19901109Eastlake Direct.pdf

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IDMW PUBue
TIES COMMISSI
BEFORE TH IDAHO PUBLIC UT COMMSSION
IN TH MAttER OF TH APLICATION
OF IDAHO POWER COMPAN FOR A CJTICATE OF PUC CONVCE ANNECEIT FOR TH RATEG OFTH MI HYROELC PRCTOR IN TH ALTEA'l A DET-ATtON OF EX STATU POR TI:M HYROELC PRJE.
) CASE NO. JPE-90-8
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nIRCT TEONY OF BIL EA
IDAHO PULIC UT COMMON
NOVEER 9, 199
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1 Q.Please state your name and business
2 address for the record.
3 A.My name is Bill Eastlake. My business
4 address is 472 W. Washington Street, Boise, Idaho.
5 Q.By whom are you employed and in what
6 capaci ty7
7 A.I am employed by the Idaho Public
8 utilities Commission as an Economist.
9 Q.Please describe your educational
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 posi tion wi th the
25 Idaho Office of Energy as an energy economist, with
IPC-E-90-811-9-90 EASTLAKE, DiStaff 1
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1 responsibility for energy conservation planning and
2 then for economic feasibility analysis of geothermal
3 and other al ternati ve 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 imple-
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 To suggest policy considerations relatingA.
16 to the addition of hydroelectric power to an existing
17 dam like Milner 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 envi ronment 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
IPC-E-90-811-9-90 EASTLAKE, D iStaff 2
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1 of convenience and necessi ty) for the ~~ project
2 is not as simple as merely asking whether its projected
3 cost is greater or less than the published avoided4 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 Milner 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 same 50 year time frame, the
3 Milner project actually comes in slightly below
4 avoided cost. Mr. Faull' s test imony provides more
5 insight into the specific relationship between the
6 projected cost of electricity from this plant and the
7 newly published avoided cost rates. When the dif-
8 ference is small, as it is here, there are other
9 factors that should enter into the decision process.
lO Q.What are some of these other factors
11 which should allow the Commission some discretion.
12 A.There are several. Historical experience
13 wi th 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 a Iso important.
18 Q.Is hydroelectric power the state's most
19 important native energy resource?
20 A.In the past Idaho relied solely on hydro-
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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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 low5 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 utilities
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 A.The most comprehensive policy statement
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 ests within the state, heard testimony from various
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?
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1 A.The plan stated generally that there was
2 to be a high priori ty placed on conservation and
3 renewables, with 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 facilities 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 wi th 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 Q.Does this Plan have force of law?
24 A.No. The only purpose of ci t ing it here
25 is to indicate that the upgrades proposed by the
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1 company seem qui te consistent wi th 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 exploi t that known
7 resource where possible.
8 While it recognized the potential for
9 some new sma 1 1 hydro development (and, in ret rospect,
10 understated the difficulty of getting new projects
11 permitted) 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 tha t preference.
17 Q.What was the reason the Board seemed to
18 prefer hydro from existing structures?
19 A.From my recollection of staff work (as
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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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 si tes 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 insti tutional
16 barriers that face an already existing dam. New dams
17 and diversions face extraordinary obstacles in the way
18 of permi tting requi rements, especially environmental
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 wi th which they are
25 enforced. What looked like a flood of easily available
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1 small hydro has become more of a trickle as one after
2 another has fai led to clear the insti tutional obstacles
3 associated with permitting.
4 Q.Does the current legislative climate
5 seem likely to become less restrictive?
6 A.Just the opposi te. Growing concern for
7 endangered species, recreational, and fish and wildlife
8 values associated with the use of the water resource
9 by hydroelectric projects makes it ever more difficult
10 for a new project 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 environmental obstacles
14 fàcing upgrade of existing faci Ii ties 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 Q.How is hydropower considered in the
20 State Water Plan?
21 A.The State Water Plan was created in 1976
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 Legis lature.
IPC-E-90-8
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1 The fi rst 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 agreement 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 specif ically, Policy 5E recognizes hydro genera-
11 tion as beneficial and acknowledges a public interest
12 in maintaining minimum river f lows at Swan Fal Is.
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, part ly in recogni tion of the fact that
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1 hydrogeneration was a valuable use of water, foregone
2 by its wi thdrawal from the river for other purposes.
3 Q.Is there anything about the existing
4 structure of water rights that appears to favor the
5 use of pre-existing faci Ii ties 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 nei ther the time nor the place to revisi t that
11 controversy, with 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 a 1 ready a 1 located.
17 New facilities bear the burden of proof
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 criteria
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.
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1 Q.Wi 1 1 Idaho Power Company's use of flows
2 from the existing Milner Dam have the kind of adverse
3 impacts predicted for newly-placed hydroelectric
4 projects?
5 A.No. Idaho Power Company's actual
6 generation will depend on water conditions and on the
7 dam owner's pattern of water use for irrigation.
8 Generation will be subsidiary to irrigation needs and
9 will have little impact on the existing flow regime.
10 The proposed project makes use of surplus water which
11 is currently passed through the spillway. The plant
12 will operate basically as run-of-the-river with no
13 additional storage capacity.
14 Q.What has been the stance of prior Com-
15 missions in their deliberations concerning certificates
16 of public convenience and necessity for other hydro-
17 electric projects contemplated by the Company?
18 A.Several cases seem to give evidence of a
19 general leaning toward hydroelectric projects as being
20 in the public interest.
21 In U-1006-70, a request for a rate in-
22 crease in anticipation of the Company's participation
23 in the Jim Bridger Plant, in Order No. 10049, there is
24 notation that ..... it is evident that the power gen-
25 erated by hydropower projects will become increasingly
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1 more valuable." The quotation is vis-a-vis the pro-
2 posed steam generation plant but nevertheless indicates
3 a belief that hydropower seems to improve with age.
4 In U-1006-l07, requesting a certificate
5 of convenience for a new powerhouse at American Falls
6 in connection with rebuild of the dam, the Commission
7 used Order No. 12631 to summarily approve this pro-
8 posed plant that "will permit greater utilization of
9 waters being released" to meet existing and future
10 loads.
11 In U-1006-154, issuing a preliminary
12 certificate for the addition of generation to the
13 existing Cascade Dam, the Commission noted in Order
14 No. 15296 that after installation the economics of
15 hydroelectricity generally improve significantly in
16 comparison with thermal and that the environmental
17 impact wi 11 likely be very slight since the proposed
18 development wi 11 merely replace an existing structure.
19 Q.Was the decision to grant or refuse a
20 certificate to any of these proposed facilities a
21 simple one of comparing the proposed cost to the cost
22 of alternative resources?
23 A.No. The Commission is charged with
24 considering the need for addi tional power to serve the
25
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1 utility's load and with the cost of alternative means
2 of serving such need.
3 In U-1006-l36, requesting a certificate
4 for South Fork of the Payette projects which were ulti-
5 mately turned down, in Order No. 15580 the Commission
6 noted the "process necessari ly requi red the weighing
7 and balancing of numerous (and often competing) con-
8 siderations, many of which cannot be quantified." In
9 other words, it took judgment, not mere fol lowing of a
10 rule.
11 In U-1006-l54, the order cited above,
12 there was explici t recogni tion that thermal generation
13 would cost approximately the same per installed KW as
14 the proposed hydro project, but that consideration of
15 issues beyond first cost of construction were more
16 important in determining what was the best resource
17 decision.
18 Q.Does this conclude your testimony?
19 Yes, it does.A.
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IPC-E-90-811-9-90 EASTLAKE, DiStaff 14
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CETICATB OF SE
I HEREBY CERTIFY THAT I HAVE THIS 9th DAY OF NOVEMBER,
1990, SERVED THE FOREGOING DIRECT TESTIMONY OF BILL EATLA,
CASE NO. IPC-E-90-8, ON ALL PARTIES OF RECORD BY MAILING A COPY
THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
LARRY D. RIPLEY, ESQ.
LEGAL DEPARTMENT
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
STEVEN L. HERNDON, ESQ.
LEGAL DEPARTMENT
IDAHO POWER COMPANY
P. O. BOX 70
BOISE, ID 83707
HAROLD C. MILES
IDAHO CONSUMER AFFAIRS, INC.
316 - 15TH AVENUE SOUTH
NAMPA, 10 83651
PETER J. RICHARDSON, ESQ.
DAVIS WRIGHT TREMAINE
400 JEFFERSON PLACE
350 N. NINTH STREET
BOISE, ID 83702
JAMES N. ROETHE, ESQ.
PILLSBURY, MADISON & SUTRO
P. O. BOX 7880
SAN FRANCISCO, CA 94120
R. SCOTT PASLEY
ASS I STANT GENERAL COUNSEL
J. R. S IMPLOT COMPANY
P. O. BOX 27
BOISE, ID 83707-0027
R. MICHAEL SOUTHCOMBE, ESQ.
CLEMONS, COSHO & HUMPHREY,
815 W. WASH I NGTON STREET
BOISE, ID 83702-5590
DAVID H. HAWK, DIRECTOR
ENERGY NATURAL RESOURCES
J. R. S IMPLOT COMPANY
P. O. BOX 27
BOISE, ID 83707-0027
OWEN H. ORNDORFF
ORNDORFF & PETERSON
SUITE 230
1087 W. RIVER STREET
BOISE, ID 83702-7035
J1 l(ì_
SECRETARY
lCERT/142