20220830Comments-Redacted.pdf

RILEY NEWTON
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. II2O2
Street Address for Express Mail:
I133I W CHINDEN BLVD, BLDG 8, SUITE 2OI-A
BOISE, ID 83714
Attorney for the Commission Staff
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
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CASE NO. IPC.E.22.I3
COMMENTS OF THE
COMMISSION STAFF
Staff of the ldaho Public Utilities Commission ("Staff'), by and through its attorney of
record, Riley Newton, Deputy Attomey General, submits the following comments.
BACKGROUND
Idaho Power Company ("Company"), through this filing is requesting a Certificate of
Public Convenience and Necessity ("CPCN") from the Commission to acquire 120 mega-watts
("MW") of dispatchable energy storage necessary to meet the capacity deficiency in2023.The
Company plans to make a future hling to address cost recovery associated with the energy
storage resource.
1STAFF COMMENTS AUGUST 30,2022
Prior to the filing of the 2021Integrated Resource Plan ("IRP"; in May 202l,the
Company's identified capacity deficiency date was the summer of 2028.1 The 2021 IRP
identified a capacity deficiency of l0l MW by the summer of 2023.
STAFF ANALYSIS
After a detailed review and analysis, Staff recommends the Commission: 1) 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 resources
and to ensure system reliability; and2) set "soft" caps of 550,228,329 for the 40 MW storage
project and $100,456,659 for the 80 MW storage project (without the cost of interconnection or
transmission upgrades).
In addition, Staff concludes the following:
L The Company has demonstrated an immediate need for incremental capacity given
risks to reliability with resource deficits starting to occur during the summer of 2021
based on the Load and Resource Balance in the Company's 2021 IRP;
2. The 120 MW Battery Energy Storage System2 ("BESS") will resolve the current
capacity deficit starting in2023 if both projects are completed by their contracted
completion date;
3. The resource the Company selected through the June 2021 Request for Proposals
("RFP"; is not likely to be least-cost due to the limited pool of available resources bid
into the RFP;
4. The Company did not comply with the Commission's requirements for resource
acquisition which likely contributed to resources not being least-cost; however, given
the compressed timeline, Staff believes following all of the requirements would not
have been prudent;
5. Based on the expected 2}-year depreciable life, the Commission should establish a
5oZ depreciation rate for the BESS when placed into service; and
I Second Amended 20lg lntegrated Resource Plan - Load and Resource Balance (Application - page 5)
2 The 120 MW BESS represents a 40 MW (4 hour) BESS at Black Mesa, and a second 80 MW (4 hour) BESS
proposed to be located at the Hemmingway Substation.
2STAFF COMMENTS AUGUST 30,2022
6. The Company should use all available Investment Tax Credits ("ITCs") for the
resource.
Need for Incremental Canacity
Staff performed a decisional prudence review of the Company's Application to acquire
120 MW of dispatchable capacity to be operational by July 1,2023 and recommends that the
CPCN be granted. Staff s recommendation is based strictly on an immediate need for
incremental capacity necessary to ensure reliability of the Company's system.
Staff extensively reviewed the Company's2021IRP (Case No. IPC-E-21-43) and the
Company's Capacity Deficiency Case (Case No. IPC-E-21-09) both which identified capacity
deficits of 329 MW in July and 173 MW in August of 2021, 146 MW in July of 2022, and 101
MW in July of 2023. Although the deficits that occurred in202l and2022 did not result in
customer load being unserved, the Company has and will be operating with reserves insufficient
to meet reliability requirements until the 120 MW BESS resources become operational.
Selected Resources meet Capacitv Needs
Staff believes the 120 MW BESS resources will satisff the Company's need for capacity
through 2023. Staff reviewed the Company's requirements for resources specified in the
Company's RFP and compared them to the operational characteristics and guarantees contained
in the two energy storage contracts for the BESS resources. If the contracts are executed, Staff
believes that delivery of energy from these resources will satisfu the capacity needs for the
Company's system through 2023 and will continue to provide capacity over the life of these
assets. However, the contracts do not provide for battery augmentation, which is an option the
supplier can provide to ensure battery degradation is mitigated and the full capacity of the BESS
is maintained over the life of the resource. The Company's2021IRP indicates incremental
capacity needs for 2024 and beyond, which the Company indicated will be satisfied through
additional resource acquisitions.
Resources Selected are not Least-Cost
Staff does not believe that the 40 and 80 MW BESS resources are least cost. As such,
Staff recommends that the investment cost of these two resources be subject to "soft" caps of
$50,228,329 for the 40 MW storage project and $100,456,659 for the 80 MW storage project
JSTAFF COMMENTS AUGUST 30,2022
(without the cost of interconnection or transmission upgrades) when the Company seeks
recovery to ensure customers are not penalized for unreasonable costs. Staff believes that the
resources are not least cost for the following reasons:
1. The Company did not identifu the need for incremental resources within lead times
necessary for potential bidders to supply resources, severely restricting the pool of
potential bidders resulting in an uncompetitive bid pool.
2. The Company further restricted the pool of potential bidders in its RFP by:
a. Only allowing Build-Transfer Agreements ("BTA") for energy storage
projects and not allowing acquisition through power purchase agreements
("PPA") or other forms of ownership agreements. Application at 9.
b. Restricting bidders to wind, solar, and/or battery energy storage instead of
expanding the pool to allow for a greater number and broader range of
potential resources.
3. The two BESS projects selected by the Company were not included as bids through
the RFP and were procured directly by the Company outside of the RFP. Hackett
Direct at 18.
Insufficient Lead Time
The Company was not able to issue the202l t(FP with sufficient lead time for potential
bidders of resources to complete projects by the July 2023 capacity deficiency date because of
issues with the Company's 2019 IRP. The Company proposed an August 2028 first capacity
deficiency date in its initial application in its capacity deficiency case, Case No. IPC-E-21-09,
that was filed in April202l after Commission acknowledgement of the 2019 IRP.3 However,
the Company filed a Motion and Amended Application in that case proposing a2023 first
capacity deficiency date, five years earlier than proposed in its initial application.a Because of
the insufficient lead time, Staff believes there were too few bidders for a competitive bid pool
which resulted in increased cost to customers.
3 ln the Matter of ldaho Power Company's Applicationfor Approval of the Capacity Deficiency to be Utilizedfor
Avoided Cost Calculations,Case No. IPC-E-21-09, Application at 3 (Apr.9,2021).
4 /d, Motion and Amended Application at 4-5 (Feb. 4,2022).
4STAFF COMMENTS AUGUST 30,2022
In its comments on the202l IRP in Case No. IPC-E-21-43, Staff discusses the
deficiencies in the 2019 IRP that the 2021 tRP resolved. However, the improvements the
Company made while developing the202l IRP came too late to allow for reasonable lead times
for developers to construct projects. In fact, the2023 first capacity deficit date is based on when
the Company can reasonably acquire resources, not on when the first deficit date occurs. See
Response to Staff Production Request No. 32 in Case No. IPC-E-21-09.
RFP Restriction of Eligible Projects
The Company further restricted its bid pool only allowing BTA for energy storage
projects and by restricting the type of resources to wind, solar, and energy storage, even though
the 2021RFP was advertised as an "All-Source RFP." s In its Application, the Company
claimed that it needed to own the storage resources because: (1) it could not obtain the control
needed necessary for energizing and dispatch; and (2) acquiring the resources through a PPA
would increase its imputed debt and harm its credit rating. Application at 9.
Staff does not believe it is necessary for the Company to own a BESS to have sufficient
control. Below are examples of BESS projects that other utilities acquired through PPAs and
have been able to negotiate terms necessary for the dispatch needs of their systems:
o Capacity 88 MW I 352IlyIWh - Southern Power, a leading U.S. wholesale energy
provider and subsidiary of Southern Company, has been awarded aZ}-year power
purchase agreement by Southern California Edison to add a battery-based energy
storage resource at Southem Power's Garland Solar Facility in Kern County,
California.6
o Capacity 72MW / 288 MWh - Southem Power, a leading U.S. wholesale energy
provider and subsidiary of Southem Company, has been awarded a2}-year power
5 See "202l All Source Request for Proposals for Peak Capacity Resources - Pre-Bid Presentation." Although the
title suggeste d the 2021 RFP was an "All-Source" RFP, the resources were restricted to Wind, Solar, Energy
Storage, Wind plus Energy Storage, and Solar plus Energy Storage.
6 Energy Storage News, March 30,2022, "Southern Power Turns 640 MWH Solar - Co-located BESS Projects
Online in California." https://www.energy-storage.news/southern-power-retrofitting-640mwh-of-battery-storage-at-
two -cal iforn ia-solar-power- stations/
5STAFF COMMENTS AUGUST 30,2022
a
purchase agreement by Southern California Edison to add a battery-based energy
storage resource at Southem Power's Tranquility Solar Facility in Fresno, California.T
The Califomia Public Utilities Commission has approved 497 MWs of energy storage
procured by the utility company Southem California Edison to go online starting in
August 2023 throtgh June 2024. The California Public Utility Commission has
approved five PPAs for BESS projects that total49TMW of nameplate power and
1,988 MWh of energy, each being four-hour duration systems.s
In addition, Avista Utilities has been successfully managing the Lancaster Combined
Cycle Combustion Turbine Plant as a dispatchable resource through a PPA for years by
negotiating contract terms that allow it sufficient control.
The Company also asserts that an increase in PPAs would steadily increase the costs of
debt, because most rating agencies consider long-term PPAs as debt. See Application Page 9 and
Company Response to Production Request No. 3. Rating agencies do consider PPAs as
commitments of future revenues and therefore can act as long-term debt; however, the increase
in debt costs is not linear. The Moody's Cross-Sector: Market Data Highlights on Chart I shows
more of a cliff for interest rate increases as the credit rating decreases.
7 Id.
8 Energy Storage News, May 24,2022, "Califomia Regulator CPUC approves utility SCE's fast-tracked 500 MW
BESS projects Online in California." https://www.energy-storage.news/califomia-regulator-cpuc-approves-utility-
sces-fast-tracked- 5 00mw-bess-proj ects/
6STAFF COMMENTS AUGUST 30,2022
Chart No 1. Median Spreads by Rating Category
1400
1200
1000
800
600
400
200
7262
578
316
193
2L 29 40 45 52 s9 69 82 96 136
Aaa Aa1 Aa2 Aa3 A1 A2 43 Baal. Baa2 Baa3 Ba1 Ba2 Ba3 81 82 83 Caa
When the Application was filed, the Company had an ,A'3 credit rating. On July 6,2022,
Moody's downgraded the Company's credit rating to Baal, and upgraded the Company's
outlook from negative to stable. Chart No. 1 shows the spread increase from .A.3 to Baal to be
13 basis points or a0.13/o increase in debt costs. Even if the Company should get another
downgrade, which based on the stable outlook Moody's is not expecting, the interest rate
increase would be another 0.14%.
It is important to note that the impact on the interest rate would only effect new debt
issuances. The Company's previously issued debt would stay at the current interest rates. Using
a50%150% debt to equity ratio, and if the Company were to issue all debt that has been currently
approved by the Commission, a0.l3o/o increase in interest rates would have an approximate
0.021% increase in the Company's overall rate of retum.
Projects Selected Outside of the RFP
As evidence that the bid pool was insufficient, the two BESS projects were not bids that
were submitted throughthe202l RFP. Both of these projects were solicited and negotiated
directly by the Company outside of the RFP.
364
274
0
7STAFF COMMENTS AUGUST 30,2022
.B^E^S^S Cost Benchmarks and Cost Recovery Soft Cap
As further evidence that the resulting contracts are not least-cost, Staff benchmarked the
completed cost of the 120 MW BESS at $150,684,988 using comparable 4-hour BESS
installations which is I 1.7 Yo or $17 .6 million lower than the Company's estimated cost. Hackett
Direct at2l. Staffls benchmark 4-hour BESS pricing is based on published costs for Utility-
Scale Battery Storage using the National Renewable Energy Laboratory ("NREL") Annual
Technology Baseline,e updated in June of 2022 using the Moderate Technology Innovation
Scenario. Given the lower NREL cost compared to the Company's negotiated contract and other
Company estimated completion costs,l0 the total amount of recovery should be adjusted so that
Customers are not penalized for the additional cost.
Based on these benchmarks, Staff recommends the Commission set "soft" caps of
$50,228,329 for the 40 MW storage project and $100,456,659 for the 80 MW storage project
(without the cost of interconnection or transmission upgrades). The purpose of the soft cap is to
provide a maximum amount of recovery that the Company should be allowed to recover, unless
it can provide compelling evidence otherwise. Staff provided an analysis comparing the NREL
benchmarks to the cost of the Company's projects in Confidential Attachment 1 to develop the
amounts for the soft caps. This analysis ensures that Staff s comparisons were done on an
equivalent basis.
Commission Procurement Requirements
The Company did not comply with the Commission's procurement requirements under
Commission Order No. 32745. Staff believes following all requirements within the guidelines
would not have been prudent given the compressed timeline for this resource need. However,
the procurement requirements can protect customers by ensuring selected resources are least-
cost, Had the Company followed the requirements it could have avoided issues that Staff has
discussed in these comments. Thus, Staff encourages the Company to fully consider the
Commission's procurement requirements when it issues RFPs in the future.
e https://atb.nrel.eov/electricit)-/2022lutilif.v-scale-battery'-storage
r0 Costs were developed using Company confidential responses from Production Responses No. 18, 23, and24.
8STAFF COMMENTS AUGUST 30,2022
Depreciation Rates
Staff recommends the Commission issue an accounting order to change the Battery
Storage account (Account 363) depreciation rates from 6.66% (15-year life) to 5o/o (2}-yearlife).
In Case No. IPC-E-21-18, Account 363 depreciation rate was set at 6.66oh. At that time, the
Company did not have any battery storage assets in that account; therefore, no analysis was done
on the appropriate depreciation life. Installers and other companies that build BESS have
supported aZ}-year life for these types of assets. Staff recommends that the Commission
approve a 5o/o depreciation rate for the BESS when it is placed in service. This rate will be
reviewed in the Company's next depreciation case and updated as needed with data from the
battery storage assets the Company has in place at that time.
Income Tax Credit
There are ITCs available for generation plants with renewable attributes. The battery that
is "envisioned" to be co-located with the solar generation facility will therefore be eligible for
ITCs because the Company can reasonably assure that the energy stored in this BESS will be
using the power from the solar facility. Application at 6. However, the BESS that is expected to
be "potentially installed" next to the Hemingway Substation, Id. at 6, does not have the same
assurances that the energy stored will be from renewable resources and therefore may not qualify
for ITCs. Staff recommends that the Commission order the Company to reflect for ratemaking
purposes all available ITCs for these plant assets.
RECOMMENDATIONS
Staff recommends the Commission:
1. 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 resources and to ensure system reliability.
2. Establish "soft" caps of $50,228,329 for the 40 MW storage project and $100,456,659
for the 80 MW storage project (without the cost of interconnection or transmission
upgrades) when the Company seeks recovery for the projects.
3. The Commission issue an accounting order to change the Battery Storage account
(Account 363) depreciation rates from 6.66% (15-year life) to 5% (20-year life).
9STAFF COMMENTS AUGUST 30,2022
4. Onder the Company to reflect all available ITCs for these plants.
Rospoctfnlly submitted *, 3ff day of August 2A22.
RileyNewton,
Deputy Afrorney Gpneral
Technical Staff: Rick Keller
Jolene Bosqard
Kevin Keyt
Joe Terry
ftumiscl-commootilipoe2.Bm{itib ksk oomrons
-
STAFF COMMENTS t0 AUGUST 30,2022
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 3OTH DAY OF AUGUST 2022,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF WITH
REDACTED ATTACHMENT, IN CASE NO. IPC.E.22-13, BY E-MAILING A COPY
THEREOF, TO THE FOLLOWING:
DONOVAN E WALKER
IDAHO POWER COMPANY
PO BOX 70
BOISE rD 83707-0070
(Confidential Attachment I )
E-MAIL: dwalker(@idahopower.corn
[e-mail]
PETER J RICHARDSON
RICHARDSON ADAMS PLLC
5I5 N 27TH STREET
BOISE ID 83702
(Confi dential Attachment I )
E-MAIL : peter(Orichardsonadams.com
C. TOM ARKOOSH
AMBER DRESSLAR
ARKOOSH LAW OFFICES
9I3 W. RIVER STREET, SUITE 450
P.O. BOX 2900
BOISE, ID 83701
(Confidential Attachment l)
E-MAIL: [e-mail]
[e-mail]
erin.cecil @arkoosh.com
AUSTIN RUESCHHOFF
THORVALD A. NELSON
AUSTIN W. JENSEN
HOLLAND & HART, LLP
555 ITTH STREET SUITE 32OO
DENVER, CO 80202
(Redacted Attachment I )
E-MAIL : [e-mail]
tnelson@.hol landhart.com
awi ensen@hol landhart.com
TIMOTHY E TATUM
IDAHO POWER COMPANY
PO BOX 70
BOrSE rD 83707-0070
(Confidential Attachment l)
E-MAIL: [e-mail]
DR DON READING
6070 HTLL ROAD
BOISE ID 83703
(Redacted Attachment l)
E-MAIL : [e-mail]
JIM SWIER
MICRON TECHNOLOGY,INC
8OOO SOUTH FEDERAL WAY
BOISE,ID 83707
(Redacted Attachment 1)
E-MAIL: [e-mail]
MARIE KELLNER
IDAHO CONSERVATION LEAGUE
710 N. 6TH STREET
BOISE, ID 83702
(Redacted Attachment l)
E-MAIL : mkellner(@idahoconservation.org
[e-mail]
CERTIFICATE OF SERVICE
EMMA E. SPERR\
IDAHO CONSERVATION LEAGUE
7IO N. 6TH STREET
BOISE, D 83702
(Redacted Attachment 1)
E-MAIL: [e-mail]
,h/],fu-
SECRETARY
CERTIFICATE OF SERVICE