20150302Dickman Direct.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION OF
ROCKY MOUNTATN POWER FOR
MODIFICATION OF TERMS AND
CONDITIONS OF PURPA PURCHASE
AGREEMENTS AND FOR
MODIFICATION OF ITS AVOIDED
COST METHODOLOGY
CASE NO. PAC.E.15.O3
PETITION OF ROCKY MOUNTAIN
POWER
PACIFICORP
DIRECT TESTIMONY
OF
BRIAI\I S. DICKMAII
I Q. Please state your name, business address, and present position with Rocky
2 Mountain Power ("the Company"), a division of PacifiCorp.
3 A. My name is Brian S. Dickman. My business address is 825 NE Multnomah Street,
4 Suite 600, Portland, Oregon 97232. My title is Director, Net Power Costs.
5 Q. Briefly describe your education and business experience.
6 A. I received a Master of Business Administration from the University of Utah with
7 an emphasis in finance and a Bachelor of Science degree in accounting from Utah
8 State University. Prior to joining the Company, I was employed as an analyst for
9 Duke Energy Trading and Marketing. I have been employed by the Company
l0 since 2003 including positions in revenue requirement and regulatory affairs, and
I I I assumed my current role managing the Company's net power cost group in
12 March 2012.
13 a. Have you testified in previous regulatory proceedings?
14 A. Yes. I have filed testimony in proceedings before the public utility commissions
15 in California, Idaho, Oregon, Utah, and Wyoming.
16 Purpose of Testimony
17 a. What is the purpose of your testimony?
l8 A. My testimony supports the Company's application to modify the non-standard
19 avoided costs in Idaho. I describe a significant shortcoming of the currently-
20 approved method for calculating non-standard avoided cost prices in Idaho (the
2l "IRP Method"). In particular, the IRP Method does not recognize the impact of
22 proposed qualifying facility ("QF") contracts that are not yet signed but have
23 requested indicative avoided cost prices and are actively pursuing a power
Dickman, Di- I
Rocky Mountain Power
I purchase agreement with the Company.
2 IRP Method Background
3 Q. Please describe the IRP Method approved for calculating avoided costs in
4 ldaho.
5 A. The IRP Method was adopted by the Commission December 18,2012, in Case
6 No. GNR-E-ll-03, and is applicable to wind and solar QF projects larger than
7 100 kW.' The IRP Method focuses on identiffing the incremental costs that can
8 be avoided when a QF is added to a utility's system and is intended to be
9 consistent with the Company's biennial Integrated Resource Plan ("IRP").
l0 Avoided cost prices are composed of displaceable energy costs plus the capacity
I I costs of a simple cycle combustion turbine ("SCCT") beginning when the utility
12 adds a new thermal resource in its IRP. To calculate the avoided energy costs, the
13 Company's production cost dispatch model ("GRID") is used to identiff the
14 highest displaceable incremental cost (i.e. generation from Company-owned
15 resources or displaceable power purchases) for each hour of the QF's proposed
16 contact term.
17 a. Is the concept embodied in the IRP Method a reasonable approach to
18 calculating avoided costs?
19 A. Yes. In concept, the IRP Method is a reasonable approach to calculating avoided
20 costs for several reasons. In particular, the IRP Method relies on the Company's
2l GRID model in order to capture the impact to PacifiCorp's entire system when a
22 QF is added. The GRID model is configured to recognize the attributes of
' The IRP Method is also applicable to other types of QF projects that are l0aMW or larger.
Dickman, Di - 2
Rocky Mountain Power
1 individual QF projects - such as size, generation profile, and location - as well as
2 the Company's ability to integrate the QF's output onto its system subject to
3 transmission constraints. Furthermore, the IRP Method recognizes that avoided
4 capacity costs should only be included when the Company will actually avoid
5 building new resources. These concepts help maintain the customer indifference
6 between QF generation and generation or purchases that the Company would
7 otherwise require.
8 Q. Have you identified any shortcomings in the Commission's methodology for
9 implementation of the IRP Method in Idaho?
l0 A. Yes. The tRP Method does not recognize the impact of proposed QF projects that
I I do not yet have a signed contract but are at some stage in the process of receiving
12 indicative avoided cost prices and pursuing a power purchase agreement with the
13 Company.
14 Proposed QF Projects
l5 a. Please explain what is meant by a proposed QF contract.
16 A. A proposed QF contract is one that has begun the process required to enter into a
17 power purchase agreement with the Company, but for which a signed contract has
18 not yet been executed. At the time a new QF in ldaho submits a request to receive
19 indicative avoided cost prices, there may be dozens of other projects (in Idaho or in
20 any of the other states served by PacifiCorp) that have also already requested
2l prices and started down the path of executing a power purchase agreement. Under
22 the current IRP Methodology, however, only signed long-term power purchase
23 contracts can be included in the GRID model, so each new QF is priced as if it was
Dickman, Di - 3
Rocky Mountain Power
I
2
J
4
5
6
7
8
9
l0
ll
t2
l3
t4
l5
l6
l7
l8
l9
20
2t
22
a.
A.
the only proposed QF project to request prices. All other proposed QF projects are
ignored even though they too are seeking PURPA contracts.
What is the impact on avoided costs due to ignoring the proposed QF projects
in the pricing queue when calculating prices?
Avoided costs for the first QF in the queue are based on displacement of the
highest cost resources on the Company's system. Each successive QF should
displace lower and lower cost resources, resulting in lower avoided costs. More
importantly, recognizing additional QFs on the Company's system defers the need
to build new resources. Accumulating several QF projects may completely
displace planned thermal resources additions and delay the payment of capacity
costs to the next QF in line. If the queued QFs are ignored, the IRP Method will
result in payments to QFs that exceed avoided costs.
But doesn't PURPA envision imperfections in avoided cost rates?
Yes. In its order implementing PURPA regulations, the Federal Energy Regulatory
Commission ("FERC") stated that it "believes that, in the long run,
'overestimations' and 'underestimations' of avoided costs will balance out."2
However, ignoring other proposed QF projects is an avoided cost methodology
error that results in a one way imperfection - overestimations that will not, in fact,
balance out in the long run. This is in direct conflict with FERC's PURPA
regulation, which makes it clear that an electric utility is under no circumstances
required to pay more than avoided cost for QF purchases.3 By contrast, the same
regulations allow state commissions to set a rate for purchases that is lower than
2 See Small Power Production and Cogeneration Facilities - Rates and Exemptions, Order No. 69, Final
Rule Regarding the Implementation of Section 210 of PURPA, 45 Fed. Reg.l22l4, at12224 (1980).
Dickman, Di - 4
Rocky Mountain Power
a.
A.
I
2
aJ
4
5
6
7
8
9
l0
ll
t2
l3
t4
l5
t6
t7
r8
t9
20
a.
A.
0.
A.
a.
A.
avoided cost, so long as it is just, reasonable, nondiscriminatory and is sufficient to
encourage small power production.o
Has the Commission recognized the importance of reflecting new long-term
contracts in the determination of avoided costs?
Yes. In Order No. 32697 the Commission determined it was appropriate to update
the IRP Method modeling to account for new "long-term contract commitments
because of the potential effect that such commitments have on a utility's load and
resource balance."5 However, the Commission limited the recognition of new long-
term commitments to only signed contracts.
Was the issue of reflecting proposed QFs in the determination of avoided costs
raised in that proceeding?
Yes. Idaho Power Company ("Idaho Power") proposed that any QF with signed
contracts and any proposed QF that has requested pricing be included in Idaho
Power's resource portfolio for purposes of calculating future avoided costs because
they can impact future avoided costs.6 For purposes of calculating avoided costs,
Idaho Power proposed that a QF would be designated as "in the queue" upon
receipt of a written request from a QF for contract pricing.'
What was Idaho Power's rationale for proposing to reflect proposed QFs in
the determination of avoided costs?
Idaho Power explained that if proposed QFs and QFs with signed contracts are
' 18 c.p.R. gzenoa@)e).
o t8 c.p.R. g 292.304(bX3).
5 In re Review of PUPA QF Contract Provisions, Case No. GNR-E-I l-03, Order No. 32697 at 22 (Dec.
2012).6 Case No. GNR-E- l1-03, Idaho Power Company, Direct Testimony of Karl Bokenkamp at 28 (Jan. 31,
2012).
'Id.
Dickman, Di - 5
Rocky Mountain Power
I
2
J
4
5
6
7
8
9
l0
l1
t2
l3
t4
l5
t6
t7
l8
l9
a.
A.
a.
A.
considered part of the resource portfolio, then avoided cost rates for energy and
capacity could change for each new QF as a result of the total amount of capacity
and energy provided by all projects in Idaho Power's portfolio - changes that are
not captured if the recognition of new long-term commitments is limited to signed
contracts.
Would reflecting proposed QFs in the determination of avoided cost rates be
consistent with FERC PURPA regulations?
Yes. Federal regulations governing the rates for QF purchases state that, to the
extent practicable, the following shall be taken into account: "[t]he availability of
capacity or energy from a qualiffing facility during the system daily and seasonal
peak periods, including . . . [t]he individual and asgresate value of energy and
capacity from qualifying facilities on the electric utility's system."8 This language
makes it clear that considering QFs in the aggregate is an important consideration
because it may impact the accuracy of avoided cost rates.e
Would reflecting proposed QFs in the determination of avoided cost rates be
consistent with other FERC policies?
Yes. FERC's long-standing interconnection policies - policies that form the
foundation for state jurisdictional QF interconnections - require interconnection
studies to evaluate the impact of a proposed interconnection by considering all
t l8 C.r'.R. g 29n0a@)(2)(vi) (emphasis added).
'In its 1980 order implementing these regulations, FERC explained that this provision would allow for QFsto be considered in the aggregate for purposes of allowing a group of QFs to potentially enable a
purchasing utility to defer or avoid scheduled capacity additions despite that each QF, if considered
individually, would not provide capacity value. See Small Power Production and Cogeneration Facilities -
Rates and Exemptions, Order No. 69, Final Rule Regarding the Implementation of Section 210 of PURPA,
45 Fed. Reg. 12214, at 12224, 12227, 12236 (1980). However, it follows that considering QFs in the
aggregate may have other impacts on avoided cost rates as well, and the language of the regulation does not
preclude such an interpretation.
Dickman, Di - 6
Rocky Mountain Power
1
2
J
4
5
6
7
8
9
l0
ll
t2
13
t4
15
l6
t7
l8
t9
20
2l
a.
A.
generating facilities that, as of the date the study is commenced, have a pending,
higher-queued interconnection request to interconnect to the transmission system.'o
What is FERC's rationale for this policy?
This policy is designed to, among other things, allow for a fair network upgrade
cost allocation mechanism. FERC has stated that it would be unfair to require an
interconnection customer to sign an interconnection agreement before the
interconnection studies identify its requirements for interconnection facilities and
network upgrades." To that end, FERC stated, "[w]e recognize that including all
the higher queued projects will require a restudy when a higher queued project
drops out, but it is essential to include each higher queued project in the study
because the Interconnection Studies will be meaningless if higher queued projects
are not included."r2
Does the same rationale apply with regard to reflecting queued QFs in the
determination of avoided costs?
Yes. Just as each successive QF displaces lower and lower cost resources and,
thus, results in lower avoided costs and defers the need to build new resources, the
network upgrades necessary to accommodate each interconnection customer's
interconnection (as determined in the interconnection study) impacts whether and
what type of network upgrades may be required to accommodate the
interconnection customer next in the queue and, thus, that next interconnection
customer's network upgrade cost allocation. tf, on the other hand, the higher
t0 FERC Pro FormaLarge Generator Interconnection Procedures, Section 7.3; FERC Proforma Small
Generator System Impact Study Agreement, Section 8.tt See, e.g., Standardization of Generator Interconnection Agreements and Procedures, Order No. 2003-A,
106 FERC n 61,220 at P l6l (2004).
t2 Id.
Dickman, Di - 7
Rocky Mountain Power
a.
A.
I
2
aJ
4
5
6
7
8
9
l0
1l
t2
l3
t4
l5
t6
l7
l8
t9
20
2t
a.
A.
queued interconnection customers were ignored, the interconnection studies would
result in network upgrade cost allocations that exceed what is actually required to
interconnect the customer, just as the payments to QFs exceed avoided costs if
queued QFs are ignored in the determination of avoided cost rates.
Did the Commission approve ldaho Power's proposed queued QF policy?
No. Order No. 32697 adopted Commission Staff s position on this issue - i.e.,that
only signed QF contracts should be reflected in avoided cost rates - without
comment.r3 However, Commission Staff reasoned that "[t]he mere indication of
interest or request for a contract is too speculative tojustifu incorporating a change
in the utility's load-resource balance."r4 With regard to Idaho Power's queued QF
policy proposal, Commission Staff concluded that "[t]echnically, Idaho Power's
avoided costs do not change until a new QF has actually been added to the
resource portfolio. A QF that has not signed a contract cannot yet be considered
part of the resource portfolio.""
Why are you asking the Commission to revisit this Commission Staff
conclusion?
Since the time of this proceeding, there have been two significant shifts in the
PURPA landscape - shifts the Commission Staff could not have anticipated. First,
FERC issued a series of orders clariffing that QFs can, under certain
circumstances, unilaterally enter into a purchase obligation and lock in avoided
cost rates. Second, there has been a drastic increase in the number of QF requests
t' Case No. GNR-E-I1-03, Order No.32697 at22.to Case No. GNR-E-11-03, Idaho Public Utilities Commission, Direct Testimony of Rick Sterling, at 24
(May 4,2012).
" Id.
Dickman, Di - 8
Rocky Mountain Power
a.
A.
I
2
J
4
5
6
7
8
9
l0
ll
t2
l3
t4
15
t6
t7
l8
t9
20
2t
22
a.
A.
received by the Company.
Can you explain the lirst shift in more detail?
Yes. Historically, FERC has stated that it will defer to the states regarding the date
on which a legally enforceable obligation ("LEO") is incurred. However, FERC
issued four orders in recent years that curtailed state discretion on this issue.'6 All
four orders ruled that a state may not require a QF to obtain a fully executed
contract as a precondition to obtaining a LEO, with the final order indicating that a
LEO may arise even before any pafty signs an agreement.
Why would these FERC orders impact the Commission Staff conclusion
regarding whether queued QFs should be reflected in avoided costs?
Commission Staff s conclusion was that the indication of interest or request for a
contract was too speculative to justify incorporating a change in the utility's load-
resource balance, and that avoided costs do not change until a new QF has actually
been added to the resource portfolio, which cannot occur until a QF has signed a
contract. However, the recent FERC orders on the establishment of LEOs make it
clear that a QF can unilaterally establish a right to sell to a utility before the
contract is signed. Therefore, to ensure ratepayers are protected against an avoided
cost rate methodology that results in overestimations that will not balance out in
the long run, proposed QFs should be reflected in avoided costs.
Can you explain the second shift in the PURPA landscape related to the
drastic increase in the number of QF requests received by the Company?
Yes. Company witness Paul Clements describes the significant increase in recent
'u Grouse Creek Wind Parh LLC,l42 FERC fl 61,187 (2013); Murphy Flat Pwr., LLC,l41 FERC fl 61,145
(2012); Rainbow Ranch llind, LLC, 139 FERC tT 61,077 (2012); Cedar Creek Wind, LLC, 137 FERC fl
6r,006 (201l).
Dickman, Di - 9
Rocky Mountain Power
a.
A.
a.
A.
I
2
J
4
5
6
7
8
9
l0
ll
t2
l3
t4
l5
l6
t7
18
t9
20
2t
a.
A.
a.
PURPA contract activity over the Company's six-state system. Of particular
relevance here, more than half of the total PURPA MWs have online dates of 2014
or later.
How many proposed QFs are currently in the Company's queue?
Company witness Paul Clements also provides the details of the current QF
activity. In total, the Company currently has 3,641 MW of proposed QF projects.
Have you calculated the impact on avoided costs if proposed QFs are included
in the IRP Method?
Yes. The Company calculated the impact on the IRP Method avoided costs of
including roughly 3,000 MW of proposed QFs (located in Idaho, Utah, Wyoming,
Oregon) prior to the next Idaho QF. Accounting for these proposed QFs rather than
just those QFs with signed contracts reduces avoided costs for the next Idaho QF
in the pricing queue by approximately $18 per MWh on a 20-year levelized basis -
a 37 percent reduction compared to the indicative price that same QF would
receive if the queue of proposed QFs was not considered.
Could you not just recalculate prices for new QF projects as other proposed
QFs sign contracts?
No. Besides being prohibitively time consuming and problematic from a contract
negotiation standpoint, there may be situations where multiple QFs progress
toward a LEO at the same pace, and it would be impossible for the Company to
update pricing as needed to reflect the unilateral contract commitments that occur.
Dickman, Di - l0
Rocky Mountain Power
A.
o.
A.
I Q. Do any other states served by the Company recognize proposed QFs in the
2 calculation of avoided costs?
3 A. Yes. The Company includes proposed QFs in the calculation of non-standard
4 avoided cost prices in Utah.
5 Recommendation
6 Q. What action do you recommend the Commission take to remedy the IRP
7 method shortcomings identified in your testimony?
8 A. The Commission should modift the IRP Method to account for proposed QF
9 pnojects on the Company's system prior to the next Idaho QF requesting indicative
l0 prices.
l l a. Does this conclude your direct testimony?
12 A. Yes.
Dickman,Di-II
Rocky Mountain Power