20150611Clements Rebuttal.pdf

ROCKY MOUNTAIN
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June 11,2015
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201 South Main, Suite 2300
Salt Lake City, Utah 84111
Jean D. Jewell
Commission Secretary
Idaho Public Utilities Commission
472W. Washington
Boise,lD 83702
Attention: Jean D. Jewell
Commission Secretary
RE: CASE NO. PAC-E-15-03
IN THE MATTER OF THE PETITION OF ROCKY MOUNTAIN POWER FOR
MODIFICATION OF TERMS AND CONDITIONS OX'PURPA PURCHASE
AGREEMENTS AI[D FOR MODIFICATION OF ITS AVOIDED COST
METHODOLOGY
Please find enclosed for filing an original and nine (9) copies of Mr. Paul H. Clements' rebuttal
testimony on behalf of Rocky Mountain Power in the above-referenced matter. Also enclosed is
a CD containing a Word version of Mr. Clements testimony for the court reporter.
Informal inquiries may be directed to Ted Weston, Idatro Regulatory Manager at (801) 220-
2963.
KF**/*'
Vice President, Regulation
ffrey K. Larsen
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION OF
ROCKY MOUNTAIN POWER FOR
MODIFICATION OF TERMS AND
CONDTTIONS OF PURPA PURCHASE
AGREEMENTS AND FOR
MODIFICATION OF ITS AVOIDED
COST METHODOLOGY
IN THE MATTER OF IDAHO POWER
COMPANY'S PETITION TO MODIFY
TERMS AND CONDITIONS OF PURPA
PURCHASE AGREEMENTS
TN THE MATTER OF AVISTA
CORPORATION'S PETITION TO
MODIFY TERMS AND CONDITIONS OF
PURPA PURCHASE AGREEMENTS
CASE NO. PAC.E-15-03
CASE NO.IPC-E.15-01
CASE NO. AW.E.15.01
ROCKY MOUNTAIN POWER
REBUTTAL TESTIMONY
OF
PAUL H. CLEMENTS
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a. Please state your name, business address, and present position with Rocky
Mountain Power ("Rocky Mountain Power"), a division of PacifiCorp.
A. My name is Paul H. Clements. My business address is 201 S. Main, Suite 2300,
Salt Lake City, Utah 84111. My present position is Senior Originator/Power
Marketer for Rocky Mountain Power. Rocky Mountain Power is a division of
PacifiCorp.
a. Are you the same Paul H.
testimony in this proceeding?
A. Yes.
Clements who previously submitted direct
PURPOSE AI\D SUMMARY OF TESTIMONY
a. What is the purpose of your rebuttal testimony?
A. The purpose of my rebuttal testimony is to address certain issues raised by Dr.
Don Reading in his direct and rebuttal testimony filed on behalf of J. R. Simplot
Company ("Simplot") and Clearwater Paper Corporation ("Clearwater"), and Mr.
R. Thomas Beach and Mr. Adam Wenner in their direct testimony filed on behalf
of the Idaho Conservation League and the Sierra Club. My testimony will also
indirectly address the same or similar issues raised by other witnesses on behalf of
intervenors that oppose the petition of Idaho Power Company ("ldaho Power") in
Case No. IPC-E-15-01 or the petition of Avista Corporation ("Avista") in Case
No. AVU-E-I5-01.
My testimony will explain why:
(l) the citation of Dr. Reading to testimony of Mr. Gregory N. Duvall on
behalf of PacifiCorp in Washington Utilities and Transportation
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a.
Commission ("WUTC") cases does not support the position of Simplot
and Clearwater that the term of power purchase agreements ("PPAs") with
qualiffing facilities ("QFs") should not be reduced at this time;
(2) it is appropriate for generation resources owned and operated by public
utilities to be treated differently than generation resources owned and
operated by QFs;
(3) it is not a violation of the Public Utility Regulatory Policies Act of
1978 ("PURPA") to limit the term of PPAs with QFs to three years;
(4) the alternative proposal of Simplot and Clearwater to maintain a 20-
year term for QF contracts, but to allow the energy component of the price
to vary during the last ten years ofthe term does not significantly reduce
the risks which customers are exposed to by long-term contracts; and,
(5) providing QFs with longer term contracts than current hedging
guidelines is potentially harmful to customers.
My testimony also notes that no party has opposed the recommendation of Mr.
Brian S. Dickman that the Integrated Resource Plan ("IRI"', Method of
determining indicative pricing for proposed QF projects on the Company's system
includes prior QF requests for indicative pricing and that Commission Staff
supports his recommendation.
Does the fact that you are not commenting on other issues raised in the direct
or rebuttal testimony of these or other witnesses indicate that you agree with
their positions?
No. I believe that other issues raised by witnesses for parties opposing the
Clements, Re - 2
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A.
1 petitions of the utilities in these consolidated cases have been more than
2 adequately addressed in the direct testimony filed by the utilities or in the direct
3 and rebuttal testimony of Mr. Rick Sterling filed on behalf of the Staff of the
4 Commission. I also understand that Idaho Power and Avista are filing rebuttal
5 testimony addressing the issues raised by opponents to their petitions.
6 Q. Is Rocky Mountain Power filing rebuttal testimony of any other witness in
7 these consolidated cases?
I A. No.
9 TESTIMONY OF MR GREGORY N. DUVALL IN WASHINGTON
l0 a. Dr. Reading cites testimony of Mr. Duvall in two Washington Utilities and
I I Transportation Commission ("WUTC") cases in support of his argument
12 that it is inappropriate to compare the price of PURPA resources to market
13 prices. (Reading Direct. page.lTr line I - page 18, line 2.) Does Mr. Duvall's
14 testimony support Simplot's and Clearwater's opposition to the petitions of
15 the utilities to shorten the term of QF contracts?
16 A. No. Mr. Duvall's testimony did not address the subject of the appropriate term of
17 QF contracts in the current environment and did not in any way suggest that QF
18 contracts need to have a term of 20 years to ensure that they include capacity
19 payments.
20 a. What did Mr. Duvall's rebuttal testimony in the 2013 WUTC docket
2l address?
22 A. Mr. Duvall's rebuttal testimony in WUTC Docket UE-130043 was offered in
23 response to claims by parties in that general rate case that the costs of
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PacifiCorp's contracts with QFs located in California and Oregon should not be
included in its net power costs for purposes of determining rates for customers in
Washington even though those projects were located in PacifiCorp's West
Control Area. As this Commission is aware, Washington has a unique position
among PacifiCorp's states in refusing to include an attributable share of system
wide resources in Washington's cost of service and limiting the cost of service to
include only certain West Control Area resources. Parties in the general rate case
took the position that the costs of existing contracts with QFs located in California
and Oregon should not be included even though power purchased under those
contracts supported service to customers in Washington.
One of the party's arguments in support of that position was that excluding
the Oregon and California QF contracts from West Control Area net power costs
is equivalent to replacing these resources with market purchases. The sentence
from Mr. Duvall's testimony quoted by Dr. Reading was in response to that
argument. Mr. Duvall explained that PacifiCorp's Schedule 37 in Washington
requires the Company to pay QFs located in Washington a payment for both
energy and capacity, with energy payments reflecting the Company's incremental
cost of market transactions and thermal output, and capacity payments reflecting
the fixed costs associated with a simple cycle combustion turbine for three months
per year. Thus, Mr. Duvall was pointing out that the argument of the party was
inconsistent with current Washington regulations.l
' srhibit 204 at ll (Rebuttal Testimony of Gregory N. Duvall) WUTC Docket UE-130043 (Aug.2,2013),
p.22.).
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a.
A.
Dr. Reading failed to note that one of the reasons for the opposition to
inclusion of contract costs associated with QFs located in California and Oregon
offered by WUTC Staff was that the avoided costs for QF projects entering into
contracts in California and Oregon were determined for terms longer than the
terms in Washington. [n Washington, PacifiCorp's standard avoided costs are
available only for terms of up to five years. WUTC Staff argued, as do the utilities
in this case, that the longer terms in the QF contracts in California and Oregon
exposed customers to unreasonable risks.2 It was also apparent that there was a
recent significant increase in purchases of power from new QF projects in
California and Oregon, consistent with the evidence in this case.t The Washington
Commission accepted the position of Staff and other parties in the 2013 general
rate case and excluded Washington's allocated share of the costs associated with
contracts with QF projects located in California and Oregon from PacifiCorp's net
power costs in Washington.
What was addressed in Mr. Duvall's testimony in the 2014 WUTC docket?
Mr. Duvall's testimony in the 2014 general rate case was an effort to have the
Washington Commission reconsider its prior ruling. The point of his testimony
was that it is inappropriate for the Washington Commission to disallow costs of
PURPA contracts approved by other state commissions. In support of this point,
he explained why avoided costs determined in the past may have been reasonable
then, but may differ from current market prices. He did not testify that state
I U. at7-9 (pages l8-20 of Duvall RebuttalTestimony).
o Id. at 8-9 (pages l9-20 of Duvall Rebuttal Testimony).
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I commission's should require long QF contract terms so that capacity costs are
2 included or that capacity costs should be included if they are not avoided. His
3 testimony is not inconsistent with Rocky Mountain Power's position in this case.
4 Rocky Mountain Power's position is that the Commission should approve
5 a modification to the current requirements for new PPAs with QFs to reduce the
6 term of contracts from 20 to three years because in the current environment a 20-
7 year term creates too much price risk for customers. Mr. Duvall's testimony
8 urging the Washington Commission to allow PacifiCorp to recover an appropriate
9 share of the costs of previously-approved QF contracts is unrelated to that
l0 position.
I I UTILITY RESOURCES ARE NOT COMPARABLE TO QT FACILITIES
12 a. Dr. Reading claims that reducing the term of QF contracts is unfair because
13 when utilities build or acquire generation plants or contract for resources,
14 they have or may have much longer lives. (^See, ag., Reading Direct page 9
15 lines 8-16, page 12 lines 1-5, page 13 line 13 - page 15 line 6; Reading
16 Rebuttal pageT lines 7-11, page S lines 13-19.) Do you agree that QFs must
17 be treated the same as utility resources?
18 A. No. In my direct testimony, I identified most of the differences between utility
19 resources and QFs that justifu different treatment. As I discussed there, before a
20 utility builds or acquires a resource, it goes through an extensive management
2l review and integrated resource plan ("IRP"; process identifying needs and
22 potential resources, including identifring the portfolio of resources that will meet
23 future requirements on a least-cost and least-risk basis. The utility may also be
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required to obtain a certificate of public convenience and necessity before
constructing a new resource. This requires a demonstration that the resource is
needed and that its construction is in the public interest. In addition, major utility
resources are acquired only through a thorough request for proposals ("RFP")
process that is often monitored by an independent evaluator. After a resource is
acquired, it is used or dispatched by the utility only when its use is the best
available alternative.
In addition, acquisition of utility resources that are viewed as hedges
against future price volatility, (such as market-based PPAs), are done only for
terms of up to three years unless interested stakeholders, including regulators and
customer representatives, agree that longer term hedges should be acquired. And
hedges are only transacted based on strict risk management policies that consider
need and that do not allow hedging beyond a reasonable portion of the utility's
anticipated load.
PURPA contracts, on the other hand, are based on projects built by a third
party without any assessment of the needs of the utility and without any of the
scrutiny imposed by the IRP, certificate of public convenience and necessity or
RFP processes, let alone the heightened management review associated with
longer term resources. The prices for the QF projects are based on the utility's
avoided costs rather than the costs of the project. Depending on the nature of the
PPA, the QF may sell power to the utility whenever it wishes without regard to
the utility's needs at any given time and without regard to the availability of lower
cost resources to meet current needs.
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a.
A.
Do other witnesses agree with your position?
Yes. In addition to the witnesses for Idaho Power and Avista, Mr. Rick Sterling of
the Commission Staff has explained why it is appropriate to treat utility
generation resources differently than QF resources in his rebuttal testimony. In
addition to some of the reasons, I have reiterated above, Mr. Sterling points out
that many of the differences in treatment are required by PURPA and are
advantageous to the QF. He also notes that the fuel and variable costs of utility
resources are subject to annual adjustment, but PURPA prices are fixed for the
entire duration of the contract. (Sterling Rebuttal, page I line 18 - page 2line22.)
In the context of these differences, is your recommendation that the term of
QF contracts be reduced to three years fair in light of the fact that some
existing utility generation plants and other resources have longer anticipated
lives?
Yes. The fact that a PURPA contract only has a term of three years does not mean
that the project will have only a three-year life. Rocky Mountain Power will be
required to purchase the power produced by the project as long as PURPA
requirements exist and the project qualifies as a QF under PIIRPA. Limiting the
term of the contract to three years simply means that the price Rocky Mountain
Power and its customers will be required to pay to the QF will be subject to
adjustment every three years and be more closely aligned with Rocky Mountain
Power's current avoided costs.
Clements, Re - 8
Rocky Mountain Power
a.
A.
I PURPA DOES NOT REQUIRE LONG.TERM CONTRACTS
2 Q. Mr. Adam Wenner offers his opinion that reducing the term of QF contracts
3 from 20 to two years as proposed by Idaho Power is inconsistent with
4 FERC's regulations and PURPA. (Wenner Direct page 2,lines 5-8.) Do you
5 agree?
6 A. Before answering, I want to make clear that I am not an attorney and am not
7 offering a legal opinion. My answer is based on my knowledge of the contract
8 terms for PURPA contracts in PacifiCorp's states and my understanding of the
9 plain language of PURPA and FERC regulations.
l0 As I stated in my direct testimony, this Commission previously reduced
I I the term of contracts to five years during the period from 1997 to 2002. I am not
12 aware that FERC or any Court concluded that this action by the Commission was
l3 contrary to PURPA or FERC regulations.
14 I am also aware that the Company only offers fixed standard avoided costs
15 in Washington for up to five years. Again, I am not aware that FERC or any court
16 concluded that these terms, significantly shorter than 20 years, are inconsistent
17 with PURPA or FERC regulations.
18 I have reviewed both PURPA and the FERC regulations under PURPA
19 and have been unable to locate any statement that contracts approved under
20 PURPA are to have any specific term. I have also reviewed Mr. Wenner's
2l testimony and fail to see any citation in his testimony that expressly requires
22 contracts approved under PURPA to have any specific term. On the other hand, as
23 noted in my direct testimony, I am aware of cases indicating that state
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commissions have wide discretion in establishing the key terms and conditions of
PURPA contracts as long as their actions are consistent with FERC's regulations.
(See Clements Direct, page 9 line 20 - page l0 line 7.)
SIMPLOT'S ANID CLEARWATER'S ALTERNATIVE PROPOSAL IS NOT IN
THE PUBLIC INTEREST
a. In his rebuttal testimony, Dr. Reading proposes an alternative that he claims
balances the interests of utilities and QFs. (Reading Rebuttal, page 3 lines 6-
16.) Does this alternative proposal satisfy the concerns of Rocky Mountain
Power?
A. No. The primary concern of Rocky Mountain Power that led to its petition is that
it is currently inundated with proposals for new QF projects to provide power that
is not needed to meet customers' needs. Entering into contracts with these
proposed projects for a term of 20 years would expose customers to unreasonable
price risks. Dr. Reading's alternative proposal does not significantly mitigate this
risk.
The alternative QF contract terms suggested by Dr. Reading, which
include a fixed capacity payment for 20 years and fixed energy payments for l0
years, still expose customers to unnecessary long term fixed price risk for the
same reasons set forth in my direct testimony. Namely, they still:
l. exceed the Company's current hedging policies and practices;
2. are not consistent with the Company's IRP-based long term planning
approach; and,
3. are not consistent with the Company's MP-based approach to obtaining long
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term resources.
The terms of Dr. Reading's alternative proposal expose customers to risks that
they would not otherwise have absent the QF.
LONG-TERM QF CONTRACTS ARE NOT AN EFFECTIYE HEDGE
a. Mr. Beach states in his direct testimony that 20-year QF contracts provide
hedging benefits. (Beach Direct, page 2l,line 8 - page 25, line 25.) Do you
agree?
A. No. As discussed in my direct testimony, during the collaborative process
involving Rocky Mountain Power, regulators and customer representatives in
201I and 2012, a consensus was reached that the Company should not hedge
beyond a three-year time horizon unless stakeholders expressed a specific interest
for longer term hedges based on current market conditions. Contracts with QFs
for twenty years or even ten years are far beyond that time horizon found
reasonable in the collaborative process. They are also far beyond the term of any
other hedge implemented by the Company as set forth in its risk management
policy.
Clements,Re-ll
Rocky Mountain Power
I THERE IS NO OPPOSITION TO MODIFYING THE AVOIDED COST PRICING
2 METHOD TO CONSIDER ALL PURPA CONTRACTS IN THE QUEUE
3 Q. In his direct testimony, Mr. Brian Dickman proposed that the Commission
4 modify the IRP method for determining avoided costs for non-standard QF
5 projects to account for proposed QF projects on the Company's system prior
6 to the next Idaho QF requesting indicative pricing. (Dickman Direct page 11
7 lines 6-10.)
8 Did the witnesses for other parties comment on this recommendation?
9 A. Yes. Commission Staff witness Mr. Yao Yin, supports Rocky Mountain Power's
10 proposal. (Yin Direct, page 9, line l8 - page 10, line 4.) Dr. Reading, testifying on
I I behalf of Simplot and Clearwater, states that "Rocky Mountain Power's
12 suggestion to update the resource stack more quickly to respond to large influxes
13 of QFs may also be appropriate." (Reading Direct, page 35, lines 5-7.)
I4 CONCLUSION
l5 a. What is your conclusion and recommendation?
16 A. Witnesses for intervenors that oppose Rocky Mountain Power's petition have not
17 provided sound reasons or evidence for the Commission to reject Rocky
l8 Mountain Power's request to reduce the term of QF contracts from 20 to three
19 years.
20 My testimony that the Company has experienced a significant increase in
2l QF pricing requests in Idaho and across its six-state system, the Company has no
22 need for new resources until 2028, and the Company's hedging practices and
23 policies are short-term in nature is un-rebutted. My testimony that given the
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magnitude of new QF requests, and considering the inherent uncertainties in
projecting avoided cost rates out 20 years or more, current Idaho avoided cost
rates are adversely impacting customers and will continue to do so for 20 years is
also un-rebutted.
The Company's request for approval of a permanent reduction in the
maximum contract term for PURPA contracts, from 20 years to three years would
be more consistent with the Company's hedging and trading policies and practices
for non-PURPA energy contracts and more aligned with the IRP cycle. This
change is necessary in order to maintain the ratepayer indifference standard
required by PURPA and to protect Idaho customers.
The Company's request that the Commission modiff the IRP Method to
account for proposed QF projects on the Company's system prior to the next
Idaho QF requesting indicative pricing is not opposed and should be approved for
the reasons stated in Mr. Dickman's direct testimony.
Does this conclude your rebuttal testimony?
Yes.
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Rocky Mountain Power
CERTIFICATE OF SERVICE
I hereby certify that on this I lth of June 2Ol5,I caused to be served, via e-mail a true and
correct copy of the foregoing document in Case Nos. PAC-E-I5-03/IPC-E-15-01/AVU-
E-15-01 to the following:
Donovan E. Walker Donald L. Howell, II
Idaho Power Company Daphne Huang
1221 W.Idaho St. (83702) Idaho Public Utilities Commission
P0 Box 70 472W, Washington (83702)
Boise, ID 83 707-0070 P0 Box [e-mail] Boise,ID [e-mail] [e-mail]
daphn*t ril?@pu..iduho.gou
Richard Malmgren Frederick J. Schmidt
Senior Assistant General Counsel Micron Technology, Inc.
Micron Technology, Inc. 377 S. Nevada Street
800 5. Federal Way Carson City, NV 89701
Boise,ID 83716 [e-mail]
remalmsren@m icron. com
Peter J. Richardson Don Reading
Gregory M. Adams 6070 Hill Road
Richardson Adams, PLLC Boise,ID 83703
515 N.27e Street [e-mail]
Boise,ID 83702
peter@richardsonadams. com
gre [e-mail]
Maff Vespa Leif Elgethun, PE, LEED AP
Idaho Conservation League, Sierra Club Intermountain Energy Partners, LLC
85 Second Street,2nd Floor P0 Box 7354
San Francisco, CA 94105 Boise, ID [e-mail] [e-mail]
Dean J. Miller Kelsey Jae Nunez
McDewitt & Miller LLP Snake fuver Alliance
420W. Bannock St. P0 Box l73l
Boise, ID 83702 Boise, ID [e-mail] [e-mail]
Michael G. Andrea Clint Kalich
Avista Corporation Avista Corporation
l4l I East Mission Ave. - MSC-23 l4l I East Mission Ave. - MSC-23
Spokane, WA99202 Spokane, [e-mail] [e-mail]
Linda. gervai@ avi stacorp. com
Irion Sanger Scott Dale Blickenstaff
Sanger Law P.C Amalgamated Sugar Company
I I 17 SW 53'd Avenue 1951 5. Saturn Way, Suite 100
Portland, OR972l5 Boise,ID 83702irion@.sanger-law.com [e-mail]
C. Tom Arkoosh Erin Cecil
Arkoosh Law Offrces Arkoosh Law Offices - Electronic Copies Only
802 W. Bannock St., Ste. 900 (83702) [e-mail]
P0 Box 2900
Boise,ID 83701
Eric L. Olsen Anthony Yankel
Racine, Olson, Nyc, Budge & Bailey, Chartered 29814 Lake Road20lB.Center BayVillage, OH44l40
P0 Box 1391 [e-mail]
Pocatello, ID 83204-139 I
[e-mail]
Scott Dale Blickenstaff Data Request Response Center - Electronic Copies
The Amalgamated Sugar Co LLC Ody
l95l S. Satum Way, Suite 100 PacifiCorp
Boise,ID 83702 datare$[e-mail]
sblickenstaff@amalsusar. com
Ted Weston Yvonne Hogle
Rocky Mountain Power Rocky Mountain Power
201 S. Main Street, Suite 2300 201 S. Main Sfeet, Suite 2300
Salt Lake City, UT 841I I Salt Lake City, Utah 841I [e-mail] [e-mail]
John R. Hammond, Jr. John Gorman
Fisher Pusch LLP Ecoplexus, [nc.
l0l S. Capitol Blvd., Suite 701 650 Townsend Street, Suite 310
Boise, ID 83702 SanFrancisco, [e-mail] [e-mail]
Amy Eissler
Coordinator, Regulatory Operations