20171127Comments.pdf

Gregory M. Adams (lSB No. 7454)
Richardson Adams, PLLC
515 N. 27th Street
Boise, Idaho 83702
Telephone: [phone]
Fax: [phone]
gre g@richardsonadams. com
RECEIVED
?0ll t{0Y 21 Pl{ 3: h I
,"f i ii$'rt *r*u*i&18t'on
Attorney for the Renewable Energy Coalition
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S 2017 INTEGRATED
RESOURCE PLAN
CASE NO. IPC-E-I7-I1
COMMENTS OF RENEWABLE
ENERGY COALITION
I. INTRODUCTION
These comments are submitted on behalf of the Renewable Energy Coalition ("REC") in
the matter of Idaho Power Company's ("Idaho Power") 2017 Integrated Resource Plan ("IIU"').
The main focus of these comments is on Idaho Power's proposal to use the Energy Information
Administration's ("EIA") High Oil and Gas Resource and Technology Case as its natural gas
price forecast, which projects a low natural gas price over the planning horizon.l Idaho Power
uses data from the EIA's 2016 Annual Energy Outlook ("AEO"), which will be referenced
throughout these comments.
EIA's characterization of its forecasts is confusing because the "High Oil and Gas
Resource and Technology Case" means low gas prices, while the "Low Oil and Gas
Resource and Technology Case" means high gas prices.
CASE NO. IPC-E-I7-II
RENEWABLE ENERGY COALITION'S COMMENTS -. PAGE I
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The EIA's High Oil and Gas Resource and Technology Case is not an appropriate
measure for Idaho Power's natural gas price forecast because it fails to account for uncertainty
and is unlikely to result in the least cost and least risk long-tern resource plan. That projection is
based on an extreme set of uncertain circumstances that does not take into account possible
upward price potential that has historically proved possible in the natural gas industry. Further,
Idaho Power's reliance on Intercontinental Exchange ("ICE") settled futures contracts for the
sale of natural gas is misplaced because ICE futures contracts only represent real trades for a
couple of years and do not account for long-term market trends, industry changes, and price
projections. As discussed below, Idaho Power should not be allowed to use such a low natural
gas price forecast in its tRP because it misstates real potential impacts in the natural gas industry
and sends inaccurate signals regarding which resources are least cost and least risk.
Finally, the practical impacts of Idaho Power's proposal could impact conservation
programs as well as form the basis for an attempt by Idaho Power to lower avoided cost rates for
qualifying facilities. While Idaho Power is relying upon a different gas forecast for determining
the appropriate level of cost effective conservation, should Idaho Power be allowed to use the
EIA's High Oil and Gas Resource and Technology Case for its IRP and other purposes, then
Idaho Power would overinvest in natural gas and underinvest in conservation and other
resources. In addition, while the Commission's Surrogate Avoided Resource ("SAR")
methodology for setting avoided cost rates is separate from the IRP, Idaho Power recently
proposed (and then withdrew its proposal) to use EIA's High Oil and Gas Resource and
Technology Case in the SAR methodology. If it obtains acceptance of an inaccurate gas price
methodology in its IRP, Idaho Power may again propose to revise its SAR methodology with this
forecast that fails to reflect the historic and expected volatility in natural gas prices.
CASE NO. IPC-E-17-11
RENEWABLE ENERGY COALITION'S COMMENTS -- PAGE 2
II. COMMENTS
A.The EIA's High Oil and Gas Resource and Technology Case Represents an Extreme
Set of Uncertain Circumstances on One End of the Spectrum
Idaho Power's natural gas price forecast relies on future discoveries of a larger resource
base, higher rates of recovery, and greater technological improvement than business-as-usual,
and it does not account for possible downsides in the natural gas industry such as lower rates of
recovery, fewer technological advances, or carbon regulation. The EIA analyzes a number of
different future natural gas price scenarios in its Annual Energy Outlook. As it pertains to this
discussion, there is the "Reference" case, the "High Oil and Gas Resource and Technology"
case, and the'ol.ow Oil and Gas Resource and Technology" case. Please refer to the EIA's
Natural Gas: Henry Hub Spot Price graph included herein as o'Figure 1."
liigure I
Natural Gas: Henry Hub Spot Price
nom S/MMBtu
20
Low oil and gas resource and lechnology / /15
2018 2020 2022 2024 2026 2028 2030 2032
- Reference case - High oil and gas resource and technology
- Low oil and gas resource and technology
2034 2036
elal Source: U.S. Energy lnformation Administration
CASE NO. IPC-E-17-II
RENEWABLE ENERGY COALITION'S COMMENTS -. PAGE 3
The Reference Case is "a business-as-usual estimate given known market, demographic,
and technological trends."2 Idaho Power began using the EIA in its 2013 IRP as the basis for the
natural gas price forecast.3 In both the 2013 and2015 IRPs, Idaho Power used the Reference
Case as its price forecast.a As Figure I illustrates, the EIA's 2016 Reference Case represents a
middle-of-the-road estimate with rates gradually increasing to approximately $7.50/MMBtu.
The High Oil and Gas Resource and Technology Case represents a'olarger resource base
and more rapid improvement in production technologies" than the Reference Case.s
Specifically, this case includes 50% higher estimated ultimate recovery as well as recovery of
additional unidentified resources,50o higher rates of technological improvement, and 50%o
higher rates of technically recoverable undiscovered resources in Alaska and offshore.6 As
illustrated in Figure I above, this case results in the lowest projected natural gas prices staying
below $5/MMBtu over the entire planning horizon.
On the other hand, the Low Oil and Gas Resource and Technology Case represents the
other end of the spectrum. Specifically, this case includes 50o% lower rates of technological
improvement, and 50% lower rates of technically recoverable undiscovered resources in Alaska
and offshore.T Figure I illustrates that this case has the highest natural gas prices over the
planning horizon with rates reaching nearly $ lSlMMBtu.
EIA, 2016 Annual Energy Outlook report, at MT-l (available at:
https://www.eia.gov/outlooks/aeo/pdf/0383(2016).pdf) (hereafter referred to as 2016
AEO).
Attachment A (ldaho Power's Response to REC's Data Request No. 1.2).
See Idaho Power's 2015 IRP at 85; see also Idaho Power's 2013 IRP at 62.
2016 AEO at ES-6.
2016 AEO, at E-l 1.
2016 AEO, at E-l l.
CASE NO. IPC-E-I7.II
RENEWABLE ENERGY COALITION'S COMMENTS -- PAGE 4
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4
5
6
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Idaho Power recognizes that it has selected an extremely low natural gas price forecast
because it only modeled possible higher natural gas prices in its sensitivity analysis and only
adjusted prices upward in its stochastic risk analysis to capture the upward risk in natural gas
prices.s Idaho Power determined that "testing sensitivities lower than the [EIA High Oil and Gas
Resource and Technology] Planning Case forecast was not informative."e It is not reasonable to
use a natural gas price forecast that represents an extreme set of circumstances on one end of the
spectrum. The forecast should be based on the EIA's Reference Case as that is the most prudent
projection, representing business-as-usual developments and accounting for both the possibilities
of greater-than-average conditions and less-than-average conditions in the industry.
B. Downward Trends in Natural Gas Prices and Current Contracts for Future Natural
Gas Prices Should Not be the Sole Basis for Projecting Long-Term Prices
Because natural gas prices have a historical tendency to fluctuate widely and current
futures contracts are based on near-term expectations, they should not be the sole basis for
projecting long-term natural gas prices. Idaho Power's exclusive reliance upon low natural gas
price forecast for its long-term plan is flawed because: I ) it is unrealistic to assume that there
will not be large price swings over a long-term period; 2) Idaho Power's graphs fail to accurately
predict future conditions by using nominal dollars and overstating future price projections; and
3) recent low actual gas prices are neither reflective of the likely long-term gas prices nor the
expected volatility in natural gas markets. In the end, if Idaho Power is allowed to use the High
Oil and Gas Resource and Technology Case, then its IRP will not take into account the likely
upward price volatility that has historically occurred and is very likely to occur again in the
See Idaho Power's 201 7 IRP, at ll2 &,114 (hereafter referred to as 20ll IRP); See also
Attachment A (Idaho Power's Response to REC's Data Request No. 6 & 8).
Attachment A (Idaho Power's Response to REC's Data Request No. 6).
CASE NO. IPC-E.17-II
RENEWABLE ENERGY COALITION'S COMMENTS -- PAGE 5
8
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natural gas industry. This is inconsistent with the IRP's goal, which is to "adequately and
reliably serve its customers at the lowest system cost and least risk over the next 20 years."l0
First, Idaho Power relies on recent downward trends in prices to conclude that prices will
continue to be low in the future.rr In Figure 7 .4 in its 201 7 IRP, Idaho Power illustrates the
downward trend from 2009 to 2016, but ignores the much higher price points between 2000 and
2008.12 Idaho Power's Figure 7.4 illustrates that natural gas prices have historically seen large
price swings.
In its 2016 Annual Energy Outlook, the EIA analyzed average annual Henry Hub natural
gas spot prices in five cases as compared to historic natural gas prices.13 As shown below in the
EIA's Figure MT-42, the five projections offer a range of outcomes with the Reference Case in
the middle, the High Oil and Gas Resource and Technology Case at the low-price end, and the
Low Oil and Gas Resource and Technology Case close to the high prices seen in the 2000 to
2008 period. The EIA also examined the impact of various outcomes under the Clean Power
Plan, including a scenario where there is no Clean Power Plan.la Other uncertainties in the
natural gas market include economic growth, demographics, demand, the price and demand of
other resources (such as oil), advancements in technology, new discoveries of resources, and the
effect of various policies.ls The highly uncertain price of natural gas tends towards using a more
moderate price forecast taking into account some of the upward price potential, such as the EIA's
t0 Idaho Public Utility Commission Order 33441, Case No. IPC-E- l5- I 9, I . December 23,
2015 (emphasis added).
See 20l7lRP at84.
See 2017lRP at84, Figure 7.4.
2016 AEO,atMT-23, Figure MT-42 (reproduced herein as Figure 2).
2016 AEO atB-7, E-8, E-9, Table El "Summary of AEO2OI6 Cases".
Id.
CASE NO. IPC-E-17-II
RENEWABLE ENERGY COALITION'S COMMENTS -- PAGE 6
ll
t2
l3
t4
l5
Reference Case. This is consistent with what the final IRP must include, which is an
examination of the "effects of known or potential changes to existing resources."16
l,'igure )
Figure MT-42. Annual average Henry Hub natural
gas spot market prices in five cases, 1990-2040 (2015
dollars per million Btu)
History
12
10
I
6
4
2
0
2015
I
I
Low Oil and Gas Resource and Technology
High OilPrice
Reference
Low Oil Price
High Oil and Gas Resource and Technology
1990 199s 2000 2005 2010 2015 2020 2025 2030 2035 2040
Second, Idaho Power's graph produced in response to REC's data request No. 3(d) (in
addition to Figure 7.4 in the IRP) misleads the upward projections for the EIA's Reference Case
and the Low Oil and Gas Resource and Technology Case, and it makes the High Oil and Gas
Resource and Technology Case appear more reasonable.lT Idaho Power's graph uses nominal
dollars, which overstates the future price projections. Compare Idaho Power's graphs to the
EIA's Figure MT-42 (reproduced above as Figure 2). Idaho Power's graph in response to REC's
l6 Order 33441 at2.
Attachment A (ldaho Power's Response to REC's Data Request No. 3(d)).
CASE NO. IPC-E-17-II
RENEWABLE ENERGY COALITION'S COMMENTS -- PAGE 7
l7
Projections
data request No. 3(d) shows the Low Oil and Gas Resource and Technology Case as an extreme
case going way beyond any historical Henry Hub spot price. Idaho Power's graphs show the
Reference Case nearly reaching the historical peak prices and the High Oil and Gas Resource
and Technology Case reaching a price above that of some of the lower peaks in 2000, 2010, and
2014. This is misleading because it does not account for future inflationary effects. The EIA's
Figure MT-42 expresses everything in 2015 dollars, which offers a clearer picture of the price
projections compared to historical process. The Low Oil and Gas Resource and Technology
Case in 2015 dollars is actually below the historical price peaks, the Reference Case shows a
mid-range price projection, and the High Oil and Gas Resource and Technology Case illustrates
future prices well-below most of the historical prices.
Third, a long-term plan should not unduly rely upon current short-term natural gas prices.
One reason Idaho Power gives for using the High Oil and Gas Resource and Technology Case is
that it is more consistent with ICE settled futures contracts for natural gas sales.ls Specifically,
in its response to REC's data request No. 3(d), Idaho Power shows how the ICE futures contracts
"line up" with the High Oil and Gas Resource and Technology Case. This argument fails
because ICE settled contracts for future energy sales are based on today's expectations ofnear-
term natural gas prices, not future price estimates and does not include long-term price
projections.
Idaho Power admits that there is no ICE data beyond2028, but it may actually be even
more limited than that. The volume of contracts traded out past a couple years is slim to none.le
l9
CASE NO. IPC-E-17-11
RENEWABLE ENERGY COALITION'S COMMENTS -- PAGE 8
l8 See Attachment A (Idaho Power's Response to REC's Data Request No. 3(a) and Idaho
Power's Response REC's Data Request No. 3(d).).
See NYMEX Natural Gas Futures Contracts (available at
https ://www.barchart. com/futures/quotesAllG* 0/al l-futures?viewName:main).
C
Idaho Power is just using the ICE futures contracts as a crude justification for using a low natural
gas price projection, but Idaho Power cannot justify that ICE futures contracts are a more
accurate tool than the EIA's Reference Case. ICE futures contracts do not account for long-term
changes in the industry. As discussed above, the EIA analyzes a variety factors including
variations in the rates of technological advances, and rates of ultimate discovery and recovery.
The ICE futures contracts do not take into account these factors and it is not reasonable to rely on
that data for long-term projections that are intended to account for market uncertainty.
Therefore, Idaho Power should not be allowed to rely on consistency with the ICE futures
contracts as justification for using the High Oil and Gas Resource and Technology Case.
Reliance Upon Extremely Low Natural Gas Prices Will Result in Under Investments
in Conservation and Inaccurate Avoided Cost Rates
Idaho Power's reliance upon inaccurate natural gas price assumptions could result in
distorted resource planning that harms customers. Idaho Power's near-term resource decisions
will include installation of selective catalytic reduction investments, the Boardman to
Hemmingway transmission line, market purchases, and modest investments in demand side
management.20 The near term practical impact of using the wrong natural gas price forecast may
be underinvestment in conservation and entering into too few new and existing qualifying
facility contracts, while the long-term impacts could be over reliance upon natural gas generation
resources and short-term market purchases.
Idaho Power's third-party consultant estimated preliminary demand side management
investments based on the EIA's 2016 AEO Reference Case; however, Idaho Power is using the
20 See 2017 IRP at 6-8
CASE NO. IPC-E-17-11
RENEWABLE ENERGY COALITION'S COMMENTS .- PAGE 9
High Oil and Gas Resource and Technology Case in for its20lT lRP cost effectiveness test.2r
Thus, use of this low gas price forecast may have a practical impact on the amount of
conservation that Idaho Power ultimately invests in or finds to be cost effective.
Planning conservation and other resource investments based on overly optimistic views
of natural gas price forecasts could have extremely harmful long-term impacts on customers. In
the late 1990s, California and Pacific Northwest utilities essentially stopped investing in
conservation resources, which turned out to be disastrous when energy needs exceeded available
resources. The Commission should not let Idaho Power make long-term resource decisions that
ignore that the short-term low gas price forecasts are unlikely to endure for the next two decades
and will likely experience greater volatility than we have recently experienced. Even if current
gas prices were likely (but not guaranteed) to exist unintemrpted for the long-term, it would still
not be the least risk strategy to assume that the high gas prices and greater price variation of less
than a decade ago will not return.
III. CONCLUSION
The practical effects of allowing Idaho Power to use a low natural gas price forecast is
that it would disproportionally favor gas generation over other possible least cost least risk
resources, would eventually result in too little conservation, and too little investment in other
resources. Idaho Power may also attempt to use this inaccurate forecast to lower avoided cost
rates and change the current SAR methodology. The High Oil and Gas Resource and
Technology Case is based on extreme assumptions regarding future technological advancements,
discovery of resources, and ultimate recovery of natural gas. The historic uncertainty in the
2t Attachment A (ldaho Power response to REC Data Request I l)
CASE NO. IPC-E-17-II
RENEWABLE ENERGY COALITION'S COMMENTS .. PAGE IO
natural gas industry favors using a more mid-range projection. Further, settled futures contracts
only represent actual trades of natural gas for a couple years do not account for future
uncertainties in the market and industry. The F-IA analyzed numerous price forecasts and settled
on the Reference Case as its business-as-usual price projection. This projection should be used
as it accounts for a range of possible outcomes.
Dated November 27, 2017.
By:
M. Adams (ISB No. 7454)
Richardson Adams, PLLC
515 N. 27th Street
Boise, lD 83702
Telephone: 208.938.223 6
Fax: [phone]
gr e g@richard so nad am s. c o m
CASE NO. IPC.E-17-II
RENEWABLE ENERGY COALITION'S COMMENTS -- PAGE I I
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 27th day of November 2017, a true and correct copy of the
within and foregoing COMMENTS OF RENEWABLE ENERGY COALITION in Case No.
IPC-E-17-11 was served by United States Mail, postage prepaid, and electronic mail, to:
Lisa D. Nordstrom
Idaho Power Company
1221 West Idaho Street
Boise, Idaho 83702
lnordstrom@ idahopower.com
dockets@idahopower. com
Diane Hanian, Secretary (hand delivery)
Idaho Public Utilities Commission
472 West Washington Street
Boise, Idaho 83702
diane. holt@puc. idaho. gov
Gloria Smith
Sierra Club
2101 Webster Street, Suite 1300
Oakland, California 94612
gloria. [e-mail]
Dr. Don Reading
6070 Hill Road
Boise, Idaho 83702
[e-mail]
Anthony Yankel
12700 Lake Avenue, Unit 2505
Lakewood, Ohio 44107
[e-mail]
Brad M. Purdy
Attomey atLaw
2019 N lTth Street
Boise, Idaho 83702
bmpurdy@,hotmail.com
Pete Bennett
Micron Technology
8000 S Federal Way
Boise, Idaho 83707
[e-mail]
Timothy E. Tatum
Michael J. Youngblood
Idaho Power Company
l22l West Idaho Street
Boise, Idaho 83702
ttatum@ idahopower. com
myoun gblood@ idahopower. com
Sean Costello, Deputy Attorney General
Idaho Public Utilities Commission
47 2 W est Washington Street
Boise, Idaho 83702
sean. costello@puc. idaho. gov
Peter Richardson
Richardson Adams, PLLC
515 N 27ft Street
Boise, Idaho 83702
peter@richardsonadams. com
Eric L. Olsen
Echo Hawk & Olsen PLLC
PO Box 6l l9
Pocatello,Idaho 83205
elo(4)echohawk.com
C. Tom Arkoosh
Arkoosh Law Offices
PO Box 2900
Boise, Idaho 83701
tom. arkoosh@ arkoosh. com
erin. cec il @ arkoosh. coln
Thorvald A. Nelson
Emmanuel T. Cocian
Kim Stanger
Holland &Hart
6380 S Fiddlers Green Circle, Suite 5000
Greenwood Village, Colorado 80111
tnel son(@hollandhart. com
etcocian@hollandhart. com
kcstaneer@hollandhart. com
klhall@hollandhart. com
M. Adams