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HomeMy WebLinkAbout20090702Gale Rebuttal.pdfeslDA~POR~ An IDACORP Company BARTON L. KLINE Lead Counsel July 2,2009 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 LANGLEY GULCH POWER PLANT Dear Ms. Jewell: Enclosed for filing in the above matter are nine (9) copies each of the rebuttal testimonies of John R. Gale, Karl Bokenkamp, Vernon Porter, Lori Smith, Peter Pengily, and Michael Mace. One copy of each of the testimonies has been designated as the "Reporter's Copy." In addition, a redacted version of both Mr. Bokenkamp's and Mr. Porter's testimonies have been provided for posting on the Commission's website. Finally, a disk containing Word versions of each of the above testimonies is enclosed for the Reporter and has been marked accordingly. Also enclosed for filing are nine (9) copies of Idaho Power's Certificate of Service indicating service of the testimonies on the Intervenors. Very truly yours,~(~ Barton L. Kline BLK:csb Enclosures P.O. Box 70 (83707) 1221 W. Idaho St. Boise, 10 83702 CERTIFICATE OF SERVICE I HEREBY CERTIFY that on this 2nd day of July 2009 I served a true and correct copy of IDAHO POWER COMPANY'S REBUTTAL TESTIMONY OF JOHN R. GALE, KARL BOKENKAMP, VERNON PORTER, LORI SMITH, PETER PENGILLY, AND MICHAEL MACE upon the following named parties by the method indicated below, and addressed to the following: Commission Staff Scott Woodbury Deputy Attorney General Idaho Public Utilities Commission 472 West Washington P.O. Box 83720 Boise, Idaho 83720-0074 Industrial Customers of Idaho Power and Northwest and Intermountain Power Producers Coalition Peter J. Richardson, Esq. RICHARDSON & O'LEARY PLLC 515 North 2¡th Street P.O. Box 7218 Boise, Idaho 83702 Dr. Don Reading Ben Johnson Associates 6070 Hill Road Boise, Idaho 83703 Snake River Allance Ken Miler Clean Energy Program Director Snake River Alliance P.O. Box 1731 Boise, Idaho 83701 -. Hand Delivered U.S. Mail _ Overnight Mail FAX -. Email Scott.WoodburvCâpuc.idaho.govc ..:: gr- ..HO '- m5; ?=COo i 8'" N3:c: ."__m __:.r" -- (;,:ie,: .i~';" ..o 0Hand Delivered z N -. U.S. Mail _ Overnight Mail FAX -. Email peterCârichardsonandolearv.com Hand Delivered -. U.S. Mail _ Overnight Mail FAX -. Email dreadingCâmindspring.com Hand Delivered -. U.S. Mail _ Overnight Mail FAX -. Email kmilertãsnakeriverallance.org ,;:m("m..mi:: Idaho Irrigation Pumpers Association, Inc. Eric L. Olsen RACINE, OLSON, NYE, BUDGE & BAILEY, CHARTERED P.O. Box 1391 201 East Center Pocatello, Idaho 83204-1391 Anthony Yankel Yankel & Associates, Inc. 29814 Lake Road Bay Vilage, Ohio 44140 Idaho Conservation League Betsy Bridge Idaho Conservation League 71 0 North Sixth Street P.O. Box 844 Boise, Idaho 83701 Northwest and Intermountain Power Producers Coalition Susan K. Ackerman 9883 NW Nottage Drive Portland, Oregon 97229 Community Action Partnership Association Of Idaho Brad M. Purdy Attorney at Law 2019 North 1 ¡th Street Boise, Idaho 83702 Hand Delivered -. U.S. Mail _ Overnight Mail FAX -. Email eloCâracinelaw.net Hand Delivered -. U.S. Mail _ Overnight Mail FAX -. Email tony tãyan kel. net Hand Delivered -. U.S. Mail _ Overnight Mail FAX -. Email bbridgeCâwildidaho.org Hand Delivered -. U.S. Mail _ Overnight Mail FAX -. Email Susan.k.ackermantãcomcast.net Hand Delivered -. U.S. Mail _ Overnight Mail FAX -. Email bmpurdyCâhotmail.com ~cL Barton L. Kline RECEIVED 2009 JUL -2 PH~: 06 IDAHO PUBUC UTILITIES COMMiSSiON BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MATTER OF IDAHO POWER COMPANY'S APPLICATION FOR A CERTI FICATE OF PUBLIC CONVENIENCE AND NECESSITY FOR THE LANGLEY GULCH POWER PLANT. CASE NO. IPC-E-09-03 I DAHO POWER COMPANY DIRECT REBUTTAL TESTIMONY OF JOHN R. GALE 1 Q.Please state your name and business address. 2 A.My name is John R. Gale and my business 3 address is 1221 West Idaho Street, Boise, Idaho. 4 Q.By whom are you employed and in what 5 capacity? 6 A.I am employed by Idaho Power Company (" Idaho 7 Power" or "the Company") as the Vice President of 8 Regulatory Affairs. 9 Q.Have you previously submitted direct 10 testimony in this docket? 11 A.Yes. I submitted direct testimony 12 addressing the ratemaking and regulatory matters associated 13 with Idaho Power's March 6, 2009, filing for a Certificate 14 of Public Convenience and Necessity for the Langley Gulch 15 power plant ("Langley Gulch" or "the Project"). I also 16 submitted supplemental direct testimony in this same docket 17 on April 28, 2009. 18 Q.What is the scope of your rebuttal 19 testimony? 20 A.My testimony rebuts statements made and/or 21 positions taken by Community Action Partnership Association 22 of Idaho ("CAPAI") witness Terri Ottens, Industrial 2 3 Customers of Idaho Power (" ICI P") witness Cynthia Mitchell, 24 Northwest & Independent Power Producers Coalition ("NIPPC") GALE, DI REB 1 Idaho Power Company 1 witness Don Reading, and Idaho Public Utili ties Commission 2 ("the Commission") Staff witness Rick Sterling.3 CAPAI 4 Q.On page 4 of her testimony, Ms. Ottens 5 states that "a regulatory public utility should, among 6 other things, make every attempt to pursue least cost 7 al ternati ves, best sui ted to meet the needs in question, 8 when it does acquire new resources, thereby minimizing 9 increases to rates." From the Company' s perspective, what 10 are the "other things"? 11 A.The Company's stated goals in resource 12 planning are (1) to identify sufficient resources to 13 reliably serve the growing demand for energy wi thin the 14 Company's service area and (2) to balance costs, risks, and 15 environmental concerns. Selected resources need to provide 16 economic solutions reliably and in an environmentally 17 responsible way. 18 Q.On page 6 of her testimony, Ms. Ottens 19 states, "With an estimated cost of $247 million, Langley 20 Gulch will constitute approximately one-fourth of Idaho 21 Power's entire rate base ." Is this an accurate statement? 22 A.No, it contains two factual errors. First, 23 the cost, in terms of the Commitment Estimate proposed by 24 the Company, is $427 million, including the transmission GALE, DI REB 2 Idaho Power Company 1 portion. Second, even at this higher amount, the Proj ect 2 will represent less than 20 percent of Company rate base as 3 determined in our last general rate case order. More 4 importantly, I think Ms. Ottens is saying that Langley 5 Gulch is a big investment that will have a significant rate 6 impact. I agree. However, the larger issue is that 7 whatever Idaho Power does to serve load in the next five 8 years is going to have a significant rate impact. Simply 9 doing nothing will not avoid additional costs and may very 10 well impact reliability and quality of service.11 ICIP 12 Q.Ms. Mitchell states on page three of her 13 testimony that the Langley Gulch in-service date has 14 slipped to December 2013 and accordingly the Company has 15 given the Commission an additional six months to review its 16 Application. Is December 2013 the in-service date? 17 A.No. The in-service date for Langley Gulch 18 is December 2012. As described in Mr. Vern Porter's 19 rebuttal testimony, the Company believes it is in its 20 customers' best interest to have Langley Gulch available in 21 the summer of 2012 and is actually pursuing a strategy to 22 make that happen. The strategy will include an incentive 23 payment, which I would urge the Commission to include in GALE, DI REB 3 Idaho Power Company 1 its final determination of the Company's Commitment 2 Estimate. 3 Q.On pages 5 and 6 of her testimony, Ms. 4 Mitchell lists a number of items that suggest that the 5 Proj ect might be delayed without a reliability consequence, 6 such as the contract load at Hoku not materializing and 7 additional demand-side resources appearing. Are there 8 other dynamics that counter these speculative assertions? 9 A.Yes. One important development not 10 mentioned is the delay from 2012 to 2015 in the anticipated 11 completion of the 500 kilovolt Boardman to Hemmingway 12 transmission proj ect, which would open up access to 13 resources from the west. With this transmission option 14 unavailable in 2012, it is even more important to have 15 additional generation in place by then. The other wild 16 card in planning for the future is the emergence of new 17 large loads in our service area. These potential new loads 18 are being attracted by the lowest industrial rates offered 19 by investor-owned utili ties in the nation and are being 20 actively recruited by Idaho cities, economic developers, 21 and other local agencies eager to get the Idaho economy 22 revived. GALE, DI REB 4 Idaho Power Company 1 Q.Ms. Mitchell describes an emerging winter 2 peak for Idaho Power on page 6 of her testimony. Please 3 comment on her discovery. 4 A.Actually, Idaho Power has a history of being 5 dual peaking, which was more pronounced in the past than it 6 is today. However, continued irrigation operations, 7 increased air conditioning load, and a high natural gas 8 penetration for space heat have resulted in the summer peak 9 growing faster than the winter peak. Company witness 10 Michael Mace discusses in detail the nature and history of 11 the Company's peak periods in his testimony. 12 Q.Continuing her discussion on Idaho Power's 13 secondary winter peak on page 25 of her testimony, Ms. 14 Mitchell recommends a review of the Company's current 15 retail tariffs to "ensure that rate design is not at cross 16 purposes with energy efficiency acti vi ties and programs." 1 7 What does Idaho Power presently do to ensure this result? 18 A.On an ongoing and regular basis, management 19 from within the Pricing and Regulatory Department (where 20 rates are designed) and from the Customer Relations and 21 Energy Efficiency Department (where programs are developed) 22 meet and discuss current issues and developments in each of 23 their respective areas. Development of new energy 24 efficiency and demand response programs, as well as new GALE, DI REB 5 Idaho Power Company 1 proposed rate design and regulatory issues, are discussed 2 and coordinated. 3 As stated in my direct testimony in the Company's 4 last general rate case (Gale Direct, IPC-E-08-10), the 5 Company is committed to providing customers cost-based 6 price signals which encourage the wise and efficient use of 7 energy and has designed rates in such a manner.Idaho 8 Power's goal is to design rates reflecting the relative 9 cost to operate the system. Customers can then use this 10 pricing information to alter their discretionary patterns 11 of usage, increasing efficiency and lowering the overall 12 cost of energy to the system. 13 To implement this goal, Idaho Power proposed, and 14 tne Commission approved, inclining block rates for 15 residential and small commercial customers, mandatory time- 16 of-use rates for large general and large power customers, 17 and load-factor pricing for irrigation customers. These 18 rate designs send seasonally differentiated cost-based 19 price signals to our customers and provide specific 20 opportunities for customers to benefit through energy 21 efficiency acti vi ties. 22 Q.For the irrigation class, does a load-factor 23 energy pricing rate design interfere with or become 24 counter-productive to the goals of either the Company's GALE, DI REB 6 Idaho Power Company 1 Irrigation Efficiency Rewards Program or the Irrigation 2 Peak Rewards Program? 3 A.No. Participants in the Irrigation 4 Efficiency Rewards Program receive rewards to improve the 5 energy efficiency of their existing irrigation systems or 6 their installation choices for new systems. The right- 7 sizing of equipment encouraged by this program should 8 enhance the customer's load factor. Therefore, load-factor 9 energy pricing has the potential to provide a second set of 10 benefits to the participants in the Irrigation Efficiency 11 Rewards Program. 12 The Irrigation Peak Rewards Program provides 13 economic credits to customers who allow the Company to turn 14 off specific irrigation equipment on a dispatchable basis. 15 Participants in this program generally shift their usage to 16 another time period. Therefore, load-factor energy pricing 17 should not make any significant changes to their monthly 18 load factor. 19 Q.Does the Company anticipate continuing 2 0 actively proposing new rate design? 21 A.Yes.In 2008, Idaho Power commissioned Dr. 22 Ahmad Faruqui, a nationally recognized expert in the field 23 of dynamic rate design to develop a white paper entitled 24 "Transitioning to Innovative Rates at Idaho Power: GALE, DI REB 7 Idaho Power Company 1 Pa thways to the Future." Idaho Power continues to work 2 with Dr. Faruqui in developing new rate design. Since 3 2005, Idaho Power has successfully operated a Critical Peak 4 Pricing program in the Emmett Valley with customers who 5 piloted the Company's Advanced Metering Infrastructure 6 ("AMI") system. With the full implementation of the AMI 7 system, which is in its first year of a three-year system- 8 wide rollout, and with the implementation of billing and 9 data management systems to manage the AMI data, Idaho 10 Power's intent is to offer additional programs, including 11 dynamic pricing, for customers in all rate classes. 12 Q.Does the Company have other pricing 13 structures that are supportive of the Company's energy 14 efficiency programs? 15 A.Yes. In Case No. IPC-E-04-15, the Company 16 proposed, and the Commission approved, a three-year pilot 17 of a Fixed Cost Adjustment ("FCA") mechanism for its 18 residential and small general service customers. The FCA 19 annually adjusts rates up or down to recover the difference 20 between the fixed costs authorized by the Commission in the 21 most recent rate case and the fixed costs the utility 22 actually recovers from customers during the previous year. 23 In this way, any financial disincentive to the utility 24 investment in energy efficiency programs is removed. GALE, DI REB 8 Idaho Power Company 1 Q.On page 32 of her direct testimony, Ms. 2 Mitchell discusses a shareholders' resolution regarding 3 Company planning for greenhouse gas ("GHG") reductions and 4 its relationship to demand-side management ("DSM") 5 programming. Please comment. 6 A. Both prior to and after the shareholder 7 resolution vote, the Company has repeatedly been on the 8 record both in word and deed as completely supportive of 9 pursuing cost-effective energy efficiency, demand response 10 measures, and renewable resources. The Commission and 11 customer groups are aware of the expedited ramp-up of these 12 programs, resources, funding, and results. Absent the 13 removal of the "cost-effective" criterion, there is no GHG 14 plan that would have Idaho Power do more than it is already 15 committed to do to further DSM initiatives. Likewise, our 16 commitment has to stay in step with the public policy 17 determinations of the Commission. 18 In the final analysis, our energy future requires 19 ongoing energy efficiency, renewable resources, and the 20 Langley Gulch production plant. 21 Q.On page 34, Ms. Mitchell states that CWIP is 22 "an artifact of monopoly regulation that is unavailable in 23 the competitive business world." Do you agree with her 24 conclusion? GALE, DI REB 9 Idaho Power Company 1 A.No. In the real world customers sometimes 2 make prepayments to new production ventures for product 3 that will be received in the future. These payments can 4 become an important source of financing, which can enable a 5 company to build facilities to produce the product. In 6 Idaho Power's own service terri tory, it has seen Hoku 7 Materials use this method to finance facilities. 8 Q.Ms . Mitchell testifies that including CWIP 9 in rate base distorts the resource selection process in 10 three ways:(1) by encouraging utili ties to build power 11 plants rather than purchasing power, (2) by creating a 12 financial disincentive for energy efficiency, and (3) 13 providing benefits to generation technologies with long 14 l~ad times. Do you see the same distortions to the 15 resource selection process used in Idaho Power's Integrated 16 Resource Plan ("IRP")? 1 7 A.I do not. First of all, I would think that 18 most industrial customers really want to optimize the 19 economic and reliability aspects of a resource selection 20 and would be indifferent to the buy versus build decision. 21 The Idaho Power IRP is indifferent to this decision and 22, does not make such a distinction when selecting the 23 resource portfolios. Those distinctions come in the actual 24 acquisition process, as there are some resources that the GALE, DI REB 10 Idaho Power Company 1 Company has traditionally filled exclusively through power 2 purchase agreements, while others have included a self- 3 build option among the possibilities. 4 The inclusion of Construction Work in Progress 5 ("CWIP") can help finance a self-build option, thus adding 6 some discipline to a competi ti ve bidding process; however, 7 it is not a factor in the resource selection. The reverse 8 situation might be argued when the inability to put CWIP 9 into rate base takes a self-build option off the table 10 because of financing difficulties. 11 Q.Do you believe that CWIP is a financial 12 disincentive to energy efficiency? 13 A.Idaho Power, along with others, has given 14 much thought to the appropriate regulatory model for energy 15 efficiency. We have pursued ongoing recovery of energy 16 efficiency expenditures via a tariff rider, which typically 17 provides timely cash flow to the utility to finance demand~ 18 side measures. Since these measures are financed on the 19 front end, while benefits are enjoyed over the life of the 20 measures, I would argue it is the equivalent of CWIP 21 recovery for supply-side investments rather than a 22 disincentive. 23 Many parties, including the ICIP, have investigated 24 the financial disincentives to energy efficiency through a GALE, DI REB 11 Idaho Power Company 1 fairly exhaustive process resulting in the current Fixed 2 Cost Adjustment pilot previously discussed. Thus far, the 3 ICIP has expressed a preference to be excluded from the FCA 4 pilot. As I previously stated, the Company is fully 5 committed to the pursuit of all cost-effective energy 6 efficiency and demand response programs. The inclusion or 7 exclusion of CWIP in generation rate base will not have a 8 bearing on this commitment. 9 Q.Does the inclusion of CWIP in rate base 10 create a bias toward long-lead-time resources? 11 A.No. CWIP availability does not create a 12 bias toward long lead-time assets for the same reasons as 13 it does not favor Company-built options. Again, the 14 reverse is more likely; CWIP can help the financial 15 viability of a long-lead-time Company-built option, which 16 should make for a better resource decision. 17 Q.Please respond to Ms. Mitchell's concern of 18 an intergenerational impact of CWIP. 19 A.Ratemaking is rife with impacts that in 20 isolation appear to be unfair. In Ms. Mitchell's example, 21 a senior citizen starts paying for a resource before it 22 begins operating and may not live long enough to fully 23 enj oy its benefits. In isolation, it is factually true. 24 We have the similar generational mismatch with our funding GALE, DI REB 12 Idaho Power Company 1 of demand-side resources - early payment through the Energy 2 Efficiency Rider wi th longer-lived benefits over the life 3 of the DSM measure. A generational dynamic in the opposite 4 direction is developing in the proposed approaches to 5 addressing carbon concerns, where it is very likely that 6 future customers are going to have to bear the cost of 7 existing carbon-intensive resources. "Gold Medallion" 8 homes and irrigation were once incented and now are a cost 9 concern. New industrial load raises the costs of existing 10 industrial customers. Bonneville Power Administration 11 Residential Exchange program distributes residential and 12 small farm credits during some periods and withholds them 13 in others, often depending on the latest court ruling. The 14 list goes on and on. The bottom line is the Commission 15 will have to determine whether it is good public policy to 16 allow all or some CWIP into rates. On balance they have to 17 weigh all the rate impacts, including the higher long-term 18 rates that come from traditional cost plus AFUDC treatment, 19 the rate shock that comes when the large, long-lead-time 20 asset is placed into rates in a single step, and the 21 financing implications to the utility of having CWIP 22 available or not. 23 Q.Ms. Mitchell also makes statements 24 regarding CWIP and Idaho Power's current financial GALE, DI REB 13 Idaho Power Company 1 si tuation and credit rating implications. Will you address 2 those issues? 3 A.No. Company witness Lori Smith will respond 4 to those issues. However, I would like to respond to the 5 totality of Ms. Mitchell's CWI P testimony by restating the 6 Company's position that CWIP is a tool that is provided to 7 the Commission to use at their discretion either fully or 8 partially and either with or without the ratemaking 9 measures provided by Idaho Code § 61-541.10 NIPPC 11 Q.In his testimony on behalf of NIPPC, Dr. 12 Reading testifies that even though the Company is a 13 regulated utility in Oregon, the Company simply ignored the 14 Oregon Public Utility Commission ("OPUC" or "Oregon 15 Commission") Guidelines for Competitive Bidding. Is Dr. 1 6 Reading correctly presenting the facts? 1 7 A.No he is not. The Company complied with the 18 Oregon Competitive Bidding Guidelines when it initiated the 19 2012 baseload resource RFP process that selected the 20 Langley Gulch proj ect. In accordance with Guideline No.2, 21 on April 17, 2008, Idaho Power filed a Petition with the 22 OPUC requesting a partial waiver of the OPUC' s Competitive 23 Bidding Guidelines ("the Petition"). A copy of the 24 Peti tion is attached as Exhibit No.9. GALE, DI REB 14 Idaho Power Company 1 In i ts Petition, the Company described the events 2 and risk factors that caused the Company to accelerate its 3 issuance of an RFP to acquire a baseload resource to meet 4 anticipated loads in 2012 ("RFP Resource"). The RFP 5 Resource, now known as Langley Gulch, was intended to 6 replace the 250 MW pulverized coal-fired generating 7 resource that had been scheduled to be on-line for 2013 in 8 the Company's acknowledged 2006 IRP. 9 In its Petition, the Company identified those areas 10 in which its RFP would not be in strict compliance with the 11 Competi ti ve Bidding Guidelines. The Company also explained 12 how it had structured its RFP so that it would be in 13 substantial compliance with the Competi ti ve Bidding 14 Guidelines and would provide a fair and cost-effective 15 competi ti ve bidding process. As part of that explanation, 16 the Company described the extensive review process the 17 Idaho Commission would undertake. During May, June, and 18 July of 2008, Idaho Power responded to data requests from 19 the Oregon Commission Staff and participated in a number of 20 discussions with Staff to explain the Company's filing and 21 to provide Staff with additional information concerning the 22 reasons underlying the filing of the Petition. 23 Idaho Power's purpose in asking for the waiver was 24 to comply with Competi ti ve Bidding Guideline No. 2 under GALE, DI REB 15 Idaho Power Company 1 which the OPUC can waive the competi ti ve bidding 2 requirements on a case-by-case basis. In so doing, the 3 Company apprised the Oregon Commission of the Company's 4 changing resource plans and gave the Commission an 5 opportunity to review and suggest changes to the Company's 6 RFP process. In filing the Petition, Idaho Power also 7 hoped to obtain the Commission's concurrence with the 8 Company's position that strict compliance with the 9 Competitive Bidding Guidelines would compromise the 10 Company's ability to move quickly enough to secure a needed 11 resource required to meet expected demand and, therefore, 12 strict compliance with the Competi ti ve Bidding Guidelines 13 would not be in the best interest of the customers. 14 The Oregon Commission Staff interprets the Oregon 15 guidelines to require that in order to conduct a RFP, a 16 potential resource must have been explicitly included in an 17 acknowledged IRP. Ultimately, in August of 2008, the OPUC 18 Staff advised the Company that Staff could not conclude 19 that a baseload natural gas-fired resource had been 20 included in an acknowledged IRP and, as such, the Company 21 could not proceed with the waiver request. They reached 22 this conclusion despite the fact that the Company had 23 included a baseload coal-fired generating resource 24 scheduled to be on-line in 2013 in its 2006 acknowledged GALE, DI REB 16 Idaho Power Company 1 IRP, the Company's 2008 IRP Update, and the Company's 2 responses to the Staff's data requests. While Idaho Power 3 did not agree with the Oregon Staff's conclusion, its only 4 recourse at that point was to engage in a contested case. 5 A contested case would have been extremely time consuming 6 and expensive. Because the Company planned on opening bids 7 in the RFP process in October, most of the benefits the 8 Company had hoped to receive from the petition process, 9 i. e., suggested changes to the Company's RFP process, would 10 not have been realized even if it ultimately prevailed. 11 From the Company's standpoint, the Petition had become 12 essentially moot. As a result, the Company accepted Oregon 13 Staff's recommendation that the Company withdraw the 14 Petition and address the results of the 2012 RFP in a 15 subsequent proceeding. 16 Q.The bulk of Dr. Reading's testimony on 17 behalf of NIPPC consists of a comparison of the process 18 Idaho Power pursued in this 2012 baseload resource RFP with 19 the Oregon Competi ti ve Bidding Guidelines. Do you have a 20 response to that portion of Dr. Reading's testimony? 21 A.I am not sure what relevance that portion of 22 Dr. Reading's testimony has to this proceeding. The state 23 of Idaho does not have competitive bidding requirements in 24 place and this Commission has already opened another GALE, DI REB 17 Idaho Power Company 1 docket, GNR-E-08-03, in which the Commission can address, 2 presumably with all three electric utili ties in Idaho, the 3 question of what, if any, competitive bidding guidelines 4 are needed in Idaho. Apparently NIPPC is making a 5 "preemptive strike" by presenting testimony in this 6 proceeding which, presumably, will also be presented in the 7 GNR-E-08-03 docket. Because the Commission has the 8 opportunity to undertake a comprehensive review of the need 9 for competi ti ve bidding guidelines in Idaho in another 10 current docket, I do not think it is fruitful to engage in 11 a point-by-point refutation of Dr. Reading's testimony 12 here. 13 If the Commission decides to proceed with GNR-E-08- 14 O~, Idaho Power will participate in good faith. However, 15 in considering Dr. Reading's recommendation in this case 16 that the Commission terminate this proceeding, adopt a new 17 set of bidding guidelines like the Oregon Competi ti ve 18 Bidding Guidelines, and repeat the RFP with the guidelines 19 in place, the Commission should be cognizant of the 20 following facts: 21 1.In July of 2006, PacifiCorp filed an 22 application with the OPUC under the Oregon Competi ti ve 23 Bidding Guidelines to conduct a RFP for a baseload resource 24 to be available in 2012 (PacifiCorp' s Draft 2012 Request GALE, DI REB 18 Idaho Power Company 1 for Proposals, UM 1208). After that lengthy proceeding had 2 been underway for two and a half years, PacifiCorp withdrew 3 its RFP prior to the completion of the case citing the 4 economic downturn and its belief that it might be able to 5 obtain better pricing. However, by that time PacifiCorp 6 had incurred nearly $800,000 in Independent Evaluator's 7 ("IE") fees and expected to incur another $250,000 in IE 8 fees to conclude the case (PacifiCorp's Application for 9 Reauthorization of Deferral Accounting, UM 1285 (2), 10 December 15, 2008). 11 13 2.Conducting RFPs under the Oregon Competi ti ve Bidding Guidelines requires a very large investment of Oregon Commission and Staff time and resources to closely manage the utility's RFP process. COMMISSION STAFF 12 14 15 16 Q.Did you review the testimony of the 17 Commission Staff witnesses? 18 A.Yes. I have no rebuttal comments to the 19 testimonies of Ms. Patricia Harms and Ms. Teri Carlock and 20 just a few regarding Mr. Sterling's testimony. 21 Q.What is your understanding of Mr. Sterling's 22 testimony? 23 A.Mr. Sterling is supportive of the need for 24 the resource and confirms the integrity of the resource GALE, DI REB 19 Idaho Power Company 1 acquisition process. Mr. Sterling expresses concerns 2 regarding the Company's decision not to consider "build- 3 and-transfer" bids into the selection process. Mr. 4 Sterling also states concerns regarding certain aspects of 5 the timing of the process - including its relationship to 6 Senate Bill 1123 - and the potential "box" in which he 7 feels the Commission was placed by the Company. 8 Additionally, Mr. Sterling takes a different approach as to 9 the application of caps to the Commitment Estimate. 10 Q.What is Idaho Power's general response to 11 Mr. Sterling's testimony? 12 A.The Company views Mr. Sterling as an expert 13 in the areas of resource planning, resource costing, and 14 resource selection processes and values his support of the 15 need for the resource and the validity of the process to 16 acquire it. The Company has a different perspective on the 17 value of the "build-and-transfer" option in this 18 circumstance, which Idaho Power witness Porter will 19 address.I would like to respond to Mr. Sterling's 20 proposal to apply a cap to the Commitment Estimate and his 21 concern that the Company handcuffed the Commission into a 22 less than optimal set of decisions. GALE, DI REB 20 Idaho Power Company 1 Q.Please restate the Company's request in this 2 proceeding related to the application of a cap to the 3 Commitment Estimate. 4 A.Idaho Power is requesting approval of a 5 total Commitment Estimate of $427,366,729, which includes 6 the power plant and the two transmission interconnection 7 proj ects related to the Ontario-Caldwell connection and the 8 Caldwell-Willis connection. We are requesting that the 9 Commitment Estimate be subj ect to a soft cap that provides 10 retail customers with the full benefit of the Proj ect being 11 completed under the Commitment Estimate, while providing 12 the Company with the opportunity to justify any costs above 13 the Commitment Estimate as prudent should that be the case. 14 Q.In what ways do you view the CPCN request 15 for the Langley Gulch project as different from the CPCN 16 requests for peaking facilities in recent years? 17 A.Idaho Power has filed CPCNs with the 18 Commission in 2001 (Evander Andrews #2 and #3), 2003 19 (Bennett Mountain), and 2006 (Evander Andrews #1). All of 20 these proj ects were simple cycle turbine peaking plants 21 compared to Langley Gulch's combined cycle combustion 22 turbine design. They are smaller in size, less expensive 23 to construct, and quicker to construct than Langley Gulch. 24 With smaller dollars to finance and less than a year from GALE, DI REB 21 Idaho Power Company 1 the issuance of a CPCN and the commercial date, these 2 proj ects were financially more secure than the current 3 Proj ect. The uncertainty in today' s capital markets has 4 added yet an additional complication to Langley Gulch not 5 experienced in previous proj ects. 6 Q.Why did the Company not propose a hard cap? 7 A.Idaho Power does not believe a hard cap is 8 necessary to ensure that the proj ect is well managed in an 9 economic manner. The Company has a good track record of 10 bringing projects in at or below cost estimates as 11 demonstrated through our series of combustion turbines and 12 upgrades to our hydro facilities. With the soft cap on the 13 Commitment Estimate, the Commission is in full control as 14 tne gatekeeper for the recovery of any additional costs 15 with the full burden of prudency on the utility. 16 Additionally, in this instance, the Proj ect is 17 significantly less expensive than the second best option. 18 Q.Does the Company have concerns regarding Mr. 19 Sterling's proposed implementation of a hard cap? 20 A.Yes. Mr. Sterling's proposal would 21 introduce new features that add risks to cost recovery that have been absent from past CPCN cases where the Company has provided Commitment Estimates.In my view,these new features are not consistent with the intent of the new law. 22 23 24 GALE, DI REB 22 Idaho Power Company 1 Past CPCNs approved by this Commission have allowed 2 utilities to make a subsequent case for legitimate cost 3 recovery following completion of the proj ect if the 4 addi tional costs were incurred due to causes beyond the 5 utility's control. Mr. Sterling's proposal does not appear 6 to have that flexibility. 7 Addi tionally, the language of the law does not 8 contemplate a hard cap, only a soft cap. See Exhibit No. 8 9 and refer to Section 61-541. II (b) (iii). Clearly a cap is 10 provided for, but so is the opportunity for the utility to 11 present additional evidence on the prudence and 12 reasonableness of additional costs. 13 Ultimately, the Company must justify any amount that 14 exceeds the cap and parties can oppose the additional cost 15 recovery at that time. There is no reason to presume that 16 circumstances that may arise should be eliminated from 17 future consideration today. 18 Q.In discussing the need for a hard cap, Mr. 19 Sterling raises a concern about the Project becoming 20 essentially a money pit where the utility embarks upon the 21 construction, but then presents a series of additional cost 22 overrun requests that are justified in part on the sunk 23 costs of dollars already expended. What is your response? GALE, DI REB 23 Idaho Power Company 1 A.More than any other entity, the Company 2 would not want to be involved in a proj ect where costs were 3 spiraling. Our past proj ect management record does not 4 indicate a history of out-of-control proj ects. The 5 circumstances surrounding the development of a combined 6 cycle gas turbine project (i.e., the site, permitting, 7 proven technology, etc.) do not create excessive concerns 8 about a cost spiraling situation; however, as we have seen 9 recently, conditions can change rapidly and situations 10 beyond the Company's control can materially alter costs. 11 Idaho Power cannot guarantee that it will not happen. 12 Reporting requirements, audit controls, and proj ect updates 13 can all assist in monitoring Langley Gulch progress from 14 both a timing and budget perspective. Ultimately, if the 15 Commission determines that a hard cap is necessary to 16 protect against a runaway situation, then it would be 17 reasonable to set it at the level of the second~best 18 alternative bid. 19 Q.Besides the introduction of a hard cap to 20 the Commitment Estimate is there anything else in Mr. 21 Sterling's recommendations on the Commitment Estimate that 22 causes the Company concern from a conceptual standpoint? 23 A.Mr. Sterling's line item application of the 24 soft cap is a very conservative approach that micro-manages GALE, DI REB 24 Idaho Power Company 1 the Company. It is also a significant departure from prior 2 Commission treatment of commitment estimates in CPCNs. 3 Under its Application, the Company could bring Langley 4 Gulch into commercial operation early and under the 5 Commitment Estimate and still suffer cost recovery 6 disallowances because each line item did not come in as 7 precisely as originally estimated. I do think a line item 8 evaluation of overages could have value if the soft cap on 9 the Commitment Estimate was exceeded and the Company was 10 actually requesting additional recovery. Then the 11 component analysis of the cost variances could be useful to 12 the Commission in its deliberations to determine if certain 13 component costs justifiably drove overall costs above the 14 Commi tment Estimate. 15 Q.Please sum up your response to Mr. 16 Sterling's recommendations of caps to the Commitment 17 Estimate. 18 A.I would strongly urge the Commission to 19 evaluate the Project's total Commitment Estimate as the 20 prudency test for bringing the plant on line. Line item 21 variances should be examined if the Company actually has 22 addi tional costs that it later brings to the Commission for 23 additional recovery. A hard cap is not necessary and, if GALE, DI REB 25 Idaho Power Company 1 applied, should be set at the level of the cost of the 2 second-best bid received in the RFP. 3 Q.At the end of his testimony, Mr. Sterling 4 criticizes Idaho Power for handcuffing the Commission in 5 its decision making, stating that "Staff does not believe 6 that either ratepayers or the Commission should be held 7 hostage because of the Company's inability to plan and 8 acquire resources in a less time constrained manner." 9 Please respond. 10 A.I agree with Mr. Sterling's assertion that 11 the Company should not handcuff the Commission and its 12 customers or hold them as hostage as a result of its 13 inabili ty to plan and acquire resources in an appropriate 14 manner. Limiting the Commission's options was certainly 15 not Idaho Power's intent. However, I disagree with Mr. 16 Sterling that the Langley Gulch CPCN application fits that 17 description. Resource filings are increasingly complicated 18 and subject to a tension between enough time to process and 19 enough current information to make a quality decision. For 20 example, we can look at PacifiCorp's recent experience in 21 Oregon, where it filed an application to conduct a RFP for 22 a baseload resource to be available in 2012. As discussed 23 in the Company's Response to the Intervenors' Joint Motion 24 to Stay (pages 19-20) and referenced in my testimony above GALE, DI REB 26 Idaho Power Company 1 on page 19, PacifiCorp withdrew its RFP two and a half 2 years into the RFP process due in part to a reduction in 3 the price of commodities and its belief that it might be 4 able to obtain better pricing. Had Idaho Power filed in 5 2006, like PacifiCorp did in Oregon, the Idaho Commission 6 would not have had an opportunity to consider some of the 7 impacts of the economic downturn and data closer to the on- 8 line date. 9 Addi tionally, a key difference between Idaho Power's 10 perspective and Staff's perspective is the value and 11 viability of the "build-and-transfer" proposals. For the 12 reasons expressed in Mr. Porter's testimony, the Company 13 feels strongly that the "build-and-transfer" option does 14 not bring value to the process.If the Commission agrees 15 with the Company on the value of the build and transfer 16 option, then a six-month procedural schedule should be 17 adequate for regulatory review. Should the Commission feel 18 otherwise, then Idaho Power will dutifully adjust our 19 approach in future filings. 20 Q.Have you concluded your testimony? 21 A.Yes. GALE, DI REB 27 Idaho Power Company . BEFORE THE IDAHO PUBLIC UTiliTIES COMMISSION CASE NO. IPC-E-09-03 IDAHO POWER COMPANY GALE, 01 REB TESTIMONY EXHIBIT NO.9 1:.- _...- 'I' 1 2 3 4 BEFORE THE PUBLIC UTILITY COMMISSION OF OREGON UM i3~~ IN THE MATTER OF IDAHO POWER PETITION FOR A PARTIAL WAIVER OF 5 COMPANY'S REQUEST FOR A PARTIAL COMPETITIVE BIDDING GUIDELINES WAIVER OF COMPLETIVE BIDDING6 GUIDELINES (Expedited Consideration Requested) 7 .8 9 10.. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Pursuant to OAR 860-013-0020, Idaho Power Company ("Idaho Power" or "Company") petitions the Public Utilit Commission of Oregon ("Commission") for an order exempting Idaho Power from compliance with several of the guidelines governing competitive bidding adopted by the Commission in Order No. 06-46 ("Competitive Bidding Guidelines"). For the reasons discussed below, Idaho Power requests expeited review of this petition ("Petition"). I. INTRODUCTION Over the last several years Idaho Power has experienced substantial load growt, and the Company has accrdingly planned to add significant base load generation to Its portolio. To that end, the Company's recently-acknowledged 2006 IRP included a 250 MW pulveried coal resource, to be added in 2013 and a second 250 MW coal-fire resourc, an integrated gasifcation combined cycle turbine ("IGCC") to be added in 2017. Recent events, however, require a change of course. Firs, due to changes in federal water policy, the Company will have reduce levels of hydro generation available during the peak âemand summer months. Seoond, the Company has recently received a number of requests for servce to new, large industrial/commercial loads. These new large loads are asking for servce to ,commence in the 2009-2012 period. As a result, the Company finds that it must now be 26 prepare to bring a new base load resource on line earlier than 2013. Exhibit No. 9 Page 1 - IDAHO POWER'S PETITION FOR A PARTIAL WAIVER OF COMPETITIVE Case No. IPC-E-09-03'BIDDING GUIDELINES R. Gale, IPC. Page 1 of 15 McDowll & Rackner PC 520 SW Sixt Avenue, Suit 830 PorUand, OR 97204 1'----------------- 1 Third, due to the uncertainties associated with permitting and future carbon 2 regulation and the costs of developing coal-fire generation resources, the Company's 3 plan to develop a pulveri coal resource is no longer feasible. 4 For these reasons, the Company has issued a Request for Proposals ("RFpR) 5 soliciting bids for power purchase agreements, including tolling agreements, for up to 8 800 MW of firm energy, to be available not later than June 1, 2012. To ensure the 7 availabilit of base load resources in 2012, the Company wil concurrently pursue the 8 development of up to 800 MW of natural gas~fired combined cycle combustion capacity 9 ("CCCT") that will serve as the Benchmark Resource in the competitive bidding process.1 10 A copy of the RFP is atched as Exibit A. While the proceure contemplated by the 11 RFP do not adhere to all of the Commission's Competiive Bidding Guidelines, they are 12 designed to produce the same result-a full and fair vetting of all reasonable resourc .13 proposals. 14 Not surprisingly, Idaho Power is not alone among electric utilities and other 15 generators in abandoning plans for coal plants in favor of CCCTs. Indeed with demand for 18 cccrs at an all-time high, order for the generating equipment (turbines, heat recovery 17 equipment and generators) and the engagement of construction contractors must be 18 completed years in advance of on-line dates. If Idaho Power were to fully comply with all '19 of the Commission's Competitie Bidding Guidelines, (1) it would most likely be unable to 20 secure generating equipment and engage a construction contractor in time to ensure that 21 the Benchmark Resource CCCT would be available if it is selected as the best possible 22 alternative to meet customer demand and (2) other bidders that intend to construct a 23 1 The RFP's reuest for up to 600 MW of firm energy by 2012 reflec the potential fo servce 24 to new large loads. Several of thes potential new custmers have expressd interest In funding additional generation to accommodate their loads. Prior to accptance of proposals in the RFP, 25 Idaho Power will eiter have secure financial commitents frm these new large loads or the amount of reurcto be acquired through the RFP proces wil be scaled back. 26 Page 2 IDAHO POWR'S PETITION FOR A PARTIAL WAIVR OF COMPETITIVE BIDDING GUIDELINES Exhibit NO.9 Case No. IPC-E-09-03 R. Gale, IPC Page 2 of 15 McDowell & Rackner PC 520 SW Sixt Avenue, Suite 830 Porand, OR 91204 1 CCCT to deliver firm energy under a power purchase agreement will likely face the same 2 equipment acquisition deadlines. Therefore, Idaho Power reques a partial waiver of the 3 Commission's Competitive Bidding Guidelines as described below. This partial waivr is 4 appropriate given the short time frame in which the Company can acquire the necessary 5 resource, the limited nature of the waiver request, and the in-depth involvement of the 6 Idaho Public Utilties Commission ("Idaho Commission") in the RFP process. 7 II.NOTICE AND EXHIBITS 8 In accordance with OAR 860-013-0070. Idaho Power hereby waives servce by 9 means other than service by electronic mail. Consistent with that waiver, communications 10 rearding this Application should be addressed to all of the following: 11 12 13 14 15 16 17 18 19 20 21 22 23 24 '25 26 Page 3 - John Gale Vice President, Regulatory Affairs Pricing Regulatory Services Idaho Power Company PO Box 70 Boise. 10 83707 Telephone: (208) 388-2887 Facsimile: (208) 388-649 E-mail: jgaJe(âidahopower.com Lisa Nordstrom Attorney II Idaho Power Company PO Box 70 Boise, JD 83707 Telephone: (208) 388-525 Facsimile: (208) 388-936 E-mail: Inordstrom£midahopower.com Barton Kline Senior Attorney Idaho Power Company PO Box 70 Boise, ID 83707 Telephone: (208) 388-2682 Facsimile: (208) 388-936 E-mail: bklinetaidahopower.com Lisa Rackner Wendy Mclndoo McDowell & Rackner PC 520 SW Sixth Ave., Suite 830 Portland, OR 97204 Telephone: (503) 595-3925 Facsimile: (503) 595-3928 E-mail: IisatmmÇÇ-law.com E-mail: wendvtmcd-Iaw.com Exhibit No. IDAHO POWER'S PETITION FOR A PARTIAL WAIVER OF COMPETITIVE Case No. IPC-E-09-0BIDDING GUIDELINES R. Gale, IPPage 3 of 1 McDowell & Rackner PC 520 SW Sixth Avenue, Suite 830 Portland, OR 97204 1 2 A. II. BACKGROUND Idaho Power's 2004 and 2006 Integrate Resource Plans 3 Idaho Powr's 200 IRP includ a 500 MW pulverized coal-fired resurc 4 scheduled to come on line in 2011.2 In response to uncertainty surrounding potential 5 carbon legislation, in its 2006 IRP Idaho Power replaced half of the 500 MW coal plant 6 with a 250 MW IGCC resource scheduled to come on line in 2017. The IRP retained a 7 250 MW pulverized coal resource to coe on line jn 2013.3 8 In comments filed in response to the 2006 IRP, Commission staff expressed 9 concern about the 250 MW pulveried coal-fired resource.4 Staff requested that Idaho 10 Powr continue to consider alternates and recommended that the Company delay a final 11 commitment to a pulverized coal resource.5 12 In its Order acknowledging the 2006 IRP, the Commission noted the Company's 13 need to add base load generating resourcs within the timeline planned by the Company, 11 but echoed Staffs concerns about adding a coal resource.6 Accordingly, the Commission 15 modified the 2006 IRP to address the propoed coal resource. Pursuant to those 16 modifications, Idaho Power agreed that it would not commit to the development of the 17 2013 coal plant before preenting an update of the 2006 IRP to the Commission.7 In the 18 update, Idaho Power agreed to (a) discuss possible federal and state regulation of CO2 19 emissions and the effect of a cap and trade mechanism or other limit on the Company's 20 2 Re Idaho Power Co. 2004 Integrated Resurc Plan. Docket LC 36, Order No. 05~782 at 12 21 (June 17, 2005).31d. at 10-11. 4 Re Idaho Power Co. Applicatin for Adoption of Its 2006 Interate Resourc Plan, Docket 23 LC 41, staff Comments on 2006 Integra Resourc Plan at 8-9 (Mar. 16, 2007) SJd. at 9. 24 6 Re Idaho Power Co. Application for Adoption of its 2006 Integrated Resourc Plan, Docket 25. LC 41, Order No. 07-394 (Sept. 12,2007). 71d. at 22. 22 26 Page4 - Exhibit No. IDAHO POWER'S PETITION FOR A PARTIAL WAIVER OF COMPETITIVE Case No. IPC-E-09-0BIDDING GUIDELINES R. Gale, IPPage 4 of 1 McDowell & Rackner PC 520 SW Sìxth Avenue, Suit 830 , Portland, OR 97204 . .._..~. ......__....... _._~-_.~~--_.,._...._..._,._--..._----~--.~~-_.._.._.. ...... _..-......_A__~~_,._..._'__.~.._.d______~___q_____._--______ 1 use of coal; and (b) demonstate that Idaho Power conducted a ngorous financial and 2 economic analysis of portlio adjustments that may delay the need for a base load coal 3 resource. a 4 B.Changes in Circumstances since the 2006 Integrated Resource Plan 5 Since Idaho Power filed its 2006 IRP, the Company's resource needs have 6 changed. 7 First, the Company will need to add the 250 MW base load resource a full year 8. earlier than previously expected. In August 2007 the United States Bureau of 9 Reclamation ("Bureau"), along with Bonneville Power Administration and the U.S. Ary 10 Corps of Engineers released the Biological Assessment for Bureau of Reclamation 11 Operations and Maintenance in the Snake River Basin above Brownlee Reservoir. The 12 Bureau's proposed actions include providing flow augmentation water earlier in the spnng 13 season as opposed to the current emphasis on delivery in the June to August period. 14 Previously. the Bureau released water for fish passage in the summer, providing Idaho 15 Power with incrsed hydroelectnc generation dunng its peak-load period in June, July, 16 and August. The fisheries agencies and the Bureau have now decided to move releases 17 of water for fish passage to the spnng to provide colder waer for fish vitalit. By changing 18 the release time, the Bureau has effctively reduced Idaho Power's hydro-electnc 19 generation during the summer peak period, thereby accelerating the need for. new firm 20 energy reources. 21 Second, Combined Heat and Power and Geothermal resourc development tias 22 not materalize as robustly as anticipated in the 2006 IRP. and the developers forecasts 23 for PURPA generaion have not materialized relative to their contract commitment used 24 in the 2006 IRP. 25 ald. at 23. 26 Page 5 - McDoweH & Rackner PC .520 SW Sixth Avenue, Suite 830 Portland, OR 97204 Exhibit No. Case No. IPC-E-09-0 R. Gale, IP Page 5 of 1 IDAHO POWER'S PETITION FOR A PARTIAL WAIVER OF COMPETITIVE BIDDING GUIDELINES 1 Third, the Company has reived reues for serce from several new large 2 loads to commence in the 2009-2012 period. 3 And finally, the Company has abandoned it plan to develop a 250 MW coal-fired 4 resource in 2013 and instead wil acquire alternativ resources, probably gas-fired, to be 5 available no later than the summer of 2012. 6 As the Commission is aware, political and regulatory responses to climate change 7 have prompted electric utilties to reevaluate the feasibilit of adding new coal-fired 8 resources. In Idaho Power's case, the Company has reason to believe that financing a 9 new coal~firec resourc would prove extremely difcult. In addition, up until late fall 2007 . 10 the Company had expected to build the coal-fired resource in partnership with either 11 PacifiCorp or Avista. As a result of recent changes to the law in Oregon and Washington, 12 however, these two utilitie are precluded frm further consideration of coal-fired 13 resourcs. Thus, after consideñng all factors and alternatives, Idaho Power has 14 abandoned its plan to develop a 250 MW col resource in favor of acquiring, through an 15 RFP process, up to 600 MW of firm or unit contingent energy no later than 2012. 16 Unfortnately, Idaho Power's swtch from coal to gas creates serious problems in 17 meeting the 2012 deadline. Idaho Powr is only one among many utilties that have 18 concluded that the most practical opton for a dispatchable base load resource in the near- 19 term is a CCCT. This simultaneous "ra to gas" by multiple utilites throughout the United 20 States (and, in fact, throughout the world) has place tremendous pressure on the three 21 original equipment manufactures ("OEM") of CCCTs. Idaho Power has been advised by 22 it independent consultnt and by the OEMs that aU manufacturing capaciy for CCCT 23 equipment for deliveries in time to faciltae a 2011 on-line date is fully commited and 24 there are a limited number of manufacturing slots available for delivery of equipment to 25 support an April 1, 2012 on~line date. As a reult, Idaho Power has concluded that in 26 order to be assured that a CCCT can be on-line April 1, 2012, Idaho Power must move Exhibit NO.9 Page 6 - IDAHO POWER'S PETITION FOR A PARTIAL WAIVER OF COMPETITIVE Case No. IPC-E-09-03BIDDING GUIDELINES - R. Gale, IPCPage 6 of 15 McDowell & Rackner PC 520 SW Sixth Avenue, Suite 830 - Portland, OR 97204 1 expeitiously to place an order for the power generation equipment by early summer 2 2008.9 3 IV.Proposed RFP Process 4 In response to the above-described changes in circumstance, Idaho Power has 5 developed and commenced an RFP process to obtain up to 600 MW of firm energy which 6 could include up to 600 MW of CCCT resource. In so doing, Idaho Power has sought to 7 balance Its need to meet essential deadlines against the need for a process that is as 8 consistent with the Commission's Competitive Bidding Requirements as possible. The 9 proposed process is described in the RFP as follows: 10 The RFP requests proposals for powr purchase agreements ("PPA") wher the 11 seller supplies fuel and fuel transporttion or tollng agreements ("TA") while Idaho Power 12 supplies the fuel and fuel transporttion, to supply firm or unit contingent energy, 13 dispatchable on June 1, 2012 or earlier. The minimum proposal size is 50 MW and the .14 maximum is approximately 600 MW. Depending on the size of the proposed resourc, 15 Idaho Power may combine proposals to meet its minimum 250 MW requirement. The, 16 minimum term of a PPA or TA that Idaho Power will consider is 15 years with at least one 17 five-year renewal option. In the RFP proces, the Company wil also submit and consider 18 a self-build CCCT as the Benchmark Resource against which it wil evaluate proposals 19 and as a faif-safe to be sure at least 250 MW of firm energy will be available in 2012. 20 Bids are due on October 17, 2008. 21 Evaluation of the bids will take place as follows: Initially, the Company will screen 22 proposals for minimum qualifications, such as quantit and term. Second, Idaho Power 23 will evaluate the proposals on the basis of scoring factors. The scoring crieria are 24 9 The purchase order wil allow Idaho Power to cancel or assign the power Island equipment 25 contract if the self-build CCCT is not the successful respondent In the RFP procss. 26 Page 7 - Exhibit No. 9 IDAHO POWER'S PETITION FOR A PARTIAL WAIVER OF COMPETITIVE Case No. IPC-E-09-03R. Gale, IPCBIDDING GUIDELINES Page 7 of 15 McDowell & Racner PC 520 SW Six Avenue, Suite 830 Portland, OR 97204 1 descrbed in detail on Page 16 of Exhibit A. Generally, however, Idaho Power will use 2 pñce as 60 percent of the .score and non-price criteria, such as ñsk and environmental 3 factors, as 40 percent of the scre. Third, Idaho Power will notif short-listed respondents 4 with whom it will commence negotiations. . 5 The Company wil employ an independent consultant to assist the Company in 6 designing the RFP process and evaluating short-lised bids. The independent consultant 7 wil independently score all or a sample of the proposals to determine whether the short 8 list is consistent with the scoñng creria. The independent consultant wil then compare 9 those results with Idaho Power's scring and work with the Company to resolve any . 10 scoñng diffreces. Idaho Power wil provie periodic briefigs to the Idaho Commission 11 Staff, and the Oregon Commission Staff if reuested, throughout the RFP process. The 12 independent consultnt wil prepare reports to the Commission as requested by the 13 Company 14 V. DISCUSSION 15 The Competitve Bidding Guidelines speifcally allow an elecric utilty to request a 16 waiver under appropñate circumstances. In this case, where adherence to the Guidelines 17 would jeopardize Idaho Powets ability to meet customer demand, and wher the 18 alternative RFP proce proposed by the Company will yield fair and reasonable results 19 for customers, the Commission should grant the reuested waiver. 20 A.exemptions from RFP Guidelines 21 In 2006 the Commission adopted Competitive Bidding Guidelines to faciltate the 22 RFP process.1Q These Guidelines establish detiled procedures that are intnded to result 23 in a full review and evaluation of all potential resourcs; they also necessarily result in an 24 25 1D Re Investigatin Regarding Competi Bidding, Docket UM 1182, Order No. 06446 (Aug. 10, 2006). 26 Page 8 - Exhibit No. 9 IDAHO POWER'S PETITION FOR A PARTIAL WAIVER OF COMPETITIVE Case No. IPC-E-09-03BIDDING GUIDELINES R. Gale, IPCPage 8 of 15 McDowell & Rackner PC 520 SW Sixth Avenue, Suite 830 Portand, OR 97204 1 extremely expensive and time-ensuming process. In recognition of this fact, in 2 Guideline 2, the Commission outlined thre circumstances under which a utilty is not 3 required to issue an RFP: 11 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Page 9 ~ a. Acquisition of a Major Resource in an emergency or where there is a time~ limited resource opportunity of unique value to customers ("Exemption 2(a)"); b. Acknowledged IRP provides for an alternative acquisiton method for a Major Resource; c. Commission waiver on a case-by-ease basis lExemption 2(e)").12 Idaho Power's Petition should be granted under Exemptions 2(a) and 2(e). In adopting the Competitive Bidding Guidelines, the Commission explicitly recognizd that a utilit might be presented with a time-limited opportunity to acquire a reourcich opportunity might be lost if the Company were required to issue an RFP in accordance with the Competitive Bidding Guidelines. In fact, the Commission contemplated that under such circumstances the utilty might not even have time to request a waiver in advance of the acquisition. In such cases, the Commission requires only that the utilty notify the Commission after the acquisition and explain why it was unable to follow the RFP process.13 In this case, Idaho Power does have time to reuest this partial waiver in advance of the acquisition. Howver, the pressing need to commence the acquisition process has required the Company to issue its RFP before receiving a waiver from the Commission. In addition, Guideline 2(c) allows the Commission to waive RFP requirements on a case~by- case basis if the utility does not believe the reuirement would be suitable to the resource acquisition. 14 11 Jd. at 4. 12 Order No. 06-46 at 4. 13 Jd. 141d. Exhibit NO.9 IDAHO POWER'S PETITION FOR A PARTIAL WAIVER OF COMPETITIVE Case No. IPC-E-09-03BIDDING GUIDELINES ' R. Gale, IPCPage 9 of 15 McDowll & Rackner PC 520 SW Sixth Avenue, Suite 830 Portand, OR 97204 1 As descrbed above, due to circumstances beyond the Company's control, Idaho 2 Power now has a critical nee for a 250 WI finn energy resource in 2012 and it must plan 3 to construct a CCCT to saisfy that need. It is therefore in the public interest for the 4 . Commission to waive those certin requireent of the UM 1182 Competitive Bidding 5 Guidelines that would prevent the Company from meeting this need. 6 B.Propoed Modifications to RFP Guidelines 7 Idaho Power has identified specifc Competitive Bidding Guidelines that would 8 preclude Idaho Power from meeting the deadlines to acquire a CCCT and should be 9 waived: 10 Guideline Number 5 - Independent Evaluator. This guideline reuires utilities to 11 use an Independent Evaluator ("IE") in each RFP to assure equitable and fair evaluation of 12 offers. 15 Guideline NO.5 provides that the IE will contract with and be paid by the utilty 13 and wil confer with Commission Staf as needed.16 14 The far-reaching involvement ofthe IE as contemplated by the Competitive Bidding 15 Guidelines will delay the final conclusion of the RFP process. The use of an IE in the 16 process would almost certinly preclude Idaho Power from meeting deadlines for -17 acquiring a CCCT resourc. Idaho Power is also concerned that the involvement of the IE 18 as contemplated in the Commission's Competitive Bidding Guidelines would substantially 19 increase the cost of the RFP procss as compared to the cost Idaho Power has previously 20 incurred by utilzing the independent consultant in the manner described above. This is of 21 particular concern given that the Company's abilty to recover the costs of an IE in Idaho is 22 questionable. 23 Idaho Power's RFP contemplates th use of an independent consultant to assist 24 25 26 Page 10 - 151d. at 6. 1sld. Exhibit No. 9 IDAHO POWER'S PETITION FOR A PARTIAL WAIVER OF COMPETITIVE Case No. IPC-E-09-03BIDDING GUIDELINES R. Gale, IPCPage 10 of 15 McDowell & Racner PC 520 SW Sixt Avenue, Suite 830 Portand, OR 97204 1 the Company in designing its RFP, ensuring that its RFP process is fair, and evaluating 2 short-listed bids. Idaho Power has successflly used independent consultants in previous 3 RFPs. The independent consultant wil ensure that the RFP is fair and effcient and can 4 provide the Commission wih a sworn statement to that effect. Idaho Power requests that 5 the Commission waive the requirement to use an IE to evaluate this RFP. 6 Guideline Number 6: RFP Design. This guideline requires utilties to conduct 7 . bidder and stakeholder workshops to provide all parties and interested persons in the 8 utilties most recent general rate case and IRP dockets with an opportunity to comment on 9 the design of the proposed RFP.17 10 As previously noted, Idaho Power has concluded that the time required to schedule 11 and conduct multiple formal workshops prior to the issuance of an RFP would inevitably 12 have resulted in significant delays in issuance of the RFP. Idaho Power's need to commit 13 to. equipment and costruction contracts simply does not allow for the additional time 14 required for full compliance with Guideline 6. 15 The Company wil provide periodic informal briefings to the Idaho Commission 16 . Staff during the course of the RFP process. Idaho Power would certainly be willing to 17 include the Oregon Commission Staff as a part of those briefings. Accrdingly, Idaho 18 Power requests that the Commission waive application of Guideline 6. 19 Guideline Number 7: RFP Approval. This guideline requires the Commission to 20 undertake a public notice and comment process on both the utilty's draft RFP and the 21 Commission approval of the draft RFP .18 The guideline indicates that the Commission will 22 target a decision within sixty (60) days after the dra RFP filing,19 but the Commission 23 24 25 26 Page 11 - 17 Order No. 06- at 7. 181d. at 9. 191d. Exhibit NO.9 IDAHO POWER'S PETITION FOR A PARTIAL WAIVER OF COMPETITIVE Case No. IPC-E-09-03BIDDING GUIDELINES R. Gale, IPCPage 11 of 15 McDowell & Rackner PC 520 SW Sixt Avenue, Suite 830 Portland, OR 97204 1 obviously cannot commit that the procs will be concluded that quickly. Idaho Power's 2 concern with Guideline 7 is the time that will be required to go through the public notice 3 and comment process in conjunction with issuance of the RFP. Delaying the issuance of 4 the RFP by sixt (60) or more days could have made it impossible for the Company to 5 meet the tight time schedules required to ensure that the resource is on-line by April 1, 6 2012. Idaho Power therefore reuests that the Commission waive the public notice and 7 comment and Commission approval process in Guideline 7. 8 Guideline Numbe 8: Benchmark Resource Score. This guideline requires the 9 utility to file a detailed score for any Benchmark Resource wih supporting cot information 10 to the Commission and IE approval prior to the opening of the bidding process.2O 11 Idaho Power's self-build Benchmark Resource team intends to determine the cost 12 of the Benchmark Resource by issuing separate competitive RFPs to select the power 13 generation equipment and the EPC contractor. There is not suffcient time to allow the 14 Company to complete both RFPs and submit the completed score for the Benchmark 15 Resource prior to the time the Company issued its RFP. 16 Idaho Power recognizes that the Benchmark Resource must be evaluated on a 17 level playing field with other bidders. As Idaho Power has done in prior RFPs that 18 included a utilit-sponsored Benchmark Resource, Idaho Power will segregate and secure 19 the bidding information provided by all respondents to ensure there is no transfer of 20 information concerning bids to Idaho Power personnel preparing the Benchmark Resource 21 bid or to other bidders. Idaho Power wil also finalize and seal a copy of its bid evaluation 22 manual prior to opening any bids. Idaho Power requests that the Commission waive the) 23 requirement that the Company file a detailed score for the Benchmark Resource prior to . . 24 opening the bidding process. .25 26 Page 12 - 20 ldo at 10. Exhibit NO.9 IDAHO POWER'S PETITION FOR A PARTIAL WAIVER OF COMPETITIVE Case No. IPC-E-09-03BIDDING GUIDELINES R. Gale, IPCPage 12 of 15 McDoll & Rackner PC 520 SW Sixth Avenue, Suite 830 , Porand, OR 97204 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Page 13 M . . _....-.._-_.~____....______.._._....H___......__.___._'__.'_"_"~'.""'______~~_"___-"~.__'__'_.__~#"8_~._~'.__~______~_.. The Idaho Commission's Oversight of the Process Wil Protect Idaho Power's Customers. Waiver here is especially appropriate where oversight of the RFP process by the Idaho Commission wil ensure that all of the Company's customers are protected. More 1 C. than 95 percent of Idaho Power's revenue reuirement is allocated to its Idaho customers. As a result, the Idaho Commission has a signifcant stake ensuring that Idaho Power conducts a fair RFP process. While the Idaho Commission does not exercise the same degree of oversight as the Oregon Commission's bidding guidelines require prior to issuance of the RFP, the Idaho Commission is no less rigorous in its review of the fairness and effciency of the procedures its utilties use to conduct and evaluate RFPs. The Idaho Commission has traditionally concentrated its RFP oversight efforts through its Staff during the RFP process and at the time the utility requests approval of its selected resourc choice. For example, if the RFP process in this case ultmately concludes that the mos cost-effective resource is the construction of the Benchmark Resource (a CCCT to be owned by Idaho P~wer and placed in Idaho Power's rate base), under Idaho law Idaho Power is obligate to apply to the Idaho Commission for a Certifcate of Public Convenience and Necessity ("CPCN") to construct the Benchmark Resource.21 The filing of the CPCN application would trigger a full review of the RFP process including the evaluation methods, economic analysis, and fairness of the process.22 The Company's application for a CPCN would be a public process involvng potential for intervention by third parties, a thorough Staff review of the Company's RFP process and selected resource, and a public hearing process that would provide the record upon which the Commission would ultimately issue its order either granting or denying the CPCN. 21 Idaho Statute 61-526. IDAPA 31.01.01 Rule 112. 22IDAPA 31.01.01 Rule 113. Exhibit No. 9 IDAHO POWER'S PETITION FOR A PARTIAL WAIVR OF COMPETITIVE Case No. IPC-E-09-03BIDDING GUIDELINES R. Gale, IPCPage 13 of 15 McDowell & Rackner PC 520 SW Sixth Avenue, Suite 830 Portland, OR 97204 1 If the RFP process result in the selection of a PPA or TA as the preerable new 2 reource, Idaho Power must file the contract with the Idaho Commission and obtain its 3 approval prior to its inclusion in rates.23 Review and approval of the contract would not 4 necessarily be undertaken as a part of a general rate case, but could be handled as an 5 independent application.24 Actal implementtion of a rae change associated with a PPA 6 or TA would occur in a subsequent general rate case or power cost adjustment case. 7 Again, the approval of the PPA or TA would be a public procss wih full opportunity for 8 participation by the public and subject to full review by Idaho Commission Staf and 9 intervenors. The Idaho Commission's review procedure wil serve to both allow Idaho 10 Power to expedite its RFP to acquire this necessary resource while at the same time 11 protecting the interests of Idaho Power customers, including those in Oregon. 12 VI. CONCLUSION 13 Idaho Power finds itself In a difficult position. Because of recent legal, financial, 14 and public policy changes, the Company has elected to make a rapid shif away from 15 development of coal-fired generation included in its acknowledged IRP. Market realities 16 require that the Company move quickly to pursue an RFP for base load generating 17 resourcs and/or firm energy sales contracts. As a reult. the Company does not have the 18 time that would be required to fully comply wih all of the Competitive Bidding Guidelines. 19 Idaho Power believes that the RFP process It has designed and initiated wil protect the 20 interest of customers in a fair and effcient RFP while protecting them from the harm that 21 will result if Idaho Power is not able to acquire the needed resourc because of a delay in 22 the RFP process. In additon, the Idaho Commission wil fully review the fairness of the 23 RFP. For all of these reasons, Idaho Power respectlly reuess that the Commission 24 25 26 Page 14 ~ 2i IDAPA 31.01.01 Rule 121. 241d. Exhibit NO.9 IDAHO POWER'S PETITION FOR A PARTIAL WAIVER OF COMPETITIVE Case No. IPC-E-09-03BIDDING GUIDELINES R. Gale, IPCPage 14 of 15 McDowell & Rackner PC 520 SW Sixt Avenue, Suite 830 Portland, OR 97204 1 grant Idaho Power a waiver from compliance with those portions of the Competitive 2 Bidding Guidelines descnbed herein. Due to the short timelines involved in this RFP, - 3 Idaho Po~er requests thatthe Commission grant expedited review of this Petition. 4 5 6 DATED: April 17, 2008.McDoWELL & RACKNER PC 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Q.~ ~~i.isa F. Ra n IDAHO POWER COMPANY Barton L. Kline Senior Attorney PO Box 70 Boise, ID 83707 Attorneys for Idaho Power Company 24 25 26 Page 15 - Exhibit NO.9 IDAHO POWER'S PETITION FOR A PARTIAL WAIVER OF COMPETITIV Case No. IPC-E-09-03BIDDING GUIDELINES R. Gale, IPCPage 15 of 15 McDowell & Reckner PC 520 SW Six Avenue, Suite 830 Portand, OR 97204 .