20080919Lasich Direct.pdf

REceIVED
zoSEP 19 AKID: 53
tOAHO PUBLIC
UTIliTIES COMMtSSlON
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE )
APPLICATION OF ROCKY )
MOUNTAIN POWER FOR )
APPROVAL OF CHANGES TO ITS )
ELECTRIC SERVICE SCHEDULES )
AND A PRICE INCREASE OF $5.9 )
MILLION, OR 4.0 PERCENT )
CASE NO. PAC-E-08-07
Direct Testimony of A. Robert Lasich
ROCKY MOUNTAIN POWER
CASE NO. PAC-E-08-07
September 2008
1 Q.Please state your name, business address and present position with Rocky
2 Mountain Power (the Company), a division of PacifiCorp.
3 A.My name is A. Robert Lasich. My business address is 1407 West North Temple,
4 Suite 320, Salt Lake City, Utah. My position is President ofPacifiCorp Energy.
5 Qualifications
6 Q.Briefly describe your educational and professional background.
7 A.I have a Bachelor of Arts degree from Indiana University, a Master of Business
8 Administration degree from the University of Cincinnati and a law degree from
9 Indiana University. I joined MidAmerican Energy Company in October 1997 and
10 have held positions of increasing responsibility, including Senior Attorney, Vice
11 President, Gas Supply and Trading, and Vice President, MidAmerican Energy
12 Holdings Company (MEHC), responsible for integration and transition matters
13 related to the acquisition ofPacifiCorp. Prior to that, I was with the law firm of
14 Dale & Eke P.C., where I focused on real estate and corporate law. Prior to
15 admission to the practice of law, I held several accounting and financial positions
16 with Cabot Corporation and its successor organizations. I was appointed President
17 ofPacifiCorp Energy in August 2007 after 1 1/2 years as Vice President and
18 General Counsel, and was elected to the PacifiCorp Board ofthe Directors in
19 March 2006. As President, I have responsibilty for the electric generation,
20 commercial and energy trading, and coal-mining operations of the Company.
21 Purpose of Testimony
22 Q.What is the purpose of your testimony in this proceeding?
23 A.The purpose of my testimony is to demonstrate the prudence of major supply-side
Lasich, Di - 1
Rocky Mountain Power
1 resource additions and the planned increases to generation related operation and
2 maintenance (O&M) expenses included in the this application. The new supply-
3 side resources included in this case are described in the table below.
O&M
Resource Name Location In-Service Date Capital Cost Included in
GRC
Goodnoe Hils Klickitat County,$188.5 Milion $2.5 Milion
Washington May 31,2008
Marengo II Columbia County,$131.3 Milion $2.3 Milion
Washington June 26, 2008
Chehalis Lewis County,September 15,**
Washington 2008
4 *See Mr. Brian S. Dickman's Testimony, Confidential Exhibit No. 13 for
5 pertinent information.
6 Q.Please briefly explain how you wil support the prudence of supply-side
7 resources in your testimony.
8 A.I wil start by describing the integrated resource plan (IRP) and how that strategic
9 tool is utilized to assist the Company in identifying and quantifying the need and
10 timing of new supply-side resources. I wil also provide an overview ofthe
11 relevant MEHC transaction commitments. I wil conclude with a description of
12 each resource acquired by the Company and the decision-making process that led
13 to the acquisitions.
14 Integrated Resource Plan
15 Q.Please briefly describe the IRP.
16 A.The IRP is a strategic planning tool that presents a framework of future actions to
17 ensure the Company continues to provide reliable, low-cost service with
18 manageable and reasonable risk to its customers. The IRP builds on the
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Rocky Mountain Power
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Company's prior resource planning efforts and reflects significant advancements
in portfolio modeling and risk analysis.
What is the main purpose of the IRP?
The mandate for an IRP is to assure that the Company has, on a long-term basis,
an adequate and reliable electricity supply at the lowest reasonable cost and to
ensure that such supply is provided or fulfilled in a manner consistent with the
long-run public interest. The main role of the IRP is to serve as a strategic
roadmap to assist the Company in determining and implementing the Company's
long-term resource strategy. In doing so, it accounts for state commission IRP
requirements, a current view of the planning environment, corporate business
goals and MEHC transaction commitments that are related to IRP activities, such
as the acquisition of renewable resources.
As a strategic business planing tool, the IRP supports informed decision-
making on resource procurement by providing an analytical framework for
assessing resource investment tradeoffs. As an external communications tool, the
IRP engages numerous stakeholders in the planing process and guides them
through the key decision points leading to the Company's preferred portfolio of
generation, demand-side management activities and transmission resources.
The emphasis of the IRP is to deterine the most robust resource plan for
a reasonably wide range of potential outcomes, as opposed to the optimal plan for
some expected view of the future. The modeling is intended to inform and support
the expert judgment of the Company's decision-makers. The preferred portfolio is
not intended to be static, but rather is expected to evolve as part of the ongoing
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Rocky Mountain Power
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planing process as new information becomes available and new circumstances
evolve. As a multi-objective planing effort, the IRP must balance several
priorities and account for diverse and sometimes conflcting stakeholder views.
However, the IRP cannot be all things to all people. As the owner of the IRP, the
Company is uniquely positioned to determine the resource plan that best
accomplishes IRP objectives on a system-wide basis, and meets customer,
community and investor obligations collectively.
What is the outcome of the IRP process?
The result is a preferred portfolio that represents a balance of resource additions
that meet future customer needs, minimize cost, balance diverse stakeholder
interests and address environmental concerns. To follow through on the findings
of the resource plan, the Company's IRP includes an action plan that is intended
to inform and provide guidance for the Company's resource procurement
activities over the next few years.
Is there participation by others in the creation of the Company's IRP?
Yes. Customer interest groups, regulatory staff, regulators and other stakeholders
provide considerable guidance and input into the development of the IRP. The
analytical approach used conforms to all state standards and guidelines.
How did the most recent IRP address renewable resources?
Action item one of the 2007 IRP is to acquire 2,000 MW of renewable resources
by 2013 and, in addition, to seek to add transmission infrastructure and flexible
generating resources, such as natural gas, to integrate new wind resources.
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Rocky Mountain Power
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Please describe the Company's other activities to implement item 1 of the
2007 IRP action plan.
The Company is currently implementing two renewable resource requests for
proposals (RFPs). These RFPs are designated 2008R and 2008R-l. On
January 31, 2008, the Company issued an RFP 2008R for long-term renewable
resources less than 100 MW in generating capability, or alternatively, for a ter
less than five years if greater than 100 MW in generating capability to be in
operation prior to December 31,2009. The deadline for submission of bids under
RFP 2008R was March 31, 2008. Developers submitted proposals in the form of a
power purchase agreement or build-own-transfer agreement. The Company wil
not have a benchmark or other Company-owned alternative in this process. The
Company has completed the evaluations for the 2008R RFP and is currently in
negotiations with the final shortlist of bidders. The Company expects to finalize
the agreements with project developers by September 30, 2008.
In addition, the Company filed the draft 2008R-l RFP in Oregon and
Washington on April 28, 2008. The 2008R-l RFP is for system wide renewable
resources, which are limited in size to no more than 300 MW, and which is the
upper project size limit permitted by Utah Senate Bil 202. i The Oregon Public
Utilities Commission selected Boston Pacific as the independent evaluator for the
2008R-l RFP and the Public Service Commission of Utah has selected
Merrmack Energy as its consultant. As a part of this RFP, the Company is
1 Utah Senate Bil
202 requires the Company to issue a public solicitation of bids for a renewable energy
source up to 300 MW in size each year in which it reasonably anticipates that it wil need to acquire or
commence construction of a renewable energy resource. (Utah Code 54-17-502(2)(a)(i))
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Rocky Mountain Power
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proposing a process that wil allow the Company to re-issue the solicitation in
subsequent time periods to call for new bidders or updated bids on an as-needed
basis. This ability to periodically re-issue solicitations wil provide needed
flexibility in the procurement of renewable resources. The Company anticipates
that it wil re-issue the renewable RFP anually, as long as it requires additional
renewable resources.
How did the 2007 IRP address other resources?
The system resource needs assessment conducted for the 2007 IRP showed the
Company's incremental peak capacity need was over 2,400 MW by 2012. The
2007 IRP identified a need for a west-side combined cycle combustion turbine in
2011, high-capacity-factor resources in the east in 2012 and 2014 and east-side
combined cycle combustion turbines in 2012 and 2016.
Please describe the Company's current activity with respect to other
resource RFPs.
In July 2006, the Company filed a proposal seeking approval of a proposed
solicitation for an RFP for the 2012 - 2014 period (2012 RFP) which solicited up
to 1,700 MW. The Company recently disclosed that the maximum resource
outcome of the 2012 RFP wil be well short of the intended target and a large
system-wide shortfall wil remain. As a result, the Company continues to pursue
cost-effective resources through the ongoing RFP process and to pursue unique
opportnity purchases such as the Chehalis plant.
Lasich, Di - 6
Rocky Mountain Power
1 MEHC Transaction commitments
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Please provide an overview of the MEHC transaction commitments related
to the acquisition of renewable resources.
As par of the regulatory approvals related to the acquisition of the Company,
MEHC and the Company committed to:
. Bring at least 100 MW of cost-effective wind resources in service within one
year of the close of the transaction;
. Have 400 MW of cost-effective new renewable resources in the Company's
generation portfolio by December 31, 2007; and
. Reaffirm the Company's commitment to acquire 1,400 MW of cost-effective
new renewable generation resources.
12 Supply-Side Resources
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Please describe the benefits of these renewable resources to Idaho customers.
Idaho customers benefit from these renewable resources because it is more
economical for the Company to generate electrcity with these resources than to
purchase it in the open market. The 2004 and 2007 IRPs specify that renewable
resources (using wind resources as a proxy) are steadily added to the system with
the target of reaching 1,400 MW s or more of renewable resources.
How else wil these renewable resources benefit Idaho customers?
These renewable resources further benefit Idaho customers by providing the
Company with (i) a zero incremental cost fuel source (thus reducing commodity
risk exposure), (ii) multi-shafted generation resources (thus diversifying the
impact of individual generator failures), (ii) additional valuable ownership and
operational experence with utility scale wind projects, and (iv) Idaho customers
also receive a renewable energy credit benefit. Further, as a result of long-term
Lasich, Di - 7
Rocky Mountain Power
1 planning and the reasonable expectation that additional state and/or federal
2 renewable portfolio standards wil be established, the Company is expecting to
3 have a robust need for renewable resources in the coming years.
4 Q.What factors does the Company consider before acquiring new generation
5 resources?
6 A.Upon reviewing a detailed overview of the project including the contract support
7 and counterpary guarantees, the risks, the need as established by the IRP, the
8 financial assessment, and the justification of the project, Company executives
9 make a decision as to whether it is in the best interests of our customers to
10 proceed with the acquisition ora resource. The Company followed this process in
11 determining that the resources discussed in the following paragraphs are prudent,
12 have been acquired consistent with the MEHC transition commitments, and are in
13 the public interest to pursue.
14 Goodnoe Hils
15 Q.Please describe the size and location of the Goodnoe Hils resource.
16 A.The Goodnoe Hils wind project is a 94 MW wind energy generation facility
17 comprised of 47 - 2.0 MW REP ower System wind turbines located in Klickitat
18 county, Washington. Exhibit No. 16 shows a map of the plant location. The
19 Goodnoe Hils wind project is interconnected to the Company's system via the
20 Bonnevile Power Administration's (BPA) transmission system. The Company
21 owns 94 MW of interconnection rights with BP A.
Lasich, Di - 8
Rocky Mountain Power
1 Q.What investment related to the Goodnoe Hils project is included in the
2 revenue requirement?
3 A.The Company has included $188.5 milion for the Goodnoe Hils project in this
4 application. The O&M costs included in the case associated with the Goodnoe
5 Hils resource are approximately $2.5 milion to cover wind turbine-generator
6 maintenance agreement, permitting obligations, and local levy tax.
7 The Goodnoe Hils project began commercial operation May 31, 2008. As
8 discussed in Mr. Gregory N. Duvall's testimony, the Company's net power cost
9 calculation reflects the inclusion of Goodnoe Hils. Mr. Dickman's testimony
10 includes the revenue requirement calculations associated with the inclusion of this
11 resource.
12 Marengo II
13 Q.Please describe the size and location of the Marengo II resource.
14 A.The Marengo II wind project is a 70.2 MW wind energy generation facility
15 comprised of39 - 1.8 MW Vestas wind turbines located in Columbia county,
16 Washington. Exhibit No. 17 shows a map of the plant location. The Marengo II
17 wind project is interconnected directly to the Company's system. The Marengo II
18 wind project wil not incur third-party transmission expense.
19 Q.What investment related to the Marengo II project is included in the revenue
20 requirement?
21 A.The Company has included $131.3 milion for the Marengo II plant in this
22 application. The O&M costs included in this case associated with Marengo II are
23 approximately $2.3 milion to cover wind turbine-generator maintenance
Lasich, Di - 9
Rocky Mountain Power
agreement, permitting obligations, local levy tax and land royalties and
2 easements.
3 The Marengo II plant began commercial operation on June 26, 2008. As
4 discussed in Mr. Duvall's testimony, the Company's net power cost calculation
5 reflects the inclusion of Glenrock III. Mr. Dickman's testimony includes the
6 revenue requirement calculations associated with the inclusion of this resource.
7 Other Supply-Side Resources
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Are there other Supply-Side Resources that the Company has acquired since
the last rate case?
Yes. The Company is currently seeking approval for the purchase of the Chehalis
combined cycle plant located in Chehalis, Lewis County, Washington. Exhibit
No. 18 shows a map of the plant location. Chehalis is a nominal 500 MW natural
gas-fueled electric generation facility.
Please refer to the testimony of Mr. Stefan A. Bird for a more thorough
discussion of the necessity and prudence of this resource.
Please describe the benefits of this resource to the Company's Customers.
The Chehalis combined cycle plant wil add additional flexibility to the overall
system and represents a low-cost resource when compared to other gas-fueled
resources and the current cost to construct, own and operate a similar resource.
What investment related to the Chehalis combined cycle plant is included in
the revenue requirement?
The Company has included the revenue requirement, including O&M costs, for
the Chehalis combined cycle plant in Mr. Dickman's Testimony, Confidential
Lasich, Di - 10
Rocky Mountain Power
1 Exhibit No. 13. The O&M costs wil be incurred as a result oflabor required to
2 operate the plant, chemical cost, maintenance materials and contracts, and other
3 miscellaneous operating expenses (e.g., utilities, rents, leases, insurance
4 premiums, etc.
5 As discussed in Mr. Dickman's testimony, the Company's net power cost
6 calculation reflects the inclusion of the Chehalis combined cycle plant. Mr. Bird
7 wil testify in support of the proposed Chehalis acquisition, including investment
8 and prudence information
9 Conclusion
10 Q.Please summarize your conclusions.
11 A.The Company has included supply-side resources, including the investment, net
12 power cost, and associated expenses, with in-service dates prior to
13 December 31, 2008, in its application. These projects represent significant
14 investments the Company is making on behalf of its customers to meet their
15 energy needs on a prudent and cost-effective basis. Customers wil receive the
16 output of these facilities during the rate-effective period and, therefore, should
17 pay for the costs associated with the facilities. The Company has been prudent in
18 securing these facilities for the benefit of its Idaho customers and should be
19 granted full cost recovery.
20 Q.Does this conclude your testimony?
21 A.Yes.
Lasich, Di - 11
Rocky Mountain Power
i0USEP '9 All to: 54
IOAHO PUBUC
UTiL.ITIES COMMISSION
Case No. PAC-E-08-07
Exhibit No. 16
Witness: A. Robert Lasich
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ROCKY MOUNTAIN POWER
Exhibit Accompanying Direct Testimony of A. Rober Lasich
Map - Location of Goodnoe Hils
September 2008
Rock Mountain Power
Exhibit No. 16 Page 1 of 1
case No. PAC-E-OS-Q7
Vlne: A. Robert Lasich
Yakimay~In~SN Benton
Wuhington-
HiliD/lIJ
1DUfur
111
( !yiih'~/IJ1I!Y
Goodnoe Hils Wind Farm
94MW
47 REpower Systems 2.0 MW
RECEIVED
ZOfSEP l 9 AtllO: 5"
IDAHO PUBLIC
UTILITIES COMMlSSION
Case No. P AC-E-08-07
Exhibit No. 17
Witness: A. Robert Lasich
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ROCKY MOUNTAIN POWER
Exhibit Accompanying Direct Testimony of A. Robert Lasich
Map - Location of Marengo II
September 2008
Rock Mountain Power
Exibit No. 17 Page 1 of 1
Case No. PAC-E-OS-07
Vlness: A. Robert Lasich
Marengo II Wind Farm
70.2MW
39 Vestas 1.8 MWturbines
Rock Mountain Power
Exibit No. 17 Page 1 of 1
case No. PAC-E-ûS-Q7
Witnes: A. Robert Lasich
t¡n_t':~':~,'
Z88SEP l 9 AMID: S4
IDAHO PUBLIC;
UTILITIES COMMISSION
Case No. PAC-E-08-07
Exhibit No. 18
Witness: A. Robert Lasich
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ROCKY MOUNTAIN POWER
Exhibit Accompanying Direct Testimony of A. Robert Lasich
Map - Location of Chehalis
September 2008
Rock Mountain Power
Exhibit No. 18 Page 1 of 1
Case No. PAC-E-o-o7
Vless: A. Robert Lasich
Chehalis Combined Cycle
Combustion Turbine
500MW