource.
attributes
application of costs associated with integrating large amounts of wind
Does wind-powered generation bring the same capacity and energy
to the purchasing utility as a combined-cycle combustion turbine
(CCCT), which serves as the basis for the avoided cost resource in the state
Idaho?
No. Wind-powered generation is only able to generate energy in an
intermittent fashion. As such, wind-powered generation does not provide the schedulable
capacity characteristics that are available from a CCCT.In contrast to a CCCT
additional system capacity must be made available in order to integrate a wind-powered
resource into the power grid in a reliable fashion.
As discussed above, A vista purchases a 35 MW wind resource output under a ten-
year agreement and integrates it into its system on a dynamic basis. A vista s system
provides all capacity for shaping and ancillary services necessary to integrate this wind
resource. Tables 1 and 2 contained in Exhibit No. 201 show the output from the 35 MW
wind resource purchase contract. Table 1, shows Avista hourly average output from
that portion of the Stateline wind project for the month of January 2005. Table 2 shows
Avista s share of daily average output from the project over the period January 1 , 2005
through June 30, 2005. These two tables show the variability associated with wind
resource power production and illustrate the challenge of "firming" or shaping large
Lafferty, Di
A vista Corporation
amounts resource with this type of output characteristic in order to match load
requirements.
How are integration or "firming" services provided?
As explained by Idaho Power witness Gale, firming of wind-powered
generation can be provided by the purchase of "firming services from third-party
providers, if those services and necessary transmission are available on a firm basis or
alternatively, firming service can be provided by the utility purchasing the wind-powered
generation using its own physical generating resources.In either case, physical
equipment capacity must be available to provide the necessary "firming.Such
additional system capacity is not required in the case of a CCCT.
Is there a cost associated with providing the firming services
associated with the integration of wind-powered generation resources?
Yes. Third parties providing firming services charge for those services
and for necessary transmission costs.Alternatively, utilities that provide their own
firming services must dedicate plant capacity and make corresponding changes to system
operations which results in a cost to the utility from using its physical capacity in a
manner different from the way in which it is optimized today. Therefore, in either
scenario, there are unique costs associated with integrating wind-powered resources.
Are there costs of integrating, or "firming," wind resources that are
not part of integration of a CCCT resource?
Yes. A vista agrees with Idaho Power s comments that there are costs
associated with integrating intermittent wind-powered resources onto a utility s power
system that are not reflected in the published avoided cost rates approved by the
Lafferty, Di
A vista Corporation
Commission. As discussed above, dedication of physical capacity and changes in system
operations result in incremental costs associated with shaping and firming intermittent
wind power output. As the amount of wind resource acquisition increases, the overall
system impacts, along with associated costs, can also be expected to be more significant.
It would be appropriate now to reassess how avoided costs should be computed for
intermittent wind-powered generation.
Are other factors present, in addition to the administratively
determined avoided cost rates, that are influencing the interest in and the amount of
wind - powered generation development?
A vista concurs with Idaho Power that federal and state taxYes.
incentives, including the federal income tax credit equal to approximately $18 per
megawatt-hour (MWh), have been recent significant factors stimulating wind-powered
generation development. As indicated by Idaho Power in its Petition, the Federal income
tax credit for wind resources was reinstated just prior to the issuance of Order No. 29646.
The Northwest Conservation and Power Council data indicates that approximately 730
MW of wind-powered generation capability is currently in operation in the region and
that another approximately 3,000 MW of wind-powered generation capability is under
construction or planned for construction. There is an active and competitive market for
wind-powered generation development.
Has Avista issued specific RFP'for wind-powered generation
resources?
Avista issued an RFP in 2003 for wind-powered resources andYes.
through that process, was able to acquire a competitively priced 35 MW wind resource
Lafferty, Di
A vista Corporation
for a ten-year term. That transaction was completed in 2004 and Avista began taking
deliveries in April of that year. As mentioned earlier, A vista began integrating that wind
resource on a dynamic basis beginning in November 2004.
Does Avista share Idaho Power s concern that the prices and terms
available to wind resources under PURP could adversely affect future wind
resource RFP'
A vista draft 2005 Integrated Resource Plan (IRP) preferredYes.
resource strategy includes the planned acquisition of up to 400 MW of wind resource
capability by the year 2016. Avista hopes to acquire a mix of geographically diversified
wind resources primarily through competitive RFP or negotiation processes
mentioned earlier, A vista has already acquired 35 MW of wind resource at a favorable
price for a ten-year term through a competitive RFP process that took place prior to
Idaho Power cites Northwestern Energy s recentCommission Order No. 29646.
Montana Commission approval of an agreement with Judith Gap LLC under which
Northwestern will purchase 135 to 150 MW of wind resource at a competitive price of
$31.71 per MWh A vista shares Idaho Power s concern that the Commission approved
published price, of approximately $60 per MWh, coupled with the term offered for wind
resources will cause the cost of the wind resources acquired to be much higher than if
they were acquired from the market through competitive RFP or negotiated processes.
Are there other factors that could affect the cost of wind resources to
the purchasing utility?
Yes. Another unique characteristic of wind-powered generation is that
projects can be configured in any number of different power output amounts. Wind
Lafferty, Di
A vista Corporation
resource projects consist of greater or lesser numbers of relatively small (approximately
MW to 1.5 MW each) generators.Therefore, wind developers can configure their
projects to meet different project output definitions. As noted by Idaho Power, it would
not be difficult for a wind project greater than 10 MW to be reconfigured into multiple
projects less than 10 MW in order to qualify each project for the Commission approved
A vista supports Idaho Power s Petition, which recommends apublished rates.
suspension of wind resource acquisition at this time, in part to prevent an unintended
situation where wind project developers reconfigure their projects so that they fall below
the threshold in order to qualify for posted rates.
It is important that a suspension apply to A vista to avoid creating an incentive for
developers that are currently making their proposals to Idaho Power to shift their
proposals to A vista. Accordingly, the rates, terms and conditions for all new contracts
from the date of A vista s petition forward for wind QF developers delivering power to
A vista s system in Idaho should, as with Idaho Power, be governed by the outcome of
this proceeding.
What work will be done during the suspension period?
During the suspension period, an investigation would take place that
would assess the impacts to system costs and reliability related to the integration of
significant amounts of intermittent wind resource onto A vista s electric system. The
analysis should include an assessment of the total amount of intermittent wind resource
that Avista s system can reasonably absorb, without affecting reliability, and the level of
costs associated with different amounts of wind resource acquisition. The investigation
Lafferty, Di
A vista Corporation
should consider appropriate application of those costs to the published avoided costs
applicable to intermittent wind-powered resources.
Does that conclude your pre-filed direct testimony?
Yes it does.
Lafferty, Di
A vista Corporation
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BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
VISTA CORPORATION
Case No. IPC-05-
Exhibit No. 201
Ro bert J. Lafferty
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