19900924Packwood Direct.pdf

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SNAKE RIVER . ~ 1¿/73
IDAHO POVVER COMPANY
HYDRO POWER
BOX 7 0 -B 0 I 5 E. I D A H 0 8 3 7 0 7
Idaho Public Utilties Commission
Office of the Secretary
RECEIVED
SEP 24 1990 September 24, 1990
Boise, Idaho
Mrs. Myrna J. Walters
Secretary
Idaho Public Utilties Commission
Statehouse
Boise, Idaho 83720
RE: Case No. IPC-E-90-8
Milner Proceeding
Dear Mrs. Walters:
Please find enclosed eight (8) copies of the Testimony and Exhibits of
Messrs. Packw~od, Keen, and Baggs regarding the Milner Proceeding.
If you have any questions, please feel free to call me.
Sincerely,
LDR:mka
Enclosures
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that I have this 24th day of Septembert 1990,
served the DIRECT TESTIMONY AND EXHIBITS OF WITNESSES PACKWOOD, KEEN, AND BAGGS
to all part i es of record by hand deli veri ng a copy thereof, to the fo 11 owi ng:
Afton Energy, Inc.
c/o Owen H. Orndorff
Orndorff & Peterson
1087 West Ri ver Street - Ste. 230
Boi se, Idaho 83707-0027
R. Scott Pasl ey
Ass i stant General Counsel
J. R. Simplot Company
P.O. Box 27
Boise, Idaho 83707-0027
R. Michael Southcombe, Esq.
CLEMONS, COSHO & HUMPHREY
815 West Washington
Boi se, Idaho 83702-5590
David H. Hawk, Director
Energy Natural Resources
J. R. Simplot Company
P.O. Box 27
Boi se, Idaho 83707-0027
Peter Ri chardson
DAVIS, WRIGHT, TREMAINE
350 North Ni nth Street
Suite 400
Boise, Idaho 83702
Michael S. Gilmore (2)
Brad M. Purdy
Idaho Publ ic Uti 1 it ies Commi ssi on
472 West Washington
Boise, Idaho 83720
and by causing a copy thereof to be del ivered by Federal Express to:
James N. Roethe, Esq.
PILLSBURY, MADISON, SUTRO
225 Bush Street
San Franci sco, CA 94140
Grant E. Tanner
DAVIS, WRIGHT, TREMAINE
2300 Fi rst Interstate Bank Tower
1300 SW Fi fth Avenue - Ste. 2300
Portl and, Oregon 97201
and due to the fact Mr. Mi 1 es had another commi tment I have caused the copy to
be mailed to Mr. Miles at the following address:
Harold C. Miles, Chairman
Idaho Consumer Affai rs, Inc.
316 15th Avenue South
Nampa, Idaho 83651
B~~
Attorney for Idaho Power Company
_...~....
Idaho Public Utilties Commission
Office of the Secretary
RECEIVED
SEP 241990
Boise, Idaho
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR A )
CERTIFICATE OF PUBLIC CONVENIENCE )
AND NECESSITY FOR THE RATE BASING )
OF THE MILNER HYDROELECTRIC PROJECT)OR IN THE ALTERNATIVE )
A DETERMINATION OF EXEMPT STATUS )
FOR THE MILNER HYDROELECTRIC )PROJECT )
)
IDAHO POWER COMPANY
DIRECT TESTIMONY
OF
JAN B. PACKWOOD
CASE NO. IPC-E-90-8
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Please state your name, business address and
present position with Idaho Power Company (Idaho
Power) .
My name is Jan B. Packwood and my business address
is 1220 W. Idaho street, Boise, Idaho. I am Vice
President of Power Supply for Idaho Power.
What is your educational background?
I graduated in 1966 from the University of Nevada
with a degree in electrical engineering.In
August, 1984, I received the degree of Master of
Business Boise stateAdministrationfrom
University.
Q.Please outline your business experience.
I served four years as a commissioned officer in
the United states Army, following graduation. My
military experience included assignments as a
Company Commander in the Federal Republic of
Germany and the Republic of Vietnam as well as
eight months of technical engineering with the Army
Material Command.I am registered as a
Professional Engineer in the States of Idaho and
Nevada.
I joined Idaho Power in 1970 as an Associate
Engineer in the company's Central Division in
Boise.My duties included designing electrical
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1 transmission and distribution systems to meet
2 customer and Company needs. In 1973, I advanced to
3 Division Engineering Supervisor where I oversaw the
4 design efforts of a 12 employee engineering
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6 In 1975, I was transferred to Twin Falls as
7 Assistant Electrical Superintendent. A year later,
I became the Electrical Superintendent and was
responsible for all construction, operation and
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11 ,I moved back to Boise in 1980 and assumed similar
12 responsibilities as the Electrical superintendent
13 of the Company's Central Division.
14 I became Manager of Substations in 1983 with
responsibility for the mechanical, electrical,15
16 control,system protection and communication
17 functions of the company's generation, transmission
18 and distribution stations.In 1985, I became
19 Superintendent of Engineering with responsibility
for all the non-generation engineering functions of20
21 the Company.
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In 1986, I assumed the position of Assistant
to the President and Chief Executive Officer with
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24 special projects assigned by the CEO.
25 I returned to engineering and operations in
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1988 as Senior Manager of Power Supply wi th
responsibility for resource planning,system
planning,high voltage lines and stations,
generation engineering, wholesale marketing and
contract development and administration. In 1989,
I was elected to my current position as Vice
President of Power Supply with ádded responsibility
for power production, power operations, thermal
generation and environmental affairs.
What is the purpose of your testimony in this
proceeding?
My testimony will explain Idaho Power Company's
participation in the Milner Hydroelectric Project.
I will also explain the Company's request for the
issuance of a Certificate of Public Convenience and
Necessi ty for the rate basing of the Milner
Hydroelectric Project, or in the alternative, a
determination of exempt status by the Commission.
Questions concerning the financial arrangements
wi th the Canal Companies should be directed to Mr.
LaMont Keen, Controller, Idaho Power Company.
Questions concerning the effect of rate basing the
Milner Project should be directed to Mr. James L.
Q.
Baggs, Manager of Rates for Idaho Power Company.
Please generally describe where the Project is
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Idaho Power Company
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located.
The Project is located in Idaho on the Snake River
about 130 miles southeast of Boise, between the
cities of Burley and Twin Falls. The project
facilities extend from the existing Twin Falls Main
Canal Headworks in Milner Reservoir to the
powerhouse site where most of the new facilities
are to be located.
When was the Milner Dam originally constructed?
Milner Dam was constructed in 1905 to provide
irrigation storage and diversions.
Who owns the Milner Dam?
The Dam is owned jointly by the Twin Falls Canal
Company, the North Side Canal Company and the
American Falls Reservoir District Number Two.
Three canals with their headworks adjacent to the
Dam are fed from Milner Reservoir. The Twin Falls
Main Canal (or South Side Main Canal) constructed
in 1905 will be utilized for the Project.Its
headworks is located near the left (south) abutment
of the dam and it flows west near the Snake River
for about 12 miles.
Q.What water flows will be used to produce power?
A.The proposed Milner Project will use Snake River
flows that presently pass through the Milner Dam
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Spillway.Such flows occur during the non-
irrigation season and at times during the
irrigation season when there are flows in excess of
irrigation diversions. The water will be conveyed
in an enlarged Twin Falls Canal and diverted into a
forebay and an intake structure, penstock and
powerhouse.Head will be obtained through
utilization of the difference in elevation between
the Twin Falls Canal and the Snake River.
What facili ties other than a powerhouse are
required for the Project?
other facilities required for the Project include
modifications to the existing headworks, canal and
bridge and a new control structure, tailrace
channel, access road and transmission line.
Q.When was the project originally licensed by the
Federal Energy Regulatory Commission (FERC)?
On December 15, 1988, the Canal Companies were
granted a license under Part I of the Federal Power
Act (FPA) to construct, operate, and maintain the
Milner Project to be located at the existing Milner
Dam and Twin Falls Main Canal on the Snake River.
The Project as licensed consisted of the Milner Dam
and Reservoir, modifications to 6,500 feet of the
Twin Falls Main Canal to increase i ts capacity, a
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1 control structure on the canal that would di vert
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the additional flow into a forebay, a penstock, a
powerhouse located on the Snake River 1.6 miles
downstream of the dam and containing a single
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5 generating unit rated at 43,650 kilowatts, and a
6 1.4-mile-Iong transmission line.
7 The Canal Companies had informed the Federal
Energy Regulatory Commission (FERC) that there was8
9 a serious concern for the structural integrity of
10 the 85-year-old Milner Dam and that failure of the
11 dam during the irrigation season could result in
12 near total crop failure on the 440,000 acres served
13 by the dam.Following a meeting with Canal
14 Companies and an inspection of Milner Dam, the
15 FERC i s Division of Dam Safety and Inspections
16 concluded that there was a high risk of failure at
17 the Milner Dam in the event of a seismic event
18 (earthquake). A complete dam failure could lead to
19 partial or total crop failure, since such a failure
20 would prevent diversion of water into the
irrigation canal. The Canal Companies intended to21
22 use the revenues from the sale of electric power to
23 be generated by the Project to obtain the funds
24 necessary to strengthen Milner Dam and upgrade its
25 spillway.The Canal Companies contended that,
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absent these revenues, funding repair of the dam
would result in severe economic hardship to many of
the 7,500 Canal Companies i shareholders who depend
on irrigation water from Milner Dam for their
livelihood.
Did FERC require further investigation as to the
capacity of the Milner Project, even though a
license was issued?
Yes.Although the FERC issued a license to the
Canal Companies based upon the construction of a
single generating unit rated at 43,650 kilowatts to
be located on the Twin Falls main canal, the FERC
ordered that within one year of issuance of the
license, the Canal Companies were required to
submit a report evaluating the feasibility of also
constructing a power plant at Milner Dam to utilize
the power potential of the flows released to the
bypass reach of the river below the dam and
therefore not usable by the power plant to be
located approximately 1.6 miles downstream. If the
feasibility study showed that also developing a
power plant at the dam would be economically
beneficial, the Canal Companies were required to
submi t a schedule and plans for also developing a
power plant at the dam.
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Idaho Power Company
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When was Idaho Power officially included in the
project by FERC?
On May 2, 1989, the FERC issued an order adding
Idaho Power as a co-licensee for the Milner
Project. From and after that date the license for
the Milner Project is now jointly held by Twin
Falls Canal Company, North Side Canal Company,
Ltd., and Idaho Power with all conditions of the
previous license being applicable to the three
licensees. The license is attached as Exhibit 1.
Have Idaho Power and the Canal Companies
investigated the feasibility of increasing the
capacity of the Milner Project?
Yes. Idaho Power and the Canal Companies prepared
the analysis required to determine the feasibility
of increasing the capacity of the Milner Project.
Based upon that analysis, Idaho Power and the Canal
Companies have proposed to the FERC that a new
powerhouse be constructed near the north abutment
of Milner Dam and that a second unit be added to
the main powerhouse 1.6 miles downstream of the
dam. The powerhouse at the dam will consist of a
single-propeller turbine which will discharge a
constant 200 CFS when in operation with a net head
of 50 feet.It will be coupled to a 1000 kVA
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induction generator. Maximum output will be about
770 kW.
The turbine will be fed through a steel
penstock coming off of an intake located on the
reservoir. Gates to allow start-up and to unwater
the unit for maintenance will be included.
Provisions for release of the 200 CFS target flow
when the plant is not being operated will be
provided in the spillway.
Based upon the new analysis, the turbines
located at the Main Powerhouse 1.6 miles downstream
will be vertical shaft Kaplan type directly coupled
to the generators.The large unit will have a
rated output of 46,000 kilowatts (kW) at a net head
of 150 feet, a discharge of 4,000 CFS and a speed
of 200 revolutions per minute (RPM).The small
unit will have a rated output of 11,500 kilowatts
(kW) at a net head of 157 feet, a discharge of
1,000 CFS, and a speed of 400 revolutions per
minute (RPM).
Q.As a result of the revised feasibility analysis,
what action was taken?
An Application to amend the license to conform the
license to the feasibility analysis has been
prepared, sent to relevant state and federal
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resource agencies for their review and comment, and
filed with FERC.
When did Idaho Power first become invol ved in the
Milner project?
Idaho Power and the Canal Companies ini tially
entered into an agreement to explore the
feasibility of power generation at Milner Dam in
1981.The Canal Companies were guaranteed a
royalty with a net present value over the life of
any development equal to approximately $5,638,000.
At that time, the Parties were concerned about the
integrity of the Dam itself and agreed to negotiate
a common solution to the repair issue if necessary
at a later date.
Q.Was the Milner Dam in need of repairs?
Yes. As a result of various inspections, it was
determined that immediate repair was required to
insure the structural integrity of the dam.The
cost of necessary repairs to the Milner Dam is
approximately $11,700,000.
Q.What are the financial arrangements between Idaho
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Power Company and the Canal Companies?
Mr. LaMont Keen will address the financial
agreement between Idaho Power Company and the Canal
Companies.
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What is the Milner Project ownership arrangement?
Idaho Power and the Canal Companies have entered
into an Agreement Regarding the Ownership,
Construction, Operation and Maintenance of The
Milner project. The Canal Companies will maintain
the ownership of the dam, and Idaho Power will own
the generation facilities. A copy of the Agreement
is attached as Exhibit 2.
Please discuss the timing of this proj ect.
The Canal Companies were required by FERC to
rehabilitate the Milner Dam during the 1989
construction season and .the source of funds
available for that rehabilitation was to be the
revenues derived from power sales.The Canal
Companies had already received a license from FERC.
Since the Project had to be constructed, Idaho
Power was presented with a unique opportunity to
participate with the Canal companies in the
rehabilitation of the dam, thus securing the hydro
power for the benefit of its customers. The timing
of the Project, however, could not be deferred.
Q.The Commission has required that Idaho Power
Company submi t cost estimates on large proj ects .
Please comment on this requirement.
Large hydroelectric projects involve design and
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1 construction which must be customized to the
2 particular site.As a resul t, preliminary
3 estimates contain many unknowns for both the final
project layout and scope. Detailed engineering to
finalize the layout and scope in order to obtain a
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6 more precise estimate would resul t in extremely
7 high front end costs on all projects, and
8 significant expenditures would be made even if a
9 particular project is not built. Changes required
10 as part of the environmental and regulatory review
11 process could also result in the need to completely
12 redesign a project, thus radically changing the
13 original preliminary estimate.
For most hydroelectric projects, the first
major expenditure of funds, other than for
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16 engineering design,is the purchase of the
17 hydroelectric turbines and generators. The design
18 and acceptance of bids for the Milner Proj ect ' s
turbines and generators has been accomplished and19
20 Idaho Power is now able to make a cost estimate.
21 This estimate, which has been termed a "Commitment
22 Estimate", is the best estimate of the Project's
23 cost after the award of the contracts for the
24 turbines and generators plus an additional amount
25 of 5% to establish a cost ceiling for the Project.
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What is the effect of the commitment estimate under
the Company's proposal?
Idaho Power will commit to building the Project for
the Commitment Estimate, as it may be adjusted to
account for documented changes in escalation rates
or scope.If the final costs exceed the
"Commitment Estimate", Idaho Power will absorb the
extra costs, and will include in its Idaho rate
base only the actual construction costs up to the
Commi tment Estimate.
Please explain what you mean when you state the
Commitment Estimate may be adjusted for changes in
escalation rates or scope.
If major inflation occurs, resulting in higher cost
indices, the Commitment Estimate would be adjusted
to reflect these inflated cost indices. Examples
of possible scope changes which could affect the
project ceiling are Force Majeure or acts of God
impacting the construction, design optimization for
which increased energy more than offsets the
increase in initial investment, and foundation or
site conditions significantly more expensive than
indicated by exploratory drilling.
Q.What is the current Milner cost projection?
A.The Milner Project's costs are currently projected
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to be $60,333,900 at completion in 1992, with a dam
reconstruction cost of $11,700,000.with an
additional 5%, Idaho Power's Commitment Estimate
for the powerhouse is $63,350,600.The cost
estimates are shown in Exhibit 3. Updated Project
cost estimates will be submitted to the Commission
as part of the Company's Quarterly Report of
Construction Projects and will include any scope or
escalation changes. The final cost report on the
Project will still compare the actual costs to the
Commi tment Estimate.
What is the Company's proposal if the Commission
determines it will not issue an Order approving the
Milner Project for rate basing?
If the Commission determines that Idaho Power's
investment in the Milner Project should not be rate
based for revenue requirement purposes,the
Commission should issue an order determining that
the Milner Project has an exempt status.
Q.Please explain the Company's proposal.
The order determining the exempt status should be
effective for a period of 20 years from the date of
commercial operation to permit Idaho Power to enter
into a long term sale of the energy to another
utility.
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1 Idaho Power would propose that two years prior
2 to the expiration of the order determining the
3 exempt status, Idaho Power would apply for a
4 redetermination of the status of the exempted
5 Milner Plant. The Commission, after notice, would
6 determine if the Order of Exemption should be
7 continued or if a Certificate of Public Convenience
8 and Necessity for the rate basing of the Milner
9 Project should be issued at that time. The order
10 determining the status of the generating plant
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would be issued by the Commission wi thin one year
of the date the application for redetermination is
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14 If the Commission determines in the second
15 proceeding that a Certificate of Public Convenience
16 and Necessity for the rate basing of the Milner
17 Project should be issued, the Commission should
18 issue a Valuation Order for revenue requirement
19 purposes wi thin three months of the order issuing a
20 Certificate of Public Convenience and Necessity.
21 The value of the plant for revenue requirement
22 purposes in the 20th year will be based upon the
23 then reproduction cost new less depreciation. Mr.
24 Baggs will explain the rate making effect of this
25 proposal.
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Does this complete your testimony.
Yes it does.
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