20150514Sterling Rebuttal.pdf

BEFORE THE
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IDAHO pUBLtC UTtLtTtES COlyilUtSStON, ...;, ,,..'''
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IN THE MATTER OF IDAHO POWER
COMPANY'S PETITION TO MODIFY
TERMS AND CONDITIONS OF
PURPA PURCHASE AGREEMENTS
IN THE MATTER OF AVISTA
CORPORATION'S PETITION TO
MODIFY TERMS AND CONDITIONS
OF PURPA PURCHASE
AGREEMENTS
IN THE MATTER OF ROCKY
MOUNTAIN POWER COMPANY'S
PETITION TO MODIFY TERMS AND
CONDITIONS OF PURPA
PURCHASE AGREEMENTS
CASE NO. |PC-E-15-01
GASE NO. AVU.E.I5.O1
GASE NO. PAC-E-I5-03
REBUTTAL TESTIMONY OF RIGK STERLING
IDAHO PUBLIC UTILITIES COMMISSION
MAY 14,2015
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a. P1ease state your name and business address for
the record.
A. My name is Rick Sterling. My business address
is 472 WesL Washington Street, Boise, fdaho.
a. By whom are you employed and in what capacity?
A. I am employed by the Idaho Publlc Utilities
Commission as the Engineering Supervisor.
a. Are you the same Rick Sterling that prevj-ously
submitted testimony in this proceeding?
A. Yes, I am.
O. What is the purpose of your rebuttal testimony?
A. The purpose of my rebuttal testimony is to
address several issues raised by Clearwater/Simplot
witness Dr. Reading and ICL/Sierra CIub witness Beach.
O. Varj-ous witnesses have suggested that there is
unequal treatment between QFs and utility-owned resources.
Do you agree?
A. I would agree that QFs and utilj-ty-owned
resources are not treated the same. However, much of the
dj-fferent treatment is because PURPA requires it. A
significant difference j-s the pricing of QF generation.
PURPA dictates that the price or rate a utility pays for
the purchase of QF power be based on the avoided cost of
the utility-not the QFs cost of producing the power. In
particular, a QF that places its facility into service
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before January 1, 20L7 will receive a 30 percent tax
credit. This substantial tax credit is not reflected in
the avoided cost rate.
Furthermore, most of the dlfferent treatment is
to the benefit rather than the detriment of QFs. For
example, the utility has a "must purchase" obligation
under PURPA whereas utilities may engage j-n arms-length
bargaining when acquiring resources. In additj-on, QFS are
entitled to contracts regardless of a utility's need,
whereas utility-owned resources must obtain a Certificate
of Public Convenience and Necessity, which requires a
showing of present or future need and competitj-ve cost
compared to other alternatives. Utility-owned resources
must be competit,ively procured and are subject to cost-
based pricing, whereas QF contracts are not subject to
competition and non-negotiated pricing. Utility-owned
resources are dispatched based on market prices or the
cost of alternate resources, but QF power must be accepted
by the utility whenever offered. Fina11y, the fuel and
variable costs of utility-owned resources are subject to
annual adjustment through PCAs, but PURPA prices are fixed
for the entire duration of the contract.
O. Various witnesses (Reading pp. 25-26; Beach pp.
21,-25) have also suggested that PURPA projects, because of
their fixed pricing, provide a valuable risk hedge and a
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benefit to ratepayers. Do you agree?
A. No, not entirely. QF pricing, because it is
locked j-n for 20 years, mdy eliminate price volatility,
but it does not completely eliminate risk. QF prices that
prove to be too high can be locked in to the detriment of
ratepayers. Conversely, QF prices that prove to be too
1ow can be locked in to the benefit of ratepayers. In
ej.ther case, ratepayers are still exposed to the same
risk. PURPA projects can help to limit risk when market
prices rise to extreme 1eve1s, but they can also limit
opportunities to t.ake advantage of very low or declinj-ng
prices for the benefit of ratepayers. Like all hedges,
the critical question is how much protection do you need
and how much should you be willing to pay for it.
Utility-owned resources, on the other hand, are
economically dispatched. In other words, they are only
run when they are less costly than other alternatives or
when their output can be sold at a profit.
O. On pages 10 and l-l- of Dr. Reading's direct
testimony, he quotes a passage from Commission fj-naI Order
No. 32697 in the GNR-E-11-03. In t.hat Order, the
Commission declined to adopt a contract length less t.han
20 years. Are the circumstances of the 20Ll case the same
as in this case?
A. No, they are not.In the GNR-E-11-03 case, Idaho
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STERLING, R. (Reb) 3
STAFF
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Power proposed that the maximum contract length for all
PURPA contracts be reduced from 20 years to 5 years. Tr.
at 487, 489, 524 ("Idaho Power recommends that the five-
year contract term apply to all PURPA QF power sale
contracts."). In the GNR-E-11-03 case, Staff's position
was that PURPA contracts be limited to five years for only
those contracts utilizing the IRP methodology (i.e., above
the SAR-based eligibility cap) . I testified that:
"Twenty-year contracts should contj-nue to be available to
QFs under the SAR methodology. " Tr. at 1-l-07-08.
So the Commission's statement quoted by Dr.
Reading was also responding to Idaho Power's posj-tion that
aII PURPA contracts should be reduced to five years,
regardless whether they used the SAR-based methodology or
IRP-based methodology. In the present case, all t.he
parties have agreed to continue 20-year contracts for SAR-
based contracts. In other words, the parties have agreed
that SAR-based PURPA contracts will be unaffected by the
reduction in contract length recommended for IRP-based
contracts.
O. Are t,here other reasons f or the Commission to
re-examine the length of IRP-based PURPA contracts?
A. Yes, there are. First, the Commissj-on is a
regulatory agency that performs legislative functions and
re-examines regulatory policies from time-to-time. The
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Commission is not bound to decide future cases in the same
way as in past cases. As I recounted in my direct
testimony, since PURPA was first implemented in Idaho,
maximum contract length has gone from 35 years, Lo 20
years, to five years, and back Lo 20 years. The
Commission can and should change policy as circumstances
change.
Second, at the time the Commission issued its
Order No. 32697 in the GNR case in December 20]-2, Idaho
Power had less that 800 MW of nameplate PURPA power.
Since the GNR case, fdaho Power reported that it had 461
MW under contract from solar developers (including the 1,4L
MW of recently terminated contracts in the Clark Solar L -
4 projects) and an additional 885 MW of proposed solar
development. See Idaho Power Ex. 1. Simply put, Idaho
Power clai-ms that it has more than ]-200 MW of contracted
and proposed solar projects in this case. This compares
with the Company's peak load of 3,400 MW, its minimum
system load of l-,073 MW, and its average system load of
1,800 MW. (Grow, Dir at 3; 201-3 IRP Appendix A).
a. On pages 1-4 and 15 of Dr. Reading's direct
testimony, he created a charL and purportedly compares the
costs of Idaho Power's generating resources to the costs
of PURPA projects. Do you agree with the representations
made in his Chart No. L on page 15?
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A. No, I do not. In Chart l- on page 1-5 of Dr.
Reading's direct testimony, he compares the PURPA costs to
t.he estimated capital and running costs of various Idaho
Power-owned thermal generation resources. While the
comparison may be numerically accurate, it is extremely
misleading because the resources being compared are very
different types of resources. More specifically, when
resource costs are compared on a cosL per MWh basis, and
certain resources generate substantially different amounts
of MWhs, peaking resources, such as Bennett Mountain and
Danskin, will appear far more costly than baseload
resources such as Jim Bridger. Peaking resources, because
they are used infrequently and generate few MWhs, will
always appear far more "cost1y" than baseload resources
when measured on a cost per MWh basis. Conversely, on a
cost per MW basis, peaking resources will always be less
expensive than baseload resources,
In addition, Dr. Reading acknowledges that he
omitted Idaho Power's lowest cost resources-its hydro
resources-from his cost comparison. He could have
included the hydro data by using an average over several
years or normalized data. He also omj-tted hydro cost due
to , j-n his words, "massive environmental remediation."
(Dir at l-5) . The failure to include hydro costs
significantly misstates the Company's power costs,
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especially where 1-,709 MW of hydro is included in 3,500 MW
of nameplate capacity (Grow, Dir at 5).
Fair and reasonable direct comparisons between
the costs of different resources can only be made for
resources with comparable capacity factors, and when the
comparisons are made over the same periods of time.
Comparisons either on a cost per MW or a cost per MWh
alone basis (capacity or energy) should never be used to
judge the cost effectiveness of particular resources.
Similarly, cost comparisons in which only a portion of the
duration of a contract are considered are also usually
inappropriate. Differences between PURPA contract rates
and market prices may exist in specific years, but there
is no certainty that those differences wj-1l persist for
the duration or remainder of a contract.
O. On page 4, Dr. Reading has asked whether there
are other viable opportunities for projects like Simplot's
and Clearwater's to sell their output to other buyers in
the region. Do you agree with his statement on page 5
that "aside from PURPA sales to utilities, neither
Clearwater nor Simplot have a 1ega1 or economically viable
market, retail or wholesale, to se11 electriciLy"?
A. No, I do not. Conspicuously absent in his
answer and analysis is the possibility of either of these
two entities selling their output to other utilities in
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the region. Clearwater and Simplot may be abl-e to operate
j-n a similar fashion to exempt wholesale generators (EWGs)
and se11 their output, to other utilities. For example,
Clearwater currently seI1s its output to Avista using a
non-PURA contract.l Other renewable projects have sold
their non-PURPA output to other utilities such as the wind
farm in eastern Idaho (Goshen North Wind Farm) selling to
a California utility; Lucky Peak selling its hydro output
to Seattle City Light or Palouse Wind selling its wind
generation to Avista. Other renewable generators have
been successful in selling their output to utilities
without resorting to PURPA contracts including the Neal
and Raft River geothermal projects to Idaho Power and the
Elkhorn wind project to Idaho Power in Oregon.
O. Could Clearwater sell its output to another
utility other than Avista under either a PURPA or non-
PURPA agreement?
A. Yes. As Dr. Reading notes on page 3 of his
direct testimony, Clearwater's current 2013 agreement
"provides Clearwater with a limited right to terminate its
' On May 13 , 2O!5, Avista filed an Application seeking
Commission approval of an amendment to Avista's contractwith Clearwater. The amendment proposes to extend thecurrent agreement by three additional years, in additionto permitting Avista to purchase incremental energy from
Clearwater at negotiated prlces when it is beneficial to
both parties.
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energy sales to Avista with 90 days' notice." (Reading,
Dir at 3 ) . Under t.he terms of its current power purchase
agreement with Avista, Section 1 on page 2 of the
agreement provides that:
If, durlng the Term of this Agreement,
[Clearwater] desires to sell the output ofthe Generation to any third party,
[Clearwater] shalI terminate this Agreementby providing Avista written notice oftermination at least 90 days prior to suchtermination. The sale to the third partysha1I not commence until the date on whichthis Agreement is terminated. In the eventthat [Clearwater] desires to seI1 the outputof the Generation to any third party(ies),
lClearwaterl shall be responsible for makingall necessary arrangements to facilitate thesale of the output of the Generation to sucht,hird party (ies ) .
The Commission approved this contract in Order
No. 32841, j-ssued ,June 28 , 201,3 .By the terms of this
agtreement, Clearwater clearly preserved the opportunity to
se11 its output to a party other than Avj-sta.
O. Dr. Reading on p. 35 suggests that there is a
flaw in the IRP computation methodology because it is
unable to account for hours when market prj-ces are
negative and that the model instead assigns a price of
zero when the actual avoided cost is negatj-ve. Do you
agree that the model is flawed?
A. I would agree that the model should not be
assigning a price of zero when prices are negative.
However, I would also point out that, despite possible
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misconceptions, that the AURORAxmp model used to generate
energy prices can, in fact, generate negative prices under
certain circumstances. The Idaho Power spreadsheet that
uses AURORA>cmp prices as input should then, in turn, be
able to capture the effect of negative prices.
Nonetheless, while the capability to account for
negative pricing exists, Do negatlvely priced hours
appeared in the AURORAxmp output used for pricing the 13
recent Idaho Power solar contracts, prj.marily because
negative pricing is currently not like1y under average
conditions used for PURPA pricing.
O. Does this conclude your rebuttal testimony in
this proceeding?
A. Yes, it does.
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS I4TH DAY oF MAY 2015,
SERVED THE FOREGOING REBUTTAL TESTIMONY OF RICK STERLING, IN
CASE NOS. IPC-E-15-OI/PAC.E-15-03/AVU-E-I5-01, BY E-MAILING A COPY
THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
DONOVAN E WALKER PETER J RICHARDSON
REGULATORY DOCKETS GREGORY M ADAMS
IDAHO POWER COMPANY RICHARDSON ADAMS PLLC
PO BOX 70 PO BOX 7218
BOISE ID 83707-OO7O BOISE TD 83702
E-mail: [e-mail] E-mail: [e-mail]
[e-mail] [e-mail]
DR DON READING BENJAMIN J OTTO
6070 HILL ROAD ID CONSERVATION LEAGUE
BOISE ID 83703 7IO N 6TH STREET
E-mail: dreading(@mindsprin&com BOISE ID 83702
E-mail: [e-mail]
DEAN J MILLER LEIF ELGETHUN
McDEVITT & MILLER LLP INTERMOUNTAIN ENERGY PARTNERS
420 W BANNOCK ST LLC
BOISE rD 83702 PO BOX 7354
E-mail: [e-mail] BOISE ID 83707
E-mail: [e-mail]
KELSEY JAE NUNEZ KEN MILLER
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BOISE ID 83701 [e-mail]
E-mail: [e-mail]
TED WESTON DANIEL E SOLANDER
ID REG AFFAIRS MANAGER YVONNE R HOGLE
ROCKY MOUNTAIN POWER ROCKY MOUNTAIN POWER
201 S MAIN ST STE 23OO 2OI S MAIN ST STE 24OO
SALT LAKE CITY UT 84111 SALT LAKE CITY UT 8411I
E-mail: [e-mail] E-mail: [e-mail]
l'vonne. ho gle @pacificorp. com
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ARKOOSH LAW OFFICES
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erin. [e-mail]
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29814 LAKE ROAD
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SANGER LAW PC
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PORTLAND OR 97215
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CLINT KALICH
AVISTA CORPORATION
I411 E MISSION AVE
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E-mail: clint.kalich@,avistacorp.com
RICHARD MALMGREN
SR ASSIST GEN COUNSEL
MICRON TECHNOLOGY INC
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MICHAEL G ANDREA
AVISTA CORPORATION
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MATT VESPA
SIERRA CLUB
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SAN FRANCISCO CA 94105
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PAMELA S HOWLAND
HOLLAND & HART LLP
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SCOTT DALE BLICKENSTAFF
AMALGAMATED SUGAR CO
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STE lOO
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CAROL HAUGEN
CLEARWATER PAPER CORPORATION
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Carol.haueen@clearwaterpaper. com
ANDREW JACKURA
SR VP NORTH AMERICA DEVL
CAMCO CLEAN ENERGY
9360 STATION ST STE 375
LONE TREE CO 80124
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