20070316Compliance commitment 52.pdf

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March 16, 2007
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201 South Main, Suite 2300
Salt lake City, Utah 84111
VIA OVERNIGHT DELIVERY
Ms. Jean D. Jewell
Commission Secretary
Idaho Public Utilities Commission
472 West Washington
Boise, ID, 83720-0074
RE:Docket No. P AC-05-8 Compliance Filing Pursuant to Commitment 52: MidAmerican
Energy Holdings Company and PacifiCorp s Transaction Costs Final Accounting Report
Pursuant to commitment 52 of the commitments applicable to all states in Docket No.
P AC-05-, MidAmerican Energy Holdings Company ("MEHC") and PacifiCorp committed to
evaluate increasing the generation capacity of the Blundell geothennal facility and to summarize
in a report and file with the Commission its cost-effective evaluation of any such increase in
generation capacity. An original and seven (7) copies of this filing will be provided via
overnight delivery.
Shortly after the settlement and subsequent closing ofthe transaction between MEHC and
PacifiCorp, PacifiCorp undertook an expansion of Blundell by adding a heat recovery unit at the
facility, which is expected to add approximately 11 megawatts of production to the PacifiCorp
system at an estimated $48.9 million economic benefit. This expansion should be fully
operational by the end of this year.
In further satisfaction ofthe company s obligation to evaluate other increases in the
generation capacity of the Blundell facility, I have attached a copy of the company s economic
evaluation for an additional 25 megawatt expansion. As further explained in the attached study,
the total cost of a 25 megawatt expansion is estimated at $5 538 1 per kilowatt, with a plant-only
cost of $4 2592 per kilowatt. As a result of Congress ' failure to extend the availability of
production tax credits beyond the end of the calendar year 2008, the present value economic
analysis perfonned by the company excludes production tax credits because the proposed
expansion would not be in service prior to the expiration of the tax credits. Consequently, the
unavailability of the tax credits negatively impacts the economic benefit associated with the
This amount includes required costs and considerations pertaining to transmission
system upgrades, taxes, allowance for funds used during construction, and escalation.
2 This amount represents the cost estimates for the plant expansion only, excluding the
required costs and considerations pertaining to transmission system upgrades, taxes, allowance
for funds used during construction, and escalation.
proposed 25 megawatt expansion, resulting in a negative $3.4 million detriment. Accordingly,
the economic benefit ofthe 25 megawatt expansion is not cost-effective.
Notwithstanding PacifiCorp s inability to economically perfonn further expansions at
this time, we believe the estimated $48.9 million economic benefit associated with the
megawatt expansion will benefit the company s customers and the need for renewable generation
for years to come.
It is respectfully requested that all fonnal correspondence and Staff requests regarding this filing
be addressed to:
Bye-mail (preferred):datareq uest~pac ifi corp. com
By regular mail:Data Request Response Center
PacifiCorp
825 NE Multnomah, Suite 2000
Portland, Oregon, 97232
By fax:[phone]
Infonnal inquiries regarding this filing may be directed to Brian Dickman, Idaho Regulatory
Affairs Manager, at [phone].
Sincerely,
T~~l~~
Jeffrey K. Larsen
Vice President, Regulation
Enclosure
cc: Service List: PAC-05-8 (w/out enclosures)
I hereby certify that on this 16th day of March, 2007, I caused to be served, via E-
mail, if address available or U.S mail, a true and correct copy of the Cover Letter
regarding Rocky Mountain Power s Compliance Filing pursuant to Commitment #52 in
Case No. P AC-05-
Andrea L. Kelley
Vice President, Regulation
ACIFICORP
825 NE Multnomah, Suite 2000
Portland, OR 97232
Mail: andrea.kelly~pacificorp.com
Douglas L. Anderson
Senior Vice President & General
Counsel
MidAmerican Energy Holdings
Company
302 S. 36th Street, Suite 400
Omaha, NE 68131
Mail: danderson~midamerican.com
Eric L. Olsen
Racine, Olson, Nye, Budge & Bailey,
Chartered
201 E. Center
O. Box 1391
Pocatello, ID 83204-1391
Mail: elo~racinelaw.net
Barton L. Kline, Senior Attorney
Monica B. Moen, Attorney II
Idaho Power Company
O. Box 70
Boise, ID 83707
Mail: bkline~idahopower.com
mmoen~idahopower.com
Brad M. Purdy
Attorney at Law
2019N. lih Street
Boise, ID 83702
Mail: bm urd hotmail.com
R. Scott Pasley
Assistant General Counsel
R. Simplot Company
O. Box 27
Boise, ID 83702
Mail: spasley~simplot.com
Mark C. Moench
Senior Vice President - Law
MidAmerican Energy Holdings Company
201 S. Main, Suite 2300
Salt Lake City, UT 84111
Mail: mcmoench~midamerican.com
Anthony Yankel
29814 Lake Road
Bay Village, OH 44140
Mail: tony~yankel.net
John R. Gale
I Vice President, Regulatory Affairs
Idaho Power Company
O. Box 70
! Boise, ID 83707
Mail: rgale~idahopower.com
Arthur F. Sandack, Esq.
8 E. Broadway, Suite 510
Salt Lake City, UT 84111
Mail: asandack itower.net
Donald L. Howell, II
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington (83702)
O. Box 83720
Boise, ID 83720-0074
Mail: donlhowell~puc.idaho.gov
Randall C. Budge
Racine, Olson, Nye, Budge & Bailey,
Chartered
201 E. Center
O. Box 1391
Pocatello, ID 83204-1391
Mail: rcb~racinelaw.net
Katie Iverson
Brubaker & Associates
17244 W. Cordova Court
Surprise, AZ 85387
Mail: kiverson~consultbai.com
David Hawk
Director, Energy Natural Resources
R. Simplot Company
O. Box 27
Boise, ID 83702
Mail: dhawk~simplot.com
Terri Carlock
Accounting Supervisor
Idaho Public Utilities Commission
472 W. Washington
O. Box 83720
Boise, ID 83720-0074
I E-
Mail: terri.carlock~puc.idaho.gov
James R. Smith
Monsanto Company
Highway 34 North
O. Box 816
Soda Springs, ID 83726
Mail: iim.r.smith~monsanto.com
Alan Herzfeld
Herzfeld & Piotrowski LLP
\713 W. Franklin
! P.O. Box 2864
Boise, ID 83701
Mail: aherzfeld~hpllp.net
R. Scott Pasley
Assistant General Counsel
R. Simplot Company
O. Box 27I Boise, ID 83702
Mail: spasley~simplot.com
Debbie DePetris
Regulatory Analyst
..
PACIFICORP
A MIDAMERICAN ENERGY HOLDINGS COMPANY
PaciflCorp Ener2Y Date: February 2007
Title: Blundell Unit 3 Expansion Project Feasibility Study
Objective: Satisfy commitments made:
To perform an economic feasibility study of an increase in capacity of the
Blundell facility by 25 megawatts per the Settlement of Excess PacifiCorp Income
Tax Cost Monies Collected in Rates Docket No. 05-035-98 (the Settlement)
before the Public Service Commission of Utah.
To evaluate increasing the generation capacity of the Blundell geothermal facility
per commitment 52 that was made a part of the order approving the acquisition of
PacifiCorp by MidAmerican Energy Holdings Company.
Decisions
Required:
To reach a decision about the possible expansion of the Blundell geothennal
facility by 25 megawatts based on the analysis presented in this report and
thereby satisfy:
The commitments made by the company.
The company resource requirements and risk tolerances.
The customers and stakeholders' interests.
Conclusions:
The evaluation of expanding the Blundell facility by 25 megawatts was
analyzed and determined not to be economically viable when compared to
avoided market purchases because:
The total cost of the 25 megawatt expansion project is estimated at a total
cost of $5 538 per kilowatt and a plant-only cost of $4 259 per kilowatt,
both of which exceed the Settlement not-to-exceed cost of $3,600 per
kilowatt (Settlement, section3.(vi)).
The present value revenue is a negative ($3.4) million and falls short of
the Settlement minimum required benefit of $10 million (Settlement,
section 9.
Blundell 25 MW Expansion Project
Feasibility Study 2007
Summary of
Feasibility Study:
The technology investigated was a single flash design, which is discussed in
more detail in the technology section of this report.
The total expected capital investment for a 25 megawatt capacity plant is
estimated to be $138,444 000. The overall project scope of work includes
drilling additional wells , securing an engineer-procure-construct contract for
the new power generator facility, upgrading the transmission line to Cove Fort
(approximately 16 miles), allowance for funds used during construction, taxes,
escalation and development costs, which include permits, preparation of bid
specifications and engineering. This results in an estimated complete project
cost of $5 538 per kilowatt. The Settlement not-to-exceed amount of $3,600
per kilowatt was based upon capital costs for the plant-only. Accordingly, if
you exclude the costs that are not gennane to the construction of the plant
itself, the cost for the 25 megawatt expansion is $4 259 per kilowatt, which
still exceeds the $3,600 per kilowatt figure in the Settlement. (Table 3
provides an itemized breakdown of the project costs for both the total cost
scenario and the plant-only cost scenario.
Based upon an economic evaluation and the risk factors presented in this
paper, and complying with the threshold amounts set forth in the Settlement, it
is recommended that the 25 megawatt expansion at Blundell not be pursued at
this time.
However, the company will periodically monitor the merits of any future
Blundell expansion at a later date.
Background:
Settlement of Excess Income Tax Cost Monies Collected in Rates
On October 6, 2005, the Utah Committee of Consumer Services filed a
request for agency action alleging, among other things, that PacifiCorp
improperly retained certain monies that were collected in rates. The parties
involved and MidAmerican Energy Holdings Company (MEHC) concluded
that it was in the public s best interest to settle the dispute. As a result of this
Settlement, MEHC agreed , among other things, to transfer stock ownership in
Intermountain Geothermal Company (IGC), the steam supplier for the
Blundell geothermal facility, to PacifiCorp, and the expansion of the Blundell
facility by approximately 11 megawatts of production by means of installing
an 11 megawatt heat recovery unit at a cost of no more than $3,100 per
Blundell 25 MW Expansion Project
Feasibility Study 2007
kilowatt and with the expansion to be completed by the fourth quarter of 2007.
The Settlement also required PacifiCorp to undertake a study to verify the
economic feasibility of an additional 25 megawatt expansion at Blundell.
Commitment 52
As a result of the MEHC acquisition of PacifiCorp, certain commitments were
made to the various state public service commissions that regulate PacifiCorp.
Commitment 52 provides that upon closing, MEHC and PacifiCorp would
evaluate increasing the generation capacity of the Blundell geothennal
facility. Such evaluation would be summarized in a report and filed with the
state public service commissions in California, Idaho, Oregon, Utah,
Washington, and Wyoming. This document is being provided in satisfaction
of that commitment.
Feasibility
Study:
PacifiCorp contracted with GeothermEx, Inc. and Power Engineers, Inc. to
perform studies with respect to the potential steam production capacity of the
Roosevelt Hot Springs geothennal reservoir and the estimated capital
expenditures necessary for a plant expansion. In order to determine
incremental generation capacity for the Blundell facility, GeothermEx, Inc.
developed simulations based on historical steam production quantities of the
individual wells through the middle of 2005. The results of the simulations
indicated the reservoir could support a production increase sufficient to
support a 25 megawatt plant expansion. The findings also indicated that the
geothermal reservoir has the capacity to operationally support all units
(including the proposed 25 megawatt expansion) operating at full capacity for
approximately 30 years. Beyond 30 years it is speculated that the plant may
experience a 400 kilowatt de-rate annually. The limiting factor is reservoir
pressure decline, which might be able to be managed by supplying additional
water to the reservoir.
Blundell 25 MW Expansion Project
Feasibility Study 2007
Technology and Economics
The following is a description of the technology that was investigated and the
economic assumptions that were made in performing the feasibility study.
Technology and Operational Benefits
The technology that was considered with respect to the Blundell expansion
was a single flash design. Construction of a new plant on the Blundell site
could provide operational benefits to the existing Blundell plant units; these
benefits include:
Improved reservoir management by combining existing injection wells
with the new injection wells, which could result in returning more water to
the reservoir. Current operation returns a portion of the reservoir water to
a well outside the field. The new injection wells could be located such that
there may be a reduction in pumping costs.
Optimized steam usage by connecting new production wells to the existing
production well circuit. This would provide the production well system
with the ability to compensate for poor performing wells and limit the
amount of de-rate of the unit until the well can be repaired during a
regularly scheduled outage.
25 Megawatt Single Flash
The single flash unit undertakes a process whereby a portion of the
geothermal brine is "flashed" into steam in a steam separator; the steam then
enters a steam turbine which turns a generator. The remaining portion of the
brine that remains liquid is re-injected into the geothermal reservoir. Figure
is a simplified schematic of the single flash process showing how the energy
is extracted from the geothennal brine to produce electricity.
Blundell 25 MW Expansion Project
Feasibility Study 2007
Figure 1 - Single Flash - 25 Megawatt Expansion
Blundell 3 Single Flash Cycle
Steam
Steam
Separator
Uquid Brine
Brine
Reinjection
Above Ground
Below Ground
Blundell 25 MW Expansion Project
Feasibility Study 2007
Economic Assumptions
Since the Blundell 25 megawatt expansion project will be a regulated project
it was assumed that the investment would be included in rate base and earn the
allowed return from each jurisdiction. For modeling purposes, a 10.5% return
on equity was assumed. The Blundell 25 megawatt expansion project
economics were measured against market purchases for the life of the project.
Additional transmission capacity is required to support 25 megawatts of
incremental generation at the Blundell facility. The system impact study
report completed in July 2006, indicates that a new 16 mile 138 kilo-volt line
from the Blundell plant to Cove Fort would be required and would have a
target cost of $17.0 million (+50%/-25%). Additional transmission facility
studies during the detail project planning phase would be required to improve
the target cost estimate and accuracy.
The Settlement requires all Production Tax Credits (PTC) to be returned to
customers. However, the PTC for renewable resources that was scheduled to
expire at the end of 2007 was recently extended by action of the United States
Congress, but only through the end of the calendar year of 2008. This
extension is too short and is not favorable to meeting the long
design/procure/construction periods typical of a new geothennal plant. As
such, the feasibility determination of the Blundell expansion excluded PTC
because this expansion would not be placed in service prior to the expiration
of the tax credits. Green tags are also not included in the analysis due to the
fact they would be attached to the market purchases of renewable energy and
therefore provide no incremental benefit in the analysis.
Blundell 25 MW Expansion Project
Feasibility Study 2007
Economic Analysis
The results of the economic analysis for the 25 megawatt expansion project
are provided in Table 1 through Table 3. The customer benefits are calculated
as the differential present value revenue requirement (PVRR(d)) of the
Blundell 25 megawatt expansion project compared to market purchases.
Table 1 - Economic Analysis
As shown in Table 1 , the PVRR( d) for the proposed 25 megawatt expansion is
a negative $3.4 million, which is well below the minimum required benefit of
$10 million (as per the Settlement section 9.
The following spreadsheet in Table 2 provides a detailed breakdown of the
assumptions and data that are depicted in Table 1 with respect to the 25
megawatt expansion.
Notes for Table
1) Estimated cost is based on 2006 dollars.
2) PVRR(d) is calculated using the December 29, 2006 official market price forecast (forward
price curve) supplied by PacifiCorp s commercial and trading organization.
3) The 25 megawatt case study is based on Power Engineers, Inc.'s capital cost study
performed in March 2006 along with cost estimates to connect plant boundary items for a
fully functional generating unit.
Blundell 25 MW Expansion Project
Feasibility Study 2007
Table 2 - Economics for Single Flash - 25 Megawatt Expansion
Project Name: Blundell 25MW Base Case to CY2038
(In Thousands of Dollars)
Without Production Tax Credit
Without Green Tag Credit
Proiect Economics:
Customer Cash flows Cash flows
Revenue Prior to Regulatory After Regulatory
Requirement Adjustment Adjustment'
PVRR Benefit or (Cost) Total Project ($3.356)
PVRR Benefit or (Cost) PPW Share ($3.356)
Project NPV ($1,739)$343
Project IRR 7.1%
Discount Rate Used 7.3%7.3%
Capital Productivity Ratio 1.0 1.0
Payback Period (years)16,2 Years 12.3 Years
2006 2007 2008 2009 2010 2011
Capital Spending wlo AFUDC $1.121 $38,759 $41,670 $42823
Capital Spending w AFUDC $1,143 $40,490 $46,910 $49.901
Net Cash Flow Without Regulatory Recovery
Annual ($1,126)($38.968)($42.115)($33 400)$19,001 $13,212
Cumulative ($1.126)($40.095)($82,210)($115 610)($96.609)($83.397)
Net Cash Flow With Regulatory Recovery
Annual ($1,121)($38.759)($41 670)($31 066)$25,500 $19,020
Cumulative ($1,121)($39,880)($81.550)($112.616)($87,115)($68.095)
Incremental Earnings Before Interest & Taxes
Without Regulatory Recovery ($9)($337)($717)$177 $3.589 $2,888
With Regulatory Recovery ($0)$3,939 $14 064 $12 249
Incremental Earnings
Without Regulatory Recovery $843 $2,008 $2,803 ($231)($315)
With Regulatory Recovery $14 052 453 $5,137 $6,268 $5,494
Annual Revenue Requirement
Calculated $337 $717 $3,761 $10,475 $9,361
Recovered $337 $717 $3,761 $10,475 $9,361
. Includes regulatory lag of zero months,
Based upon the economic analysis performed by PacifiCorp Energy, it has
been determined that the costs and subsequent benefits associated with the
Blundell 25 megawatt expansion project are slightly above market purchases
and would provide no benefit to customers. The total cost of the Blundell 25
megawatt expansion project is estimated to be $5,538 per kilowatt, which
exceeds the $3 600 per kilowatt not-to-exceed amount set forth in the
Settlement; and the present value revenue requirement benefit is actually a
detriment of ($3.4) million, which is well below the $10 million minimum
required benefit.
Comparison to
MEHC Analysis:
Blundell 25 MW Expansion Project
Feasibility Study 2007
MEHC provided the settlement parties a confidential analysis of the estimated
revenue requirement impact resulting from the transfer of the stock ownership
in IGC from MEHC to PacifiCorp. This section reconciles the cost per
kilowatt installed cost differences between the PacifiCorp Energy analysis and
the MEHC analysis.
Cost per Kilowatt
The findings of the feasibility study indicate that the total estimated cost for a
25 megawatt plant is $5 538 per kilowatt. This amount is significantly greater
than the $3,600 per kilowatt provided for in the Settlement; however, the
feasibility study costs need to be adjusted to reflect plant-only costs. The total
project cost of $5,538 per kilowatt includes amounts for transmission system
upgrades, taxes, allowance for funds used during construction, and escalation.
A comparable plant-only dollar amount for the 25 megawatt project would be
259 per kilowatt, which is still greater than the $3,600 per kilowatt not-to-
exceed amount set forth in the Settlement.
Table 3 is an itemized reconciliation of the cost differential between the
MEHC estimate of $3,600 per kilowatt and the PacifiCorp Energy estimated
project costs for the 25 megawatt expansion project.
Table 3 - Blundell 25 megawatts expansion Project
Blundell 25 megawatt PacifiCorp Project MERC Blundell
Expansion Project Estimate Analysis
Adjustments to PacifiCorp estimates that are not Total Project cost per kW
included in the MERC Blundell Plant analysis of 538 per kW $3,600 per kW$3,600 per kW settlement figure
Estimated Transmission work and switchyard $514
Escalation $174
Capitalized property taxes $29
AFUDC $563
SUBTOTAL 279
Cost per kW less adjustment 259 $3,600
Therefore, the 25 megawatt expansion project, at a price per kilowatt of either
$5,538 or $4 259 does not meet the not-to-exceed amount set forth in the
Settlement.
Blundell 25 MW Expansion Project
Feasibility Study 2007
Net Present Value
The Settlement (section 9.) also references a requirement that the net present
value of the project be at least $10 million for an additional 25 megawatts of
new plant generation. The PVRR( d) for the 25 megawatt expansion, excluding
PTC and green tags, is a negative ($3.4) million. As such, the 25 megawatt
expansion project also fails to satisfy the NPV requirements of the Settlement.
Additional
Key Risks:
The Blundell 25 megawatt expansion project includes a number of additional
project and operational risks that require special consideration. The following
are the additional key risks associated with the Blundell facility.
Uncertain geothennal reservoir dynamics, short circuiting between
injection and production wells and production well interactions could
result in less steam supply than projected for the Blundell expansion
project, these issues could also negatively impact steam supply to the
existing units thereby limiting generation output.
Uncertain steam supply provided from the south end of the reservoir could
result in less than the estimated generation output from the Blundell 25
megawatt expansion.