20100528Bird Direct.pdf

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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 $27.7 )
MILLION, OR APPROXIMATELY )13.7 PERCENT )
CASE NO. PAC.E.10.07
Direct Testimony of Stefan A. Bird
ROCKY MOUNTAIN POWER
CASE NO. PAC.E.I0.07
May 2010
1 Q.Please state your name, business address and present position with Rocky
2 Mountain Power ("Company").
3 A.My name is Stefan A. Bird. My business address is 825 NE Multnomah, Suite
4 600, Portland, Oregon 97232. My present position is Senior Vice President of
5 Commercial and Trading.
6 Qualifications
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Please describe your educational and professional background.
I hold a B.S. in mechanical engineering from Kansas State University. Ijoined
PacifiCorp Energy and assumed my curent position in Januar 2007. From 2003
to 2006, I served as president of CalEnergy Generation U.S., an owner and
operator of Qualifying Facility and merchant generation assets, including
geothermal and natual gas-fired cogeneration projects across the United States.
From 1999 to 2003, I was vice president of acquisitions and development for
MidAmerican Energy Holdings Company. From 1989 to i 997, I held multiple
positions at Koch Industries, Inc., including energy trading, financial trading,
acquisitions, project engineering and maintenance planning in the United States,
Latin America and Europe.
In my curent position I oversee the Company's Commercial and Trading
organization which is responsible for electrcity and natual gas wholesale
activities, dispatch of all of the Company's owned and contracted generation
resources, and wholesale purchases and sales to balance the Company's load and
resources. My organization is also responsible for the Company's load and
revenue forecast, integrated resource plan ("IRP") and net power costs ("NPC")
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1 modeling. Most relevant to this case, I am responsible for acquisition of power
2 resources for utilization in the Company's east and west balancing authorities (the
3 . "System") by means that include the negotiation of power purchase agreements
4 ("PP As") and the acquisition of generation resoures through the requests for
5 proposals ("RFP") process.
6 Purpose and Overview of Testimony
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What is the purpose of your testimony?
The purpose of my testimony is to demonstrate the prudence of the Three Buttes
Windpower LLC ("Three Buttes") PP A, the Top of the World Wind Energy, LLC
("Top of the World") PPA, and the Dunlap I wind-powered generation resource
("Dunlap l') for which the Company is seeking cost recovery in this proceedig.
In addition, my testimony describes the 2010 renewable energy credit ("REC")
sales revenue included in this proceeding and includes discussion of REC sales
volume, price and revenue uncertainty. Specifically, my testimony:
. Describes the procedural history of the 2008R RFP;
. Provides a description of Thee Buttes, and describes the economic
analysis and selection of Thee Buttes as a resource for the Company;
. Describes the procedural history of the 2008R- 1 RFP;
. Provides a description of Top of the World and describes the economic
analysis and selection of Top of the World as a resource for the Company;
. Describes the procedural history of the 2009R RFP;
. Provides a description of Dunlap I and describes the economic analysis
and selection of Dunlap I as a resource for the Company; and
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. Provides a description of 2010 REC sales revenue and a description of
forecast REC sales volume, price and revenue uncertainty.
Please summarize your testimony.
The Thee Buttes PPA, the Top of the World PPA and Dunlap I resources are
prudent acquisitions that contrbute to PacifiCorp's diverse and cost-effective
portfolio of resources. The Three Buttes PPA was acquired as a result of a fai,
transparent and robust competitive solicitation process, the 2Q08R RFP, that
solicited bids for renewable resoures less than 100 megawatts ("MW") or any
size with contract term less than five years. The Top of the World and the Dunlap
I projects were also both acquired through fair, transparent and robust competitive
bidding processes, namely the 2008R-l RFand the 2009R RFP, which were
both overseen by an independent evaluator ("IE"). I discuss each resource in
sequence by first providing a general overview of the 2008R RF, 2008R-l RF
and 2009R RFP. I then provide a description of the economic analysis and
selection of the Initial Shortlist and Final Shortlist in each RFP. Last I describe
the negotiation and ultimate selection of each resource.
In addition to the three renewable resources, I discuss PacifiCorp's 2010
REC sales revenues included in this proceeding, which is $91.8 millon. A large
portion of the 2010REC sales revenue is based on known and measurable
transactions. However, actual 2010 REC sales revenue wil be higher or lower
due to uncertainty in REC market prices and due to uncertainty in actual 2010
REC production which could be higher or lower due primarly to weather
uncertainty. Forecasting REC sales revenue beyond 2010 is highly speculative
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1 and could var by tens of millons of dollars per year given the one-off natue of
2 high value REC transactions in 2010, lack of REC market transparency and
3 liquidity, uncertain REC market regulatory environment, uncertain REC market
4 prices, uncertain REC production, uncertin legislative renewable compliance
5 requirements, and potential requirment for carbon offsets to comply with carbon
6 legislation, which could potentially reduce REC sales revenue to zero.
7 The 2008R RFP
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Did the Company issue a renewable Request for Proposals ("'2008R RJ"P") in
2008?
Yes. The 2008R RFP was issued on Januar 31, 2008, and solicited renewable
resources less than ioa MW or any size with contract tenn less than five years.
Bids under the 2008RRFP were due and received on March 31, 2008. The2008R
RFP is posted on the Company website at
http://www.pacificorp.comJsup/rfps/r2rr.html.
\-""hy did the Company issue the 2008RRFPwithout seeking certain stRte
Commission approval in contrast to the 2008RA RIW and 2009R RFP?
As of January 2008 the production ta.ie credit had not been extended beyond the
end of 2009 and renewal of the prodUi:.~tion tax credit was uncertain. The
Company determined it had a short window to issue a request for proposals,
receive bids, evaluate, negotiate and execute cost-effective transaction(s) that
could be constructed and achieve commercial operation prior to the expiration of
the production tax credit. The Company limited bids to less than 100 1t1\V or any
size with contract term less than five years to comply with Oregon Public Utility
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Commission (Oregon Commission) and. Public Service Commission of Utah
(Utah Commission) procurement guidelines. 'Without the resource size limitation,
maintaining compliance with the Oregon Commission and Utah Commission
procurement guideHnes would have other\vise required a more protracted
procurement timeframe and put at iisk the abilty to acquire cost etÌective
renewable resource(s) through a competitíve solicitation before the production tax
credit expired.
Is the 2008R RJ"P consistent with regulatory guidelines for resource
procurement?
Yes. The 2008R RFP is consistent with regulatory guidelines for resource
procurement as stipulated by the Ol'egon and Utah Commissions. The Idaho
Commission does not have specîfïc resource procurement guidelines.
Please describe the market response to the 2008R Rl"P.
PacifîCorp received 29 proposals from 11 different bidders.
Please describe the evaluation process for the 2008R RFP.
The economic analysis for the 2008R RFP was completed in two steps. The
Initial Shortlist evaluation was a screening process that evaluated proposals on
price (70%) and non-price (30%) considerations. This initial screening was
followed by the Final Shortlist evaluation which used the IRP Planning and Risk
("PaR") model consistent with the Company's renewable resource valuation
methodology, the alternative cost for compliance ("ACC").
Explain the evaluation which resulted in the Initial Shortlist.
The Initial Short List resulted from a screening process that ranked the proposals
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on price and non-price factors. The price factors were determned using
PacifiCorp's Structung and Pricing RFP Base Model to develop a comparson
metrc that projected net present value revenue requirement (net PVRR) per
kilowatt month (net PVRRW-mo) for each bid. The net PVRR component
combines the positive value of energy and capacity with negative offsetting costs.
The net PVRRW -mo metrc is the levelized annuity value which, when applied
to the nominal kilowatts on a monthly basis and present-valued, wil result in the
net PVRR. The non-price factors included evaluation of positive or negative
conformty to 200SR RFP bid requirements including the draft PP A or build own
transfer documents, transmission availabilty and interconnection status,
development status of the resource, bidder experience, bidder creditwortiness
and performance guarantees. Of the 29 proposals received, five proposals had a
positive net present value and were placed on the Initial Short List.
Please desribe the Final Sliort List evaluation in the 2008R RFP.
PacifiCorp used the IRP PaR model to complete an ACC calculation for each of
the five proposals on the Initial Short List to determne the Final Shortlist.
What is the ACC method?
The ACC method uses the Company's IRP production cost simulation model and
its Forward Price Curve to generate a market-based alternative cost comparson of
bid resources. To establish the market-based alternative, the Company first runs
the IRP production cost simulation model (the Planning and Risk, or PaR model)
in stochastic mode using the then current IRP preferred portolio. The IR PaR
model is then run a second time with the uncommtted futue renewable resources
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removed from the preferred portfolio. The difference between the two runs
establishes the market-based alternative cost Costs and benefits of the specific
bid resources being considered are compared against the IRP PaR model market-
based alternative. The resulting comparson metrc is an ACC value for each
resource bid, which represents the resource cost over the life of the project that
yields a zero net PVRR difference with respect to the IRP PaR model's market-
based resource alternative. A negative ACC value, expressed in dollars-per-
MWh, indicates that the bid resource compares favorably to the market-:based
alternative, whereas a positive ACC value indicates that the bid resource
compares unfavorably to the market-based alternative.
Please describe the results of'the 2008R RFP Final Short List.
The Final Short List resulted in thee proposals with favorable ACC values. All
thee projects were located in Wyoming. Two of the thee proposals were
substantially more favorable than the third. Therefore, PacifiCorp elected to
engage the two more favorable bids in negotiations for a PP A.
Please describe the result~ of the negotiatiol1s with the 2008R RFI) Final
Short List bidders.
PacifiCorp entered into negotiations with two of the bidders included on the Final
Short List in early summer 2008. The first bidder's project was a 49.5 megawatt
project located in Wyoming. PacifiCorp termated negotiations with this
counterpary in late 2008 after several months of negotiations because the
counterpary was unwiling to agree to terms and conditions in the PP A that
would provide adequate protection to customers consistent with terms and
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conditions in other PacifiCorp executed wind PPAs. The second bidder's project
is a 99 megawatt project located in Wyoming. Following successful negotiations
that were held in parallel with the negotiations with the other bidder described
above, PacifiCorp executed a PP A with this bidder on September 5, 2008. Ths
bidder is identified as Three Buttes Windpower LLC, an entity owned by Duke
Energy Corp.
Please describe the basic terms of'the transaction with Three Buttes
\Vindpower LLC.
The transaction is a 99 megawatt PPA with Thee Buttes Windpo~er LLC. The
transaction allows PacifiCorp to purchase all of the output and RECs of the 99
megawatt project for a term of 20 years. PacifiCorp has the option to purchase
the facility at fair market value at the conclusion of the initial 20 year term. The
project reached commercial operation on December 1, 2009. The project is
located in Natrona and Converse counties in Wyoming. The project utilzes 66
General Electric 1.5 megawatt sle (model) wind turbine generators. The terms
and conditions included in the PP A are consistent with other PacifiCorp wind
PPAs. The 2008R RFP resulted in acquisition of a cost-effective 99 megawatt
wind resource in Wyoming. Confidential Exhibit No. 15 is a copy of the PPA
with Three Buttes Windpower LLC. 1 The contract was included in the
Company's net power cost analysis, for a summar of the net power cost please
refer to Company witness Dr. Hui Shu's testimony.
1 Due to the large size of the exhibits attached to the PPA with The Buttes Windpower lLC, only the
contrct is attached hereto. The Company wil be pleased to provide copies of the exhibits upon request.
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1 The 2008R.1 RFP
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Please describe the 2008R.1 RFP procedural history.
The Company fied its initial application for the 2008R-l RFP on March 4, 2008.
The purpose of the 2008R- 1 RFP was to request and evaluate proposals to fulfil a
portion of the renewable resource generation identified in the Company's 2007
Integrated Resource Plan ("2007 IRP"). To that end, the 2008R- 1 RFP solicited
System-wide renewable resources that would enable the Company to meet its
service obligations. The 2008R- 1 RFP targeted acquisition of up.to SOO MW of
renewable resources with commercial operation dates prior to December 31, 2011
and with a limit of 300 MW per resource.2 The 2008R-l RFP was issued to the
market on October 6, 2008, with proposals due December 22, 2008.
Did the Idaho Commission approve the 200R.1 RFP?
The Idaho Commssion does not require approval of Company RFPs.
Was the 2008R.1 RFP approved by a commission in another state?
Yes, on September 23,2008, the Oregon Commssion approved the 2008R-l
RFP, with certain conditions that were all satisfied by the Company.3
Was an independent evaluator hired to oversee the 2008R.1 RFP?
Yes, the Oregon Commssion hired and the Company contracted with Boston
Pacific to be the IE.
Describe the market response to the 2008R.1 RFP.
The Company received 37 bids from 20 bidders on December 22, 2008.
2 300 MW is the upper limt pemittedby Utah Senate Bil 202. Qualfying Facilties that are at least 10
MW were eligible, pursuant to Guideline 6 in Order No. 06-46.3 See Order No. 08.476.
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Did the Company re.issue the 2008R.1 RFP after receipt of proposals on
December 22, 2oo8?
Yes. Because the acquisition of a successful resource under the 200SR-l RFP
would not occur until 2009, the Company was required to amend and reissue the
200SR-l RFP to accommodate Uta's resource procurement law.4
What were the changes to the Amended 2008R.1 RFP?
The Amended 200SR-l RFP included thee changes: (1) it allowed the original
bidders to update their proposals; (2) it provided new bidders the opportnity to
bid into the Amended 200SR -1 RFP; and (3) it modified the schedule to allow for
updated and new proposals.
Was the Amended 2oo8R.1 RFP approved by a commision in another state?
Yes. The Oregon Commssion approved the Amended 200SR-l RFP on Januar
21,2009.5 The Company issued the Amended 200SR-l RFP to the maket on
Januar 26, 2009, with proposals due Februar 27,2009.
Describe the market response to the Amended 2008R.1 RFP.
The Company received SO bids from 22 bidders on Februar 27,2009.
Please describe the Amended 2008R.1 RFP Initial Shortlist selection process.
The Company's analysis of the Amended 200SR-l RFP proposals focused on
determing which resources would provide the best value to customers on a
System-wide planning basis to meet customer requirements at the least cost, on a
risk-adjusted basis. To achieve these objectives, the Company evaluated
alternatives in a two step process. First, the Company selected three Initial
4 See Utah Code Ann. 54-17-502(2) (a) (i).
5 See Orer No. 09-017.
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1 Shortlists: (a) west wind; (b) east wind; and (c) all other renewable resources.
2 The purpose of firt selecting three separate Initial Shortlists was to capture
3 location resource diversity and the different sources of renewable resources.
4 To select groups of proposals to comprise each. of the thee Initial
5 Shortlists, the IE agreed with the Company's goals to: (1) select the proposals
6 with the greatest net benefit Ìn terms of pnce and non-pnce benefits; (2) select a
7 diversity of bidders and projects; (3) select a mix ofPPA and build-own-transfer
S ("BOTs") alternatives; (4) determne a relatively clear split between the score of
9 the last proposal evaluated and the next proposal that was not selected; and (5)
10 achieve the RFP goal that each category contain up to 500 MW or 5 proposals.6
11 Each proposal received up to a maximum of 100 points. The thee Initial
12 Shortists were comprised of the highest scorig proposals in each of the thee
13 respective segments, based on price (up to 70 points) and non-price factors (up to
14 30 points). The price factor was derived by using the PacifiCorp Structuring and
15 Pricing RF base model, which determnes the top-performng proposals on the
16 basis of the net pPVRRW -mo. The Net PVRR component views the value of
17 the energy and capacity as a positive and the offsetting costs of the proposal as a
is negative. The more positive the Net PVRR, the more valuable a given resource is
19 to the Company's customers.
20 The non-price factors evaluated were negative or positive based on the
21 following criteria: (a) conformty with Amended 200SR-l RFP proposal
22 requirements; (b) conformty with the pro forma PPA or BOT documents and/or
6 See The Oregon Independent Evaluator's Final ClosingReport on PacifiCorp's 2008R-l/Renewables RF
(MayI5, 2(09) at p. 13, (Exhibit No. 16).
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Asset Acquisition and Sale Agreement, attached as exhibits to the Amended
2008R- 1 RFP; (c) feasibilty of the proposal; (d) site control or permttng of the
proposal; and (e) operational viabilty of the proposal. Based on the application
of the price and non-price factors, the Company selected proposals to comprise
the Initial Shortlists.
Please describe the Amended 2008R.1 RFP Final Shortlist selection process.
After the Company selected the three Initial Shortlists, it moved to step two of the
evaluation process - selection of the Final Shortlist. To select the Final Shortlist,
the Company applied its ACC analysis methodology for renewable resources to
each of the three Initial Shortlists. This resource-specific analysis allows the
Company to compare a resource against the potential next highest alternative cost
for renewable resource compliance. In essence, the result of the ACC analysis
shows how the resource compares to the undifferentiated power market. The
ACC analysis also incorporates a resource's risk-adjusted system benefit, using
the Company's IRP stochastic production cost modeL. A negative ACC indicates
that the resource is valued below undifferentiated market alternatives; whereas a
positive ACC indicates that the resource is valued above undifferentiated market
alternatives. Upon completion of the ACC analysis and the PVRR (d) analysis,
the Company selected four alternatives for inclusion in the Final Shortlist, one of
which was Top of the World.
Did the IE concur with the Amended 2008R.1 Final Shortlist and
recommend acknowledgment?
Yes. The IE concured with the selection of the Final Shortlist and recommended
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its acknowledgment by the Oregon Commssion. See The Oregon Independent
Evaluator's Final Closing Report on PacifiCorp's 200SR-l Renewables RFP
(May 15,2009) ("200S R-l Final Report"), attached as Confidential Exhibit No.
16.7
Please explain the basis of the IE's recommendation, as outlined in the IE's
2008 R.1Final Report.
The IE based its recommendation to acknowledge the Amended 200SR-l RFP
Final Shortlist on six key points. First, the selected proposals represented the
resources with the greatest net benefits to customers as determned by the ACC.
Second, the proposals represented the top options from a competitive process.
Third, the IE's analysis confired that the selected proposals represent the lowest
cost alternatives for customers, with an accounting for risk. Four, the shortlist
provided a diversity of projects, bidders, and transaction types for negotiations
going forward. Fifth, the Amended 200SR'"1 RFP aligned with the Company's
IRP process. Sixth, the Company agreed to conduct an analysis at the time it
made its procurement decision to show how the accuracy of output projections
and asset life were reflected in the final decision.
Did the IE determine that the Amended 2008R.1 RFP process was fair and
transparent?
Yes. On page 14, the 200S R-l Final Report states:
(Thoughout the 200SR - 1 process the IE was) in constant contact
with the Company and had multiple discussions on dozens of
issues. The IE believes the quality of the effort is reflected in the
excellent response to the RFP. All of this work has led to what we
7 Due to the large size of the exhibits included in the 2008 R-l Final Report, only the report itself is
attached hereto. The Company wil be pleased to provide copies of the exhibits upon request.
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believe was a fair and transparent process. which complies with
Commssion guidelines and wil, we hope, leád to a positive result
with the supply of new renewable resources for the ratepayers.. .
Did the IE conclude that the negotiation phase of the RF was conducted in a
fair and reasonable manner?
Yes. The IE concluded that the negotiation phase of the Amended 2008R- 1 RFP
process was cared out in a fair and reasonable manner. See Boston Pacific
report of the Independent Evaluators on negotiations in PacifiCorp 2008R - lRFP
(September 18,2009) at p. 1, attached as Confidential Exhibit No. 17.8
Did the IE's report on the negotiation phase of the RFP conclude that Top of
the World was the best choice of projects from the final shortlist?
Yes. The IE considered price, technology and willigness to meet the
requirements of the RFP in reaching this conclusion.
Does the record developed in the RFP process show that Top of the World is
a prudent and cost. effective resource?
Yes. Additionally, the acquisition of Top of the World is consistent with
PacifiCorp's IRP action plan and PacifiCorp's renewable resource commtments
resulting from the MidAmerican Energy Holdings Company acquisition. These
are generally discussed in the diect testimony of Company witness Mr. Mark R.
Tallman in this Application.
Please describe the Top of the World PP A.
Top of the World is a 20-year PPA for 200.2 MW and associated renewable
energy credits. The Company wil purchase all of the output associated with the
8 Due to the large size of the exhibits in the Boston Pacific report of the Independent Evaluators on
negotiations in PacifiCorp 2008 R-lRFP (September, 2009), only the report is attached hereto. The
Company wil be pleased to provide copies of the exhibits upn request.
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1 project. PacifiCorp has the option to purchase the facility at fai market value at
2 the conclusion of the initial20-year term. The Top of the World project is
3 comprised of 66 General Electnc tubines (each capable of producing 1.5 MW
4 and 44 Siemens Energy, Inc. tubines (each capable of producing 2.3 MW). The
5 project is located near Casper, Wyoming and is expected to reach commercial
6 operation on or before November 1, 2010. The terms and conditions of the PP A
7 are consistent with other wind PP As entered into by the Company. Confidential
8 Exhibit No. 15 also contains a copy of the PPA with Top of the World.9 The
9 contract was included in the Company's net power cost analysis, for a summ
10 of thë net power cost please refer to Company witness Dr. Shu's tèstimony.
11 The 2009R RFP
12 Q.Please describe the 209R RFP.
13 A.The 2009R RFP targeted acquisition of up to 500 MW of System-wide renewable
14 resources with commercial operation dates between 2010 and 2012 and where no
15 single resource exceeding 300 MWlO would be acquired. Eligible resources were
16 also required to: (1) meet an expected annual output of at least 25,000 megawatt-
17 hours ("MW") after accounting for planned and unplanned outages; (2) include
18 associated renewable energy credits ("RECs"); and (3) comply with renewable
19 portfolio standard ("RPS") requirements in the Company's six-state service area.
20 The 2009R RFP also allowed for the submission of a Company Benchmak.
9 Due to the large size of the exhibits attached to the PPA with Top of the World, only the contract is
attached hereto. The Company will be pleased to provide copies of the exhibits upon request.10 300 MW is the upper limit permtted by Utah Code Ann. § 54-17-502. Qualifying Facilities that ar at
least 10 MW are eligible, pursuant to Guideline 6 in Order No. 05-446.
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Was an Independent Evaluator hired to oversee the 2009R Request for
Proposal?
Yes, on May 22, 2009, the Oregon Commssion hired and the Company
contracted with Boston Pacific to be the IE.
Was the 2009R RF approved by a commission?
Yes. The Oregon Commssion approved the 2009R RFP at its Public Meeting on
July 7, 2009.
Please desribe the timeline associated with the 2009R RFP proces.
The 2009R RFP was issued to the market July 8, 2009, with the Company's
Benchmak submittal due no later than September 3, 2009. Proposals from the
market were due September 10, 2009. Following review by the IE, the Company
Benchmak was formally submitted to the IE on September 3, 2009. The price
and non-price analysis of the Benchmark was completed by the Company and
reviewed by the IE prior to the Company opening proposals from the market on
September 10, 2009. The IE provided a memo on the Benchmark to the Company
on September 11,2009 (the "Benchmark Memo"), attached as Confidential
Exhibit No. 18.
Describe the market response to the 2009R RFP.
The Company received 82 bids from 26 bidders on September 10, 2009.
Please explain how the IE conducted its analysis and established the
conclusions set forth in the Benchmark Memo.
The IE undertook a detailed examination of the Company's Benchmark by
reviewing the submittal and detailed cost backup sheets and through
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conversations with the Company's generation personneL. The IE's stated primar
concern was the potential omission of capital costs. Accordingly, the IE focuse
on ensurig that appropriate capital costs were included in the Company
Benchmark. As an additional check, the IE compared the Company Benchmark
capital costs and estimated capacity factors to proposals from the 200SR - 1 RFP
the IE considered comparable.
What did the Benchmark Memo conclude with respect to the inclusion of
capital costs in the Benchmark?
The Benchmark Memo concluded that all capital costs were properly included
and that the level of the Company Benchmark's estimated capital costs were
appropriate. The IE also found that the Company Benchmak capital costs were
within the range of comparable costs as indicated by proposals in the 200SR-l
RFP. Finally, the IE found that the estimated annual Benchmark capacity factor,
while in the high range compared to all proposals in the 200SR-l RFP, was within
the range of capacity factors from proposals associated with potential resources in
the nearby vicinity.
11
Why did the Company submit a Company Benchmark and what role did it
play in the RFP process?
. The Company's Benchmark played an important role in the 2009R RFP process
by providing a cost-based alternative for the benefit of customers. The Company
received proposals in the 2009R RFP under a multitude of structues with varing
terms and conditions that served as alternatives to the Company Benchmark
including PP As, and BOTs. Including a Benchmark provides a benefit for
11 See Benchmark Memo at p. 11-12, (Exhibit No. 18).
Bird, Di - 17
Rocky Mountain Power
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customers because it serves as a check on market-based proposals, it provides a
resource alternative that the Company is prepared to underte, and it shields
customers from 100 percent maket exposure.
Please describe the 2009R RFP Initial Shortlist selection process.
The Company's analysis of the 2009R RFP proposals focused on determning
which resources would provide the best value to customers on a System-wide
planning basis to meet customer requirements at the least cost, on a risk adjusted
basis. To achieve these objectives, the Company evaluated alternatives in a two
step process. First, the Company selected thee Initial Shortlists: (a) west wind;
(b) east wind; and (c) all other renewable resources. The purose of first selectig
three separate Initial Shortlists was to captue location resource diversity and the
different sources of renewable resources.
To select groups of proposals to comprise each of the thee Initial
Shortlists, the IE agreed with the Company's goal to: (a) select the proposals with
the greatest net benefit in terms of pnce and non-price benefits; (b) select a
diversity of proposals and projects; (c) select a mix of PP As and BOTs; (d)
determe a relatively clear split between the score of the last proposal priced and
the next proposal that was not selected; and (e) achieve the RF goal that each
category contain up to 500 MW or five proposals. See The Oregon Independent
Evaluator's Final Closing Report on PacifiCorp's 2009R Renewables RFP
(November 5, 2009) ("2009R Final Report") at p. 12. The 2009R Final Report is
attached as Confidential Exhibit No. 19.12
12 Due to the large size of the exhibits to the 2009R Final Report, only the report itself is attached hereto.
The Company will be pleased to provide copies of the exhibits upon request.
Bird, Di - 18
Rocky Mountain Power
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Each proposal received up to a maximum of 100 points. The three Initial
Shortlists were comprised of the highest scoring proposals in each of the thee
respective segments, based on price (up to 70 points) and non-price factors (up to
30 points). The price factor was derived by using the PacifiCorp Strctung and
Pricing RFP base model, which determnes the top performng proposals on the
basis of the Net PVRRW-mo. The Net PVRR component views the value of
the energy and capacity as a positive and the offsetting costs of the proposal as a
negative. The more positive the Net PVRR, the more valuable a given resource is
to the Company's customers.
The non-price factors evaluated were negative or positive based on the
following criteria: (a) conformty with 2009R RFP proposal requirements;. (b)
conformty with the pro forma PPA or BOT documents and/or Asset Acquisition
and Sale Agreement attached as exhibits to the 2009R RFP;.(c) feasibilty of the
proposal; (d) site control or permttng of the proposal; and (e) operational
viability of the proposaL. Based on the application of the price and non-price
factors, the Company selected proposals to comprise the Initial Shortlists. The
Initial Shortlist contained a total of 14 resource alternatîves (13 proposals from
the market and the Company Benchmark). The 14 alternatives contained five east
wind resources, four west wind resources and five other renewable resources.
Did the IE agree with the Company's selection of alternatives contained in
the three Initial Shortlists?
Yes. The IE agreed with the Company's selection of the three Initial Shortlists.13
13 See 2009R Final Report at pp. 11-14, (Exhibit No. 19).
Bird, Di.. 19
Rocky Mountain Power
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Please describe the 2009R Final Shortlist selection process.
After the Company selected the thee Initial Shortlists, it moved to step two of the
evaluation process - selection of the Final Shortlist. To select the Final Shortlist,
the Company applied its next highest ACC analysis methodology for renewable
resources to each of the thee Initial Shortists. This resource-specific analysis
allows the Company to compare a resource against the potential next highest
alternative cost for renewable resource compliance. In essence, the result of the
ACC analysis shows how the resource compares to the undifferentiated power
market. The ACC analysis also incorporates a resource's risk-adjusted sysiem
benefit, using the Company's IRP stochastic production cost modeL. A negative
ACC indicates that the resource is valued below undifferentiated market
alternatives; whereas a positive ACC indicates thatthe resource is valued above
undifferentiated market alternatives. Upon completion of the ACC analysis and
the PVRR(d) analysis, the Company selected two alternatives for inclusion in the
Final Shortlist. The Final Shortlist included: (l) Dunlap I, the Company
Benchmark; and (2) Proposal B, a BOT. Both Dunlap I and Proposal Bare
located in Wyoming.
Did the IE concur with the Final Shortlist?
Yes. The IE concurred with the selection of the Final Shortlist and recommended
that the Company include two additional back-up proposals for potential
consideration in the event the other alternatives did not materialize. Both of the
back-up alternatives are less cost-effective than Dunlap I and Proposal B.
Moreover, one of the back-up proposals is not currently viable because it is sited
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in a location recently designated as a Greater Sage-Grouse Core Area.
Wyoming's Greater Sage-Grouse Core Area is discussed in more detail later in
my testimony.
What did the IE conclude in its 2009R Final Report on the Final Shortlist?
The IE based its recommendations to acknowledge the Final Shortlist on six key
points. First, the selected alternatives represented the resources with the greatest
net benefits to customers as determned by the ACC. Second, the alternatives
represented the top options from a competitive process where the Company
received proposals from 26 suppliers offering a total of 39 projects. Some of
these projects offered multiple options for a total of 82 proposal options and over
9,400 MW. Third, the IE's report states:
independent analysis confirmed that the selected bids
represent the lowest cost alternatives for ratepayers, with an
accounting for risk. Our independent analysis included the
creation of our own cost annuity models for each bid
option, a review of PacifiCorp's models, and a thorough
review of the terms and condition of each bid.
14
Fourth, The RFP aligns with the Company's IRP process. The Initial and Final
Shortlist analyses used curent assumptions from the IRP. In addition, the ACC
analysis uses a model from the Company's IRP process to calculate the benefit of
renewable resources. Fifth, the Company Benchmark is included in the Final
Shortlist and the IE took special care to confir that selection, noting:
(w)e confired the accuracy of the Benchmark costs and
scoring and provided the Commssion with a complete
review of all costs of the project prior to bid receipt. We
also confired the Benchmark's status by; (a) reviewing
the project's initial and final shortlist scores and models,
(b) independently scorig the project's non-price
141d. at p. 3.
Bird, Di - 21
Rocky Mountain Power
1 characteristics, (c) comparng the cost and output of the
2 project to recent thid-par bids, and (d) evaluating the bid
3 costs in our own cost modei.15
4 Sixth, while there were two bids targeted for acquisition the shortlist also includes
5 two 'back- up' bids which provides some assurance that, should negotiations fall
6 through with a bidder, the RFP may stil result in a winner in addition to the
7 Benchmark,
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8 Dunlap I
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Please describe Dunlap I.
Dunlap I is a 1 1 1 MW wind project consisting of 74 wind tubine generators, an
electrcal collector system, a 34.5 to 230 kV collector substation (known as the
Dunlap substation), a 230 kV transmission line (approximately 11 miles in
length), 230 k V breakers, access roads, an operations & mantenance building. and
required communication and control facilities (e.g., metering, hardware, software,
and associated communication circuits and other equipment).
Where wil Dunlap I be located?
Dunlap I wil be located approximately eight miles north of Medcine Bow,
Wyoming in Carbon County on property consisting of approximately 16,500
acres (the "Site").
Why is the Site an appropriate place to construct Dunlap I?
The Site is appropriate for Dunlap I for three prima reasons: (1) studies indicate
the Site wil result in a desirable wind resource; (2) the Site is located in close
proximity to the Company's transmission system and another Company-owned
15 2009R Final Report at p. 3, (Exhibit No. 19).
16 ¡d. at p. 4.
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wind project; and (3) the Company owns the majority of the Site land, thereby
avoiding third-pary royalty payments at a benefit to customers.
Please explain the division of land ownership within the Site.
The Company owns the vast majority of the Site land. The Bureau of Land
Management ("BLM") owns two sections, the state of Wyoming owns
approximately two and one half sections and one section is held by a private a
third pary.
Please explain if any of the Dunlap I facilties wil be located on land not
owned by the Company.
The Company has no nghts at this time to use the BLM land and no plans to place
facilities on BLM lands. The Company holds a lease for the state lands and
intends to cross one section with a 230 kV transmission line. At this time,
placement of wind turbine generators ("WTGs") on the state lands is not planned
for Dunlap I. Although the Company plans to install electrcal facilities on the
third-pary lands, there are no plans for the placement of Dunlap I WTGs on such
lands at this time. Finally, the Company holds a lease to an additional state
section that the transmission line from the Site to the point of interconnection with
the Company's transmission system wil cross. The remainder of the transmission
right-of-way is on land leased from a private entity.
Has the Company performed an evaluation of the wind potential at the Site?
Yes. Wind potential studies were performed by the Company's consultant as par
of the Company's Benchmark submittaL. In addition, as part of the 2009R RFP
process, the Company retained a separate independent consultant to perform an
Bird, Di - 23
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independent wind study for the Company Benchmark and Proposal B. The
second study confired the Site's suitabilty for Dunlap i. The second study also
supplied its own independent estimate of the annual capacity factor forecast for
Dunlap I. The independent studies were used in the RFP analysis of the Company
Benchmark and Proposal B.
Who wil supply the towers, WTGs and control systems for Dunlap I?
The towers, WTGs and control systems wil be supplied by General Electrc
Company ("GE").
How was GE selected as the turbine supplier?
The Company solicited offers from multiple turbine suppliers and it was
determned that GE provided the lowest cost and risk to customers.
Is GE a proven supplier of WTG equipment?
Yes. GE is one of the leading and most creditworthy WTG suppliers in the
market and has an established track record of manufactung wind generation
components.
Wil GE supply a warraty?
Yes. GE wil provide a two-year waranty.
What is your understanding of the 208 Executive Order issued by Wyoming
Governor David Freudenthal designating Greater Sage. Grouse Core Areas?
The Executive Order maps out the state of Wyoming's prime sage-grouse habitat
areas and lists a number of requirements that restrict new development of coal,
wind, oil, gas, recreation and agriculture within those areas.
Bird, Di - 24
Rocky Mountain Power
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Is Dunlap I in the Greater Sage. Grouse Core area?
No. The Dunlap I facilities, including the 230 kV transmission line, are not
located in the Gr~ater Sage-Grouse Core Area.
What is the projected commercial operation date for Dunlap I?
The projected commercial operation date for Dunlap I is November 1, 2010.
What investment related to the Dunlap I resource is.included in the revenue
requirement in this case?
The Company has included $261.2 millon for Dunlap I in this case. This amount
is consistent with the amount utilzed in the evaluation and selection of the 2009R
RFP Final Shortlist and reviewed by the IE. The operation and maintenance costs
included in this case associated with Dunlap I are $2.4 millon for WTG
maintenance, permtting obligations, local levy tax, and land use payments. The
testimony of Company witness Mr. Steven R. McDougal includes the revenue
requirement calculations with the inclusion of this resource. Dunlap I was
included in the Company's net power cost analysis, for a summar of the net
power cost please refer to Company witness Dr. Shu's testimony.
Does the record developed in the RFP process show that Dunlap I is a
prudent and cost.effective resource?
Yes. Additionally, the acquisition of Dunlap I is consistent with PacifiCorp's IRP
action plan and PacifiCorp's renewable resource commtments resulting from the
MEHC acquisition.
Bird, Di - 25
Rocky Mountain Power
1 2010 Renewable Energy Credit sales revenue
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Whatis PacifiCorp's 2010 RECsales revenue in this proceeding?
PacifiCorp's 2010 REC sales revenue in this proceedig is $91.8 millon. The
testimony of Company Witness Mr. McDougal includes the revenue requirement
impacts of the 2010 REC sales revenue. Page 3.6.3 of Mr. McDougal's Exhibit
NO.2 provides the detail behind the 2010 REC sales revenue.
Is there uncertainty in the 2010 REC sales revenue?
Yes. Although a large portion of the 2010 REC sales revenue is based on known
and measurable transactions, actual 2010 REC sales wil be higher or lower due to
speculation related to unknown REC transactions given the uncertain REC market
regulatory environment, uncertain REC maket prices and uncertain REC
production volume due primarly to weather uncertinty.
Is it reasonable to use 2010 REC sales revenue as a proxy for future REC
sales?
No. The 2010 REC sales revenue is extraordinar due to several high value one-
off transactions that were executed during a unique window of opportnity in a
highly iliquid market. Current regulatory uncertainty in California regarding
eligible REC transactions prevents the abilty to execute incremental comparable
transactions with the investor owned utilities in California. PacifiCorp' s abilty to
execute comparable high value REC sales transactions with other counterparies is
limited by market demand, counterparty resource eligibility and transmission
delivery restrctions.
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Could REC sales revenue beyond 2010 vary by tens of milions of doUars and
potentiaUy faU to zero?
Yes. PacifiCorp has executed certain high value REC transactions that extend
through 2012, so those revenues are known and measurable assuming the RECs
supporting these sales are produced. However, REC sales that have not been
executed are highly speculative due to the uncertain REC market regulatory
environment, uncertin REC market prices, uncertain legislative renewable
compliance standards and potential need for carbon offsets. PacifiCorp's annual
REC sales revenue beyond 2010 could var by tens of millons of dollars based
on REC price uncertinty alone. REC sales beyond 2012 could potentially fall to
zero if RECs are needed for renewable portfolio stadard compliance or as carbon
offsets to satisfy potential new carbon legislation.
Due to the uncertinty of REC sales revenue what treatment is the Company
proposing?
The Company is proposing REC sales should be included in the ECAM. Mr.
McDougal describes this proposal in his testimony.
Does this conclude your direct testimony?
Yes.
Bird, Di - 27
Rocky Mountain Power
CONFIDENTIAL
Case No. PAC-E-I0-07
Exhibit No. 15A
Witness: Stefan A. Bird
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ROCKY MOUNTAIN POWER
CONFIDENTIAL
Exhibit Accompanying Direct Testimony of Stefan A. Bird
Thee Buttes Windpower LLC Puchase Power Agreement
May 2010
THIS EXHIBIT IS CONFIDENTIAL
AND IS PROVIDED UNDER
SEPARA TE COVER
CONFIDENTIAL
Case No. PAC-E-1O-07
Exhibit No. 15B
Witness: Stefan A. Bird
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ROCKY MOUNTAIN POWER
CONFIDENTIAL
Exhibit Accompanying Direct Testimony of Stefan A. Bird
Top of the World Puchase Power Agreement
May 2010
THIS EXHIBIT IS CONFIDENTIAL
AND IS PROVIDED UNDER
SEPARATE COVER
CONFIDENTIAL
Case No. PAC-E-I0-07
Exhibit No. 16
Witness: Stefan A. Bird
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ROCKY MOUNTAIN POWER
CONFIDENTIAL
Exhibit Accompanying Direct Testimony of Stefan A. Bird
Independent Evaluator's Final Closing Report (Summar)
May 2010
THIS EXHIBIT IS CONFIDENTIAL
AND IS PROVIDED UNDER
SEPARATE COVER
CONFIDENTIAL
Case No. PAC-E-I0-07
Exhibit NO.1 7
Witness: Stefan A. Bird
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ROCKY MOUNTAIN POWER
CONFIDENTIAL
Exhibit Accompanying Direct Testimony of Stefan A. Bird
Independent Evaluator's Report on Negotiations (Summar)
May 2010
THIS EXHIBIT IS CONFIDENTIAL
AND IS PROVIDED UNDER
SEPARATE COVER
CONFIDENTIAL
Case No. PAC-E-I0-07
Exhibit No. 18
Witness: Stefan A. Bird
BEFORE THE IDAHO PUBLIC UTIITIES COMMISSION
ROCKY MOUNTAIN POWER
CONFIDENTIAL
Exhibit Accompanying Direct Testimony of Stefan A. Bird
Independent Evaluator's Benchmark Memo
May 2010
THIS EXHIBIT IS CONFIDENTIAL
AND IS PROVIDED UNDER
SEPARA TE COVER
CONFIDENTIAL
Case No. PAC-E-I0-07
Exhibit No. 19
Witness: Stefan A. Bird
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ROCKY MOUNTAIN POWER
CONFIDENTIAL
Exhibit Accompanying Direct Testimony of Stefan A. Bird
Independent Evaluator's Closing Report (Summar)
May 2010
THIS EXHIBIT IS CONFIDENTIAL
AND IS PROVIDED UNDER
SEPARATE COVER