20050718Heckler direct.pdf

William J. Batt
John R. Hammond, Jr.
BA TT & FISHER, LLP
U S Bank Plaza, 5th Floor
101 South Capitol Boulevard
O. Box 1308
Boise, Idaho 83701
[phone]
[phone] facsimile
:(ECEIVEO L?Jr" ! L" E D r~J
1005 JUt I 5 Pr1 4: l'
!L; 110 F'UBLfC
UTILITIES COt1r11SSIOH
Attorneys for Windland Incorporated
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA TTER OF THE PETITION OF
IDAHO POWER COMPANY FOR AN ORDER
TEMPORARILY SUSPENDING IDAHO
POWER'S PURP A OBLIGATION TO ENTER
INTO CONTRACTS TO PURCHASE ENERGY
GENERATED BY WIND- POWERED SMALL
POWER PRODUCTION FACILITIES
Case No. IPC-05-
DIRECT TESTIMONY OF MICHAEL HECKLER
WINDLAND INCORPORATED
July 15,2005
TABLE OF CONTENTS
Pae:e
I. INTRODUCTION OF WITNESS
........... .................. ......... ....
............................. 2
II. TOPICS TO BE ADDRESSED IN TESTIMONY..............................................
III. CONC LUSION ................................................................................................ 8
I. INTRODUCTION OF WITNESS
Q. PLEASE ST ATE YOUR NAME AND BUSINESS ADDRESS.
A. My name is Michael Heckler and my business address is 7669 Riverside Dr
Suite 102 Boise, Idaho 83714.
Q. BY WHOM ARE YOU EMPLOYED AND IN WHAT CAPACITY?
A. I am employed by Windland Incorporated as the Director of Marketing and
Development. I have served in this capacity since 2002.
Q. WHAT DOESWINDLAND DO?
A. Windland owns, operates and develops wind farms. We have been in the
wind farm business continuously since 1982. We currently are in the process of
developing wind farms in the western US including two in Idaho. We bid the output of
one of the wind farms we have under development in Idaho - specifically, the Cotterel
Mountain wind farm east of Burley in Cassia County, Idaho - into the Idaho Power Wind
2005 RFP issued pursuant to that Company s 2004 Integrated Resource Plan, which the
Commission accepted for filing on April 22, 2005 in Order No. 29762.
Q. PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND.
A. I hold a Bachelor of Arts in Business Administration and Accounting from
Seattle University as well as a Master of Business Administration in Finance and a Juris
Doctorate from the University of Washington.
Q. DESCRIBE YOUR WORK EXPERIENCE.
A. I have worked as an Economic Analyst and a Financial Reporting Officer
for a large commercial bank and held a variety of management assignments for a large
aerospace company. These assignments included several instances where I held project
Heckler (DI) 2
Windland Incorporated
management responsibilities for contracts valued in tens and hundreds of millions of
dollars. I have also worked as a consultant handling regulatory affairs for an
international partnership that launches commercial satellites. For the last three years I
have worked primarily as project manager on Windland's two Idaho wind farm
development projects.
II. TOPICS TO BE ADDRESSED IN TESTIMONY
Q. WHAT TOPICS WILL YOU ADDRESS IN THIS TESTIMONY?
A. I will discuss the status of Idaho Power s Wind 2005 RFP from the
perspective of Wind land, whose bid price is substantially lower than the $55 average
quoted by Idaho Power - and which bid was unequivocally not affected by avoided cost
rates.
process.
Then I will briefly discuss the potential effect of this proceeding on that RFP
I will discuss the value of developing cost-effective wind resources as an
electric generation source to not only Idaho Power, but also to the state and citizens of
Idaho generally.
I will also address whether Idaho Power s expectation that it would "average
low-priced utility scale wind resources with high-priced PURP A wind resources suggests
that the current avoided cost for wind QFs is not set at an appropriate level.
Finally, I will suggest that the Commission encourage Idaho Power to proceed
expeditiously in completing the Wind 2005 RFP, even if the Commission chooses to
implement Idaho Power s request for a temporary suspension of the Company
obligation to purchase the output of wind QFs. Completing the RFP will not only secure
cost-effective wind generation resources to supply Idaho Power s growing customer load
Heckler (DI) 3
Windland Incorporated
it will also harness competitive forces via the RFP to provide an indication of true market
prices for wind power in the Idaho Power territory. The market price for wind power
established by the RFP process could be used by the Commission as an input in any
revision of wind QF avoided costs.
Q. IDAHO POWER "BELIEVES" ITS ONGOING WIND 2005 RFP HAS
BEEN "UNDULY INFLUENCED" BY THE PURPA AVOIDED COST RATES
AND IS THUS NOT REFLECTIVE OF MARKET PRICES. DO YOU AGREE
WITH THIS POSITION?
A. No. As the individual responsible for preparing Windland's proposal
submitted under the Idaho Power 2005 Wind RFP, I can unequivocally state that our bid
prices were not in any way influenced by PURP A avoided cost rates. On the contrary,
the prices we bid are based on the specific characteristics of the wind resource on
Cotterel Mountain, market prices for wind turbines and other equipment, and the costs we
expect to incur for construction and operation of a wind farm on Cotterel Mountain.
Because Idaho Power has put the RFP process on hold and its evaluation of our
bid - together with all the other bids submitted - is still pending, we are unable to reveal
the precise levels of the prices we bid in this testimony. However, I can testify that our
bid prices are significantly lower than $55/MWh "average" that Idaho Power quoted.
Additionally, any suggestion that the $55/MWh "average" price under the Wind
RFP is comparable to the $61/MWh PURP A price ignores substantial differences
between the standard PURP A contracts and the terms implied in the RFP. Our bid
included a wind forecasting service, an integration of our SCADA control system with
Idaho Power s control systems, offered Idaho Power an ownership interest in the project
Heckler (DI) 4
Windland Incorporated
and transferred all the Renewable Energy Credits (REC or "Green Attributes ) to Idaho
Power. The standard PURPA contract (such as that approved under Order 29770)
includes none of these provisions. Depending upon how the RECs are valued (the carbon
released from 1 MWh of coal generated electricity is currently trading in Europe for more
the $25) these additional factors cause substantial difference in the two prices.
Q. WHAT DOES IDAHO POWER ASK THIS COMMISSION TO DO
WITH RESPECT TO ITS PENDING 2005 RFP PROCESS IN THIS
PROCEEDING?
A. Nothing. However, Idaho Power has stated in its Petition and testimony,
without any stated basis or rationale, that it may have to modify its Wind 2005 RFP
process as a result of wind powered QF development, the Company s obligation to
purchase from wind QFs at avoided cost rates, and its belief that these rates have
impacted its current RFP. Windland disagrees with Idaho Power on these matters, and
believes the RFP should go forward, not only out of fairness to those who have invested
substantial time and money in the process, but more importantly in pursuit of all the goals
and reasons memorialized in the 2004 Integrated Resource Plan.
Moreover, Windland urges the Commission to encourage the completion of the
current RFP so as to establish, or at a minimum provide an indication, of market prices
for wind power in the Idaho Power territory - even if the Commission decides the
PURP A rate for wind powered QFs must be reviewed in detail.
Heckler (DI) 5
Windland Incorporated
Q. WHAT ARE THE BENEFITS OF USING WIND POWER AS A
GENERATING RESOURCE?
A. Wind generated electricity is cost effective. Wind generation is the fastest
growing form of electric generation both in the US and worldwide. Wind generators are
not exposed to future fuel price increases or price volatility for such resources. They
don t burn fossil fuels so they aren t exposed to any future charge for carbon dioxide
emission or any other air pollution controls. Wind generation produces clean, renewable
energy from a currently unused resource and is broadly viewed as good social policy.
Any delay in beginning to use wind resources in Idaho on the substantial scale that is
currently cost effective increases the exposure of Idaho Power ratepayers to high and
volatile natural gas prices.
Q. WHY IS WIND POWER A GOOD POWER GENERATION
AL TERNATIVE FOR IDAHO AND A COMPANY LIKE IDAHO POWER?
A. Wind generation protects Idaho ratepayers from fossil fuel price volatility.
Recent high and volatile natural gas prices reduce the desirability of generating electricity
with gas turbines. The increasing likelihood of future carbon emission restrictions also
adds a significant risk element to building new coal fired generation. Many utilities see
benefit in diversifying their generation portfolio through the addition of wind powered
generation. After receiving substantial input from all conceivable constituents over a
two-year period, and reviewing multiple alternatives Idaho Power selected a diversified
portfolio of new generation types in Idaho Power s 2004 Integrated Resource Plan. The
Plan includes as a component the acquisition of power from wind projects like that being
proposed by Windland.
Heckler (DI) 6
Windland Incorporated
Q. DOES IDAHO POWER'S EXPECT A TION THAT IT WOULD
AVERAGE" LOW-PRICED UTILITY SCALE WIND WITH HIGH-PRICED
PURP A WIND SUGGEST THAT THE CURRENT AVOIDED COST IS NOT SET
AT AN APPROPRIATE LEVEL?
A. Yes. Ideally, wind-QF avoided costs should be set at the price of
alternative electric energy" so that the rates paid would be approximately equal
regardless of whether the wind generator is a large facility procured under an RFP or a
small producer selling under PURP A. What it would cost Idaho Power to procure wind
power from a competitively selected willing seller is good evidence of the price for
alternative electric energy . This price could possibly be used to set PURP A rates at a
level where the ratepayer would be indifferent to whether the energy source is a small or
large facility.
All energy prices have risen dramatically since Idaho Power collected the data
used in their 2004 IRP analysis. Current natural gas spot prices of $7.83 are 61 % higher
than the $4.85 estimated 2006 price stated in IRP Technical Appendix. Wind turbine
prices have also risen more than 20% during that period. While the current Wind RFP
may not result in level prices at the $43/MWh mark projected in the 2004 IRP, if carried
to a successful conclusion, the RFP can provide needed additional cost-effective
generating capability.
Heckler (DI) 7
Windland Incorporated
Q. IF THE COMMISSION DECIDES THAT PURP A OBLIGATIONS
SHOULD BE SUSPENDED AND A NEW AVOIDED COST RATE SET, WHAT
SHOULD THE COMMISSION DO WITH REGARD TO IDAHO POWER'
CURRENT WIND RFP?
A. The Commission should encourage the expeditious resolution of Idaho
Power s Wind 2005 RFP both as a method for supplying needed additional cost-effective
energy generation and also as a way of determining the market price in southern Idaho
and eastern Oregon for wind generated electric power. The market price established
under that RFP could be used as a high quality indicator of the price for "alternative
electric energy" if the Commission seeks to update the avoided cost for wind QFs.
III. CONCLUSION
Q. PLEASE SUMMARIZE YOUR TESTIMONY.
Idaho Power s expectation that they would "average" low priced utility
scale wind resources with high priced PURP A wind resources suggests that the current
avoided cost for wind QFs is not set at an appropriate level. Idaho Power needs
additional generating capability. Utility scale wind resources, like the Cotterel Mountain
wind farm that Windland bid in Idaho Power s Wind 2005 RFP, can cost-effectively meet
this need. At least some of the bids, Windland' s included, submitted under the Wind
2005 RFP were not "tainted" by the current high avoided cost levels. The Wind 2005
RFP can harness competitive forces to establish a market price for wind generation in the
Idaho Power territory. The Commission should encourage Idaho Power to expeditiously
complete the Wind 2005 RFP and use the market prices established under that RFP in
developing any revisions to its current wind QF avoided cost.
Heckler (DI) 8
Windland Incorporated
Q. DOES THIS CONCLUDE YOUR TESTIMONY?
A. Yes
DATED this 15th day of July, 2005.
Heckler (DI) 9
Windland Incorporated
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 15th day of July, 2005, I served the foregoing upon all
parties of record in this proceeding as indicated below.
Jean Jewell
IDAHO PUBLIC UTILITIES COMMISSION
472 W. Washington Street
O. Box 83720
Boise, ID 83702-5983
llewell~puc.state.id.
) Certified Mail
) First Class Mail
( x ) Hand Delivery
) Facsimile
Barton L. Kline
Monica B. Moen
IDAHO POWER COMPANY
O. Box 70
Boise, ID 83707-0070
bk 1 ine~idahopower. com
mmoen~idahopower. com
) Certified Mail
( x ) First Class Mail
) Hand Delivery
) Facsimile
John R. Gale
Vice President, Regulatory Affairs
IDAHO POWER COMPANY
O. Box 70
Boise, ID 83707-0070
rgale~idahopower .com
) Certified Mail
( x ) First Class Mail
) Hand Delivery
) Facsimile
Peter J. Richardson
RICHARDSON & 0' LEAR Y PLLC
99 East State Street
O. Box 1849
Eagle, ID 83616
peter~ri chrdsonando I eary. com
) Certified Mail
( x ) First Class Mail
) Hand Delivery
) Facsimile
Richard L. Storro
Director
POWER SUPPLY
1411 E. Mission Ave
O. Box 3727, MSC- 7
Spokane, WA 99220-3727
di c kstorro~avistacorp. com
) Certified Mail
( x ) First Class Mail
) Hand Delivery
) Facsimile
Heckler (DI)
Windland Incorporated
R. Blair Strong
PAINE, HAMBLEN, COFFIN
BROOKE & MILLER LLP
717 West Sprague Avenue, Suite 1200
Spokane, WA 99201-3505
r. blair .strong~painehamblen.com
Scott Woodbury
IDAHO PUBLIC UTILITIES COMMISSION
424 W. Washington Street
o. Box 83720
Boise, ID 83702-5983
Michael Heckler
Director of Marketing and Development
WIND LAND INCORPORATED
7669 West Riverside Drive, Suite 102
Boise, ID 83714
Telephone: [phone]
Facsimile: [phone]
mheckler~windland. com
) Certified Mail
(x) First Class Mail
) Hand Delivery
) Facsimile
) Certified Mail
) First Class Mail
(x) Hand Delivery
) Facsimile
) Certified Mail
( x) First Class Mail
) Hand Delivery
) Facsimile
Heckler (DI)
Windland Incorporated