20030620Acceptance of Filing.pdf

Office of the Secretary
Service Date
June 20, 2003
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE FILING BY PACIFI-
CORP DBA UTAH POWER & LIGHT
COMPANY OF ITS 2003 ELECTRIC
INTEGRATED RESOURCE PLAN (IRP).
CASE NO. P AC-03-
ACCEPTANCE OF FILING
On January 27, 2003, PacifiCorp dba Utah Power & Light Company (PacifiCorp;
Company) filed its 2003 Integrated Resource Plan (IRP) with the Idaho Public Utilities
Commission (Commission). The Company s filing is pursuant to a biennial requirement
established in Commission Order No. 22299, Case No. U-1500-165. PacifiCorp states that its
IRP provides a framework and plan for the prudent future actions required to ensure PacifiCorp
continues to provide reliable and least-cost electric service to its customers. The final IRP, it
states, culminates a year-long collaboration with considerable public involvement from customer
interest groups, regulatory staff, regulators and other stakeholders.
PacifiCorp serves approximately 1.5 million retail customers in service territories
comprising about 135 000 square miles in portions of six western states: Utah, Oregon
Wyoming, Washington, Idaho and California.This service territory has diverse regional
economIes ranging from rural, agricultural and mining areas to urban, manufacturing and
government service centers.
PacifiCorp forecasts average annual load on its system to grow by 2.2% in the east
and 2.0% in the west. Given uncertainties of economic growth and other factors, this growth in
PacifiCorp s load, the Company states, could vary by 1.4% and 3.4%. At the same time
PacifiCorp notes, the resources available to the Company to serve this demand will diminish
over time as supply contracts expire, hydroelectric generation facilities are subjected to
relicensing conditions and thermal plants comply with more stringent emissions requirements.
The Company s IRP was developed against the backdrop of continuing market
regulatory and structural changes in the electric industry. These changes, the Company states
highlight the importance of understanding the risks and uncertainties inherent in resource
planning. The IRP reveals that PacifiCorp has substantial new resource needs and will require an
additional 4 000 MW of new resources (DSM, generation, and supply contracts) through 2013.
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Load growth, load shape growth, asset retirement and contract expirations cause the gap between
demand and supply to grow over time.
Other key findings in the IRP include:
The strongest resource strategy relies on a diverse portfolio of options
including strong components of renewables and demand-side
management, but also natural gas- and coal-fired generating resources. A
resource procurement process to pursue this diversified approach is
described in the Action Plan.
Possible paradigm shifts in the electric industry driven by federal
regulatory requirements are significant uncertainties for PacifiCorp and
its customers to manage in the next several years. These issues include
(potentially favorable) changes in transmission operations, as well as the
potential increased cost associated with PacifiCorp s existing resource
assets, including complying with air emission standards and relicensing
hydro electric facilities.
Renewable resources are a good fit for PacifiCorp within the context of a
diversified portfolio. The IRP proposes procuring renewable resources
(primarily wind, and possibly geothermal) at a level shown to be cost
effective, given the assumptions used to evaluate the resource. The
amount of renewables is also a level that would meet or exceed
renewable portfolio standards that have been proposed in federal and
state legislation.
Demand-side management (DSM) will continue to be an important and
cost-effective program for PacifiCorp. A significant increase in
programmatic measures is proposed, including a load control program to
help mitigate growing capacity requirements.
In addition to renewable resources and DSM, the study concludes that
additional resources from thermal generation will also be required. The
least-cost option is a combination of three natural gas-fired units and one
coal unit to meet both growing energy and capacity requirements.
The least-cost portfolio includes a coal base load thermal unit in the east.
Coal-fired generation may be particularly advantageous when procuring
resources in the Rocky Mountains, the Company states, because coal is
an abundant indigenous resource there. However, the long-term impact
of atmospheric emissions is casting doubt on the viability of coal-fired
generation. The IRP least-cost portfolio is dependent upon the impact of
a number of these paradigm risks, including air emission standards and
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possible global warming measures. PacifiCorp believes it has adequately
addressed these risks, based on its current understanding of them, and
coal plants remain a low-cost option. The IRP action plan includes
further work to develop and test the viability of a coal base load thermal
unit, including an ongoing assessment of the risks.
The Company s IRP proposes a significant procurement of new resources. The
strategy outlined in the IRP includes the addition of about 4 000 MW of new capacity over the
first 10 years of the 20-year IRP. The least-cost, risk-adjusted approach proposed is a diverse
portfolio of resources, including renewables, DSM and thermal base load and peaking units.
These additions include the following portfolio additions during the planning period:
1400 MW of renewable resources
450 MWa ofDSM and 90 MW of direct load control
2100 MW of base load capacity
1200 MW of peaking capacity
700 MW shaped resource contracts
The Action Plan details findings of resource need and specific implementation
actions. The plan also outlines step-by-step decision processes by which proposed resources will
be continually evaluated and procured. Going forward, PacifiCorp will implement the Action
Plan, while also maintaining the flexibility to adjust to future changes and opportunities. The
Action Plan will be revisited and refreshed no less frequently than annually.
For analytic purposes, the IRP assumes new resources are developed and owned by
PacifiCorp. However, no decision has been made to invest in specific resources. The decision
to own, build and invest in a new resource versus contracting with a third party would be made
as part of the procurement process for each new resource addition, and on a case-by-case basis.
multi-state process (MSP) (Case No. P AC-02-3) is expected to provide clarity on the
regulatory treatment on investment decisions and the degree of cost recovery risk held by
PacifiCorp. The Company anticipates that the MSP will issue findings in the spring of 2003.
The MSP outcome will influence the activities and operations of PacifiCorp and may impact
action plan implementation. The Company states that a significant procurement program and
potential investment is required to maintain reliable electric service. It is critically important, the
Company contends, that state regulators support this IRP and issue their acknowledgement of the
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Action Plan. This support coupled with a useful and durable MSP outcome, the Company states
is vital to PacifiCorp being able to resolve issues around recovery lag and achieve allowed rates
of return, and is critical in ensuring PacifiCorp can continue to provide least-cost, reliable
electric service to its customers.
On February 13, 2003 , the Commission issued a Notice of Filing in Case
No. P AC-03-2 and established a comment deadline of March 26 , 2003. Comments were filed
by the J.R. Simp lot Company, Monsanto Company, The Renewable Northwest Project, The
Northwest Energy Coalition and Advocates for the West, and the Commission Staff. The
comments can be summarized as follows:
R. Simplot Company
Simplot in its comments expressed concern that the lack of a legitimate discussion of
PURP Navoided cost projects leaves the report incomplete and that PacifiCorp continues to
develop regulated projects at costs exceeding its posted avoided cost rates.
Simplot believes that supply/demand and infrastructure constraints will keep gas
prices high significantly into the future and that the next generation of large power plants should
be coal fired.
Simplot recommends a greater degree of public involvement from industrial end-
users and customer interest groups in the IRP. It also advises that the IRP should include a
thorough discussion of appropriate generating resources for peaking capacity including an Idaho
Power Company-type risk advisory program for market access and relevant specific rate designs.
Monsanto Company
Monsanto recommends that the Commission "acknowledge " not "approve" or
disapprove" the PacifiCorp IRP filing. While applauding PacifiCorp s commitment to revisit
and refresh the Action Plan no less frequently than annually and file new IRP plans at two-year
intervals, Monsanto notes that the IRP does not succeed in adequately placing DSM resources or
customer generation resources on a consistent and comparable basis with supply side resources
for purposes of evaluation.
Monsanto is concerned that the IRP makes a number of conservative assumptions that
collectively lead to extreme projections of necessary resource additions, e., 15% planning
reserve margin, a 5% limit on expected short-term market exposure, modeling of firm
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transmission rights only, assumed carbon taxes, renewable assumptions and restrictions on
market products and purchases.
Monsanto recommends that PacifiCorp use a "base case" for analysis purposes that
includes only reasonably known and measurable future changes, rather than assuming
speculative changes or charges or incorporating risk mitigation measures (such as increased
planning margin requirements, carbon taxes, unavailability of non-firm transmission, etc.
Further, Monsanto advocates a fair, open and competitive bidding process for any
significant future resource additions. The process should include independent analysis and
oversight in the formulation and evaluation of RFPs and in awarding contracts. It should also
include a process for Commission resolution of disputes that may arise in the RFP, bidding and
contracting processes.
Finally, Monsanto notes that the IRP does not attempt to identify impacts on different
classes of ratepayers. This and future IRPs should consider elasticity of demand by various rate
classes in response to projected rate increases resulting from anticipated resource acquisitions
and rate design options.
Renewable Northwest Project (RNP), a non-profit organization promoting solar, wind and
geothermal resources.
RNP states that the IRP results demonstrate that renewables are a least-cost resource.
However, RNP notes that the Company s analysis of renewable resources still contains some
flaws, the most notable of which is the lack of capacity value assigned to new wind resources.
RNP also points out that PacifiCorp is the single-largest coal-power producer in the
western energy market and that the Company is correct to anticipate future regulatory constraints
on CO2 emissions. RNP believes it is short-sighted and risky for PacifiCorp to add another coal
plant to its resource mix.
Northwest Energy Coalition and Advocates for the West
The Coalition and the Advocates claim that PacifiCorp made several errors which
undervalued renewables, including underestimating the value of green tags, giving no capacity
value to wind resources, undervaluing the ability of renewables to mitigate fuel volatility and
failing to assume emissions for purchased power. The total effect of these errors is
conservatively estimated at $700 million and if corrected, the Renewables ' portfolio would
become the least-cost option.
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The Coalition and the Advocates recommend that PacifiCorp consider the economic
value of avoided or deferred transmission and distribution upgrades flowing from DSM
acquisition. DSM resources provide additional value as a hedge against fuel price volatility.
They note that PacifiCorp does not have the regulatory tools in place to seek all cost-
effective DSM investments - e., no DSM tariff rider or other DSM program funding
mechanism. As with Idaho Power and A vista, the establishment of a continuously replenishing
DSM fund could ensure that program costs are recovered, and enhance the creation of a portfolio
ofDSM resources.
Commission Staff
The Commission Staff believes the IRP analysis conducted by PacifiCorp is the most
extensive ever by a utility regulated by the Commission. The preferred resource portfolio
selected in the IRP consists of a blend of thermal plants, gas-fired plants, renewables, load
control programs and DSM. This blend of resource types was the natural result of the analysis
not due to a preconceived belief by PacifiCorp that a diverse mix of resource types would be
preferable.
PacifiCorp has indicated to Staff its intent to release a series of four RFPs in the
immediate future. The first, expected to be released in approximately 60 days (Staff comment
file date March 26), will be seeking bids for east side capacity resources. The second RFP, to be
issued in approximately 90 days, will be seeking wind or other renewable resources, both on the
east and the west side. A third RFP will be issued in about 120 days for west side capacity
resources. Finally, in early 2004, an RFP will be issued seeking a base load unit in the east.
Staff does not believe it is appropriate to seek new resources through RFPs any sooner than
necessary. There are benefits to delay and the costs and viabilities of various resource
alternatives are likely to change over time.
Staff recommends that PacifiCorp enlist the aid of an independent third party to
ensure that new resource evaluations are fair and complete, and that any Company self-build
options are compared on a non-discriminatory basis. Staff also recommends that PacifiCorp
keep the Commission and Staff informed as to its activities and programs on any Requests for
Proposals (RFPs).
Staff is satisfied with the preferred portfolio selected in the IRP, but has some
concern about the aggressive level of wind resource acquisitions.Staff is encouraged by
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PacifiCorp s commitment to more closely align its resource planning and its business planning.
A resource planning function has been created and organized in the Company s Commercial and
Trading Department to ensure integration with PacifiCorp s resource procurement, trading and
risk management functions.
Staff encourages other parties in this case to participate in the IRP process and seek to
express their concerns and influence the next IRP to be filed in 2005.
Staff has always viewed "acknowledgement" as being closely related to the process
of integrated resource planning, rather than the result.By acknowledging a utility s IRP, Staff
believes the Commission is endorsing the process the utility followed in developing the plan, but
not necessarily any actions called for in the plan. The results will be scrutinized in due course
when the utility seeks rate recovery. Presumably, if the utility has followed a fair and thorough
planning process, it will lead to a prudent, least-cost, least-risk result that can be supported by the
Commission.
COMMISSION FINDINGS
The Commission has reviewed the filings of record in Case No. P AC-03-
including the Company s 2003 Integrated Resource Plan and related comments. We find that the
Company s IRP contains the required information and is in the appropriate format as directed by
the Commission in Order No. 22299.
PacifiCorp s Integrated Resource Plan details a strategy for acquiring 4 000 MW of
new system capacity (DSM, generation and supply contracts) within the next ten years. By way
of context, PacifiCorp shows existing system capacity for year 2004 of 8 833 MW. Its projected
peak requirement for 2004 is 10 090 MW.
The Commission notes, as does Monsanto and some of the other commenting parties
that the Company in developing its base case resource portfolio has factored into its requirements
a 15% planning margin or target reserve level. Selection of such a reserve level in its forecasting
assumptions is related to FERC's proposed Standard Market Design (SMD) planning margin
requirements (12-18%). It is unclear whether the SMD proposal will be adopted. The Company
would be wise to continue its Action Plan study to determine what the utility itself believes to be
a reliable planning margin.
PacifiCorp in its filing requests that in addition to regulatory acknowledgement of its
2003 IRP plan, the Commission indicate its "support of the IRP conclusions including the
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proposed Action Plan." The Company seems to be seeking Commission concurrence in its
conclusions and pre-approval of its Action Plan. It would be inappropriate for this Commission
to provide such approval. The IRP is a utility planning document that incorporates assumptions
and projections as of a point in time. It is the ongoing planning process that we acknowledge
not the conclusions or results. We recognize and commend the Company for presenting the most
extensive IRP analysis ever to come to the Commission. We encourage the Company in its
integrated resource planning to keep the plan fresh.
The Company has committed to provide the Commission with semi-annual
procurement program status reports. This is of regulatory importance given the Company
projected need for an additional 4 000 MW of capacity over the first ten years. In addition to
being apprised through periodic status reports of supply resources the Company is actually
building or contracting for and demand side programs the Company is implementing, the
Commission expresses its desire to receive periodic updates as to the Company s specific plans
for issuing requests for proposals (RFPs).
Although commenting parties have requested changes, we find no compelling reason
to require formal amendment of the Company s Integrated Resource Plan. We accordingly find
it reasonable to acknowledge and accept PacifiCorp s year 2003 IRP. Interested parties desiring
changes are strongly encouraged to actively participate in the Company s IRP process
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over PacifiCorp dba Utah
Power & Light Company, an electric utility, pursuant to Title 61 of the Idaho Code and the
Commission s Rules of Procedure, IDAP A 31.01.01.000 et seq.
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Based on our review, we find it reasonable to accept and acknowledge the
Company s filed 2003 Integrated Resource Plan. Our acceptance of the 2003 IRP should not be
interpreted as an endorsement of any particular element of the plan, nor does it constitute
approval of any resource acquisition contained in the plan.
ACCEPTANCE OF FILING
DATED at Boise, Idaho this ;JJJ -
rJ.. day of June 2003.
MARSHA H. SMITH, COMMISSIONER
Vld/N :paceO302 - sw2
ACCEPTANCE OF FILING