20090309Application.pdf

BARTON L. KLINE
Lead Counsel
e;IDA""POR~
An IDACORP Company
March 6, 2009
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
P.O. Box 83720
Boise, Idaho 83720-0074
Re: Case No. IPC-E-09-03
IN THE MA TTER OF IDAHO POWER COMPANY'S APPLICA TION FOR A
CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY FOR THE
LANGLEY GULCH POWER PLANT.
Dear Ms. Jewell:
Enclosed for filing are an original and seven (7) copies of Idaho Powets Application
in the above matter.
In addition, enclosed are an original andeight (8) copies each of the testimonies of
Karl Bokenkamp, Vernon Porter, Lori Smith, and John R. Gale that are being submitted in
support of Idaho Power's enclosed filing. One copy of each of the testimonies has been
designated as the "Reporter's Copy." In addition, a disk containing Word versions of each
of the above testimonies has been provided for the Reporter and has been marked
accordingly.
Finally, I would appreciate it if you would return a stamped copy of this letter for
Idaho Power's file in the enclosed stamped, self-addressed envelope.
ver~.. .I.~ y..orf,s'......d
. . ~'CL \¿/L ~
Barton L. Kline
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Enclosures
P.O. Box 70 (83707)
1221 W Idaho St.
Boise, 10 83702
BARTON L. KLINE, ISB #1526
LISA D. NORDSTROM, ISB #5733
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: 208-338-6936
bkline(Cidahopower.com
Inordstrom(Cidahopower.com
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2009 HAR-í() Pl1 4: 43
Attorneys for Idaho Power Company
Street Address for Express Mail:
1221 West Idaho Street
Boise, Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA TIER OF IDAHO POWER
COMPANY'S APPLICATION FOR A
CERTIFICATE OF PUBLIC
CONVENIENCE AND NECESSITY FOR
THE LANGLEY GULCH POWER PLANT.
)
) CASE NO. IPC-E-09-03
)
) APPLICATION
)
)
)
COMES NOW, Idaho Power Company ("Idaho Powet' or "the Company") and, in
accordance with Idaho Code §§ 61-526 through 528 and RP 112, hereby applies to the
Idaho Public Utilities Commission ("Commission") for a Certificate of Public
Convenience and Necessity authorizing construction of the Langley Gulch power plant
("Langley Gulch" or "Project") and inclusion of the Project in Idaho Power's rate base.
This Application is based on the following:
APPLICATION - 1
I. CORPORATE STATUS
1. Idaho Power is a corporation incorporated under the laws of the state of
Idaho. Idaho Power is engaged in the business of generating, purchasing, transmitting,
and distributing electric energy and providing retail electric service in the states of Idaho
and Oregon. Idaho Power's principal offces are situated in Boise, Idaho, and its
address is 1221 West Idaho Street, Boise, Idaho, 83702. Copies of Idaho Powets
Articles of Incorporation and Certificates of Convenience and Necessity are on file with
the Commission.
II. INTRODUCTION
2. Idaho Power requests that the Commission issue a Certificate of Public
Convenience and Necessity ("CPCN") authorizing Idaho Power to construct, own,
operate, and maintain the Langley Gulch power plant. The Project is a natural gas-fired
combined cycle combustion turbine ("CCCT") generating plant with a nameplate
capacity of approximately 330 MWs. The Company proposes to construct the Project
on a parcel of land on the south side of Interstate 84 in Payette County approximately 4
miles south of the town of New Plymouth, Idaho.
3. The Project is a base load generating resource of the size and type
identified as the preferred resource in the Company's June 2008 Update to its
acknowledged 2006 Integrated Resource Plan ("IRP").
4. The Project was selected as the result of a competitive process ("Request
for Proposals" or "RFP") in which the Company solicited proposals from independent
power supply developers. The proposals were compared to each other and to a
benchmark utility-owned and operated CCCT ("Benchmark Resource"). The Project is
APPLICATION - 2
the Benchmark Resource. The RFP process assessed the price and non-price
attributes of the responses to the RFP. The RFP process identified the Project as the
preferred resource. The RFP process selected the Project principally because the 20-
year revenue requirement for the Project was significantly less than the other proposals
under consideration.
II. THE PROJECT IS CONSISTENT WITH
THE COMPANY INTEGRATED RESOURCE PLAN
5. In its Commission-acknowledged 2004 IRP, the Company identified a
need for a 500 MW base load pulverized coal-fired resource in 2011.
6. In its acknowledged 2006 IRP, the Company reassessed when it would
need to add a coal-fired resource and adjusted its long-term resource plan to include a
250 MW pulverized coal-fired resource in 2013 and a 250 MW advanced coal-fired
resource in 2017.
7. In June of 2008, Idaho Power filed an update to its acknowledged 2006
Integrated Resource Plan in which it notified the Commission that due to various
. uncertainties associated with the coal-fired generation, the Company had decided not to
proceed with the previously planned coal-fired resources. The June 2008 Update also
noted that the Company had decided to issue a RFP for tolling agreements ("TA") or
power purchase agreements ("PPA") for 250 MW to 600 MW of dispatchable gas-fired
capacity and energy deliverable in 2012 ("2012 baseload resource"). The RFP for the
2012 base load resource was issued in April of 2008.
8. A more detailed description of how the Project satisfies the criteria laid out
in the Company's 2008 Update to the 2006 IRP and why the Project promotes the
public convenience and necessity is contained in the testimony of Mr. Karl Bokenkamp.
APPLICATION - 3
Mr. Bokenkamp is Idaho Powets General Manager, Power Supply Operations and
Planning and his testimony is filed concurrently in support of this Application.
IV. RFP PROCESS
9. In accordance with the June 2008 Update to the 2006 IRP, in March of
2008, the Company assembled an interdisciplinary team to develop and process an
RFP for a 2012 baseload resource ("RFP evaluation team"). The Company also
retained a consultant, R. W. Beck, to assist the RFP evaluation team with development
of the RFP and to provide an independent assessment of the Company's RFP process.
The RFP evaluation team developed detailed criteria and a methodology for evaluating
both price and non-price attributes of a proposed resource, including a TA or PPA. The
evaluation criteria are contained in an evaluation manual which was completed prior to
the receipt of responses to the RFP. On April 1, 2008, the RFP evaluation team issued
a formal request for competitive proposals for up to 600 MWs of energy. This 600 MW
amount was later adjusted to approximately 300 MWs. The RFP documents sent to
bidders included a template PPA and TA to provide a uniform platform for evaluating
submitted contracts.
10. In the RFP solicitation documents, the RFP evaluation team noted that it
would compare all submitted proposals to a utility-owned CCCT. The utility-owned
resource would provide a benchmark to ensure that the Company evaluated all potential
available resources. The Company formed a separate team to develop the Benchmark
Resource. The Benchmark Resource development team did not include any members
of the RFP evaluation team. The RFP evaluation team treated the proposal presented
by the Benchmark Resource development team in an identical manner as it treated all
APPLICATION - 4
other entities submitting proposals in the RFP process. The Benchmark Resource
development team received no preferential communication or treatment and the
Benchmark Resource proposal was evaluated utilizing using the same evaluation
manual and techniques as applied to the other proposals. A copy of the Company's
independent consultant's, R. W. Beck's, final assessment report, in which R. W. Beck
states its conclusion that Idaho Power's RFP process was conducted fairly and
properly, is Exhibit NO.4 to Mr. Bokenkamp's testimony.
11. The RFP evaluation process assessed both price and non-price attributes.
Price attributes were weighted at 60 percent of the total valuation and non-price
attributes were given a 40 percent weighting.
12. Based on a comparison of the price and non-price attributes of each of the
proposals, the Company has concluded that the Project provides the greatest value for
customers. On a net present value basis, over the 20-year term of a PPA or TA the
Project is estimated to have a revenue requirement impact approximately $108 millon
lower than the next least expensive proposaL.
13. A more detailed description of the RFP evaluation process and the results
of the RFP evaluation team's analysis of the proposals received are contained in the
testimony of Mr. Karl Bokenkamp.
V. DESCRIPTION OF LANGLEY GULCH PROJECT
14. The Project is a 330 MW nameplate capacity gas-fired combined cycle
combustion turbine generating plant. A detailed description of the Project and
discussion of some of the reasons why the Project is the Company's preferred resource
addition are contained in the testimony of Mr. Vernon Porter and Mr. Karl Bokenkamp.
APPLICATION - 5
Mr. Porter is Idaho Power's General Manager of Power Production and his testimony is
filed concurrently in support of this Application.
Vi. COMMITMENT ESTIMATE
15. As Mr. Porter noted in his testimony on pages 8 through 11, the Project
development team has negotiated agreements for procurement of the major pieces of
equipment that wil make up the Project, including the gas and steam turbines which wil
be supplied by Siemens. The Project development team has also negotiated an
agreement for engineering, procurement, and construction ("EPC") under which the
equipment furnished by Siemens and others wil be integrated into the total Project.
The Project development team has also obtained estimates, based on a System Impact
Study, of the cost of constructing the transmission that wil be needed to integrate the
Project into Idaho Power Company's system. Based principally on the above-described
agreements and the transmission cost estimate, Idaho Power is able to make a reliable
estimate of the total capital cost of the Project. As it has done in prior CPCN
applications, Idaho Power has termed this estimate a "Commitment Estimate." The
Commitment Estimate is a good faith estimate of the Project's total capital cost,
including certain additional costs the Company anticipates it wil incur but cannot
quantify with precision at this time. Idaho Power's Commitment Estimate for the Project
is $427,400,000.
16. Idaho Power will commit to procure and construct the Project for an
amount that wil not exceed the Commitment Estimate. Amounts incurred in excess of
the Commitment Estimate would be subject to a "soft cap," that is excess costs could
APPLICATION - 6
only be included in rates if the Commission agreed the additional amounts expended
were prudent and should be included in fair, just, and reasonable rates.
17. Idaho Power wil provide the Commission with periodic percentage of
completion and cost expenditure reports during the construction phase of the Project.
The final report on the Project wil compare the actual completed cost to the
Commitment Estimate.
18. A more detailed description of how the Commitment Estimate would
operate to reduce uncertainty in resource acquisition cost is set out in the testimony of
Mr. Ric Gale. Mr. Gale is Idaho Power's Vice President of Regulatory Affairs and his
testimony is filed concurrently in support of this Application.
VII. FUEL-RELATED EXPENSES
19. A major component of the operating cost of a combined cycle combustion
turbine generating plant is the cost of natural gas fueL. Idaho Power currently owns or
wil acquire firm fuel transportation rights that can be utilized by the Project. The
Company anticipates that management of the fuel supply wil be undertaken by Idaho
Power personneL.
20. As a part of this Application, Idaho Power is requesting that the
Commission's Order issuing the CPCN authorize Idaho Power to include the Project's
prudently incurred costs for fuel, fuel storage, and fuel transportation for recovery
through the Company's existing Power Cost Adjustment ("PCA") mechanism.
VII. RATEMAKING TREATMENT
21. As noted in Section iV and the testimony of Mr. Bokenkamp, if the
Commission grants the Company a CPCN to proceed with the Project, the Company
APPLICATION - 7
wil be able to realize substantial savings as compared to the revenue requirement it
would incur under the least expensive tollng agreement submitted in the RFP process.
However, to capture these substantial savings, it wil be necessary for the Company to
go to the capital markets to raise the approximately $427 millon needed to construct the
Project. Traditional utility financing would require the Company to issue both new stock
and new debt. The Company's stock is currently sellng at a price that is below the
book value of the Company. For these reasons, the Company is requesting that the
Commission include in its order issuing the CPCN authority for the Company to utilize
one of two alternative ratemaking mechanisms that would put the Company in the best
position to finance this Project.
22. In summary, the Company is requesting that in its Order issuing the
CPCN, the Commission authorize the Company to annually collect construction work in
progress ("CWIP") in its rates for all or a portion of the construction expenditures the
Company incurs as it moves forward with construction of the Project or, alternatively,
commit to apply specific ratemaking treatment that the Company can rely upon when
the Project is completed and providing service to customers. The second alternative,
the ratemaking commitment, is identical to the mechanism envisioned in the rate
certainty legislation that is currently being discussed in the Idaho Legislature in Senate
Bil 1123. Idaho Power believes that a Commission order providing either CWIP or
commitments for future ratemaking treatment would substantially enhance the
Company's ability to obtain financing for the Project. If financing is available, the
allowance of CWIP or the authorization of ratemaking commitments would also increase
the likelihood that the Company wil be able to obtain financing rates that are more
APPLICATION - 8
favorable than would otherwise be available. More favorable rates would directly
benefit the Company's customers by reducing the overall cost of the Project.
23. A detailed discussion of the Company's proposals for CWIP or the
ratemaking commitments the Company is seeking in this Application, as well as the
evidence demonstrating the need for these ratemaking provisions, are more specifically
described in the testimony of Mr. Ric Gale and Ms. Lori Smith. Ms. Smith is Idaho
Power's Vice President of Corporate Planning and Risk Management. Her testimony is
filed concurrently in support of this Application.
IX. MODIFIED PROCEDURE
24. As previously noted, in order for the Company to move forward with
development of the Project as a utility-owned resource, it wil be necessary for the
Company to receive a CPCN from the Commission which includes the ratemaking
assurances and provisions described above and in the testimony of Mr. Gale. Until the
Commission issues such an Order, the Company cannot prudently proceed with the
Project. In today's uncertain financial environment, the Company believes that this level
of regulatory assurance is required.
25. As a result, the commercial operation date of the Project is directly related
to the issuance of a CPCN, including the necessary cost-recovery and ratemaking
commitments.
26. As Mr. Bokenkamp notes in his testimony, having this Project available to
meet future loads is extremely important. Therefore, to the extent the Commission can
expedite its review of this Application, it wil redound to the benefit of customers and
system reliability. In order to streamline the process and expedite the Commission's
APPLICATION - 9
review of this Application, the direct testimonies of Mr. Karl Bokenkamp, Mr. Vernon
Porter, Mr. Ric Gale, and Ms. Lori Smith have been filed concurrently with the filing of
this Application. In addition, Idaho Power has already assembled many of the
documents it anticipates, based on prior CPCN applications, that Staff and Intervenors
wil likely desire to examine as part of their analysis of this Application. As a result, it
wil not be necessary for Staff to send a formal request for production of the documents
prior to reviewing these materials. If additional questions arise and additional
documentation is needed, the Company wil work with the Staff and Intervenors on an
informal basis to expedite the review process.
27. The Company wil make available workpapers and other documentation
showing how the Commitment Estimate amount was determined. That documentation,
as well as some of the other documents the Company intends to provide for review,
contains information that the Company and bidders deem to be trade secrets. To
assure full bidder participation in future Idaho Power RFPs, the Company wil request
that Staff and any Intervenors sign a standard Protective Agreement prior to reviewing
these materials. Hopefully, making these documents immediately available for review
wil expedite the processing of this Application.
28. Finally, Idaho Power requests this Application be processed under RP
201, et seq., allowing for consideration of issues to be processed under modified
procedure, that is, by written submissions rather than evidentiary hearing.
29. While the Company believes that a technical hearing is not necessary,
and this case can be processed utilizing modified procedure, if the Commission believes
APPLICATION - 10
that a hearing is necessary, the Company is prepared to move expeditiously in support
of this Application.
WHEREFORE, Idaho Power respectfully requests that the Commission issue its
Order:
(1) Granting Idaho Power a Certificate of Convenience and Necessity
for the Project with a soft cap of $427,400,000 allowed for the Company's investment in
the Project; and
(2) Authorizing the Company to include construction work in progress
in its rate base to allow the Company to annually include all, or a portion, of its prudent
construction expenditures in its rate base in appropriate ratemaking proceedings; or,
alternatively,
(3) Including provisions committing the Commission to apply specific
ratemaking parameters when the Project is completed. These provisions would include
language specifing that the Commission:
(a) Concurred with the need for the base load resource in the
size and time frame stated in the Application;
(b) Accepted the Commitment Estimate for the cost of the
Project;
(c) Committed that the costs incurred in an amount up to the
Commitment Estimate would be deemed to be reasonable and prudent subject to the
"soft cap";
(d) Committed that at the time the Project achieved commercial
operation and was closed to plant, cost recovery could begin; and
APPLICATION - 11
(e) Committed that the return on equity the Company could
expect to earn on the Project investment would be the authorized return on equity in
effect at the time the Project is placed in service.
(4) Including language specifying that Idaho Power can expect to
recover its prudently expended fuel costs in the Company's Power Cost Adjustment
mechanism.
Respectfully submitted this 6th day of March 2009.
1/1:~~lc~
BARTÖN L. KLINE
Attorney for Idaho Power Company
APPLICATION - 12