20100528Shu Direct.pdf

zoin HAY 28 PH 12= 06
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER UF THE )
APPLICATION OF ROCKY )
MOUNTAIN POWER FOR )
APPROVAL OF CHANGES TO ITS )
ELECTRC SERVICE SCHEDULES )
AND A PRICE INCREASE OF $27.7 )
MILLION, OR APPROXIMATELY )13.7 PERCENT )
CASE NO. PAC.E.10.07
Direct Testimony of Hui Shu
ROCKY MOUNTAIN POWER
CASE NO. PAC.E.10.07
May 2010
1 Q.Please state your name, business address and present position with
2 PacifiCorp ("Company").
3 A.My name is Hui Shu, my business address is 825 N.E. Multnomah, Suite 600,
4 Portland, Oregon 97232. My present position is Manager of Net Power Costs.
5 Qualifications
6 Q.Briefly describe your educational and professional background.
7 A.I received an undergraduate degree in Electrcal Engineenng and finished training
8 in the program for a Masters in Business Administration from University of
9 Shanghai for Science and Technology. I received a PhD degree in Systems
10 Science with a focus on Econometrcs from Portland State University. lhave
11 worked for PacifiCorp since 1992 and have held positions in the commercial and
12 trading and regulatory areas. I accepted my current position in Februar 2008.
13 Q.Please describe your current duties.
14 A.I am responsible for the coordination and preparation of net power cost studies
15 and related analyses used in retail pnce filngs. In addition, I represent the
16 Company on varous net power cost related issues with intervenor and regulatory
17 groups associated with the six state regulatory commssions to whose jurisdiction
18 the Company is subject.
19 Purpose of Testimony
20 Q.What is the purpose of your testimony in this proceeding?
21 A.I present the Company's net power costs for the 12-month period ending
22 December 2010. Specifically, my testimony:
23 . Sponsors the GRID model net power cost report that supports this filing;
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1 . Describes the pnmar drvers of the increase in the Company's net power
2 costs;
3 . Descnbes modeling enhancements addressing hydro resources; and
4 . Discusses the wind integration charge included in the Company's filing.
5 Net Power Cost Results
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What are the normalized net power costs for the test period?
The normalized net power costs ("NPC") for the twelve months ending December
2010 are approximately $69.2 millon on an Idaho allocated basis, or $1.07 bilion
system-wide as presented in confidential Exhibit No. 40. The allocation of total
Company NPC to Idaho is presented in Exhibit NO.2 in Company witness Mr.
Steven R. McDougal's diect testimony.
How wil the normalized NPC approved by the Commission in this
proceeding be used for setting retail rates in Idaho?
They wil set the new base NPC for puroses of the Energy Cost Adjustment
Mechanism ("ECAM") and wil be trued-up to actual NPC consistent with the
mechanics of the ECAM.
How do proposed NPC compare with the NPC that the Commission
authorized in the Company's last general rate case, Case No. PAC.E.08.07?
The NPC authonzed in Case No. PAC-E-08-07 were $982 millon on a total
Company basis or $66.1 millon on an Idaho allocated basis. On a total Company
basis, NPC have increased approximately $87.7 millon from $982 millon to
$ 1. 07 bilion. Idaho's allocated portion of NPC in the current filing is
approximately $3.1 millon higher than the NPC currently included in customers'
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1 rates, which is the combined result of increases in the total Company NPC and
2 decreases in Idaho's allocation factor.
3 Primary Drivers Increasing Net Power Costs
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What are the primary drivers of the increase in NPC?
The factors that are drving NPC increases in the test penod ending December
2010 include:
. Increases in coal costs;
. Increased firm wheeling expenses;
. Expiration of low-cost long-term firm power purchases and high-pnced long-
term sales contracts;
. Lower hydro generation; and
. Increases in wind integration costs.
The offsetting factors include:
. Lower system load; and
. Additional wind generation.
Please explain the Company's coal costs increases.
The costs of coal supplied to the êoal-fired generating facilties from both the
Company's captive mines and contracts with third paries have increased
approximately $116 millon on a total Company basis from what were included in
the NPC that are currently in rates. For a detailed explanation of these increases,
please refer to the direct testimony of Company witness Ms. Cindy A. Crane.
What are the primary reasons for the increases in wheeling expenses?
Wheeling expenses increased due to the expiration of low-pnced formula power
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transfer ("FPT") wheeling contracts with the Bonnevile Power Admnistration
("BPA"). As these FPT contrcts expire, they are being replaced with new
wheeling contracts with BPA that are higher-pnced point-to-point ("PTP") and
network-integration ("NT") contracts. The increases also include expenses for
additional contracts to wheel generation from the Chehalis gas-fir~d plant and the
GoodnoeHils wind plant to the Company's load areas. Also, Idaho Power
Company has adjusted its wheeling rate for the contracts with the Company
associated with delivenng generation from the Jim Bndger plant to the
Company's load areas. These changes to wheeling expenses increase NPC by
approximately $16.5 millon on a total Company basis.
Are the BPA wind integration charges included in the wheeling expenses?
Yes. The BPA wind integration charges are recorded in the Company's wheeling
expense account. These expenses were included in the Company's total wind
integration charges in the last case. In addition, BP A has increased its wind
integration charge from $0.68 per kW-month to $1.29 per kW-month based on the
results of BPA' s 2010-2011 transmission rate case.
How do expiring power purchase and sales contracts impact net power costs?
The cost of the replacement power for expirng purchase contracts could be higher
or lower, depending on whether the price of the expired power purchase contrct
was below or above current maket prices. Likewise, the revenue credts of
additional wholesale sales could be lower or higher, depending on whether the
price of the expired power sales contract was above or below curent market
prices.
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Please highlight some of the key contract changes in the net power costs.
Revenues from wholesale sales are credited against expenses included in NPC.
This filing reflects the expiration of sales contracts with NV Energy (Sierra
Pacific), Salt River Project, and a reduction in the energy take of the sales contract
with the Public Service Company of Colorado, per the contract terms. Because of
the relatively high prices of these sales contracts when compared to curent
market prices, the combined impact of the expiration of these sales contracts
increases NPC by approximately $37.0 millon on a total Company basis. The
price of the contract with BPA for capacity has increased based on BPA's 201O~
2011 Wholesale Power Rate Schedule, which increases NPC by approximately
$10.6 millon on a total Company basis. As an offset to rising power costs,
several relatively high-price purchase contracts have expired, which reduces
NPC by approximately $31.5 millon on a total Company basis. This filng also
includes the purchase agreements with Thee Buttes Windpower, LLC and Top of
the World Wind Energy, LLC for wind generation from those projects. For
further discussion on these two contracts, please refer to Mr. Stefan A. Bird's
direct testimony.
Are there significant changes to the Company's purchase contracts for
generation from the Mid.Columbia projects?
Yes. In November 2009, the nearly 50 year old contract between the Company
and the Grant Public Utilty Distrct ("Grant PUD") under which the Company
purchased a share of the output of the W anapum hydro-electric project expired.
This contract was priced at the cost of the Wanapum project, which is
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significantly below current market prices, and accordingly, expiration of the
contract increased NPC in the test period due to higher costs of the replacement
power. The cost increase from the replacement of this contract is mitigated
somewhat by the increase in revenues from the Reasonable Portion of the contract
with Grant PUD. The expiration of the Meaningful Priority from Grant PUD also
reduces NPCbecause it was priced at the then-maket price plus a premium. The
net impact of these changes reduces NPC by approximately $3.4 millon on a total
Company basis.
How does decreased hydro generation impact the Company's NPC?
Because hydro generation is a zero cost resource in the NPC calculations, the
reduction in hydro causes the NPC to increase. This filng reflects a decrease in
hydro generation of 0.1 millon megawatt hours, or 2.9 percent, when compared
to the amount included in the Company's last rate filing. The reduction in hydro
generation increases NPC by approximately $4.9 millon on a total Company
basis. I wil discuss the changes in hydro generation later in my testimony. All
things being equal, reduced hydro generation wil require the Company to re-
dispatch the system utilizing additional higher cost thermal resources and by
makng additional wholesale market purchases and reduced wholesale market
sales.
Have the wind integration costs increased?
Yes. In the curent fiing, the Company uses $6.50 per megawatt-hour, which
was authorized by the Commssion in Case No. PAC-E-09-07, to calculate the
costs of integrating the wind generation into the Company's system. In the
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Company's 200S general rate case, the wind integration charge was based on the
results from the Company's 2007 Integrated Resource Plan (IRP) at $1.14 per
megawatt-hour for all wind generation. Also, in that case the wind integration
costs for the generation from the Leaning Juniper and Goodnoe Hils located in
the BP A's control area were calculated using the same rate at $ 1. 1 4 per
megawatt-hour, except the last two months in the test period when BPA added a
wind integration charge in its transmission tarff rates at $0.68 per kW-month. I
wil discuss further later in my testimony about the Company's wind integration
costs, and the application of the $6.50 per megawatt-hour in this fiing.
Are there other factors decreasing some of these NPC increases?
Yes. System load is lower and the wind generation is higher in the curent fiing.
How much has the Company's system load decreased?
The system load in the current filing is about 0.5 millon megawatt-hours
(approximately one percent) lower than what was in the 200S general rate case,
which reduces the NPC by approximately $20.6 millon on a tota Company basis.
Dr. Peter C. Eelkema's diect testimony explains the changes in system load.
How much additional wind generation is included in the test period as
compared with what was in Case No. PAC.E.08.07?
The NPC in the current fiing includes approximately 1.9 millon megawatt-hours
additional wind generation from eight Company-owned wind projects since the
Company's last general rate case. This NPC study includes generation from the
99-megawattGlenrock, 39-megawatt Glenrock ill, 99-megawatt High Plains, 99-
megawatt Rollng Hils, 99-megawatt Seven Mile Hil, 19.5-megawatt Seven Mile
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Hil II and 28.5-megawatt McFadden Ridge I wind projects that are all located in
Wyoming. Please refer to the diect testimony of Mr. Mark R. Tallma for
additional detail about these resources. The NPC also includes the Ill-megawatt
Dunlap project located in Wyoming that wil be in service in November 2010 but
assumed to be in-service for a full twelve months for the curent filing. Please
refer to the direct testimony of Mr. Bird for additional detal about the Dunlap
project. For the Company-owned wind facilities, the varable cost is the costs to
integrate the intermttent wind generation into the Company's resource portfolio.
Did the Company adjust for startup costs related to the gas-fired units?
Yes. Because the GRID model does not captue the starp costs of the gas-fired
units that are not included in any other Federal Energy Regulatory Commssion
accounts, a line item is added to the NPC report to capture the starp fuel costs of
the gas-fired units.
Has the Company changed its topology modeled in GRID?
Yes. To reflect the transmission constraints in the Wyoming area and to ensure
the reliabilty of the transmission network in the area governed by the Western
Electrcity Coordinating Council ("WECC"), the constraint in the cut plane
named Tot 4A in Wyoming has been redefined by PacifiCorp Transmission
deparment and approved by WECC. As a result, the previously modeled
transmission area of "Wyoming" in GRID has been redefined.
Did the Company model the impact of the new transmission addition
between Populus and Termnal?
Yes. The addition of the Populus to Termnal line increases the transmission
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1 capacity across Path C from southeast Idao to northern Utah by approximtely
2 780 megawatts. The additional transmission capacity makes it possible to better
3 utilze the market price differentials between the east and west sides of the
4 Company's system, reduces reliance on additional purchases of trsmission from
5 third paries, and improves reliabilty. For further details, please refer to the direct
6 testimony of Company witnesses Mr. John A. Cupparo and Mr. Darell T.
7 Gerrard.
8 Determination of NPC and Model Inputs and Outputs
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Please explain NPC.
NPC are defined as the sum of fuel expenses, wholesale purchase power expenses
and wheeling expenses, less wholesale sales revenue.
Please explain how the Company calculates NPC.
NPC are calculated using the Generation and Regulation Initiative Decision
model ("GRID"). GRID is a production cost model that simulates the operation
of the Company's power system on an hourly basis.
Is the Company's general approach to the calculation of NPC using the
GRID model the same in this case as in previous cases?
Yes. The Company used the GRID model in its last rate filing in Idaho.
Is the Company using the same version of the GRID model as used in Case
No. PAC.E.08.07?
Yes.
What inputs were updated for thi filing?
The system load, wholesale sales and purchase contracts for electrcity, natual
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gas and wheeling, market prices for electrcity and natural gas, fuel expenses,
characteristics of the Company's generation facilities, planned outages and forced
outages of the Company's generation resources are updated for this filing.
Was the transmission topology also updated for this filing?
Yes. The transfer capabilties of the transmission paths have been updated. In
addition, as I mentioned above, the transfer capabilty of Path C to Utah has
reflected the impact of the transmission line from Populus to Termnal.
What reports does the GRID model produce?
The major output from the GRID model is the NPC report. This is attached to my
testimony as confdential Exhibit No. 40. Additional data with more detailed
analyses are also available in hourly, daily, monthly and annual formats by heavy-
load hours and light-load hours.
Has the Company changed its modeling of normalized hydro generation?
No. As in the 200S general rate case, the normalized hydro generation is
produced by the Vista model, except the enhancement that I wil discuss later in
my testimony.
Are the inputs to Vista prepared in the same way as in the Company's 2008
general rate case?
The historical information used as the basis of the normalized generation
continues to include all available years, except for the Bear River system. The
Bear River system data excludes flood control years, which is an unlikely event.
The Company is, however, currently in the process of reviewing patterns of
weather and stream .flow changes for hydro generation in the context of changes
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in climate, both globally and in the region. Based on this review, the Company
may propose changes to its modeling of normalized hydro generation in futue
proceedings.
Do you believe that the GRID model appropriately reflects the Company's
system operations in its operating environment?
Yes. The use of the GRID model as described in my testimony reasonably
simulates the operation of the Company's system consistent with the Company's
operation of the system, including operating constraints and requirements.
Does the Company propose to update its filing in its rebuttal testimony for
material changes in net power costs, such as new contracts, fuel costs and the
Official Forward Prce Curve, irrespective of whether these changes increas
or decrease net power costs?
Yes. This ensures that the Commssion has the most accurate and curent
information available to it in setting rates for the test period.
15 Enhancements to the Hydro Modeling
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Please describe the enhancements to the hydro inputs the Company made in
the filing.
There are two enhancements to the hydro inputs of the GRID modeL. The first
enhancement is to apply single-year medan hydro generation. The second
enhancement is to explicitly model the reduced generation related to operating the
hydro units for reserve puroses that causes "motorig" and efficiency losses.
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How has the Company changed its hydro generation inputs for normalized
net power costs?
In its 200S general rate case, the Company used three equally weighted
"exceedence levels" of hydro generation to determne the hydro volumes used in
GRID and the dispatch of the other resources. In the curent filing, the Company
uses the single-year median hydro condition.
Why does the Company choose to use the single-year median hydro?
It is transparent and easy to understand and it is consistent with the hydro
condition used by the Company for operational planning.
What is a "single- year median?"
The single-year median hydro generation that the Company uses as the input to
GRID in the current proceeding has one year normalized output from the Vista
model, which is the same model that the Company utilized in the prior filings to
produce normalized hydro generation of the Company's hydro projects. The
inputs to Vista include median inflow volumes of the hydro projects from the
available water inflow history. The inflow volumes are pro-rated daily or weekly
based on weighting factors derived from corresponding median inflows. The
annual volume of stream flows are based on a single year, hence the "single-year"
reference.
Please desribe how the median hydro forecast is created.
For run-of-river projects, the single-year forecast is simply the medan generation
of the available historical data. For other river systems with reservoirs and the
Mid-Columbia projects, the single-year inflow forecast is created based on the
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average daily or weekly shape and median annual volume of the available
historical inflow data, which can range from about 40 years to about 90 year
depending on the river system.
Please explain the reduction in hydro generation due to motoring for
spinning reserves.
In order to meet spinning reserve requirements, the Company must keep
generating resources connected to the transmission grid and be responsive to
automatic generation control. One option for providing spinning reserves is to
"motot' a unit which means the unit is connected to the grid and spinning with
electrical energy rather than with water. At the Swift plant, the norml amount of
energy required to motor a unit is about two megawatts. Motoring the unit with
two megawatts of energy provides spinning reserve for the full range of unit
output. To spin the unit at minimum load with water would require a flow
through the tubine of about 350 cubic feet per second, which is extremely
inefficient and would consume the equivalent of about 10 megawatts. Even
though motoring consumes energy, it is more efficient and cost-effective than
spinning a unit with water.
What are the efficiency losses the Company proposes to capture in its hydro
modeling?
To provide load following and system regulating requirements, thedispatchable
hydro units at the Swift and Yale plants from time to time operate significantly
below peak efficiency. However, the forecasted hydro generation data from the
Vista model is optimized at peak efficiency. . The cumulative effect of load
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following with hydro units is less efficient operations. In other words, less energy
is geJ1erated with the same amount of water than would have been generated at
peak efficiency.
How does the Company adjust for the lost generation?
The lost generation from the Company's Lewis River is deducted from its
6 optimized generation. The amount of the adjustment is based on 2009 historical
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S Wind Integration Charges
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What has the Company included for wind integration charges in this filing?
As discussed previously, the Company used $6.50 permegawatt-hour as the rate
of the wind integration charge for the wind generation located in its contrl areas.
This rate has been authorized by the Commssion in Case No. P AC-E-09-07 for
the purpose of setting avoided costs. For the two wind projects located in the
BPA's control area, Leaning Juniper and Goodnoe Hils, the wind integration
charge is based on BPA's tarff rate at $1.29 per kW-month beginning in October
2009 for variations in the wind generation within 30 minutes. This charge is
approximately $5.S9 per megawatt-hour based on a 30 percent capacity factor for
the wind resource.
Has the Company updated its wind integration charge since its last general
rate case?
Yes. As par of its 200S IRP fied with the Commssion on May 29, 2009, the
Company performed studies on the impact of integrating the generation from the
wind projects into its system.
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1 Q.
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Why doesn't the Company use the wind integration costs from its 2oo8IRP?
To minimize controversy, the Company uses the same wind integration charge
3 that has been approved by the Commssion for setting avoided costs in Idaho. In
4 addition, the Company is in the process of updating the wind integration study. as
5 par of its 2011 IRP.
6 Conclusion
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Is the normalized system. wide net power costs for the 12.month period
ending December 2010 reflective of costs that the Company wil incur on
behalf of its customers and should it be included in rates?
Yes. The Company's normalized net power costs in the amount of $1.07 bilion
on a total Company basis, and $69.2 millon allocated to Idaho is what the
Company expects to incur on behalf of its customers. This level of NPC, as
updated by the ECAM, is in the public interest and should be included in Idaho
rates for recovery by the Company.
Does this conclude your direct testimony?
Yes.
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CONFIDENTIAL
Case No. PAC-E-10-07
Exhibit No. 40
Witness: Hui Shu
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ROCKY MOUNTAIN POWER
CONFIDENTIAL
Exhibit Accompanying Direct Testimony of Hui Shu
NPC Report
May 2010
THIS EXHIBIT IS CONFIDENTIAL
AND IS PROVIDED UNDER
SEPARATE COVER