20131129Application.pdf

7!tDll0NPO1,ER=
DONOVAN E. WALKER
Lead Counsel
dwal [e-mail]
November 29,2013
VIA HAND DELIVERY
Jean D. Jewell, Secretary
ldaho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
Re: Case No. IPC-E-13-22
Update to Wind lntegration Rates and Charges - ldaho Power Company's
Application and Testimony
Dear Ms. Jewell:
Enclosed for filing in the above matter are an original and seven (7) copies of ldaho
Power Company's Application.
ln addition, enclosed are an origina! and eight (8) copies each of the Direct
Testimony of Philip B. DeVol and Michael J. Youngblood filed in support of the Application.
One copy of each witnesses'testimony has been designated as the "Reporter's Copy." ln
addition, a disk containing a Word version of the aforementioned testimonies is enclosed
for the Reporter.
Donovan E. Walker
DEW:csb
Enclosures
1221 W. ldaho St. (83702)
P.O. Box 70
Boise, lD 83707
DONOVAN E. WALKER (lSB No. 5921)
JULIA A. HILTON (lSB No. 7740)
ldaho Power Company
1221West ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
Telephone: [phone]
Facsimile: [phone]
dwalker@idahopower. com
ihilton@ idahopower. com
Attorneys for ldaho Power Company
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY TO
UPDATE ITS WIND INTEGMTION RATES
AND CHARGES.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
)
)
)
)
)
CASE NO. !PC-E-13-22
APPLICATION
!n accordance with RP 052, ldaho Power Company ("ldaho Power" or
"Company") hereby respectfully requests the ldaho Public Utilities Commission
("Commission") authorize ldaho Power to update its wind integration rates and charges
consistent with its 2013 Wind Integration Study Report ("2013 Study").
ln support of this Application, ldaho Power represents as follows:
I. INTRODUCTION
1. Due to the variable and intermittent nature of wind generation, ldaho
Power must modify its system operations to successfully integrate wind projects without
impacting system reliability. ldaho Power, or any electrical system operator, must
provide operating reserves from resources that are capable of increasing or decreasing
dispatchable generation on short notice to offset changes in non-dispatchable wind
generation. The effect of having to hold operating reserves on dispatchable resources
APPLICATION - 1
l+: 0ll
is that the use of those resources is restricted and they cannot be economically
dispatched to their fullest capability. This results in higher power supply costs that are
subsequently passed on to customers.
2. Idaho Power, similar to much of the Pacific Northwest, has experienced
rapid growth in wind generation over past several years. ldaho Power currently has
577 megawatts ('MW') of wind generation capacity from Public Utility Regulatory
Policies Act of 1978 ('PURPA") projects and an additional 101 MW of wind generation
capacity from the Elkhorn Valley Wind Farm, for a tota! of 678 MW of wind generation
capacity currently operating on its system. ln addition, 505 MW of this wind generation
capacity has been added to ldaho Power's system during 2010,2011,and2012. This
rapid growth has led to the recognition that ldaho Power's finite capability for integrating
wind generation is nearing its limit. Even at the current leve! of wind generation
capacity penetration, dispatchable thermal and hydro generators are not always
capable of providing the balancing reserves necessary to integrate wind generation.
This situation is expected to worsen as wind penetration levels increase, particularly
during periods of low customer demand.
3. ldaho Power considers the cost of integrating wind generation in its
integrated resource planning when evaluating the costs of utility and third-party
generation resources. The costs associated with wind integration are specific and
unique for each individual electrical system based on the amount of wind being
integrated and the other types of resources that are used to provide the necessary
operating reserves. ln general terms, the cost of integrating wind generation increases
as the amount of nameplate wind generation on the electrical system increases. Failure
to calculate and properly allocate wind integration costs to wind generators when
calculating avoided cost rates impermissibly pushes those costs onto customers,
APPLICATION - 2
making them no longer indifferent to whether the generation was provided by a PURPA
Qualifying Facility ('QF") or otherwise generated or acquired by the Company.
II. PRIOR PROCEEDINGS
4. ldaho Power completed its initial wind integration study and published the
study report and a subsequent addendum in 2007 ("2007 Study"). The results of the
study indicated that at approximately 500 MW of nameplate wind generation, there was
an associated integration cost of $7.92lmegawatt-hour ("MWh"). The other ldaho
investor-owned utilities, Avista Corporation and Rocky Mountain Power, completed wind
integration studies at approximately the same time and each utility filed a petition with
the Commission asking to reduce avoided cost rates for wind projecls based on the
results. Although the Commission did not combine the three utility petitions into a single
case, all three were processed simultaneously (Commission Case Nos. IPC-E-07-03,
AVU-E-07-02, and PAC-E-07-07).
5. !n Case No. IPC-E-07-03, the Commission issued Order No. 30488 in
February 2008 approving a joint settlement stipulation and establishing a tiered
integration cost structure that increased as nameplate wind generation increased. The
stipulation also established a cap of $6.50/MWh with the understanding that each of the
utilities would update their integration studies in the future as more wind generation was
added. Order No. 30488 states:
ldaho Power's published avoided-cost rates for Wind QFs
will be adjusted to recognize an assumed cost of integrating
the energy generated by Wind QFs as a part of the
Company's generating resource portfolio. The rate
adjustment will be applied in three tiers, increasing as the
total amount of wind integrated onto ldaho Power's system
grows. The integration charge for each Wind QF project will
be calculated at the time a Wind QF project achieves its
Operation Date as that term is defined in the Firm Energy
Sales Agreement (FESA) between the Company and the
APPLICATION - 3
wind QF. The integration charge will be calculated as a
percentage (7o/o,8o/o ot 9%) of the current2}-year,levelized,
avoided-cost rate, subject to a cap of $6.50/MWh. The
integration charge as calculated on the Operation Date will
remain fixed throughout the term of the contract and will be
applied as a decrement to the applicable published rate
according to the table below:
Amount of Wind Online Intesration Charqe
Tier 1 0 to 300 MW 7% ($6.50/MWh)
Tier 2 301 MW to 500 MW 8% ($O.SO/MWh)
Tier 3 501 MW and above 9% ($6.S0/MWh)
Order No. 30488, quoting Settlement Stipulation which was approved by Commission.
III. 2013 WIND INTEGRATION STUDY REPORT
6. !n support of its Application requesting the Commission update ldaho
Power's wind integration charge, Idaho Power presents its current Wind lntegration
Study Report ("2013 Study") as Exhibit No. 1 to the testimony of Philip DeVol ("DeVol
Testimony"), filed contemporaneously with this Application. The 2013 Study was also
filed with ldaho Power's 2011 lntegrated Resource Plan ("!RP") Update on February 14,
2013, in Case No. IPC-E-11-11.
7. As described in Mr. DeVol's Testimony, the 2013 Study analyzed three
different levels of wind penetration: 800 MW; 1,000 MW; and 1,200 MW. The 2013
Study, which was completed in February 2013, was conducted using inputs from the
2011 lRP. Results of the analysis showed integration costs of $8.06/MWh,
$13.06/MWh, and $19.01/MWh, respectively, if all wind integration costs were spread
equally across all wind generation. As described in Mr. DeVol's Testimony, once the
2013 IRP was completed and filed, the 2013 Study was updated with 2013 IRP inputs
for the load forecast, Mid-C electric market prices, natural gas price forecast, and the
coal price forecast ("Updated 2013 Study"). The results of the Updated 2013 Study are
that integration costs went down to $6.83/MWh, $10.22lMWh, and $14.22lMWh,
APPLICATION - 4
respectively, if allwind integration costs were spread equally across allwind generation.
Based upon the very conservative assumption that al! of the current 678 MW of wind
generation capacity were being assessed the cap of $6.50/MWh (which they are not)
and that they would continue to be assessed just $6.50/MWh in the future, the
incremental costs of wind integration at the three different levels for new wind
generators would be $8.67/MWh at 800 MW, $24.00/MWh at 1,000 MW, and
$34.70/MWh at 1,200 MW. The Updated 2013 Study results are summarized in the
table below from Mr. DeVo!'s Testimony:
IV. REQUEST TO MODIFY THE WIND INTEGRATION CHARGE
8. The testimony of Michael J. Youngblood, filed contemporaneously with
this Application, sets forth the Company's proposals regarding the regutatory treatment
to assess and collect the wind integration charges quantified in Mr. DeVol's Testimony.
The Company discusses three separate methods from which the Commission could
choose to implement to account for wind integration costs in avoided cost rates. Those
methods are identified as Method 1: Maintaining Current Allocation; Method 2: Current
Allocation with lntegration Tariff; and Method 3: Equitable Allocation of Costs. The
Company proposes two overall changes, which have been incorporated into each of the
methods discussed in Mr. Youngblood's testimony, to address the collection of wind
integration costs. Change One: abandon the use of percentage of avoided cost rate
allocation and instead allocate a fixed amount based upon penetration level; Change
APPLICATION - 5
UPDATED 2013 STUDY (using 2013lRP inputs)
Penetration Level 8OO MW 1,000 MW 1,200 MW
Allocated Equally to
allWind (/MWh)
$6.83 $10.22 $14.22
lncremental Cost
Allocation (/MWh)
$8.67 $24.00 $34.70
Two: decouple the wind integration charge from the avoided cost rate contained in the
power sales agreement and instead have wind integration costs assessed as a stand-
alone tariff charge.
9. The costs associated with wind integration are currently under collected.
They are assessed on a percentage basis of various avoided cost rates, which results in
an inequitable contribution of the various wind QFs to the cost of integrating wind on the
system. The use of the percentage of avoided cost rates really has no relation to actual
costs of the additional reserves necessary to integrate variable and intermittent
resources on the system. Additionally, setting the amount of wind integration charge for
the entire duration of the power sales agreement assures further under collection of
integration costs as those costs rise. This under collection from existing wind QFs
results in an additional allocation to new wind QFs-the incremental difference-
required to make the Company's customers whole, and remain indifferent to the
addition of PURPA QF generation that substantially increases the wind integration cost
for new wind projects.
10. The first method discussed from which the Commission could choose to
implement integration charges-Proposed Method 1: Maintaining Current Allocation-
does not change the existing structure but updates the rates and penetration levels. As
discussed in Mr. Youngblood's testimony, if the Commission were to adopt this method,
the three tiers and applicable charges are listed in the table below:
Amount of Wind Online lntesration Gharqe
Tier 1
Tier 2
Tier 3
800 MW to 999 MW
1 ,000 MW to 1 ,199 MW
1,200 MW and above
$8.67/MWh
$24.00/MWh
$34.70/MWh
11. The second method discussed to account for integration costs-
Proposed Method 2: Current Allocation with lntegration Tariff-is a slight modification
APPLICATION - 6
to Method 1. For Method 2, rather than embedding the integration charges as part of
the avoided cost prices in the contract rates, as is currently done, the Company would
implement a new integration charge tariff which would identify the integration charges at
the respective levels, separately from the power sales agreement. Exhibit No. 3 to Mr.
Youngblood's testimony is a draft Tariff Schedule 87, Variable Generation lntegration
Charges, depicting the associated charges and penetration levels with Method 2.
Under this method, the current deduction of $6.50/MWh would be used until total
nameplate wind generation reached 700 MW. Once 700 MW is reached, the wind
integration charge would be increased to $6.89/MWh. As shown in the graph below,
subsequent increases would occur as each incremental 100 MW of wind generation is
added.
Wind lntegration Cost and Proposed Deduction from Avoided Cost Rates
Sge
Ssz
t
= s28
=.Ult $2qoI
.! szo
g
!oI SroE1l€ srz
='
Ss
S+
800 900 1,000
NameplateWind (MW)
12. The third method the Commission may consider to account for wind
integration costs-Proposed Method 3: Equitable Allocation of Costs-is to spread the
integration costs equitably across all PURPA wind generators. ln this way, all wind
APPLICATION - 7
generators would be sharing equitably in the costs of integrating wind onto the
Company's system. ln addition, this would have the effect of reducing the charge per
MWh and, in effect, not penalize new wind generation from coming on-line. Exhibit No.
4 to Mr. Youngblood's testimony is a draft Tariff Schedule 87, Variable Generation
Integration Charges, depicting the associated charges and penetration levels with
Method 3. Under this method all existing wind generation would be classified as "Type
l" and al! new wind generation would be classified as "Type ll" under the draft tariff.
Both would start at the current deduction of $6.50/MWh, but Type I projects, who are
already assessed a wind integration charge, would have a net charge of zero. ln a
similar manner to Method 2, the corresponding wind integration charge escalates with
each 100 MW of penetration. Type ll projects would pay the full integration charge,
where Type 1 projects would pay the net difference between the full charge and the
embedded cap of $6.50/MWh. Type ll charges are shown in the graph below. Type 1
charges would be $6.50 less than that depicted on the graph below.
Wind lntegration Cost and Proposed Deduction from Avoided Cost Rates
Sso
Ssz
s
= s28
={t\
-- 5240(J
-E szo
g
tog s16E
!.E (rr
= '--
Se
S4
800 900 1,000
Nameplate Wind (MW)
APPLICATION - 8
V. MODIFIED PROCEDURE
13. ldaho Power believes that a technical hearing is not necessary to consider
the issues presented herein and respectfully requests that this Application be processed
under Modified Procedure; i.e., by written submissions rather than by hearing. RP 201
ef seg. ldaho Power has contemporaneously filed Direct Testimony of Philip DeVol and
Michael J. Youngblood in support of this Application. Should the Commission
determine that a technical hearing is required, the Company stands ready to present the
testimony at hearing in support of this Application.
VI. COMMUNICATIONS AND SERVICE OF PLEADINGS
14. Communications and service of pleadings with reference to this
Application should be sent to the following:
Donovan E. Walker
Regulatory Dockets
ldaho Power Company
1221 West ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
dwalker@idahopower. com
dockets@ idahopower. com
Michael J. Youngblood
Greg Said
ldaho Power Company
1221West ldaho Street (837021
P.O. Box 70
Boise, ldaho 83707
myou nq blood @ ida hopowe r. com
[e-mail]
VII. REQUEST FOR RELIEF
15. As described in greater detail above, ldaho Power respectfully requests
that the Commission issue an order approving new rates and charges for wind
integration as indicated by the Updated 2013 Study presented herewith.
DATED at Boise, ldaho, this 29th day of November 2013.
Attorney for ldaho Power Company
APPLICATION - 9