20101116Teply Reb.pdf

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BEFORE THE IDAHO PUBLIC UTIITIES COMMISSION
IN THE MATTER OF 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
Rebuttal Testimony of Chad A. Teply
ROCKY MOUNTAIN POWER
CASE NO. PAC~E~10~07
November 2010
1 Introduction
2 Q.
3 A.
Please state your name and business address.
My name is Chad A. Teply. My business address is 1407 West Nort Temple,
4 Suite 210, Salt Lake City, Utah.
5 Q.Are you the same Chad A. Teply who submitted pre~filed direct testimony in
6 this proceeding?
7 A. Yes.
8 Purpose of Testimony
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What is the purpose of your rebuttal testimony in this proceedg?
My testimony wil respond to the direct testimony of Mr. Randall J. Falenberg
on behalf of the PacifiCorp Idaho Industral Customers ("PIIC") regarding the
Company's management and financial modeling of unplanned thermal unit
outages and wil also respond to the diect testimony of Mr. Don Readig on
behalf of the Idaho Conservation League ("ICL") regardig prudence of the
Company's pollution control expenditues for coal-fied power generation plants.
Pleas summarize Mr. Falkenberg's concerns regarding the Company's
management and financial treatment of planned and unplanned thermal unit
outages and hi recommended adjustments 6 and 7.
Mr. Falenberg's concerns are priarly two-fold. First, Mr. Falkenberg is
concerned with the Company's prudence regardig management of two outage
events. Second, Mr. Falenberg is concerned with the Company's utization of
the calculated four-year average outage rate for the therml units in question. Mr.
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Falenberg's recommendation is to cap the allowable outage durations for the two
outage events to 28 days in outage rate calculations.
Does the Company believe that the planned and unplanned thermal unit
outages in question were prudently managed?
Yes.
Are the costs for the extended planned and unplanned outage durations in
the four~year averaging period representative of the costs expected in the
prescribed test period?
Yes. The Company has appropriately applied the accepted outage rate averaging
methodology to the specific units referenced. When reviewed in isolation, the
Company recognizes that the individual outage rates referenced are, on average,
higher than those units that did not experience extended planned or unplanned
outages durng the four-year averaging period; however, considering the size and
age of the Company's generation fleet, individual units do experience significant
events that result in extended outages during prescribed test periods. If significant
events are not calculated into the Company's outage rates, due to their anomalous
charcteristics, said omission arificially affects the historical, and therefore,
forecasted availabilty of the fleet. As such, the outage rate averaging
methodology applied by the Company for individual units, when reviewed in
context with the Company's aggregated outage rates, accurately represents costs
incured by the Company associated with unit outages in the prescribed test
period and provides an accurte forecast for expected outage costs for the
Company's generation fleet on a forwar-lookig basis.
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Are the Company's calculated four~year average outage rates for the thermal
unitsin question reasonable?
Yes. Using the four-year average outage rate for the Company's therm units is
reasonable and should be included in rates.
Why should the Commission reject Mr. Falkenberg's proposal to cap
extended outages at 28 days in the outage rate calculations utilzed as the
basis for this case?
The cap approach proposed by the.Company in OPUC docket, UM 1355, and
referenced by Mr. Falenberg in his testimony beginning on line 23, was part of a
larger proposal that has not been accepted by regulators. As noted in Mr.
Falkenberg's testimony, there are several completing alternatives in the docket
referenced and a decision is pending. The Company has submitted extensive
testimony arid exhibits in OPUC docket, UM 1355, which can be referenced but
wil not be re-presented herein.
Was the Company's management of the Lake Side unplanned outage
referenced in Mr. Falkenberg's testimony prudent and reasonable?
Yes. On August 16, 2009, the Lake Side steam turbine generator trpped
following a thee phase electrcal fault which resulted in catastrophic damge to
the stator windings. There were no operational or other monitorig equipment
indications of a problem prior to the trp and no history of problems on the unit.
Following the fault, the generator field was removed allowing access for visual
examation and testig. Inspections by Siemens (the original'equipment
manufactuer), the Company and an independent generator expert revealed the
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stator core was beyond repai, and that stator replacement was the only option to
retu the unit to servce. A suitable replacement stator was located, purchased
and delivered. Contamination from the stator fault necessitated field
refurbishment. Work to ship the replacement stator, remove the failed stator, and
refurbishment of the field occurred simultaneously. With a new stator and
refurbished rotor installed, the manufactuers' recommend tests were performed
prior to retuing the unit to service on November 15, 2009. Considering the
natue of the catastrophic damage incurred and the typical lead time to specify,
procure and manufacture replacement equipment of the type needed in ths
instance, the schedule achieved to locate, purchase, and install a replacement
stator at Lake Side and return the unit to service for the benefit of customers was
commendable.
Was the Company's management of the Colstrip Unit 4 planned outage
referenced in Mr. Falkenberg's testimony prudent and reasnable?
Yes. Prior to 2009, Colstrp Unit 4 experienced a sudden, massive condenser tube
leak that caused cracks in the L-O stages of the main tubine's low-pressure
rotors. These cracks were discovered during a scheduled sprig 2009 inspection.
The tubine manufactuer determned that the rotors could not be retued to
service in their as-found condition. The rotors were sent to the tubine
maufactur's facilities for removal of the damaged rotor wheels and weld-repai
and machining of new wheels. Durg the initial repai sequence, non-destrctive
examnation complete by the maufactuer as par of its quality assurance
pross found significant defects in the weld material which had been utilized for
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repai of the new wheels. This material had to be removed and the wheels re-
welded. Final quality assurce testing showed that the second batch of weld
material was sound. The wheels were machined, blades installed, and the unit
was retued to service in late 2009. Although the required rotor repai and need
for re-work resulted in extended outage duration, adherence to manufacturer
recommendations for turbine rotor repairs and utilzation of its repai facilities
was the prudent and reasonable approach to management of that outage critical
path.
Please summarize Mr. Falkenberg's concerns regarding the Company's
management and financial treatment of the Naughton Unit 3 outage and hi
recommended adjustment 9.
Mr. Falenberg's concerns are primarly two-fold. First, Mr. Falkenberg is
concerned with the Company's prudence regarding management of the referenced
outage event. Second, Mr. Falkenberg is concerned with the Company's
calculation of the outage rate for the thermal unit in question. Mr. Falkenberg's
recommendation is to adjust the planned and forced outage rates calculated for the
therml unit in question in ths case.
Does the Company believe that the Naughton Unit 3 outage in question was
prudently managed?
Yes. The Company prudently negotiated a liquidated damages clause with the
contractor before the star of repais. The Company prudently exercised that
clause when poor subcontractor performance negatively impacted outage
completion. The liquidate dage payment was credted to customers.
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The collection of liquidated damages from the outage repair does not
displace the need to recover appropriate outage costs and reflect appropriate
outage durations in the four-year average outage rate for the thermal unit in
question. As noted in Mr. Falenberg's testimony, the liquidated damges
collected did not result in full compensation for costs associated with ths event.
Does including extended planed and unplanned outage durations in the
four~year averaging period for cost recovery for specific units appropriately
represent costs incurred by the Company associated with outages in the
prescribed period?
Yes. Please refer to my testimony beginning on line 31 above.
Is it your opinion that the calculated four~yea average outage rate for the
thermal unit in question should be included in rates?
Yes. In my opinion, the Company has appropriately applied the accpted outage
rate averaging methodology to the specific units reference, and therefore that
rate should be included inrates.
Pleas summarize Mr. Reading's concerns regarding prudence of the
Company's pollution control expenditures contemplated in this ca.
Mr. Reading's concerns regardig prudence of the pollution control expenditues
for which the Company is seeking recovery in this case are priy thee-fold.
First, Mr. Reading is concerned that the Company is installing certain pollution
control equipment to meet "a presumptive BART emission lit". Mr. Readig is
concerned that the Company is makg these investments before it receives a final
decision on whether the equipment is suffcient to meet federal pollution control
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1 standards.
2 Second, Mr. Reading is concerned that the Company is installng cert
3 pollution control equipment in accordance with state issued permt requirements,
4 but without final U.S. Environmental Protection Agency ("E;PA") review and
5 approval of the respective state implementation plans. Mr. Reading's concern is
6 that the EPA may ultimately require more strngent controls and more expensive
7 equipment to be installed on the generating units contemplated in this case.
8 Third, Mr. Reading testifies that if futue strcter regulations are enacted,
9 the projects contemplated in this case may not be suffcient to achieve
10 compliance. Mr. Reading has asked that the Company justi any future pollution
11 expenditues in two ways. First, expenditues would be analyzed not only based
12 on the effectiveness of the control equipment, but also with respect to compliance
13 with existing federal pollution control laws. Second, a risk assessment of meeting
14 realistic assumptions for futue strcter environmental requirements would be
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16 Company Response to Concerns
17 Q.Please clariy the definition of "a presumptive Best A vaUable Retrofit
18 Technology ("BART') emision limit" as it pertains to establihed federa
19 pollution control stadads.
20 A.The use of the term "presumptive" in the instace cited refers to presumptive
21 emission rates that are discussed in the Regional Haze Rule, Code of Federa
22 Regulations (CPR), Title 40, Sections 51.300 though 51.309, and Appendix Y.
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1 Electronic copies of the referenced Code of Federal Regulations can be found at
2 the following link:
3 http://www.access.gpo.gov/naralcfr/waisicL'' 09/40cfr51 09.html
4 The term "presumptive" comes from Appendix Y cited above, and the
5 presumptive rates are defined by the EPA. States use the presumptive rates
6 defined by the EPA to assist in determning if a BART-eligible facility has met
7 the requirement to instal best available retrofit technology. For example, if the
8 installation of 10w-NOx burners on a BART-eligible facility with cell-burners
9 firing sub-bituminous coal achieves an emission rate of 0.28 Ib/MMBtu, which is
10 below the EPA presumptive BART rate of 0.45 lb/mmtu (the presumptive rate
11 for a cell-burer unit buring sub-bituminous coal), it can be presumed that the
12 installation of low-NO x burners on this unit meets federal best available retrofit
13 requirements with respect to NOx control, and no additional controls would be
14 required. With respect to S02 control, the EPA had defined the presumptive S02
15 emissions rate as 0.15 lb/mmtu or 90% removal. Here again, if the instalation of
16 pollution control equipment on a BART-eligible facilty achieves an emission rate
17 less than that presumptive limit, it can be presumed that the instaation meets
18 federal best available retrofit requirements and no additional controls wil be
19 required.
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Is the Company obligated to install pollution controls required by state
permits, regardless of whether final U.S. Environmenta Protection Agency
review and approval of the respective state implementation plans remains
pending?
Yes. The BART permts and constrction permts issued by the respective state
agencies for the pollution control investments contemplated in this case include
stand-alone requirements enforceable by the laws of the respective states. These
requirements are enforceable independent of whether EPA has approved the
respective state implementation plans.
Does the Company anticipate that final U.S. EPA approval of the respective
state implementation plans wil require alternate pollution control equipment
to be instaed, making the equipment contemplated in this case obsolete?
No. The pollution control technology selections completed to date apply best
available retrofit technology, comply with existing state and federal regulations,
and support Regional Haze Rule objectives. The Company also incorporates into
its pollution control equipment contract specifications design considerations
intended to provide appropriate levels of operating margin, equipment
redundancy, and system maintainabilty and reliabilty provisions to support an
expected range of process inputs, operatig conditions, and system performance.
Although the Company cannot predict futue pollution control regulations and
associated emissions limts, the Company does tae steps to procure a prudent
level of design flexibilty to accommodate potential changes in system
performce requirements, where practical.
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Does the Company anticipate that final U.S. EPA approval of the respective
state implementation plans wil require additional pollution control
equipment to be installed on the facilties contemplated in this case?
That is a possibilty; however, should final EPA approval of state implementation
plans prescribe additional emissions reductions across the Company's generation
fleet, the Company anticipates that said reductions would likely be accomplished
via additional projects that build on the capabilties of installed pollution control
projects, otherwise act independently of instaled pollution control projects, or via
facility operations changes. The Company includes the following considerations
in its planning efforts in order to best meet the Company's futue emissions
reductions obligations: facility operations compliance options, available control
technologies, cost of compliance; proposed compliance deadlines, and emerging
environmental regulations and rulemag.
On page 44 lines 17 and 18 of Mr. Reading's testimony he expresses concern
that current pollution control projects may not be sufficient to meet future
stricter regulations. How do you respond?
PacifiCorp and its parent, MidAmerican Energy Holdigs Company, are very
active in the curent Congressional, state legislative, and EPA activities regarding
environmental controls affecting viraly every emission from coal and natual
gas generatig units. The Company is very cognizant that some potential
restrctions on greenhouse gas emissions ("GHGs") could requir coal (and
potentially natul gas) units to adjust the depreciation lives for ratemang
puroses. The Company considers this possibilty when determing whether to
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proceed with investments to control emissions other than GHGs. As stated on
page 10 of my direct testimony, the Company's plans regarding these investments
would not change due to carbon-emission restrctions. The units have
depreciation lives for ratemag puroses that provide sufficient remaining time
to depreciate the investments in the pollution controls.
Starting at line 20 on page 45 of his testimony, Mr. Reading refers to other
states that are evaluating whether to invest in envionmental control
equipment or retire existing coal units. How do you respond?
PacifiCorp and its parent closely monitor environmental activities in other states,
including nearly all Western states. PacifCorp is a parcipant in the Oregon
procengs regarding Portland General Electrc's Boardman plant. I would
correct Mr. Reading's statement regarding that proceedg, in that no decision has
yet been made to retie that plant before the end of the depreciation life used for
ratemakng. That is merely one of severa options under consideration.
PacifiCorp and its parent are also closely following proceedings in
Colorado. As Mr. Readig correctly notes, the curent activity in Colorado relates
to the implementation of a statute enacted in 2010. That statute primaly focused
on reductions in nitrogen oxides and faciltated the conversion of 1000 MW of
coal-fir generation to natural gas generation. The regulatory proceding is still
pendig.
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Is the Company undertaking reasonable efforts to ensure that environmental
regulators consider the uncertainty create by requiring investments in
certan emissions controls prior to knowing the nature and extent of controls
on other emissions?
Yes. The Company appealed Regional Haze requirements in Wyoming for this
exact reason. Wyoming was the first state to make the determnation that best
available retrofit technology (BART) required the installation of selective
catalytic reduction ("SCR") controls for nitrogen oxides. The Company disagred
with that determnation and asserted that Appendix Y of 40 CFR Par 51 did not
contemplate the instalation of post-combustion controls. Additionaly, the
Company was concerned that other environmental laws and/or regulations could
impact the Company's facilities affected by Wyoming's BART determnations.
These requirements not only include greenhouse gas reduction requirments, but
also a host of regulatory initiatives underway by the EPA, includig the outcome
of pending coal combustion residual regulations and maximum achievable control
technology standads for mercury and non-mercur hazarous air pollutats. Due
to the uncertnty associated with the potential impact of these rules on the
Company's facilities, the Company appealed the BART permts issued by the
Wyoming Deparment of Environmental Quality to ensure that these and other
issues were considered in the agency's decision and, to the extent these issues had
an impact on long-term viabilty of the facilties, the economic analysis of addig
emission reduction equipment was properly reflecte. The Company's appeal is
stil pendig before the Wyomig Environmenta Quality Council. Since the time
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that the Company filed its appeal, the EPA has issued a BART determnation for
the Four Corners Power Plant, requirng the instalation of SCR at all five units
operated by Arzona Public Service within a five-year period, without regar to
other environmental requirments or their associated uncertinties.
In this rate case, the investments in environmental controls have already
occurred. What process is in place by which Mr. Reading's concerns are
explored prior to investments being made?
The integrated resource planning (IRP) proceedings conducted in al six of the
states served by the Company provides the process to address Mr. Readig's
concerns. Future IRP proceedngs wil more and more focus upon the increasing
complexity in balancing factors such as (1) pending environmental regulations
and requirements to reduce emissions, (2) avoidance of excessive reliance on any
one technology, (3) cost of energy efficiency and demand response programs, (4)
cost of supporting reasonable state economic development effort, (5) cost of
additional transmission investment to increase efficiency and reliabilty of the
integrated transmission system, (6) all while tring to maintain rates as affordable
as possible.
Doe this conclude your rebuttl testimony?
Yes.
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