20030326Comments.pdf

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SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
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Street Address for Express Mail:
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Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE FILING BY
ACIFICORP DBA UTAH POWER & LIGHT
COMPANY OF ITS 2003 ELECTRIC
INTEGRATED RESOURCE PLAN (IRP).
COMMENTS OF THE
COMMISSION STAFF
CASE NO. P AC-03-
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Filing and Notice of Comment Deadline issued on February 13 , 2003 , submits the following
comments.
BACKGROUND
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.
STAFF COMMENTS MARCH 26, 2003
PacifiCorp forecasts average annual load on its system to grow by 2.2% in the east and
0% in the west. Given uncertainties of economic growth and other factors, this growth in
PacifiCorp s load, the Company states, could vary between 1.4% and 3.4% system wide. At the
same time, PacifiCorp notes, the resources available to the Company to serve this demand will
diminish over time as supply contracts expire, hydro-electric generation facilities are subjected to
relicensing conditions and thermal plants comply with more stringent emissions requirements.
The Company 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. 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 renew abIes 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
STAFF COMMENTS MARCH 26, 2003
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 (not Idaho)
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 baseload 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
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 baseload 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
STAFF COMMENTS MARCH 26, 2003
resources, including renewables, DSM and thermal baseload and peaking units. These additions
include the following portfolio additions during the planning period:
1400 MW of renewable resources
450 MWa of DSM and 90 MW of direct load control
2100 MW of base load capacity
1200 MW of peaking capacity
700 MW shaped resource contracts
A detailed summary of the selected resource portfolio is attached. The summary shows the
resources to be acquired along with the amounts and timing of each. The summary is broken down
into East resources - those to be located in Idaho, Utah or Wyoming, and West resources - those
to be located in Oregon or Washington.
STAFF COMMENTS MARCH 26, 2003
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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, the Company states, 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. A
multi-state process (MSP) (Case No. P AC-02-3) is expected to provide clarity on
inteljurisdictional allocation of investment decisions and the degree of cost recovery risk held by
PacifiCorp. The Company anticipates that the MSP will issue findings in the summer or fall of
2003. The MSP outcome will influence the activities and operations ofPacifiCorp 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 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 ofretum, and is critical in ensuring PacifiCorp can continue to provide least-cost, reliable
electric service to its customers.
ANALYSIS
Staff participated in at least ten public input meetings held throughout the yearlong IRP
development process. Staff also reviewed the draft IRP that was submitted prior to filing the final
document and provided extensive comments to the Company. PacifiCorp has, to the extent it was
able, responded to Staffs comments and revised the final IRP document accordingly. As a result
Staff s comments on the final document will be relatively brief and focus on whether the process
followed meets the Commission s requirements and whether the end result of the IRP is
reasonable.
The process employed by PacifiCorp in the development of this IRP was very thorough.
In fact, Staff believes the analysis conducted by the Company is the most extensive ever by a
STAFF COMMENTS MARCH 26, 2003
utility regulated by the Commission. PacifiCorp considered a broad array of potential new
resources, including DSM, to meet future load requirements. The Company also performed a
comprehensive risk analysis examining such factors as changes in gas and electric prices, changes
in loads, variations in hydro conditions, and possible thermal outages. Additional risks that could
not easily be quantified through numerical analysis, such as changes in air emissions
requirements, hydro relicensing, Oregon s SBl149, MSP , RTOs, and possible renewable portfolio
standards, were also considered. Staff is satisfied that the risk analysis performed by the
Company encompassed all likely future risks and was comprehensive enough to insure that risk
was fairly balanced against cost in selecting the preferred new resource portfolio.
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 the Company that a diverse
mix of resource types would be preferable. Staff believes that this natural result is significant.
Each of the types of new resources offers their own unique advantages, and in combination
creates the least-cost, least-risk set of resources.
For example, coal generation has the advantage that PacifiCorp currently owns or controls
existing thermal sites with room for expansion and can make use of existing transmission
corridors. The Company also has experience with building, owning and operating thermal
facilities. However, the risks associated with the possible impact of future environmental
legislation precludes over reliance on this resource to meet all needs.
Gas-fired generation is low cost, not highly capital intensive, quick to construct, and
relatively easy to site, but is subject to extreme fuel cost volatility. For some applications
however, and with a wise fuel procurement strategy, gas-fired generation can fill a portion of the
Company s need.
Renewables, specifically wind and perhaps geothermal to the extent it is available, offer
price stability due to the absence of fuel costs and associated fuel price risk. However, wind
resources, by themselves, cannot meet all ofPacifiCorp s needs because they cannot be counted
on to deliver capacity during all the hours when capacity will be needed. In addition, Staff is
uncertain about how much new wind generation can be economically developed, particularly if
production tax credits are not renewed, and whether PacifiCorp will be competing with other
utilities for a limited resource.
STAFF COMMENTS MARCH 26, 2003
DSM programs, while not comprising a large part of the portfolio, are nevertheless an
important piece. The IRP demonstrates that PacifiCorp is serious about DSM and intends to
pursue all DSM opportunities that are available at a reasonable cost. Load control, while also a
relatively small part of the portfolio, is still important because it satisfies very short-term needs
that are otherwise extremely expensive to meet.
While the IRP has determined the need for resources with considerable specificity and
identified the desirable portfolio and timing for procurement, it has not identified specific
resources to procure, or even determined a preference between asset ownership versus power
purchase contracts. Staff believes this is appropriate at this stage. PacifiCorp states that these
decisions will be made subsequently on a case-by-case basis with an evaluation of competing
resource options. The Company intends to develop these options using a robust procurement
process, including, when appropriate, competitive bidding with an effective request for proposal
(RFP) process.
Whether RFPs are utilized for specific resource procurement decisions, PacifiCorp states
will depend upon the size, type and location of the resource being considered. A comparison of
all competing alternatives, including contract purchase options, will be made before PacifiCorp
makes a build decision. This comparison will consist of the identification of relevant alternative
developers or purchase contract options through a solicitation process, and compared against the
appropriate market. In instances where PacifiCorp feels a formal RFP process is warranted, due to
specific geographic or other market-related conditions, one will be issued.
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, 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 agrees that it is appropriate to issue RFPs in the immediate future in order to be able
to have new resources on line at the time they will be needed. However, the necessary lead-time
varies considerably for many of the new resources identified in the IRP. Staff does not believe it
is appropriate to seek new resources through RFPs any sooner than necessary. There is value in
being able to defer decisions as long as possible so that planning uncertainties can be better
STAFF COMMENTS MARCH 26, 2003
resolved in the meantime. Given the considerable risks and uncertainties PacifiCorp has identified
in the IRP, the costs and viabilities of various resource alternatives are likely to change over time.
PacifiCorp has stated its intent to revise and update its Action Plan at least annually; it should try
to maintain as much flexibility in its resource acquisition efforts. The RFPs issued by the
Company should not commit it to resource acquisition decisions any sooner than necessary and
should allow the Company to maintain flexibility to change course as necessary in acquiring new
resources.
PacifiCorp states that it intends to perform all new resource evaluations on the same basis
and using the same analytical techniques. Staff recommends that ifPacifiCorp conducts the
evaluations, it enlist the aid of an independent third party to insure that the evaluations are fair and
complete, and that any Company self-build options are compared on a non-discriminatory basis.
PacifiCorp has indicated that it intends to keep the Commission and Staff apprised of key
resource activities, including progress on the Procurement Program. The Company anticipates
providing Procurement Program status reports approximately every six months. Staff
recommends that PacifiCorp also keep the Commission and Staff informed as to its activities and
progress on any requests for proposals that are issued.
Staffis satisfied with the preferred portfolio selected in the IRP. However, Staffhas some
concern about whether the aggressive level of wind resource acquisition spelled out in the IRP can
be sustained. Relying on wind generation to the degree proposed by PacifiCorp is unprecedented.
Staffis aware of the level of wind development in the region in recent years and is encouraged by
the valuable experience being gained by utilities, including PacifiCorp. If the Company cannot
sustain the pace of development envisioned, however, it should have ample time to revise its plans
given that the acquisition of wind resources is to be spread over the 10-year planning horizon.
Despite Staff's concerns , the response to the upcoming RFPs will help to confirm the cost and
availability of the resources to be acquired in accordance with the Action Plan.
PacifiCorp has designed its Action Plan based on a planning margin of 15%. This is the
planning margin that would be required under FERC's Standard Market Design proposal (SMD).
Obviously, building to meet a 15% planning margin will be more expensive. There remains
uncertainty surrounding the planning margin requirements in the proposed SMD. However, it will
take a number of years for PacifiCorp to increase its planning margin, even to 10%. This period
will allow PacifiCorp time to modify its plans in concurrence with the possible future
STAFF COMMENTS MARCH 26, 2003
requirements of SMD. Further study of an appropriate planning margin for PacifiCorp will
continue and is an appropriate element of the Action Plan.
Staff is encouraged by PacifiCorp s commitment to more closely align its resource
planning and its business planning. In the past, it frequently appeared that these two were not
linked. Now, a Resource Planning function has been created and organized in the Commercial
and Trading Department to ensure integration with PacifiCorp s resource procurement, trading
and risk management functions.
Staff believes it is very important to recognize that integrated resource planning is an
ongoing process. New plans are to be prepared and filed at two-year intervals. Consequently, this
IRP represents PacifiCorp s best effort to plan according to what is known at this point in time.
Staff fully expects that as conditions change and as new and better information becomes available
future IRPs will change accordingly. PacifiCorp acknowledges that the Action Plan is subject to
change as new information becomes available or as circumstances change. In fact, the Company
has expressed its intention to revisit and refresh the Action Plan no less frequently than annually.
The reality of integrated resource planning is that for most utilities, particularly PacifiCorp, by the
time one plan is submitted to the Commission for acknowledgement, it is almost time to begin
another planning cycle. Thus, Staff advises that if any other party in this case objects to some
portion of the IRP, it express its concerns and seek to influence the next IRP to be filed in 2005.
In Idaho, as in most states, the Commission "acknowledges" rather than "approves" a
utility s IRP. Other states where PacifiCorp serves have similar IRP requirements and provisions
for acknowledgement; however
, "
acknowledgement" may be viewed differently in some states
than in others. Staff believes it may be helpful to explain what it believes is meant by
acknowledgement in Idaho. The following policy on integrated resource planning, adopted by the
Commission in Order No. 25260, Case No. GNR-93-, may help shed light on what is meant by
acknowledgement:
POLICIES ADDRESSING INTEGRATED RESOURCE PLANNING.
Each electric utility regulated by the Idaho Public Utilities Commission with
retail sales exceeding 500 000 kilowatt hours in a calendar year shall employ
integrated resource planning. Each electric utility's integrated resource plan
must be updated on a regular basis (no later than biennially), must provide an
opportunity for public participation and comment, and must be implemented.
This plan constitutes the base line against which the utility s performance
will ordinarily be measured. The requirement for implementation of a plan
does not mean that the plan must be followed without deviation. The
STAFF COMMENTS MARCH 26, 2003
requirement of implementation of a plan means that an electric utility,
having made an integrated resource plan to provide adequate and reliable
service to its electric customers at the lowest system cost, may and should
deviate from that plan when presented with responsible reliable
opportunities to further lower its planned system cost not anticipated or
identified in new existing or earlier plans and not undermining the utility'
reliability. In order to encourage prudent planning and prudent deviation
from past planning when presented with opportunities for improving upon a
plan, an electric utility s plan must be on file with the Commission and
available for public inspection, but the filing of the plan does not constitute
approval or disapproval of the plan having the force and effect of law, and
the deviation from the plan would not constitute violation of the
Commission s orders or rules. The prudence of a utility s plan and the
utility's prudence in following or not following a plan are matters that may
be considered in a general rate proceeding or other proceeding in which
those issues have been noticed.
Staff has always viewed "acknowledgement" as being closely related to the process
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 process requires that the utility forecast loads
identify and evaluate possible resource options, analyze risk, fairly weigh the benefits of both supply
and demand side options, and finally, to develop and implement an action plan. The results of the
plan, including the actions the utility proposes to take and the specific resources chosen to meet load
will be scrutinized in due course when the utility seeks cost 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.
RECOMMENDATIONS
Staff recommends that PacifiCorp s 2003 Integrated Resource Plan, including the Action
Plan Findings of Need and the Action Plan Implementation Actions, be acknowledged by the
Commission.
STAFF COMMENTS MARCH 26, 2003
Respectfully submitted this
Technical Staff: Rick Sterling
i: umisc :commen Is/paceD3 .2swrps
STAFF COMMENTS
day of March 2003.
J,ip Scott Woodbury
Deputy Attorney Genera
MARCH 26, 2003
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 26TH DAY OF MARCH 2003
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF IN CASE
NO. PAC-03-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
JANET MORRISON
DIRECTOR OF RESOURCE PLANNING
ACIFICORP
825 NW MUL TNOMAH, SUITE 800
PORTLAND OR 97232
JOHN ERIKSSON
STOEL RIVES LLP
201 S MAIN, SUITE 1100
SALT LAKE CITY UT 84111
CERTIFICATE OF SERVICE