20141222IPC Grow Direct.pdf

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BEEORE THE IDAHO PUBLIC UTTLITTES COMMISSION
IN THE MATTER OF THE APPLICATION )
oF PACITICoRP D/B/A RoCKY )
MOUNTAIN POWER AND IDAHO POWER
COMPANY FOR AN ORDER AUTHORIZING
THE EXCHANGE OE CERTAIN
TRANSMISSTON ASSETS.
CASE NO. IPC-E-14-41
CASE NO. PAC-E-14-11
IDAHO POI/IER COMPANY
DIRECT TESTIMONY
OF
LISA A. GROW
O. Please state your name and business address.
A. My name is Lisa A. Grow and my busj-ness
3 address is 1221, West Idaho Street, Boise, Idaho 83'702.
0. By whom are you employed and in what capacity?
A. I am employed by Idaho Power Company ("Idaho
6 Power" or "Company") as the Senior Vice President of Power
7 Supply.
O. Please describe your educational background
9 and work experience wi-th Idaho Power.
10 A. f graduated from the University of Idaho in
11 1987 with a Bachelor of Science degree in El-ectrical
L2 Engineering. I received an Executive Masters of Busj-ness
13 Administration from Boise State University in 2008. I
1,4 began my career at Idaho Power after graduating from the
l-5 University of Idaho in 7987, and have held several
16 engineering positions before moving into management in
1,7 2005. In 2005, T was named Vice President of Delivery
18 Engineering and Operations. In 2009, T was appointed to my
79 current position as Senj-or Vice President of Power Supply.
20 My current responsibilities include overseeing the
27 operation and maintenance of Idaho Power's generation
22 fleet, power plant engineering and construction,
23 environmental affairs, water management, power supply
24 planning, and wholesale electricity and gas operations. I
25 al-so oversee Idaho Power's l-oad serving operations, which
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is responsible for delivering reliabl-e energy to customers
through the Company's el-ectrical grid using its generation
portfolio and system purchases.
o.
proceeding?
What is the Company's request in this
A. Idaho Power and PacifiCorp (together, the
"Parties"), are seeking the approval from the Idaho Publ-ic
Utilities Commission("Commission"), pursuant to the
requirements of fdaho Code S 67-328, of an asset exchange
transaction designed to replace certaj-n obsolete and
operationally inefficient legacy transmission ownership,
operation, and service agreements ("Legacy Replacement") .
O.
proceedlng?
What is the purpose of your testimony in thls
A.The purpose of my testlmony is to: describe
the history and backqround related to the existing legacy
transmission ownership, operation, and service agreementsl
("Legacy Agreements"); explain the desire of the Parties to
pursue the replacement of the Legacy Agreements with a
Legacy Replacement; describe the structure of the Legacy
' The Second Restated and Amended Transmission Facilities Agreement, Restated
Transmj-ssion Services Agreement, and the Eirst Revised Agreement for
Interconnection and Transmission Services are the prlmary agreements between
the Parties. There are a number of related aqreements which support or are
directly connected to these agreements. The agreements are col-l-ectively
referred to as the "Leqacy Agreements." A complete list of the Legacy
Agreements that will- be replaced, amended, or consolidated by the proposed
transaction are identified in Schedules 1.1(g) and 1.1(h) to the Joint Purchase
and Sale Agreement.
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Idaho Power Company
1 Replacement; and to summarize the benefits of the Legacy
2 Replacement for Idaho Power and its retall customers.
O. Are any other individuals filing testimony on
4 behalf of Idaho Power in this proceedi-ng?
A. Yes. The following individual- is providlng
6 testimony on behalf of Idaho Power:
o David M. Angell, Planning Manager in the
Customer Operations Engineering and Construction
Department, has prepared testlmony on the new
ownership rights and system benefits as a result of
the Legacy Replacement.
O. Are there any other individuals filing
13 testimony in this proceedlng?
14 A. Yes. The following individuals are providing
15 testimony on behalf of PacifiCorp in this proceeding:
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o Richard A. Vail, Vice Presi-dent of
Transmission, has prepared testimony that describes
the reliabllity and operational benefits and the
financial implications for PacifiCorp as a result of
the Legacy Replacement.
o Gregory N. Duvall, Director of Net Power
Costs, has prepared testimony supporting PacifiCorp
Energy's new f irm transmj-ssion rights foll-owing the
close of the Legacy Replacement.
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Together, the testimony from the Parties will
demonstrate that the Legacy Replacement satisfj-es the
requirements of ldaho Code S 61,-328.
I. fHE LEGACY AGREEMENTS
O. Please describe the origlns of the Legacy
In L974, Idaho Power, PPL, and Utah Power and Light
(*UPL") entered into the Transmission Facillties Agreement
('TEA") which provided for the construction, ownership,
6 Agreements.
A.In 1,969, over 40 years d9o, Idaho Power and
8 Pacific Power and Light (*PPL")2 entered into a series of
9 agreements for the construction, ownership, and operation
10 of the Jim Bridger power plant ("Jim Bridger Plant"). The
11 intent of each party at the time of contracting was to use
t2 their respective share of the Jim Bridger Plant to serve
13 their respective load responsibilities.
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71 maintenance, and use of three 345 kilovolt ("kV")
18 transmj-ssion lines, and associated terminal- and substation
79 facilities, connecting the Jim Bridger P1ant to the Idaho
20 Power and PacifiCorp transmission systems 1n southeastern
27 Idaho. UPL's participation in the Jim Bridger transmission
22 system was j-n lieu of having to construct its own 230 kV
23 transmission lines into the Goshen, Idaho area. The TFA
24 gave PPL the right to move its share of energy from the Jim
2 Pacific Power & Light was thePacifiCorp acquired Utah Power &
predecessor companyLight.of PacifiCorp and in 1989
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Bridger P1ant to the eastern boundary of Idaho Power's
transmission system.
fn 7979, Idaho Power and PPL decided to add a fourth
500 megawatts (\\M[i") generator to the Jim Bridger Plant.
This required significant additional transmission capacity
westbound through Idaho from the western terminus of the
Jim Bridger 345 kV transmission system. To provide this
additional capacity, Idaho Power and PPL executed a
Transmission Services Agreement ("TSA") dated September 10,
1980, under which Idaho Power would provide transmission
services to PPL in conjunction with the construction of the
fourth generating unit at the Jim Bridger Plant, for
transfer of up to L,600 MW of specified resources in a
westerly directj-on to PPL's western system for its use.
Subsequently, Idaho Power and UPL entered into an
fnterconnection and Transmission Services Agreement
('ITSA") dated March !9, 1982, which provided for an
interconnection and transmission to UPL at Idaho Power's
Borah Substation.
o.Have the Parties amended or revised the Legacy
Agreements?
A. Yes. Over the last 40 years, the Legacy
Agreements were revised, amended, and restated. In
parti-cular, the TSA ("RTSA"), TFA (*RATFA"), and ITSA were
amended and restated several- times for various reasons,
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including but not l-imited
operational requirements,
compliance.
in commercial terms,
and regulatory
to, changes
ownership,
O.If the Legacy Replacement is approved, will
the existing Legacy Agreements be terminated?
A. Yes. Eor a complete list of the Legacy
Agreements that will be terminated or amended upon approval
of the JPSA, please see Schedules 1.1(q) and 1.1(h) to the
JPSA.
II. DRIVERS FOR LEGACY REPI.ACEMENE
O. Have the Legacy Agreements become inefficient
and obsolete?
A.Yes. Over the last 40 years, the regulatory
Iandscape, the evolution of the Partj-es' ownership
interests, the Parties' respective load growth, regulation,
and investments in system upgrades have rendered the
al-location of ownership and operational responsibility
provided for under the Legacy Agreements incompatible with
each Party's modern day load-service and regulatory
obJ-igations.
o.Are the terms and condj-tions of the Legacy
Agreements comparable to standard Open Access Transmission
Tariff ("OATT") transmission service agreements?
A.Currently, the ITSA is OATT-Iike service and
treated as such with respect to Idaho Power's OATT formul-a
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Idaho Power Company
1 rate. Upon approval of the asset exchange, the 250 MW of
2 Lransmission service under the ITSA wil-l- be converted to
3 standard OATT service, resulting in no change in the
4 treatment of the ITSA in Idaho Power's OATT formula rate.
5 However, the RTSA and the RATFA are considerably different
6 from the transmissj-on service provided under the OATT.
1 Q. Pl-ease describe the primary differences
8 between the Legacy Agreements, excluding the ITSA, as
9 compared to standard OATT transmj-ssion service agreements.
10 A. The primary differences between the Legacy
1t Agreements, excl-uding the ITSA, versus the OATT are that:
L2 (1) PacifiCorp faces restrictions, such as the lack of
13 fl-exibility and resal-e rights, on the use of the Legacy
14 Agreement service that OATT point-to-point customers do not
15 experience; (2) firmness of service under the Legacy
16 Agreements is more complex with components and
77 circumstances less firm than the Federal Energy Regulatory
18 Commission ("FERC") has defined for OATT firm point-to-
L9 point transmission service; and (3) at the time, the
20 pricing under the Legacy Agreements was the resul-t of a
2L bil-ateral agreement. Overall-, the Legacy Agreements l-ack
22 the OATT operational flexibility, as weII as the uniform
23 curtailment provisions found in OATT service.
24 0. Have the Legacy Agreements created challenges
25 for the Parties?
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A.Yes. The Parties have experienced a number of
challenges, including disagreements over operational and
commercial issues with respect to the administration,
interpretation, management, and implementation of the
Legacy Agreements.
O. Please describe some of the challenges the
Company has experienced because of the outdated Legacy
Agreements.
A.Under the existing Legacy Agreements, it is
uncl-ear as to which Party has the right to serve load
across which lines and under what conditions. The Legacy
Agreements are not as c.l-ear and concise as the ownership
and OATT service rights that will exist under the Legacy
Replacement.
Al-so, executing the rlghts asslgned under the Legacy
Agreements is operationally difficult. They restrict usage
to certain plants, 1ines, and condj-tions that ownership and
OATT service would not. Operationally, it forces Idaho
Power to manage the contractual rights of Pacifj-Corp
separate from other uses of the system, adding complexity
to the reliable operations of fdaho Power's transmission
system. Under the proposed ownership structure, the
difficulty of managing specific operating provisi-ons and/or
restrictions is elimlnated and transmission rj-ghts are
managed the same as any other use of the system.
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III.DESCRIPUON OF IIIE LEGLCY REPI.ACETIENT
O. Can you please summarize the components of the
Legacy Replacement?
A. Yes. Under the terms of the JPSA: (1) the
parties will exchange transmission assets or ownership
interests in jointly-owned assets, and a nominal amount of
cash to balance asset values, to better align asset
ownership with l-oad service obligations and (2) replace
approximately 1,600 MW of transmission services provided
under the RTSA and RATEA with asset ownership and OATT
service.
The Joint Ownership and Operation Agreement (*JOOA")
is the prj-nci-pal- exhibit to the JPSA and consolidates and
modernizes the operational provislons in the Legacy
Agreements into a single contract. The JOOA defines the
allocation of directional transmi-ssi-on capacity on jointly-
owned transmission facilities and al-l-ows the owners to
invoice each other for operation and maintenance expense
and for the use of conrmon facilities under FERC-approved
rates.
0. Why are the Parties requesting to enter lnto
an asset exchange as a mechanism to terminate the Legacy
Agreements ?
A. The Parties determined that a thoughtfully and
strategj-ca11y designed asset exchange would result in: more
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Idaho Power Company
1 transparency with respect to transmission asset ownership
2 and transmj-ssion service rj-ghts between the Parties and
3 their customers; the highest leve1 of operational and
4 reliability benefits; and woul-d have the }east impact
5 financially to both the Parties and their customers.
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7 JPSA?
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O. What are the assets to be exchanqed under the
A. Generally speaking, the Parties are
9 reallocating their respective ownership interests and
10 operational responsibilities with respect to various
11 integrated transmissj-on faci1ities in Idaho, Oregon,
L2 Washington, and Wyoming. The specific assets included were
13 determined between the Parties as those required to provide
t4 the Parties with owned paths from resource to l-oad across
15 the transmission system and through each substation
16 associated with the vari-ous transmission lines. The
L7 transactj-on does not create any new available transmission
18 capacity. Mr. Ange11's testimony provides a detail-ed
L9 overview of the specifj-c assets Idaho Power wil-I acquire
20 from PacifiCorp and the resultlng operational and system
21 benefits of acquiring those facilities.
22 O. What is the approximate val-ue of the assets
23 being exchanged under the terms of the JPSA?
24 A. The Parties' current estimate is approximately
25 $43 million each. The net book values are estimated as of
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December 31, 2014, and subject to a true-up adjustment
following the closing date of the proposed exchange.
O. Can you please summarize the OATT transmission
services that are provided for in the Legacy Replacement?
A. Under the terms of the JPSA, PacifiCorp will
purchase 510 MW of long-term point-to-point transmissj-on
servj-ce from Idaho Power, which represents a portion of its
operational needs. The OATT service will replace the
current yearly cost of service paid by PaciflCorp to Idaho
Power under the Legacy Agreements. The Partj-es' new
arrangement wll-l- align with FERC' s preference for
transactions to be OATT-based. With OATT-based
transactions, all operations wil-l- continue to be governed
by current reliability standards and industry business
practice language and avoid reconcil-iation of new standards
to the antiquated language of the Legacy Agreements, which
can be subject to interpretation and potential
disagreement. The new OATT-based transactions will add
flexibil-ity and transparency through redirect,
reassj-gnment, and rol-l-over rights allowing for efficient
use of the assets and may help to facilitate the
development of new markets, such as the Energy fmbal-ance
Market.
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Idaho Power Company
O. What are the anticipated benefits of
2 consolidating and modernizing the operational provisions of
3 the Legacy Agreements into the JOOA?
A. The JOOA has several operational benefits that
5 will- provide efficiency and update the operatj-ons of the
6 Partj-es. Because the Legacy Agreements pre-date current
7 regulatory obligatlons such as mandatory reliability
8 standards, EERC's open access policy, and North American
9 Energy Standards Board (*NAESB") approved scheduling
10 practices, the Parties are forced to manage these
11 obligations outside the establ-ished regulatory construct
12 applicable to each Party's arrangements. The manual
13 scheduling process wil-1 be replaced by a more effi-cient
74 automated process with execution of the JOOA. The new
15 automated scheduling practices wil-1 be consistent with the
1,6 NAESB standards. Moreover, the operational complexity under
L7 the antiquated Legacy Agreements creates the potential for
18 conflj-cting interpretations between the Parties. The JOOA
79 wiIl provide si-mpler and more transparent transmission
20 service obligations, while at the same time modernj-zing the
2t Parties' relationship.
22 O. Please describe some of the day-to-day
23 operatlng benefi-ts under the JOOA.
24 A. Under the JOOA, each Party will manage its
25 jointly-owned facility capacity through its respective
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OATT. Neither Party will be allowed to post on Open-Access
Same-Time Information System for sale more than its
allocated capacity. During scheduling, all electronic tags3
(e-Tags) will now identify the operator of the path as a
scheduling entity. This will provide scheduling
transparency with respect to each company's jointly-owned
facilities and result in more efficient and reliabl-e
transmission system operation. The Parties will also
create a method to determine and all-ocate losses for the
use of the transmission system within the other Party's
Balancing Authority Area, consistent with governmental and
reliability standards.
IV. BENEFITS OF LEGtrCY REPI.ACEMENT
0. Please summarize, at a high level, the overall
benefits of the Legacy Replacement to Idaho Power.
A.Mr. Angell's testimony addresses the
operational, reliability, and system benefits of the Legacy
Replacement for Idaho Power in detail. I will- focus my
testimony on the revenue requirement benefits the Legacy
Replacement provides for Idaho Customers.
3 E-tags al-so known as Requests for Interchangie, are used to schedule
interchange transactj-ons in wholesale markets. North Amerj-can Electric
Reliability Corporation's (NERC) GTossary of Terms Used in Reliability
Standards (updated October l, 201,4) defines an j-nterchange transactj-on as "Ia]nagreement to transfer energy from a selfer to a buyer that crosses one or more
Balancing Authority Area boundaries. " .9eehttp: / /www. nerc. con/ f 1Les/_"9_1_p:eelv- o{Jglrrc.pdf
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Idaho Power Company
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o.Can you elaborate on how the Legacy
Replacement wil-l- produce revenue requirement benefits?
A. Yes. If approved, the Legacy Replacement,
through the termination of the RATFA, RTSA, and ITSA, will
result in a modification of the inputs within the OATT
formul-a rate that more accurately reflects Idaho Power's
cost of service, benefitting Idaho Power's retail
customers.
o.Please explain the treatment of the RATFA,
RTSA, and ITSA within Idaho Power's OATT formula rate.
A.On March 24, 2006, Idaho Power submitted an
OATT filing to the FERC requesting an increase in
transmission rates. In the filing, the Company proposed to
move from a fixed rate to an annually updated formula rate
based upon the totaL transmission revenue requirement. The
formul-a rate ref l-ects Idaho Power's total cost to own,
operate, and maintain the transmission facilj-ties used for
providing OATT service to transmission customers. The
formula rate all-ows for transmission rates to be updated
each year based primarily on financial and operational data
Idaho Power is required to fil-e annuaj-1y with EERC in its
Form 1. The transmission revenue requirement is then
divided by the load divisor to calculate the annual point-
to-point transmission rate.
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Effective June 7, 2006, FERC accepted rates based on
the formula for fdaho Power that used 2004 test year data,
subject to refund pending the outcome of the hearing and
settlement process. On August 8, 2007, FERC approved a
settlement agreement by the parties on all issues except
the treatment of contracts for transmissi-on service that
contain their own terms, conditions, and rates that were in
existence before the implementatj-on of the OATT in 7996.
The contracts at issue were three Iegacy agreements: RATFA,
RTSA, and ITSA.
o.Please describe Idaho Power's position on the
treatment of the RATEA, RTSA, and ITSA 1n the formula rate.
A.The Company's position regarding the RATFA,
RTSA and ITSA was that the revenues received from the
contracts pre-dated the OATT, and therefore, should be
credited against the total- transmission revenue requj-rement
and that the total contract demand associated with the
agreements should be excl-uded from the load divisor of the
rate formula. fn contrast, the customers' proposal was
that the RATFA, RTSA, and ITSA were a service of the OATT
even though revenues from the agreements were not subject
to the OATT and that the contract demand associ-ated with
these agreements should be reflected in the l-oad
denominator of the formula rate.
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Idaho Power Company
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O. Did FERC accept Idaho Power's position on the
treatment of the RATFA, RTSA, and 1TSA in the formul-a rate?
A.No. On August 31, 200'1, the EERC Presiding
Administratj-ve Law Judge (*ALJ") issued an initial decision
("fnitia1 Decision") with respect to the treatment of these
agreements. The ALJ's Initial- Decision was to put load
served under the RATFA, RTSA, and ITSA into the divisor at
their usage level rather than the contract demand. The
Company, as wel-l as opposing parties, appealed the Initial-
Decision to the FERC. On January 15, 2009, EERC issued its
Order on Initial Decision (*FERC Order") which upheld the
Initial Decision of the ALJ in most respects but modj-fied
the Initial Decision in one important respect that was
unfavorable to fdaho Power. The decision required Idaho
Power to incl-ude the contract demands associated wlth the
RATEA, RTSA, and ITSA in the OATT formul-a rate divisor
rather than crediting the revenue against Idaho Power's
transmission revenue requirement, reducing the OATT-based
transmission service rates to Idaho Power's transmission
customers.
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the FERC
A
agreement
treatment
. Please describe the magnitude of the impact
Order had on Idaho Power's OATT.
. The August 8, 2007, approval of the settlement
between the parties on all issues except the
of the RATFA, RTSA, and ITSA resulted 1n an
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Idaho Power Company
1 annual OATT rate of $2L.78/kW per yearn, which included a
2 revenue credit of $8,756,646 associated with the three
3 agreements. The FERC Order, that required the inclusion of
4 the 2,074s MW of contract demand associated with the RATFA,
5 RTSA, and ITSA in the OATT formula rate divisor and removal
6 of the revenue credits associated with these agreements,
7 reduced the OATT rate to $14.96/kW per yearr ox nearly 29
8 percent.
O. How woul-d the Legacy Replacement affect Idaho
10 Power's OATT rate?
11 A. Upon termj-nation of the RATFA, RTSA, and ITSA,
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13 Idaho Power's OATT formul-a rate will become zero. The
74 resulting impact to the OATT formula rate will be reflected
15 in the normal course of future annual updates6.
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V. CUSTOMER BENEFITS
O. Has the Company determined what, if dny,
18 impact the Legacy Replacement wil-I have on Idaho Power's
19 retail- customers' revenue requj-rement?
20 A. Yes. At my direction, an analysis was
27 prepared that quantifies the present value revenue
22 requirement impact of the Legacy Replacement over a ten-
a Based on 2005 Test Year data
s At th. time of the EERC Order, the contract demand associated with the RTSA,
TEA, and fTSA totaled 2,0L4 MW (RTSA:1,514 MW, TEA:250 MW, and ITSA:250 MW).
6 Idaho Power's transmissj-on rate effective period is October 1 to September
30.
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Idaho Power Company
1 year period (20L5-2024) . The analysis compares the annual
2 revenue requirement dj-fferences between two scenarios: (1)
3 a scenario in which there was no Legacy Replacement
4 (business as usual) and (2) a Legacy Replacement scenario
5 that reflects the provisions of the Legacy Replacement,
6 including an increase to OATT revenues as a result of
7 removing the RATEA, RTSA, and ITSA contract demands from
8 Idaho Power's OATT formula rate divisor.
O. What are the results of the present value
10 revenue requirement analysis?
t_ 1_A. By entering j-nto the Legacy Replacement, the
L2 Company's Idaho jurlsdictional revenue requirement would be
13 reduced on a present val-ue basis by approximately $55.9
L4 mill-ion over a ten-year period (2015-2024) .
15 O. If the net book value of the assets exchanged
t6 is nearly equa1, what is drivj-ng the lower annual revenue
1-7 requirements?
18 A. The increase in the OATT rate described in
19 Section IV wil-l- l-ead to higher transmission revenues, which
20 serves as a revenue credit to retail customer rates. The
27 increase in the revenue credit is the main driver of the
22 revenue requirement benefit derived from the Legacy
23 Replacement.
24 O. Have you prepared an exhibit demonstrating the
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25 estimated revenue requirement impact?
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o.Will there be an immediate impact to retail
customers' rates ?
A. No. Commission approval of the Legacy
Replacement will have no immediate retail customer rate
impact for Idaho Power. A change to the revenue credit
used to offset retail customer rates will occur when the
Company files its next general rate case.
VI. CONCLUSION
A. Yes. Exhibit 1 provides
revenue impact to the Company's Idaho
customers.
a.
A.
O.
this case?
A.
a summary of the
jurisdictional retail
Parties to have more streamlined ownership and capacity
rights as a result of both the real-l-ocation of ownership
interests j-n jointly-owned facil-ities and the exchange of
certain transmission facilities. The arrangement will
enhance rel-iabl-e operations for both Parties and provide
the ability to efficiently operate consistent with evolving
reliability standards. The Legacy Replacement creates a
strong foundation for future business between the Partj-es
and is in the best interest of each company's respective
customers.
Please summarize your testimony.
The proposed Legacy Replacement wil-l- al1ow the
Does this conclude your direct testimony in
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Idaho Power Company
Yes, it does
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ATTESTATION OF TESII}ONY
srATE OF rDAHO )) ss.
County of Ada )
T, Lisa A. Grow, having been duly sworn to testify
truthfully, and based upon my personal knowledge, state the
f oJ-lowing:
I am employed by Idaho Power Company as the Senior
Vice President of Power Supply and am competent to be a
witness in this proceeding.
I declare under penalty of perjury of the l-aws of
the state of ldaho that the foregolng pre-fi1ed testimony
and exhibits are true and correct to the best of my
information and bel-ief .
DATED this 19th day of December, 20L4.
SUBSCRIBED AND SWORN to before me this 19th day of
December,20
Notary Publ-ic for Idaho
Residing atz 7A?, tb tMy commission expires z Lt. 10.11
GROW, Dr 20
Idaho Power Company
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
GASE NO. IPC-E-14-41
GASE NO. PAC-E -14-11
GROW, DI
TESTIMONY
EXHIBIT NO. 1
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Exhibit No. '1
Case No. IPC-E-14-41
Case No. PAC-E-14-11
L. Grow, IPC
Page 1 of 1
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