19901109Eastlake Direct.pdf

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BEFORE THE IDAHO PUBLIC UT COMMSSION
IN TH MA1"1'lia OF TH APPLCATION OF ) CASE NO. 1P-E-90-2IDAHO POWER COMPAN PORAU'ORl )TO RATEE mE lN IlQUI )FOR TH REUI OF TH SWAN FAL )HYROELECTC PROJCT. )
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DIRCT TETIONY OF BIL EATL
IDAHO PULIC tJ COMMSSON
NOVEER 9, 199
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1 Please state your name and businessQ.
2 address for the record.
3 My name is Bill Eastlake. My businessA.
4 address is 472 W. Washington Street, Boise, Idaho.
5 By whom are you employed and in whatQ.
6 capacity?
7 I am employed by the Idaho PublicA.
8 uti Ii ties Commission as an Economist.
9 Please describe your educationalQ.
10 background and work experience.
11 A.I received an H.A.B. (Honors Bachelor of
12 Arts) with emphasis in classics and economics from
13 Xavier University in 1965 and completed graduate
14 course work and general examinations in the Ph.D.
15 program in economics at Ohio state University in 1969.
16 I taught undergraduate economics
17 full-time at Boise State University from 1969 through
18 1976, wi th two years on leave as a Fulbright Exchange
19 Professor at Cuttington College, Liberia, West Africa.
20 I have also taught part-time at Boise State University,
21 College of Idaho, and Ohio State University.
22 I was a part-time Taxpayer Service
23 Representative for the Internal Revenue Service during
24 1977 and 1978. In 1978, I took a position with the
25 Idaho Off ice of Energy as an energy economi st, wi th
IPC-E-90-2
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EASTLAKE, DiStaff 1
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1 responsibi Ii ty for energy conservation planning and
2 then for economic feasibility analysis of geothermal
3 and other alternative energy proposals. When the
4 office became a division of the Idaho Department of
5 Water Resources in 1981, I became responsible for the
6 Idaho Water Resource Board's financial programs, loans
7 and grants as well as industrial revenue bonds for
8 water projects. with the demise of the bond program,
9 I assumed responsibility for the design and imp1e-
10 mentation of a statewide energy conservation loan
11 program. In addition, I provided economic analysis in
12 support of policy decisions concerning water rights,
13 water planning, and agricultural water uses.
14 Q.What is the purpose of your testimony?
15 A.To suggest policy considerations relating
16 to the use of hydroelectric power from an existing dam
17 like Swan Falls for the Commission to use in reaching
18 a decision in this case.
19 Q.What is the importance of these policy
20 issues?
21 A.They provide a broader environment in
22 which decisions are made about how much hydroelectric
23 generation is to be procured and at what cost. The
24 main point is that the decision to provide even pre-
25 liminary approval for construction (or a certificate
e
IPC-E-90-2l1-9-90 EASTLAKE, DiStaff 2
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1 of convenience and necessity) for the Swan Falls
2 project is not as simple as merely asking whether its
3 projected cost is greater or less than the published
4 avoided cost.
5 Q.Why do you say that?
6 A.Ratepayers are not buying a simple undif-
7 ferentiated product (electrical generation), the sort
8 of purchase where the product is so standard, the only
9 important factor in the purchase decision is price.
10 There are subsidiary considerations that
11 are important to the decision as to whether the
12 resources available from the Swan Falls project are
13 preferable to other possible resources. How the
14 projected cost of power from these resources compares
15 to the cost of other potential resources is indeed
16 important, but is not the sole decision factor. Some
17 discretion must be allowed the Commission to consider
18 other factors in making its decision, except in the
19 case where the cost of the proposed resource is radi-
20 cally different from that of competing resources.
21 Q.Are projected costs from these plants
22 significantly different from avoided cost rates?
23 A.No, they appear to be approximately the
24 same.
25
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1 Even when adjustments are made to put
2 avoided costs in the saine 50 year time frame, the Swan
3 Falls project actually comes in slightly below avoided
4 cost. Mr. Fau1 I' s test imony provides more ins ight
5 into the specific relationship between the projected
6 cost of electricity from this plant and the newly
7 published avoided cost rates. When the difference is
8 sma I l, as it is here, there are other f actors that
9 should enter into the decision process.
10 Q.What are some of these other factors
11 which should allow the Commission some discretion.
12 A.There are several. Historical experience
13 with prior hydroelectric installations has some rele-
14 vance. The probable future course of environmental
15 constraints through federal legislation is important.
16 The policy stance of the State of Idaho as evidenced
17 in prior energy and water matters is also important.
18 Is hydroelectric power the state's mostQ.
19 important native energy resource?
20 In the past Idaho relied solely on hydro-A.
21 electric power for its electric energy needs. As the
22 state has grown there has been the need to supplement
23 hydro with some thermal generation located outside the
24 state. But it remains the fact that Idaho's hydro-
25 electric base is what has allowed power rates to
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EASTLAKE, DiStaff 4
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1 remain at or near the lowest in the country. Making
2 optimum use of that hydro, which is essentially
3 Idaho's only significant energy resource, remains a
4 sensible policy to protect the legacy of past low
5 rates.
6 Where possible it makes sense to keep
7 local control of that resource, so that the real bene-
8 fits of low cost hydropower are reaped by uti li ties
9 and ratepayers in Idaho rather than out-of-state.
10 Q.What has been the relevant policy stance
11 of the State wi th respect to the sort of hydro projects
12 proposed here?
13 The most comprehensive policy statementA.
14 in this regard comes from the Idaho State Energy Plan,
15 a study commissioned by the Governor in 1980. The
16 Idaho Energy Resource Policy Board, a diverse group of
17 fifteen persons representing a cross-section of inter-
18 es ts wi thin the state, heard test imony from var ious
19 energy experts and held public hearings over an
20 eighteen month period. The Energy Plan, which came
21 out in February of 1982, was an outline of how the
22 state could assist in supplying adequate energy for
23 the future.
24 Q.What sorts of policy direction were
25 contained in this plan?
IPC-E-90-211-9-90 EASTLAKE, DiStaff 5
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1 A.The plan stated generally that there was
2 to be a high priority placed on conservation and
3 renewables, wi th an emphasis on improving existing
4 resources.
5 Wi th respect to renewables, it stated
6 that "the state should give a high priority to hydro-
7 electric projects, in particular the upgrading of
8 current faci 1ities within the state."
9 In its formal policy implementation
10 guidelines, the plan stated that "priority should be
11 given to the review of sites and approval of projects
12 related to hydroelectric generation and existing
13 hydroelectric upgrades."
14 In the section on hydro, the plan notes
15 the presence of many non-power dams with the capa-
16 bi Ii ty to accept generation equipment and some
17 existing power projects which can provide increased
18 capacity through upgrading of generation facilities.
19 The plan even has a range of anticipated costs, from
20 50 mills in 1985 to 75-100 mills in 2000, which seems
21 commensurate with the projected costs contained in the
22 company's applications ~
23 Does this Plan have force of law?Q.
24 A.No. The only purpose of ci t ing it here
25 is to indicate that the upgrades proposed by the
IPC-E-90-2ll-9-90 EASTLAKE, DiStaff 6
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1 company seem quite consistent with the policy guidance
2 provided on this issue by a formal board convened to
3 look to Idaho's energy future.
4 Simply put, the Resource Policy Board
5 recognized that hydro has been very good for the state
6 and recommended continuing to exploit that known
7 resource where poss ible.
8 While it recognized the potential for
9 some new small hydro development (and, in retrospect,
10 understated the difficulty of getting new projects
11 permi tted) the Board rather clearly indicated a pre-
12 ference for getting more of the hydropower potential
13 available at existing dams.
14 The proposed proj ect, since it makes use
15 of an existing dam with generation facilities, is
16 aligned wi th that preference.
17 What was the reason the Board seemed toQ.
18 prefer hydro from existing structures?
19 From my recollection of staff work (asA.
20 an employee of the Energy Bureau of the Idaho
21 Department of Water Resources) for the Board, there
22 was reason to believe that power from existing dams
23 would be less costly than that from new dams. These
24 were large old infrastructure projects that would have
25 been inordinately expensive to replicate in current
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EASTLAKE, DiStaff 7
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1 dollars. With the water diversion works already in
2 place the only cost was the additional cost of adding
3 generation.
4 Q.Does the same reason to prefer old hydro
5 still hold today?
6 A.I believe the rationale for preferring
7 existing sites would be somewhat different, but the
8 preference would remain.
9 Q.Why would the rationale be different?
10 A.The rationale would still emphasize the
11 lower cost to be expected from upgrading of existing
12 facilities, but it would not be based so much on an
13 expected difference in the physical cost of construc-
14 tion and equipment. The lower cost expectations would
15 today probably focus more on the lack of institutional
16 barriers that face an already existing dam. New dams
17 and diversions face extraordinary obstacles in the way
18 of permi tting requirements, especial ly envi ronmenta1
19 considerations.
20 The Board's initial deliberations took
21 place in an era when it appeared that there were lots
22 of viable small hydro projects available. As time has
23 passed there has been an increase in the number of
24 regulations and in the stringency with which they are
25 enforced. What looked like a flood of easily available
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EASTLAKE, DiStaff 8
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1 small hydro has become more of a trickle as one after
2 another has failed to clear the institutional obstacles
3 associated wi th permitting.
4 Q.Does the current legislative climate
5 seem likely to become less restrictive?
6 A.Just the oppos i te. Growing concern for
7 endangered species, recreational, and fish and wi ldlife
8 values associated with the use of the water resource
9 by hydroelectric projects makes it ever more difficult
10 for a new proj ect to be approved. Though in some cases
11 mitigation is now being required of older projects
12 permi tted in an era when there was less concern for
13 these values, in any case the envi ronmental obstacles
14 facing upgrade of existing facilities are substantially
15 less than that facing a new project. These trends
16 translate into lower projected costs for pre-existing
17 projects, or the absolute inability to even get a new
18 project permitted.
19 How is hydropower considered in theQ.
20 State Water Plan?
21 The State Water Plan was created in 1976A.
22 to help formulate and implement the optimum develop-
23 ment of water resources in the public interest.
24 Adopted by the Idaho Water Resource Board, it is
25 periodically updated and reviewed by the Legislature.
IPC-E-90-2
11-9-90 EASTLAKE, DiStaff 9
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1 The first State Water Plan was in 1976, with revisions
2 in 1982 and 1986. The Plan was altered in its most
3 recent revision to account for changes needed to
4 reconci Ie it wi th the ag reement entered into between
5 the State and Idaho Power Company concerning water
6 rights at Swan Falls Dam.
7 Policy LC of the Water Plan lists various
8 non-consumptive uses of water considered to be "bene-
9 ficial uses" of water recognized under Idaho law.
10 More specifically, Policy 5E recognizes hydro genera-
11 tion as beneficial and acknowledges a public interest
12 in maintaining minimum river flows at Swan Falls.
13 This is a striking charge from the earlier narrow
14 conception of "beneficial use" which emphasized
15 removal of water from the river, usually for
16 irrigation.
17 Policy 5A actually raised the minimum
18 flows to 3900 cfs (April-October) and 5600 cfs
19 (November-March) at the Murphy gauge in recognition
20 of the importance of those f lows to hydrogeneration.
21 Amounts between those flows and the 8400 cfs originally
22 claimed by Idaho Power are now held in trust by the
23 state for allocation according to the more extensive
24 set of public interest criteria set out by revision to
25 the Idaho Code, partly in recognition of the fact that
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EASTLAKE, DiStaff 10
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1 hydrogeneration was a valuable use of water, foregon~
by its withdrawal from the river for other purposes.2
3 Q.Is there anything about the existing
4 structure of water rights that appears to favor the
5 use of pre-existing facilities for hydrogeneration?
6 A.The whole Swan Falls controversy arose
7 because a group of individuals sued Idaho Power to
8 force the company to assert its water right for power
9 generation vis-a-vis the claims of irrigators. Though
10 this is neither the time nor the place to revisit that
11 controversy, wi th existing dams there is already a
12 water right in place, with particular rights and
13 responsibilities. New hydropower facilities face a
14 more stringent set of requirements and a general
15 climate in which most of the available water is
16 already allocated.
New facilities bear the burden of proof17
18 that their use of water, in this case for the purpose
19 of hydroelectric generation, will create no adverse
20 impact on prior appropriators of water. That burden,
21 of proving that new uses of water are in the public
22 interest, of adhering to the expanded set of cri teria
23 established in Idaho Code Section 42-203C to implement
24 the Swan Falls Agreement, creates a formidable and
25 costly process for new hydro developers.
IPC-E-90-2
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EASTLAKE, D iStaff 11
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1 Has the Idaho Legislature recognized theQ.
2 value of protecting existing hydropower generation
3 through its resolution of the Swan Falls controversy?
4 A.Yes, and there are a variety of sources
5 from which to quote their obvious desire to protect a
6 valuable hydro resource in existing dams. In the
7 formal Framework Agreement signed before negotiations
8 resulted in the final agreement, there is a statement
9 that non-irrigation season flows are of critical
10 importance to prevent the loss of Idaho's low cost
11 hydropower base. In light of this statement the
12 agreement called for a seasonally-differentiated
13 minimum flow, wi th 5600 cfs in this cri tical non-
14 irrigation season and 3900 cfs during the irrigation
15 season. And as part of the new public interest
16 criteria specified in the agreement, there is obvious
17 intent to prevent significant reduction of water
18 avai lable to holders of water rights used for power
19 production.
20 Q.Idaho Power has asserted that part of
21 the reason to accept its planned Swan Falls Project is
22 the need to protect an existing water right. Do you
23 find that contention persuasive?
24 A.Yes, I do. The Swan Falls controversy
25 resulted in recognition of the fact that water in
IPC-E-90-2
11-9-90 EASTLAKE, DiStaff 12
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1 Idaho is valuable for power production, not just for
2 irrigated agriculture.
3 Q.In general terms, is there a way to put
4 a value on that water right, to provide an indication
5 of the value of hydropower which would be lost if
6 Idaho Power did not rebui Id and forfei ted its existing
7 water right at Swan Falls through non-use?
8 Arriving at a specific valuation is aA.
9 somewhat contentious issue due to disagreements over
10 exactly how to quantify the right in cfs and over the
11 conversion of this cfs figure to kwh and then to value
12 in dollars.
13 However, I believe a rough estimate can
14 be arrived at by taking the 5600 cfs mentioned above
15 as "critical" to preserving our hydro base. Published
16 data done by agricultural economists at the University
17 of Idaho and Washington State University contains an
18 acceptable figure of 520 kwh/acre foot as the loss of
19 generation at Swan Falls and downstream through Hells
20 Canyon if an acre foot of water is removed above Swan
21 Falls Dam.
22 Converting the 5600 cfs to acre feet and
23 multiplying to get the loss of generation gives a
24 figure of just over 2 million kwh. Valuing those kwh
25
IPC-E-90-211-9-90 EASTLAKE, DiStaff 13
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1 at a current avoided cost figure of roughly 5 cents/
2 kwh yields about $105 million dollars annually.
3 Even valuing this lost generation at a
4 much lower variable cost of l. 5 cents/kwh yields about
5 $31 million annually. That number is of course just
6 the first year's loss. Losing that water permanently
7 generates losses whose value would rise with the
8 increasing cost of alternative power generation.
9 Q.What has been the stance of prior Com-
10 missions in their deliberations concerning certificates
11 of public convenience and necessity for other hydro-
12 electric projects contemplated by the Company?
13 A.Several cases seem to give evidence of a
14 general leaning toward hydroelectric projects as being
15 in the public interest.
16 In U-I006-70, a request for a rate in-
17 crease in anticipation of the Company's participation
18 in the Jim Bridger Plant, in Order No. 10049, there is
19 notation that..... it is evident that the power gen-
20 erated by hydropower projects will become increasingly
21 more valuable." The quotation is vis-a-vis the
22 proposed steam generation plant but nevertheless
23 indicates a belief that hydropower seems to improve
24 with age.
25
IPC-E-90-2
11-9-90 EASTLAKE, DiStaff 14
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1 In U-1006-L07, requesting a certificate
2 of convenience for a new powerhouse at American Falls
3 in connection with rebuild of the dam, the Commission
4 used Order No. 12631 to summarily approve this pro-
posed plant that "will permit greater utilization of5
6 waters being released" to meet existing and future
7 loads.
8 In U-1006-154, issuing a preliminary
9 certificate for the addition of generation to the
10 existing Cascade Dam, the Commission noted in Order
11 No. 15296 that after installation the economics of
12 hydroelectricity generally improve significantly in
13 comparison with thermal and that the environmental
14 impact will likely be very slight since the proposed
15 development wi 1 1 merely replace an existing structure.
16 Q.Was the decision to grant or refuse a
17 certificate to any of these proposed facilities a
18 simple one of comparing the proposed cost to the cost
19 of alternative resources?
20 No. The Commission is charged withA.
21 considering the need for additional power to serve the
22 utility's load and with the cost of alternative means
23 of serving such need.
24 In U-I006-l36, requesting a certificate
25 for South Fork of the Payette projects which were
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1 ultimately turned down, in Order No. 15580 the Commis-
2 sion noted the "process necessarily required the
3 weighing and balancing of numerous (and often com-
4 peting) considerations, many of which cannot be
5 quantified." In other words, it took judgment, not
6 mere following of a rule.
7 In U-I006-154, the order ci ted above,
8 there was explicit recognition that thermal generation
9 would cost approximately the same per instal led KW as
10 the proposed hydro project, but that consideration of
11 issues beyond first cost of construction were more
12 important in determining what was the best resource
13 decision.
14 Q.Does this conclude your testimony?
15 A.Yes, it does.
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IPC-E-90-211-9-90 EASTLAKE, DiStaff 16
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CEIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 9TH DAY OF NOVEMBER,
1990, SERVED THE FOREGOING DIRE TESTIMONY OF BILL EATL,
CASE NO. IPC-E-90-2, ON ALL PARTIES OF RECORD BY MAILING A COpy
THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
STEVEN L. HERNDON
IDAHO POWER COMPANY
P. O. BOX 70
BOISE, ID 83707
GRANT E. TANNER, ESQ.
DAVIS WRIGHT TREMAINE
SUITE 2300
1300 S.W. FIFTH AVENUE
PORTLAND, OR 97201
PETER J. RICHARDSON, ESQ.
DAVIS WRIGHT TREMAINE
400 JEFFERSON PLACE
350 N. NINTH STREET
BOISE, ID 83702
LARRY D. RIPLEY, ESQ.
IDAHO POWER COMPANY
P. O. BOX 70
BOISE, 10 83707
AFTON ENERGY, INC.
C/O OWEN H. ORNDORFF
ORNDORFF & PETERSON
SUITE 230
1087 W. RIVER STREET
BOISE, ID 83102
HAROLD C. MILES, CHAIRMAN
IDAHO CONSUMER AFFAIRS, INC
316 FIFTEENTH AVENUE SOUTH
NAMPA, ID 83651
JAMES N. ROETHE
PILLSBURY MADISON & SUTRO
P . 0 . BOX 7880
SAN FRANCISCO, CA 94120
R. .HI CHAEL SOUTH COMBE
CLEMONS COSHO & HUMPHREY
815 W. WASHINGTON STREET
BOISE, IO 83702
SECcfA1f .
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