20050624Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:JUNE 24, 2005
SUBJECT:CASE NO. P AC-05-2 (PacifiCorp)
2004 ELECTRIC INTEGRATED RESOURCE PLAN (IRP)
On January 21 , 2005 , PacifiCorp dba Utah Power & Light Company (PacifiCorp;
PCp; Company) filed its 2004 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 for the prudent future actions required to ensure that PacifiCorp
continues to provide reliable, least cost service with manageable and reasonable risk to its
customers. The 2004 IRP provides guidance and rationale for significant resource procurements
over the next several years. The IRP was developed in a collaborative public process with
considerable involvement from customer interest groups, regulatory staff, regulators and other
stakeholders.
PacifiCorp serves approximately 1.6 million retail customers in a service territory
comprising about 136 000 square miles in portions of 6 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.
Since the filing of the Company s 2003 IRP in January 2003 , PacifiCorp has procured
two natural gas resources via the issuance of supply-side solicitations, issued a request for
proposal (RFP) for renewable resources, and selected three new cost-effective programs from a
demand-side management (DSM) RFP. Looking forward, PacifiCorp expects is obligations to
DECISION MEMORANDUM
provide electricity to its customers will continue to grow, while at the same time its existing
resources will diminish. The 2004 IRP proposes a number of diverse actions over the first
years of the 20-year study horizon aimed to close the gap. Not taking action to close this gap,
the Company contends, would expose PacifiCorp and its customers to unacceptable levels of
cost, reliability and market risk.
Regarding new resource needs, the Company s Preferred Portfolio proposes the
addition of 177 MW of Class 1 DSM and 2 629 MW of thermal generation capacity. In addition
to the resources identified in the Preferred Portfolio, PacifiCorp will continue to procure up to
1200 MW of shaped capacity through front office transactions on a rolling forward basis, expects
100 MW of capacity through qualified facilities (QF) contracts, and will continue to procure the
1400 MW of economic renewable resources which were first identified in the 2003 IRP.
Furthermore, PacifiCorp will procure 250 MWa of base Class 2 DSM and pursue and additional
200 MWa of cost-effective DSM for a potential total for 450 MWa over the ten year horizon.
Results and key findings in the Company s IRP include:
The 2 629 MW of thermal generation capacity consists of four thermal
units in the east (two fueled with coal and two with natural gas) and one
natural gas unit in the west.
The most robust resource strategy relies on total resources creating a
diverse portfolio of resources including renewables and demand-side
management combined with natural gas and coal- fired generating
resources.
Two major issues hang over the most significant resource choices that
PacifiCorp must make (i) the future cost of natural gas and (ii) the future
cost of or constraints on air emissions and carbon dioxide emissions in
particular. PacifiCorp believes it has adequately addressed these risks in
the analysis, based on its current understanding of these issues.
Demand-side management continues to be an important and cost-
effective resource for PacifiCorp. DSM additions resulted in new
generating resources being delayed. The first two east side resources are
delayed one year each, and a west side resource is delayed two years
pushing it beyond the 10-year portfolio planning window.
The present value revenue requirement (PVRR) for the group of lowest-
cost, risk-adjusted portfolios differed by only $48 million or 0.4%. This
narrow cost range indicates a degree of flexibility in specifying and
procuring needed resources during the Action Plan time horizon.
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In response to stakeholder comments, a detailed study was conducted to
determine the optimal planning margin for the PacifiCorp system. The
results in this study found the optimal planning margin for the PacifiCorp
system to be 15%.
Also in response to stakeholder comments, an evaluation of the wind
resources providing energy to PacifiCorp s system was conducted to
determine what the appropriate contribution to planning margin should be
for these resources. The evaluation resulted in a 20% contribution to
planning margin by wind resources.
PacifiCorp forecasts an average annual peak load growth rate of 3.8% in the east and
1.5% in west, with a total peak growth of 3% per year over the forecast horizon. Given
uncertainties of economic growth and other factors, the net system growth in PacifiCorp s load
could vary. Over time, PacifiCorp expects its existing resources to diminish significantly
concurrent with an expected increase in supply obligations. Load and system peak growth
hydro relicensing and contract expirations will increase the gap between demand and supply.
Prompt and focused attention is needed to close this gap.Beginning in fiscal year 2009 the
system becomes capacity deficient and the deficit steadily grows to approximately 2800 MW by
fiscal year 2015.
The Company s IRP focuses on the candidate options that are considered realistic
feasible alternatives for balancing resource supply with electricity demand. Key resources that
may be economical and could feasibly be procured by PacifiCorp to meet customer needs
include:
Demand-side management programs
Distributed generation
Standby generation
Combined heat and power (CHP)
Supply-side resources
Renewables (wind-geothermal)
Coal (pulverized and integrated gasification combined cycle)
Natural gas (SCCT, CCCT with DF, IC aero SCCT)
Compressed air energy storage
Hydro pumped storage
Market purchases
Transmission
PacifiCorp intends to implement many elements of its Action Plan utilizing a formal
and transparent procurement program. The IRP has determined a need for resources with
DECISION MEMORANDUM
considerable specificity, and identified the desired portfolio and timing of need. The IRP has not
identified specific resources to procure, or even determined a preference between asset
ownership versus power purchase contracts. These decisions will be made subsequently on a
case-by-case basis with an evaluation of competing resource options. These options will be fully
developed using a robust procurement process, including, when appropriate, competitive bidding
with an effective request for proposal (RFP) process.
Prior to the issuance of any supply-side RFP , PacifiCorp will determine whether the
RFP should be "all-source" or if the RFP will have limitations as to amount, proposed
structure(s), fuel type or other such considerations. Benchmarks will also be determined prior to
an RFP being issued and may consist of the then-current view of market prices, a self-build
option, a contractual arrangement, or such other benchmark alternatives. Externalities will be
determined based on the form and format of each procurement process and it is anticipated that
the assumptions utilized will be consistent with what is in the IRP unless such assumptions are
not applicable or new-updated information becomes available to inform the process.
The combination of new resources identified in the Company s Preferred Portfolio
and the existing and planned resources results in a more diversified resource portfolio for
PacifiCorp. The capacity of PacifiCorp s existing, planned and IRP resources as a percent of
peak obligation (peak load plus firm sales) for fiscal year 2015 is as follows: coal 50%, gas 27%
purchases 10%, hydro 6%, DSM 4%, and renewables 3%.
CO MMISSI 0 N D ECISI
Staff recommends that PacifiCorp s 2004 Integrated Resource Plan filing be noticed
and that a six-week comment period be established. Does the Commission agree with Staffs
proposed procedure?
Scott Woodbury
blslM:P ACEO502 sw
DECISION MEMORANDUM