20220913Reply Comments-Redacted.pdf

sEm.
DONOVAN WALKER
Lead Counsel
[e-mail]
Septembet 13,2022
VIA ELECTRONIC FILING
Jan Noriyuki, Secretary
ldaho Public Utilities Commission
11331 W. Chinden Blvd., Bldg 8,
Suite 201-A (83714)
PO Box 83720
Boise, ldaho 83720-0074
Re Case No. IPC-E-22-13
ln the Matter of ldaho Power Company's Application for a Certificate of
Public Convenience and Necessity to Acquire Resources to be Online by
2023 to Secure Adequate and Reliable Service to its Customers
Dear Ms. Noriyuki:
Attached for electronic filing please find ldaho Power Company's Reply Comments
in the above matter.
The confidential version will be provided to those parties who have executed the
Protective Agreement in this matter.
Please feel free to contact me directly with any questions you might have about
this filing.
Very truly yours,
AnD goRPootnpaily
fuzd*t -
Donovan E. Walker
DEW:sg
Enclosures
DONOVAN E. WALKER (lSB No. 5921)
ldaho Power Company
1221 West ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
Telephone: [phone]
Facsimile: [phone]
dwa lker@ida hopower. com
Attorney for ldaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR A
CERTIFICATE OF PUBLIC CONVENIENCE
AND NECESSITY TO ACQUIRE
RESOURCES TO BE ONLINE BY 2023 TO
SECURE ADEQUATE AND RELIABLE
SERVICE TO ITS CUSTOMERS.
CASE NO. |PC-E-22-13
IDAHO PO\A/ER COMPANY'S
REPLY COMMENTS
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ldaho Power Company ("ldaho Powe/'or "Company') respectfully submits these
Reply Comments in response to Reply Comments filed by the ldaho Conservation
League (.lCL') on August 18, 2022, and the ldaho Public Utilities Commission
("Commission") Staff ("Staff'), on August 30,2022. !n the paragraphs that follow, ldaho
Power will respond to concerns raised by these parties in their Comments, including the
competitive resource procurement process undertaken for identifying the 2023 resource
acquisition, imputed debt costs associated with third-pafi ownership of resources, and
IDAHO POWER COMPANY'S REPLY COMMENTS - 1
the appropriate benchmark analysis to compare costs associated with the acquisition of
battery storage.
I. BACKGROUND
1. ldaho Power has not added a supply-side, dispatchable resource since
2012, with the construction of the Langley Gulch combined-cycle, naturalgas combustion
turbine, for which the Commission granted a certificate of public convenience and
necessity ("CPCN') with Order No. 30892 in Case No. IPC-E-09-03. ldaho Power's most
recently acknowledgedl Integrated Resource Plan ('lRP"), the Second Amended 2019
!RP, did not show a first capacity deficit until the summer of 2028. However, during the
preparation of the 2021 lRP, an updated load and resource balance analysis inMay 2021
identified a first capacity deficit of 78 megawatts ('MW') in July of 2023, growing each
year through 2026, when the Boardman to Hemingway SOO-kilovolt transmission line is
expected to be operational. Resource needs subsequently increased to 101 MW during
development of the 2021 lRP. As discussed in more detail below, the load and resource
balance changes stemmed, in large part, from accelerated growth and changing import
conditions related to market transmission constraints. These changes were not known in
2019.
2. Under ldaho law, the Company has an obligation to provide adequate,
efficient, just, and reasonable service on a nondiscriminatory basis to all those that
request it within its service area. ldaho Power has experienced and expects sustained
load growth, thereby requiring the addition of new dispatchable resources to meet peak
summer demand. To meet its obligation to reliably serve customer load and fillthe 2023
1 Case No. IPC-E-19-19, Order No. 34959.
IDAHO POWER COMPANY'S REPLY COMMENTS - 2
capacity deficiency, the Company conducted a competitive solicitation through a request
for proposals ("RFP") seeking to acquire up to 80 MW of ldaho Power-owned resources,
to be online by June of 2023.
3. The successful bidder of the 80 MW resource RFP was Black Mesa Energy,
LLC ("Black Mesa'). Black Mesa proposed a20-year power purchase agreement ('PPA")
for the output of 40 MW from a solar photovoltaic ("PV') generation facility that will supply
energy to the Company's system and is envisioned to be combined with an ldaho Power-
owned 40 MW battery storage facility. Because the standalone 40 MW solar PV plus 40
MW energy storage project will not be sufficient to fully meet the 2023 apacity need
identified during the 2021 IRP process, ldaho Power identified an additional 80 MW
energy storage resource through an investigation into different configurations of
Company-owned and constructed battery energy storage systems performed in parallel
to the RFP process. lmportantly, this was the only economic combination of projects that
could meet the 2023 summer in-service date. The combined two projects, the 40 MW
solar PV plus 40 MW energy storage and the 80 MW battery storage facility, will provide
the resources necessary to fill the 2023 capacity deficiency.
II. IDAHO POWER'S REPLY
A. The Gommission Should Adopt Staff's Recommendation to Grant the
Company a CPCN.
4. ln order to comply with its continuing obligations to serve customers, the
Company must at times acquire additional resources to meet the identified capacity
deficits on its system when the need arises, and potentially outside of the formalized IRP
process. Given the short turn-around to construct a resource to meet deficits identified in
2023, coupled with global supply-chain disruptions stemming from the COVID-19 health
IDAHO POWER COMPANY'S REPLY COMMENTS - 3
crisis and other events, it was imperative that the Company move fonrvard quickly on the
resource procurement process. The Company performed a qualitative and quantitative
evaluation of project proposals submitted through the RFP process as well as a parallel
investigation into different configurations of Company-owned and constructed battery
storage systems. The request for a CPCN to acquire 120 MW of dispatchable energy
storage is the result of those efforts.
5. ldaho Power appreciates Staffs extensive review of the capacity deficiency
and their recommendation that the Commission "grant the request for a CPCN specific to
the Company's decision to acquire 120 MW of dispatchable capacity to be operational by
July 1 ,2023, based on the immediate need for capacity resour@s and to ensure system
reliability."2 Although critica! of the prooess for which ldaho Power selected the resource,
ICL did not disagree that a 2023 capacity deficit exists, and in fact applauded the
Company for "invest[ing] more in renewables and storage" to provide the needed
capacity.3 Staff performed an extensive review of capacity deficiencies identified in this
proceeding as well as in Case No. IPC-E-21-09,ldaho Power's Application for Capacity
Deficiency for Avoided Cost Calculations, and Case No. !PC-E-2143, ldaho Power
Company's 2021 lRP, concluding that the "Company has and will be operating with
reserves insufficient to meet reliability requirements until the 120 MW BESS resources
become operational."4 Further, Staff agrees that ldaho Power's acquisition of the 120
MW dispatchable energy storage will deliver the energy necessary to satisfy the
Company's 2023 capacity needs, supporting ldaho Power's request for a CPCN.
2 Staff Comments, pg. 2.3 lCLComments, pg. 1.4 Staff Comments, pg. 3.
IDAHO POWER COMPANY'S REPLY COMMENTS -4
B. ldaho Power Completed a Robust Competitive Resource Procurement
Process for ldentifying the 2023 Resource Acquisitions
6. The Company's rapid change in the 2O23 eapacity deficiency was the result
of several dynamic and evolving factors, including transmission availability, customer
focused reliability-based planning margin adjustments, an increasing population, new
large customers in the service area and associated emergent load demands on the
Company's system, diminishing demand response resource effectiveness, and lower
generation effectiveness of variable resources during criticaldemand hours. \Mile ldaho
Power acknowledges review of the 2019 IRP modeling required changes and ultimately
filing of the Second Amended 2019 lRP, the delayed results were not the driver of the
identification of the 2023 capacity deficiency and subsequent issuance of the RFP as
Staff suggests.s The load and resource balance from the Second Amended 2019 IRP did
not show a capacity deficiency occurring unti! the summer ol2028. Rather, it was not
until the spring of 2021, through preparation of the North Valmy Power Plant Unit 2 exit
analysis, that the load and resource balance was refined to incorporate recent
developments impacting market purchase assumptions and reliability evaluations.
7. ln the 2019 lRP, the Company believed it was able to access power in the
southern energy markets via the line connecting ldaho Power's system and Nevada. The
emergency energy event in California in August2020 flooded ldaho Power's transmission
service queue, as well as the transmission service queue of others, with multi-year
requests, indicative of transmission reservation activity in the West. !n preparation of the
North Valmy Power Plant Unit 2 exit analysis, the Company ultimately determined that
transmission between the southern energy markets and ldaho Power was unavailable,
s Staff Comments, pg. 4
IDAHO POWER COMPANY'S REPLY COMMENTS - 5
changing a key assumption in the 2019 IRP load and resource balance. lt is important to
note that the change in this key assumption was due to events completely outside of
ldaho Power's control that could not have been reasonably predicted prior to their
occurrence. That, coupled with the refinement of the Company's planning margin to be
based on the Loss of Load Expectation methodology and the updated Effective Load
Carrying Capability of ldaho Power's demand response programs, reduced the available
capacity each July during the 2022 through 2025 time period by approximately 500 MW.
It was the resulting updated load and resource balance analysis, prepared in May 2021,
that first identified a 2023 capacity deficit of 78 MW, below the 80 MW level for which the
Oregon RFP guidelines are imposed. To meet its obligation to reliably serve customer
Ioad and fillthe 2023 capacity deficiency, the Company immediately began to prepare an
RFP, which was issued on June 30,2021, roughly one month afterthe load and resource
balance was updated.
8. Due to the urgency, the RFP solicitation focused on the importance of
having a project in-service by June 2023, and, understanding permitting and construction
timelines, solicited energy storage projects, solar PV projects, solar PV plus storage
projects, wind projects, and wind plus storage projects. Although both ICL and Staff
acknowledge the limited time for ldaho Power to procure a resource to be on-line by June
2023,6 they were critica! of the Company's requirement that projects that included a PPA
for wind and solar must also include a transfer of ownership for the storage resource, or
a Build-Transfer Agreement ("BTA"1,, indicating that this requirement could have unduly
6 ICL Comments, pg. 3 (acknowledging the'exigency created by the capacity deficit.") and Staff
Comments, pg. 4. (acknowledging "insufficient lead time").7 Staff Comments, pg. 5 and ICL Comments, pg. 2.
IDAHO POWER COMPANY'S REPLY COMMENTS -6
limited the ability for a PPA to be selected through the RFP process. Yet both parties fail
to acknowledge that the only economic project that was able to meet the required
commercial operation date of June 2023, and selected through the RFP process, was in
fact a 20-year PPA associated with a 40 MW solar PV facility. While the initial proposal
also envisioned a BTA associated with a 40 MW baftery storage, during negotiations the
developer indicated that they were no longer interested in pursuing the BTA and instead
negotiated an agreement to coordinate with the Company on a battery storage facility that
Idaho Power would procure on its own and locate adjacent to the develope/s solar PV
site. lndicative pricing received through ldaho Power's parallel investigation into different
configurations of Company-owned and constructed Battery Energy Storage Systems
('BESS') was comparative to the lowest-cost proposals for similar battery storage
projects submitted through the RFP process. ln fact, pricing on the proposed 40 MW
battery storage BTA was based on a BESS from Powin Energy Corporation ("Powin"),
one of the suppliers for which the indicative pricing was based. Procuring the BESS from
Powin directly results in lower BESS costs, further supporting the acquisition of the least-
cost, least-risk resource necessary to fillthe 2023 capacity deficiency.
9. Staff also suggests that the proposed 120 MW of Company-owned battery
storage are an indication that the RFP process was inadequate in certain areas, as the
RFP did not result in sufficient viable projects to meet the expected capacity deficit.
However, as discussed above, the 40 MW solar facility plus 40 MW of battery storage
was identified through the RFP, resulting in a PPA for the solar facility. The decision for
ldaho Power to procure the 40 MW battery storage facility directly from Powin was the
result of conversations with the solar developer and Powin, ultimately resulting in a self-
IDAHO POWER COMPANY'S REPLY COMMENTS - 7
build option that was lower cost for customers. The remaining 80 MW project was
identified through the Company's extensive analysis of other configurations to
complement the RFP process, ensuring the resulting projects were least cost, least risk.
The lack of sufficient viable projects resulting from the RFP was not an indication that the
RFP was inadequate, but rather the result of the requirement for a commercial operation
date of July 1 , 2023, which other bidding entities would not commit to achieving. As
previously stated, the load and resource balance changed significantly due to factors
outside the Company's control, and as soon as these changes were known, ldaho Power
took immediate action to prepare and issue an RFP for 2023 resources. For all these
reasons, the RFP was robust and sufficient, indicating prudent action based on
information known at the time.
10. ln addition to having concerns about the resources solicited through the
RFP, both ICL and Staff expressed apprehension with the competitiveness of ldaho
Power's procurement process, even suggesting the Company did not comply with
Commission Order No. 32745, which requires ldaho Power to comply with Oregon's RFP
guidelines.s Yet, the direct testimony of Company witness Mr. Tatum details the Oregon
RFP guidelines and the process by which ldaho Power followed the competitive bidding
guidelines, as required with Order No. 32745, that led to the exception request filing with
the Oregon Public Utility Commission ("OPUC") on March 18, 2022.e Despite the
concern, Staff acknowledged that "following all requirements within the guidelines would
not have been prudent given the compressed timeline forthis resource need."lo Given the
8 Staff Comments, pg. 8.e Direct Testimony of Mr. Tatum, pgs. 10-13.10 Staff Comments, pg. 8.
IDAHO POWER COMPANY'S REPLY COMMENTS - 8
limited time available to procure resources and the Company's obligation to provide
adequate, efficient, just, and reasonable service, ldaho Power executed a competitive
procurement process thatwas fair and competitive and resulted in the acquisition of least-
cost, least-risk resources. lmportantly, the Company's actions were consistent with the
requirements set forth in Order No. 32745.
11. The Company recognizes that a competitive procurement process akin to
that detailed in the Oregon RFP guidelines may ultimately be aligned with the public
interest under circumstances that allow ldaho Power the needed time required in order to
follow the guidelines. When more time exists between identification of a capacity
deficiency and a necessary commercialoperation date, ldaho Power's potential resource
procurement options may broaden. The results of the Company's2022 All Source RFP
issued on December 30, 2021, for peak capacity and energy resources in2024 and2025,
will provide an indication of resources that have the ability to be in-service within a less
compressed timeline, as recommended by Staff. Further, as presented to both ICL and
Staff in ldaho Power's July 20, 2022, resource procurement update, the Company has
begun the competitive bidding process for the issuance of an RFP for 2026 resources
and anticipates filing an application with the OPUC to initiate the process in September
2022. The RFP for 2026 resources will span approximately two years and will likely not
require an exception notice filing with the OPUC.
C. Third Pafi-Owned Assets Have an lmputed Debt Cost to ldaho Power and
Ultimately to Customers.
12. Staff agrees with ldaho Power that third-party owned assets such as PPAs
bring added costs beyond the direct contract costs for the purchased energy in the form
of imputed debt adjustments made by credit rating agencies, stating that "[r]ating
IDAHO POWER COMPANY'S REPLY COMMENTS - 9
agencies do consider PPAs as commitments of future revenues and therefore can act as
long-term debt."l1 However, Staff does not correctly considerthe impact imputed debt can
have on the Company's cost of capita! for both debt and equity.
13. ldaho Power competes with other companies in the capital markets, to
obtain debt and equity financing necessary to operate its business and fund capital
projects. In seeking to access capital, one of the major factors banks, investors,
investment analysts, and Ienders consider is the Company's overall financial profile,
including the strength of its balance sheet. The credit rating agencies, such as Moody's
and Standard & Poor's ('S&P"), assess the financial strength of companies like ldaho
Power and provide ratings that act as a barometer to balance sheet strength, among other
things. While Moody's and S&P look at imputed debt differently, both agencies evaluate
future contractual obligations related to long-term PPAs as they consider future debt
obligations of issuers during their ongoing monitoring of credit quality. That imputation is
understandable as the third-party supplier is ultimately leveraging ldaho Power's balance
sheet to develop its project, by using the PPA and underlying long-term debt-like
obligation and payment stream from ldaho Power as collateral, while at the same time
diminishing ldaho Power's credit profile and financial strength. lmputing debt is a credlt
rating agency's way of transferring the project risk from the developer to the utility
because the contractual obligation of the utility is essentially providing cash flow and
credit support to the developer. Credit rating agencies account for this transferred risk as
a fixed debt obligation of the utility and impute this risk to the utility's balance sheet. \Mile
11 Staff Comments, pg. 6
IDAHO POWER COMPANY'S REPLY COMMENTS - 1O
such costs are generally not visible when PPA contracts are entered into, customers will
eventually bear the higher costs of capital.
'14. During their most recent evaluations, both Moody's and S&P discussed with
the Company the pressure on ldaho Power's financial risk profile related to the significant
level of contractual obligations and highlighted the rising levels of these obligations in
recent years. They also expressed their ongoing concerns related to the need for future
projected resources to serve customers, and the potential of additional PPAs versus
higher capital spending related to the need for these resources, as a result of customer
groMh and other drivers. ln fact, the risk analysis associated with ldaho Power's large
long-term contractual obligations was a key discussion point with Moody's and S&P in
April of this year, given the Company's significant long-term Public Utilities Regulatory
Policies Act of 1978 ('PURPA') and non-PURPA power purchase obligations. As of
December 31,2021, ldaho Power had contractualobligations related to cogeneration and
power production contracts of nearly $4 billion. This compares with long-term debt
obligations of approximately $2 billion at that same date. Over the past decade, the
Company has been resource sufficient as PUflPA PPAs came online, compelling ldaho
Power to urge rating agencies to consider that those circumstances warrant a lower level
of imputed debt. Because the Company has been resource sufficient and the addition of
these projects was not based on a resource need, the Company argued that the level of
imputed debt, or risk, associated with these projects was relatively Iow, because if these
PURPA projects failed to materialize, no action would be required to procure replacement
energy. Presently, however, the Company is in a near-term resource deficient position,
and the Company would be required to take additional action if these needed projects
IDAHO POWER COMPANY'S REPLY COMMENTS - 11
failed to materialize. Consequently, the Company believes this resource replacement risk
will result in a greater impact of imputed debt with regard to how it is applied by ratings
agencies going fonrard.
15. The imputed debt relating to contractual obligations contributed to the
financia! risk score of 'Significant' at ldaho Power in S&P's most recent credit report and
contributed to the factors considered by Moody's during its most recent downgrade of the
Company's credit. ldaho Power believes that further increases in its contractual
obligations related to PPAs will put additional pressure on its credit metrics that could lead
to further downgrades in its credit ratings. As seen on the table below, following the recent
Moody's downgrade, both rating agencies are now showing credit rating levels that are
considered 'Lower medium grade' by the markets. Further material downgrades could
drop the Company to 'Non-investment grade speculative' status, which would further
increase the cost of borrowing for ldaho Power, likely significantly, ultimately impacting
customer rates.
IDAHO POVVER COMPANY'S REPLY COMMENTS - 12
Table 1. Credit Ratino Levels.
lryr stP Errr
toOfrm Sharr! Looattrt Slrlann,trIirm SIEl!'rn
Aaa
A.t
A.2
4.3
AT
A2
A3
B.al
8..2
8..3
B.t
Ba2
E3
BT
Bil
83
Cl.l
Cee2
C.!3
Ff BnEnrElf{ndcUp0.rtr6r,rgr..lc
A"t.
A-t
A"2
A3
Ft+
Rt*[&.crleao
Prhra
lliD gr..h
LourcrnE{hm graalc
Nooin,trtnaolerlh
?adtty!
Higilty lp.or$€
P-t
i2
F3
P.2
P3
slfid..diJrbl€Nol D,fna etCpo:ty +ccUrdvc
c O.taf ami|gr(wilre
P.IOCCI tO.Ecortry
o h dctrl
16. As Staff noted in their comments, while the additional interest rate spread
expected from a Moody's rating of Baal to Baa2 is not particularly significant for any one
given bond issuance,l2 it is important to consider that S&P's current credit rating for the
Company, a BBB, is the equivalent of a Moody's rating of Baa2, and a further deterioration
to Baa3 and/or BBB- could result in a 40 basis point increase or more for any one given
bond issuance. Credit spreads fluctuate widely depending on market conditions, with the
spread for lower rated companies widening much more than higher rated companies
during times of market stress, as experienced during the great recession and the early
12 Staff Comments, pg. 7
No.lirv.$rradfe,
*.lie[l,i.U Dflrtr
rrrlmlDo.r6
c
Gr
c
I
TDAHO POWER COMPANY'S REPLY COMMENTS - 13
days of the COVID-19 pandemic, and even more recently given geopolitical unrest,
inflation, and economic uncertainty.
17. ln addition, deteriorating credit ratings not only impact long-term debt costs,
they also impact short-term credit markets, including existing and future credit facilities
and the ability of ldaho Power to access the commercial paper market. lf ldaho Power's
current commercia! paper rating of A-2lP-2 were to deteriorate, it would be more costly to
the Company and to customers to access short-term borrowings, as the markets for A-
3/P-3 and below are more expensive and significantly less liquid, resulting in times when
the commercial paper market cannot be accessed reliably, and must be replaced by more
costly short-term borrowings from credit facilities. Higher short-term debt costs could
negatively impact customers in the form of higher Allowance for Funds Used During
Construction ("AFUDC") rates. Access to commercial paper markets is particularly
important in times of economic uncertainty, such as we are experiencing currently.
18. Further, the calculation performed by Staff in their comments only
addresses the debt financing for the project at hand. A similar pattern of PPAs could lead
to a greater impact on debt and equity costs for customers going forward. ln short, while
the impact from any one given project may not seem significant, when compounded with
$4 billion of existing contractual obligations, the impact to the overall cost of capital and
customer rates can be significant. lgnoring imputed debt obligations and the impact they
can have on ldaho Power's cost of capital would be imprudent.
19. ln their PPA analysis, Staff focused on the costs of debt element of imputed
debt, bud did not address the cost of equity impacts associated with imputed debt
obligations. As seen historically in the capital markets, as the actual or perceived credit
IDAHO POWER COMPANY'S REPLY COMMENTS - 14
quality of a company deteriorates, the corresponding cost of equity increases due to that
perception, impacting the Company's weighted average cost of capital. Wrile customers
pay the cost of prudently incurred interest expenses, the cost of equity also increases as
the perceived market risk of the investment increases, unless offset by a larger equity
ratio to debt. The debt-like obligation of a PPA could cause ldaho Power to fall outside of
a desirable range of debt-to-equity, and the Company (through its public parent) may
need to issue equity (stock) to rebalance the ratio at an additional cost to customers. The
Company believes maintaining investment-grade credit ratings at historical rating levels
contributes to lower overall cost of capital for ldaho Power, and thus leads to lower
customer rates. Thus, the Company makes significant efforts to keep the debt component
of the cost of capital lower, as it understands the ultimate impact of these capital costs on
customers.
20. Staff cited the ability of peer utilities to successfully manage certain PPA
facilities as 'dispatchable' resources.te However, Staff failed to note that these potential
dispatch rights can ultimately adversely impact credit ratings, and thus the cost of debt
and equity. \Mile the existing contractual obligations are generally imputed as debt to
the utility, a PPA containing dispatch rights would likely result in recording a liability on
the Company's balance sheet under applicable accounting rules. Accounting Standards
Codification ("ASC") 842-20-25-1 requires a company to record a lease liability if an
arrangement provides the company "the right to control the use of the underlying property,
plant, and equipment for a period of time in exchange for consideration." IASC 842-10-
15-31. For the Company, dispatch rights would likely create contractual control by the
13 Staff Comments, pg. 5€.
IDAHO POWER COMPANY'S REPLY COMMENTS - 15
utility, and result in a lease liability on its balance sheet, as opposed to imputed debt,
which is often adjusted for the level of perceived risk by the credit rating agency. The
lease liability would be treated as the equivalent of long-term debt in credit quality metrics,
while not bringing the adjoining benefits of collateralassets that can be securitized by the
utility.
21. The Company takes proactive steps to manage and mitigate financia! risk.
It is in the interest of customers to preserve ldaho Power's credit profile and maintain a
solid balance sheet to support existing and planned infrastructure. ldaho Power assesses
numerous factors in its review of RFP responses, both operational and financial. In the
financial analysis, ldaho Power assesses and includes its own debt and equity costs in
any self-build option in a competitive bidding process. Were ldaho Power to ignore the
effect of imputed debt from long-term contractual obligations in its analysis of RFP
responses from third parties, it would not be evaluating the projects on a financially
comparable basis, nor would it be correctly assessing the net financia! impact of the
project on the Company and its customers.
D. Staffs Analysis Supporting its Recommendation for a Soft Gap is Flawed.
22. Staff asserts the acquisition of the 120 MW battery storage is not least-cost
and recommends the Commission set "soft' caps on the battery storage costs when ldaho
Power seeks cost recovery.lo Absent the Company receiving multiple bids through the
RFP process, Staff performed a benchmark analysis for which the "soft" cap was based.
The analysis, however, is based on a Nationa! Renewable Energy Laboratory ("NREL")
study that is intended for long-term planning purposes and ignores current market realities
14 Staff Comments, pg. 8.
IDAHO POWER COMPANY'S REPLY COMMENTS - 16
which impact the costs of lithium-ion battery systems, resulting in a flawed analysis. ln
fact, the NREL study states in their disclaimer: lt is noted that the NREL data is "prepared
for reference purposes only," "based upon expectations of current and future conditions,"
and "subject to change without notice.'1s \A/hile NREL data may be valuable in developing
long-term IRP forecast cost assumptions over a 2O-year time horizon, market realities
can vary significantly when contracting near-term resources. As evidenced by lithium-ion
battery system costs, the downward pricing trend anticipated by NREL reversed into an
upward trend starting inlate-2021 and continued into2022. This increasing price trend is
well documented by industry reporting firms as further discussed below and will likely be
incorporated into upcoming NREL forecasts.
23. ln addition to not factoring in current market realities, which include current
real-world supply chain constraints and pricing, the NREL study uses 2020 as its base
year or last historic year, which at the time anticipated a decline of 27 percent in costs
lrom 2020 to 2023, as can be seen in the table below. Staff used this stale NREL data
that has not considered recent market realities as the basis for their soft cap
recommendation, suggesting ldaho Power's acquisition of 120 MW of battery storage
from Powin was not least cost. Yet, in their Annua! Technology Basehne: The 2022
Electricity Update,le NREL notes that it does not track near term cost variability and further
that the baseline is to help in conducting scenario analysis for five to 30-year futures.
1 5 https ://atb. nrel. oov/electricitv/2022ld isclaimer16 httos://www. nrel.oov/docs/fu22osti/83064.pdf, slide 54
IDAHO POWER COMPANY'S REPLY COMMENTS - 17
Table 2. NREL Forecasted Utilitv€cale Batterv Storaoe - 4Hr - Moderate.
$/kw
Annual Change
Annual Percent Change
Change from 2020
Percent Ch. From 2020
$2s21 (s3s6)
-LSYo -27Yo
2020
$1,727
2021
$1,475
(5zsz1
-tSYo
2022
$1,371
(s104)
-7Yo
2023
$1,256
(Susl
-8%
2024
$1,167
(Sas1
-7Yo
2025
$1,104
(Ses1
-SYo
$+trl.
-27%
(Ssso1
-32%
(Ssza;
-36%
24. ln reality, the opposite has occurred. Demand for utility-scale BESS projects
in the second half of 2021 and first half ol 2022, coupled with supply chain constraints,
has resulted in a significant increase in pricing of baftery storage. Industry information
suggests a 10 to 20 percent increase or more from 2020 levels driven by this high
demand, input prices for lithium carbonate, and inflationary pressures on other materials
and labor.tz Utility Dive noted in April 2022thal battery storage costs rose more than 20
percent as compared to 2020 to 2021 installs, citing "crimped supply chains, rising
demand for batteries and higher costs of lithium used in ubiquitous lithium-ion batteries
make for a steep climb ahead . . ."18 Nearly all battery material costs have increased over
the past 12 months and some major battery module inputs have increased significantly.
"The index for nearly every commodity that is required to manufacture lithium-ion
batteries, including aluminum, copper, and nickel, has risen across the board. The price
of Iithium-carbonate has increased 500 percent in the last 12 months. Bloomberg New
17 /HS Madcit'Multiple factors halt downward trajectory of Li-ion battery costs, with higher prices for
energy storage systems set to continue throughout2022 and2023' January 61h,2022.ta Uflrty Dwe: 'Battery storage costs rise more than 20o/o in New York as state forges ahead with 6 GW
goal', April 121h, 2022.
IDAHO POWER COMPANY'S REPLY COMMENTS - 18
Energy Finance calculates that each 20 percent increase in the price of lithium-carbonate
results in a three percent increase in the total cost of battery modules."le
25. As part of the IRP process, ldaho Power utilizes Wood Mackenzie, a global
research and consultancy business that provides quality data, analytics, and insights for
energy, chemicals, metals, mining and the power and renewables industries, as a data
source for battery storage prices. ln their U.S. Energy Storage Monitor - 2021 Year in
Review Full Reporl, dated March 2022, average utility-scale four-hour battery prices were
nearly flat during the October 2020 through December 2021 time period, averaging
il per kWas compared to the NREL data that suggests battery storage costs in2O21
would be $1 ,475 per kW. ldaho Powefs total cost of the 120 MW battery storage projects,
excluding interconnection and transmission upgrade costs analogous to the NREL and
Wood Mackenzie cost estimates, is approximateU f per kW.
26. Staff used the outdated NREL data to benchmark ldaho Power's battery
storage costs, suggesting that, based on the forecasted 2023 NREL battery storage
costs, the Company could have procured the BESS for as little as $1,256 per kW, and
therefore ldaho Power's selection of the Powin products was not least cost. Yet, when
current market conditions and industry trends are factored into battery storage costs,
average costs for procurement in 2022 would range from f per kW to as high as
il per kW, and likely to increase further in2O23,evidence that Staffs recommended
'soff'cap is inherently flawed and punitive and should not be imposed on ldaho Power.
The fact that the other economic projects could not reasonably commit to meeting the
June 2023 in-service date further supports ldaho Powe/s selection. As substantiated by
1e Utili| Dfue: 'Navigating the evolving state of the storage industry', April4th, 2022.
IDAHO POWER COMPANY'S REPLY COMMENTS - 19
industry data, the Company's robust procurement process resulted in the acquisition of
least-cost, least-risk resources necessary to fill the 2023 capacity deficiency.
E. The Commission Should lssue an Accounting Order Accepting Staffs
Recommendation to Update the Depreciation Rates for Battery Storage.
27. Whib the Company did not request as part of this proceeding an accounting
order to update the depreciation rates for Account 363 - Battery Storage Equipment,
Idaho Power agrees with Staffs proposal to change the depreciation rate to reflect a 20-
year life as opposed to the existing 1S-year life. The existing rate was established as part
of the Company's last depreciation study, prior to any investments recorded in the
account and was based on smaller-scale battery storage facilities. However, all battery
storage systems analyzed as part of the 2023 resource procurement process were large-
scale and, based on discussions with vendors and current industry standards, a 2O-year
life span was assumed. ldaho Power agrees with Staffs recommendation to update the
depreciation rate for Account 363 - Battery Storage Equipment from 6.67 percent to 5.00
percent when the battery storage is placed in service.
F. Tax Benefits Associated with Battery Storage Systems Will Be Reflected in
Revenue Requirement Determ inations.
28. The RFP resulted in one project that could meet a commercial operation
dateof Julyl,2O23consisting ola20-yearPPAassociatedwitha40MWsolarPVfacility
combined with an ldaho Power-owned energy storage facility, a 40 MWof battery storage.
Based on the Company's current understanding of the income tax provisions of the
recently enacted federal lnflation Reduction Act of 2022, the ldaho Power-owned 40 MW
energy storage facility should be eligible for investment tax credits. ln addition, the
Company currently believes that the second project, the ldaho Power-owned 80 MW
IDAHO POWER COMPANY'S REPLY COMMENTS - 20
battery storage to be located at the Hemingway substation, should also be eligible for
investment tax credits. As evidenced historically, and as recommended by Staff,2o any
tax benefits obtained by the Company for investments paid for by customers, including
investment tax credits, wil! be reflected in revenue requirement determinations in a future
ratemaking proceeding.
ilt. goNcLuslg!
29. ldaho Power appreciates the opportunity to respond to comments filed in
this case and for the parties' review of the history of the identification of a 2023 capacity
deficiency and understanding of the urgency for acquisition of the summer 2023 resource.
The Company respectfully requests the Commission (1) accept Staffs recommendation
to grant a CPCN to acquire 120 MW of dispatchable energy storage necessary to meet
the identified capacity deficiency in 2023, (2) issue an accounting order updating the
depreciation rate for Account 363 - Battery Storage Equipment to 5.00 percent, and (3)
reject Staffs proposed establishment of a "soft" cap to be applied to project costs.
DATED at Boise, ldaho, this 13th day of September,2022.
h,*Zdat4-
DONOVAN E. WALKER
Aftorney for ldaho Power Company
20 Staff Comments, p. 9
IDAHO POWER COMPANY'S REPLY COMMENTS - 21
CERTIFICATE OF SERVICE
t HEREBY CERTIFY that on the 13th day of September 20221 served a true and
correct copy of IDAHO POWER COMPANY'S REPLY COMMENTS upon the following
named parties by the method indicated below, and addressed to the following:
Gommission Staff
Dayn Hardie
Riley Newton
Deputy Attorney General
ldaho Public Utilities Commission
11331 W. Chinden Blvd., Bldg No. 8,
Suite 201-A (83714\
PO Box 83720
Boise, lD 83720-0074
lndustrial Customers of ldaho Power
Peter J. Richardson
515 N. 27h Street
Boise, ldaho 83702
Dr. Don Reading
6070 Hill Road
Boise, ldaho 83703
ldaHydro
C. Tom Arkoosh
Amber Dresslar
Arkoosh Law Offices
913 W. River Street, Ste. 450
P.O. Box 2900
Boise, lD 83701
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Rilev. Newton@puc. idaho.oov
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Erin. [e-mail]
IDAHO POWER COMPANY'S REPLY COMMENTS -22
Micron Technology, lnc.
Austin Rueschhoff
Thorvald A. Nelson
Austin W. Jensen
Holland & Hart LLP
555 17th Street Suite 3200
Denver, Co 80202
Jim Swier
Micron Technology, Inc.
8000 South FederalWay
Bolse, !D 83707
ldaho Conservation League
Marie Kellner
Emma E. Sperry
ldaho Conservation League
710 N. 6th Street
Boise, lD 83702
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Stacy Gust, Regulatory Administrative
Assistant
IDAHO POWER COMPANY'S REPLY COMMENTS .23