20070619Decision memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:NEIL PRICE
DATE:JUNE 18,2007
SUBJECT:PACIFICORP'S 2007 ELECTRIC INTEGRATED RESOURCE PLAN
(IRP); CASE NO. PAC-07-
INTRODUCTION AND BACKGROUND
On May 30, 2007, PacifiCorp filed its 2007 Integrated Resource Plan (IRP) with the
Commission pursuant to the biennial filing requirement mandated in Order No. 22299, as
modified in Order No. 30262.
PacifiCorp (dba Rocky Mountain Power in Idaho) serves approximately 1.6 million
retail energy customers over a service area encompassing portions of six western states: Utah
Oregon, Wyoming, Washington, Idaho and California. Rocky Mountain Power serves
approximately 68 000 customers in southeastern Idaho. PacifiCorp filed its last IRP with the
Commission on January 1 , 2005. In 2006, the Company was acquired by MidAmerican Energy
Holdings Company ("MEHC"), a global energy resource production company and resource
supplier.
PROPOSED INTEGRA TED RESOURCE PLAN
PacifiCorp states that its purpose in preparing the IRP is to: "(1) determine future
long term resource needs and develop an informed and comprehensive assessment of the cost
and risk implications of alternatives for meeting those needs, and (2) develop a framework of
future actions to ensure PacifiCorp continues to provide reliable, least-cost service with
manageable and reasonable risk to its customers.Transmittal Letter at 1-2. PacifiCorp cites the
contemporary development of regulatory policies targeted at reducing the "carbon footprint of
DECISION MEMORANDUM
utilities" and the increased emphasis on the development of renewable energy as specific
challenges it is facing. Id.
Prior to submitting its IRP, the Company studied twelve (12) separate portfolios in
order to identify a portfolio that demonstrated, through projected statistical analysis, superior
performance in terms of estimated cost, customer rate impact, cost versus risk balance across five
different CO2 cost adder levels and supply reliability. See PacifiCorp 2007 IRP at 6, 139.
Ultimately, the Company settled upon a preferred portfolio that would include the acquisition of
the following energy resources:
- 2 000 MW of renewable resources by 2013
100 MW of load controls beginning in 2010
West-side combined cycle combustion turbine ("CCCT") in 2011
High-capacity-factor baseload resources to PacifiCorp s eastern system in 2012
and 2014
Eastern system CCCT's in 2012 and 2016
Firm market purchases to meet system needs beginning in 2010
- Transmission AdditionslUpgrades between 2010-2014 to support resources
See Id. at 7.
A. Forecast Load Growth
PacifiCorp estimates that customer loads will grow at an average rate of 2.
annually from 2007 to 2016. See Id. at 4 (Figure 1.1). PacifiCorp s eastern system (Idaho, Utah
and Wyoming) continues to display a significantly higher rate of energy growth than its western
system, with an annual average energy growth rate of 3.2% and 0., respectively. The annual
growth for the Idaho service area over that same 10-year period is estimated to be 1.3%. See Id.
at 3 (Table 1.1).
The Company currently forecasts a summer peak resource deficit beginning in 2008
to 2010 depending on whether a 12% or 15% planning reserve ("PR") margin is used. Id.
2009, the Company will become energy deficient on an annual basis, based on a 12% planning
reserve margin. Id. Beginning in 2010, its system will operate at a 791 MW deficiency, again
based upon a 12% PR margin. Id. The energy resource deficit will increase to 2,400 MW by the
year 2012 and 3 000 MW by 2016. Id.
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B. Modeling and Risk Analysis
1. IRP Modeling
PacifiCorp employed two distinct modeling tools during its portfolio analysis: (1)
Capacity Expansion Module (CEM); and (2) Planning and Risk (PaR) Module. See Id. at 5. The
two analytical models assisted the Company in arriving at the "least-cost optimization (of)
resource options" and "develop risk-adjusted portfolio performance measures.Id. The
Company s modeling approach consisted of "resource screening, risk analysis portfolio
development and detailed production cost and stochastic risk analysis.Id.
In order to predict the most desirable resource options, PacifiCorp used the CEM to
develop and analyze 16 separate "alternative future scenarios" involving a mixture of several
variables, including potential CO2 regulatory costs, natural gas prices, wholesale electricity
prices, retail load growth and the scope of renewable portfolio standards. Id. at 6, 139. The
Company views the preferred resource portfolio as one that manifests itself under a "reasonably
wide range of potential future" scenarios. Id.Once those resource option portfolios were
effectively identified, the PaR Module was then used to simulate the potential risk and cost of
each through a random sampling process of the following variables: loads, commodity natural
gas prices, wholesale power prices, hydro energy availability and thermal unit availability. See
Id.
2. CO2 Emissions
PacifiCorp s IRP also addressed the potential costs/effects of CO2 emIssIon
compliance. See Id. at 6. According to the Company, the costs associated with CO2 emission
compliance are not normally amenable to statistical analysis. Id. Thus, rather than attempting to
ascertain a specific cost, the Company elected to treat the potential emission costs as "a scenario
risk" in its overall IRP analysis. Id. The initial risk/analysis portfolios were analyzed under five
different CO2 cost adder levels - $O/ton, $8/ton, $15/ton, $38/ton, and $611ton (adjusted for
projected 2008 dollars) - in order to determine which portfolio was most prevalent across a
reasonably wide range of potential futures.Id.
e. Action Plan
Prior to the 2011-2012 period, PacifiCorp plans to address its projected resource
deficits through the procurement of additional renewable resources, demand side programs and
market purchases. See Id. at 3. The Company has made requests for proposal ("RFP") for
DECISION MEMORANDUM
additional base load resources, renewable resources and demand side resource programs
benefiting the eastern portion of its service area. Id.
Faced with the likelihood of energy deficiencies, PacifiCorp has taken recent steps
toward increasing its resource production. In June 2006, PacifiCorp converted its Currant Creek
facility from a single cycle combustion turbine to a combined cycle combustion turbine
CCCT"
).
See Id. at 61. It will add another CCCT to its Lake Side facility this month. Id.
These additions will be offset by the expiration of two resource procurement contracts, a 400
MW agreement with TransAlta Energy Marketing and a 575 MW BPA peaking contract, in June
2007 and August 2011 , respectively. Id.
The IRP professes the Company s commitment to the following additional measures
in order to meet future resource needs:
Wind Renewal:
Continue to develop renewable resources, including wind power.
PacifiCorp has acquired 346 MW of wind power toward the fulfillment of
its 2004 IRP goal of procuring 400 MW by 2007. The Company states
that it will continue to acquire additional renewable resources on its way
toward procuring a total of 1,400 MW of renewable resources by the year
2010 and 2 000 MW by the year 2013. PacifiCorp has recently added two
wind projects, Leaning Juniper 1 and Marengo.
Energy Efficiencies:
Increase its commitment to so-called "energy efficiency" initiatives. The
Company will continue to run programs to acquire 250 aMW of cost-
effective energy efficiency and an additional 200 aMW if cost-effective
initiatives can be identified.
Load Control:
Expand upon its existing load control programs. PacifiCorp anticipates a
system-wide average load growth of 2.5 percent per year from 2007
through 2016 throughout its service area. Average load growth from its
Idaho customers should be around 1 percent per year. The Company
anticipates further expansion of its existing 150 MW of irrigation and air
conditioning load control program in Utah and Idaho. In 2010, a 100 MW
irrigation load control program will be added and will be split between its
eastern and western systems.
DECISION MEMORANDUM
Integrated Environmental Issues:
Continue to study and address contemporary environmental issues. The
Company asserts that it will assume a leadership role in discussions with
stakeholders involving global climate change issues; and continue to
investigate the development of carbon reduction technology, specifically
clean coal , sequestration and nuclear power.
Transmission:
Address existing problems affecting transmission of resources to
customers. The Company plans an expansion of its transmission system
arid an upgrade in its transmission infrastructure and flexible resources
such as natural gas, in order to meet the anticipated customer loads found
in the preferred portfolio.
Diversification:
Diversification of base load and intermediate load resources. The
Company reiterated its desire to add approximately 1 700 MW of base
load resources , a mix of thermal resources and market purchases, to its
eastern system between 2012 and 2014. Further, it will seek to acquire an
additional 200 to 1 300 MW of thermal and market purchase resources to
benefit its western system between 2010 and 2014.
See Id. at 10 221 , 224-27(Table 8.2).
ST AFF RECOMMENDATION
The Staff has reviewed PacifiCorp s proposed IRP and recommends that a notice of
filing be prepared and that a comment period be established. Staff recommends a 60-day
comment period.
COMMISSION DECISION
Staffrecommends that PacifiCorp s 2007 Integrated Resource Plain filing be noticed
and that a 60-day comment period be established. Does the Commission agree with the Staff s
proposed procedure?
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DECISION MEMORANDUM