20170703Application.pdf

ROCKY MOUNTAIN -3 PM 3 iPOWER
A DW ON OF PActFICORP 1407 W.North Temple,Suite 310
Salt Lake City,Utah 84116
June 30,2017
VIA OVERNIGHT DELIVERY
Diane Hanian
Commission Secretary
Idaho Public Utilities Commission
472 W.Washington
Boise,ID 83702
Attention:Diane Hanian
Commission Secretary
RE:CASE NO.PAC-E-17-06
IN THE MATTER OF THE APPLICATION OF ROCKY MOUNTAIN POWER
FOR BINDING RATEMAKING TREATMENT FOR WIND REPOWERING
Please find enclosed for filing an original and nine (9)copies of Rocky Mountain Power's
application,direct testimony,and exhibits in the above-referenced matter,seeking approval to use
binding ratemaking for wind repowering.Also enclosed are confidentialand non-confidentialCDs
containingthe application,testimony and exhibits,and workpapers.
Rocky Mountain Power is currently preparing pro hac vice motions on behalf of its counsel at
McDowell Rackner Gibson PC.
Informal inquiries may be directed to Ted Weston,Idaho Regulatory Manager,at [phone].
Very ru o rs,
JeffreyK.Larsen
Vice President,Regulation
Enclosures
O
R.Jeff Richards (#7294)
Yvonne R.Hogle (#8930)
1407 West North Temple,Suite 320
Salt Lake City,Utah 84116
Telephone:[phone]
Facsimile:[phone]
Email:[e-mail]
[e-mail]
Katherine McDowell (OR #890876)
Adam Lowney (OR #053124)McDowell Rackner Gibson PC
419 SW 11*Avenue,Suite 400
Portland,OR 97205
Telephone:[phone]
Facsimile:[phone]
Email:[e-mail]
adamOmre-law.com
Attorneys for Rocky Mountain Power
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE )CASE NO.PAC-E-17-06
APPLICATION OF ROCKY )MOUNTAIN POWER FOR BINDING )APPLICATION
RATEMAKING TREATMENT FOR )WIND REPOWERING )
COMES NOW,Rocky MountainPower,a division of PacifiCorp ("Rocky MountainPower"
or "Company"),under Idaho Code §61-541,and hereby respectfully requests that the Idaho Public
Utilities Commission ("Commission")(a)determine that the Company's decision to upgrade or
"repower"existing wind resources is prudent and in the public interest,and (b)approve the
Company's continued cost recovery of the replaced wind plant equipment and the Company's
proposed ratemaking treatment.The Company proposesto upgrade or "repower"its wind resources
because it provides net benefits to customers by increasing energy production,reducing operating
costs,and requalifying the Company's existing wind resources for federal production tax credits
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("PTCs"),which expire 10 years after a facility's original commercial operation date.To achieve the
full PTC benefits,the Company must complete the wind repowering project by the end of 2020.In
support of this Application,Rocky Mountain Power states as follows:
BACKGROUND
Wind repowering involves the installationof new rotors with longer blades and new nacelles
with higher capacity generators,which will increase energy output by an average of 19 percent
without changing the footprint,towers,foundations or energy collector systems of the wind
facilities.Using modern technology and improved control systems,the repowered wind facilities
will produce more cost-effective energy,using zero-cost fuel over an extended useful life at reduced
operating costs,saving customers millions of dollars.Becauseexistingtowers and foundations will
remain in place and the footprint of the existing facilities are unchanged,the wind repowering
project also results in minimal environmental impact and permitting requirements.
The Company estimates that the wind repowering project will cost approximately
$1.13 billion.Because of the magnitude of this capital investment and the overall scope of the
project,the Company requests that the Commission approve the wind repowering project before the
Company completes equipment orders and begins construction.The Application provides the
Commission and interested parties a meaningful opportunityto evaluate the prudence of the wind
repowering project to ensure that the project is reasonable,prudent,and in the public interest.
I.NAME AND ADDRESS OF APPLICANT
1.Rocky Mountain Power is a division of PacifiCorp,an Oregon corporation,which
provides electric service to retail customers in the states of Idaho,Wyoming,and Utah.Rocky
Mountain Power is a public utility in the state of Idaho and is subject to the Commission's
jurisdiction with respect to its prices and terms of electric service to retail customers in Idaho under
Idaho Code §61-129.Rocky Mountain Power is authorized to do business in the state of Idaho
providing retail electric service to approximately75,400 customers in the state.
2.Formal correspondence and requestsfor additionalinformationregarding this matter
should be addressedto:
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By e-mail (preferred):[e-mail]
By regular mail:
Data Request Response Center
PacifiCorp
825 NE Multnomah,Suite 2000
Portland,Oregon 97232
With copies to:
Ted Weston
Idaho Regulatory Affairs Manager
Rocky Mountain Power
1407 West North Temple,Suite 330
Salt Lake City,Utah 84116
E-mail:[e-mail]
Yvonne Hogle
Assistant General Counsel
Rocky Mountain Power
1407 W.North Temple,Suite 320
Salt Lake City,Utah 84116
E-mail:[e-mail]
Informal inquiries related to this Application should be directed to Ted Weston,Idaho
Regulatory Affairs Manager,at [phone].
II.SUPPORTING TESTIMONY
3.This Application is supported by the pre-filedwrittendirect testimony and exhibits of
the following Company witnesses:
CindyA.Crane,President and Chief Executive Officer of Rocky Mountain Power,
testifies on the financial ability of the Company to make the wind repowering
investment,explains the significant benefits to customers from repowering the
Company's wind resources,and outlines the reasons why the wind repowering
project is prudent and in the public interest.Ms.Crane also briefly describes the
Company's proposals for ratemaking treatment and the continued recovery of the
costs of the equipment replaced at the time of repowering.
Timothy J.Hemstreet,Director of Renewable Energy Development,provides a
detailed scope of the Company's wind repowering project,including technical
details,qualification for PTC benefits,increased energy production,reduced
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operating costs,and continued system reliability.Mr.Hemstreet also addresses the
status and timing of wind-turbine-generator ("WTG")equipment purchases,
construction requirements,anticipated construction timelines,and the disposition of
removed equipment.
Rick T.Link,Vice President of Resource and Commercial Strategy,provides the
economic analysis that supports the prudence of the Company's wind repowering
project and quantifies the significant customer benefits resulting from wind
repowering.Mr.Link also explains the wind repowering project planning and
analysis included in the Company's 2017 Integrated Resource Plan ("2017 IRP").
JeffreyK.Larsen,Vice President of Regulation,explains the Company's proposal
for the ratemaking treatment of the costs and benefits of the wind repowering project
in rates,the accounting treatment of the replaced wind plant equipment,and the
inter-jurisdictional allocation of costs.
III.THE WIND REPOWERING PROJECT
A.The Wind Repowering Project Increases Efficiency and Lowers Operating
Costs.
4.Recent advancements in wind generation technology,including innovations in wind
turbine design and control systems,allow modern wind turbines to generate greater energy from
availablewind resources.To take advantage of these recent technologies,the Company proposes to
repower most of its Wyoming wind fleet (GlenrockI,Glenrock III,Rolling Hills,SevenMile Hill I,
Seven Mile Hill II,High Plains,McFadden Ridge,and Dunlap);the Marengo I,Marengo II and
Goodnoe Hills facilities in Washington;and the Leaning Juniper facility in Oregon.These facilities
currently represent a total of 999.1 megawatts ("MW")of installed wind capacity,with 594 MW in
Wyoming,304.6 MW in Washington,and 100.5 MW in Oregon.
5.Wind repowering involves the installationof new rotors with longer blades and new
nacelles with higher-capacity generators.Longer blades increase the wind-swept area of the wind
turbine and allow it to produce more energy at lower wind speeds.The nacelle is the housing that sits
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atop the tower and contains the gear box,low-and high-speed shafts,generator,controller,and
brake.The new nacelles will include sophisticated control systems and more robust mechanical and
generator components necessaryto handle the greater loads that come with longer blades.Together,
the new rotors and nacelles are estimated to increasewind facilitygeneration from 11 to 35 percent,
or an overall average of 19 percent (21 percent after new interconnection agreements are executed).
6.In addition,the innovativetechnologies provide for greater control of power quality
and voltage,allowing the Company to more easily integrate the energy from the wind facilities into
the transmission system and support the reliability of the grid.The new equipment also reduces
future operating costs and extends the useful life of each wind plant by approximately 10 years.Over
the current life of the repowered facilities,incremental annual energy production exceeds
550 gigawatt hours ("GWh").Over the extended life,the incremental annual energy production
exceeds 3,280 GWh.Importantly,because the wind repowering project involves efficiency
improvements to existing facilities,these benefits can be achieved without the costs and complexity
of permitting and constructing whollynew facilities.
B.Completing the Wind Repowering Project by the End of2020 Maximizes PTC
Benefits for Customers.
7.The cost-effectiveness ofthe wind repowering project is driven in part by the fact that
repowering requalifies the Company's existing wind facilities for PTCs,which are set to expire
10 years from their original commercial operation date (expiration dates range from 2016 through
2020).For 2017,wind facilities qualifying for the PTC receive 2.4 cents per kilowatt-hour-or $24
per megawatt-hour,a value adjusted annually based upon an inflation index.
8.To requalify for PTCs,the repowered wind facility must meet the Internal Revenue
Service's 80/20 test -meaning that the fair market value of the retained property (i.e.,tower and
foundation in the Company's proposed project)is no more than 20 percent of the facility's total
value after installation of the new property (i.e.,nacelle and rotor).The Company has designed its
wind repowering project to satisfy this test to ensure that the repowered wind facilities are PTC-
eligible.
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9.Further,to ensure the repowered facilities are eligible for 100 percent of available
PTC benefits,in December 2016,the Company contracted with global wind industry leaders General
Electric,Inc.,and Vestas-American Wind Technology,Inc.,to purchasenew WTG equipment.These
"safe-harbor"equipment purchases allow the repowered facilities to qualify for 100 percent of the
value of available PTCs if they are commercially operational by the end of 2020.
10.To achieve commercial operation by 2020,the Company requests that the
Commission adopt a procedural schedule that will allow for approval of this Application by
December 29,2017,so that the Company can finalize contracts to complete as much of the
repowering work as possible in 2019.The renewal of the PTCs has dramatically increased the
demand for materials,equipment,and labor for wind facilities.The Company must order equipment
and execute construction contracts by early 20l8 to ensure that all repowered facilities achieve
commercial operation by the end of 2020.A delay in regulatory approval may compromise the
Company's ability to meet the 2020 deadline and achieve the PTC benefits.
11.The Company's construction schedule will maximize the value of the existingPTCs
by minimizing the period between the expirationofthe original PTCs and the eligibility for the new
PTCs.The original PTCs expire 10 years after each plant became commercially operational.Thus,
the PTCs for most ofthe facilities will expire in 2018 and 2019.Achieving commercial operation in
2019 for most of the facilities will minimize the time during which the wind facilities are ineligible
for PTCs.
C.The Proposed Facilities Provide Substantial Customer Benefits and Advance the
Public Interest.
12.The Company's 2017 IRP,filed with the Commission on April 4,2017,identified
wind repowering as a least-cost,least-risk resource.The 2017 IRP is designed to ensure,on a long-
term basis,an adequate and reliable electricity supply at a reasonable cost and in a manner that is
consistent with the public interest.To that end,the IRP's primary objective is to identify the best mix
of resources to serve customers over the short-and long-term,based on an analysis of the costs and
O risks associated with various resource portfolios.The IRP identifies the preferred portfolio as the
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least-cost,least-risk portfolio that can be delivered through specific action items at a reasonablecost
and with manageable risks,while ensuring compliance with state and federal regulatory obligations.
The preferred portfolio in the 2017 IRP includes repowering all ofthe wind facilities included in the
Application,except Goodnoe Hills,which was still being analyzed when the IRP was filed.
13.The Company conducted a comprehensive economic analysis of the wind
repowering project in support of the Application.This analysis demonstrates that wind repowering
will provide substantial customer benefits.The Company analyzed nine different scenarios,each
with varying natural gas andcarbon dioxide ("CO2")price assumptions,and all nine scenarios show
customer benefits,ranging from $41 million when assuming low natural gas and zero CO2 prices to
$589 million when assuming high natural gas and high CO2 prices.With medium natural gas price
and CO2 price assumptions,wind repowering results in customer benefits of $359 million.
14.The wind repowering project creates these benefits by:
Increasing energy production from the wind facilities between 11 to 35 percent as
a result of longer blades and increased generator capacity;
Reducing ongoing operating costs associated with aging wind turbines;
Extending the useful lives of the wind facilities by at least 10 years;
Increasing the output of renewable energy from existing assets,while avoiding
the environmental impacts and view-shed issues associated with new facilities;
Reducing customer costs by requalifying the wind facilities for PTCs for an
additional 10 years;and
Improving the ability of the wind facilities to deliver cost-effective renewable
energy into the transmission system through enhancedvoltage support andpower
quality.
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IV.LEGAL STANDARD
15.Idaho Code §§61-54l(2)provides that a public utility that proposes to construct,
purchase,or make major additions to an electric generation facility or transmission facility "may file
an application with the commission for an order specifying in advance the ratemaking treatments
that shall apply when the costs of the proposed facility are included in the public utility's revenue
requirements for ratemaking purposes."The "requested ratemaking treatments may include
nontraditionalratemaking treatments or nontraditionalcost recovery mechanisms."When reviewing
an application for binding ratemaking treatment,the Commission "shall maintain a fair,just and
reasonable balance of interests between the requesting utility and the utility's ratepayers."Idaho
Code §§61-541(4).The Commission must also determine whether:
(1)the utility has in effect a Commission-accepted IRP;
(2)the services and operations resulting from the facility are in the
public interest and will not be detrimental to the provision of
adequate and reliable electric service;
O (3)the public utility has demonstrated that it has considered other
sources for long-term electric supply or transmission;
(4)the additionof the facility is reasonablewhen compared to energy
efficiency,demand-side management and other feasible alternative
sources of supply or transmission;and
(5)the public utility participates in a regional transmission planning
process.
16.The Company's request for binding ratemaking treatment fairly and reasonably
balancesthe interests of customers and satisfies each of these five requirements.First,the Company
has a Commission-accepted IRP and its 2017 IRP is currently pending.The Company anticipates
that the Commission will accept and acknowledge the 2017 IRP before ruling on the request for
binding ratemaking treatment related to the wind repowering project.Mr.Link's testimony provides
additional detail on the 2017 IRP and explains how the wind repowering project is an integral
component of the Company's near-and long-term strategies for serving customers with cost-
effective,emission-free generation.
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17.Second,the wind repowering project will serve the public interest and provide
substantial benefits to Idaho customers.As discussed above,and in Mr.Link's testimony,because
repowering the win facilities increasesenergy production,reduces operating costs,and requalifies
the facilities for federal PTCs,customers will save money through the wind repowering project.
Customers will also receive long-term benefits resulting from the 11 to 35 percent incremental
energy produced by more efficient equipment and by extending the life of the repowered wind
resources.
18.Third,the Company's 2017 IRP demonstratesthat the wind repowering project is the
least-cost,least-risk approach when compared to other sources for long-term electricity supply or
transmission.Mr.Link's testimony provides additional details relatingto this factor.
19.Fourth,the wind repowering project remains reasonable when compared to energy
efficiency,demand-side management and other feasible alternatives.The 2017 IRP anticipates
energy efficiency will offset 88 percent of forecasted energy demand growth over the next 10 years
and will continue to limit the need for new power plants.But even with substantial investments in
energy efficiency and other demand-side resources,the wind repowering project remains a
reasonable and necessary investment.
20.Fifth,the Company participates in regional transmission planning processes,as
described in Ms.Crane's testimony.
21.The Company's proposed ratemaking treatment also ensures that rates reflect both the
costs and the benefits ofthe wind repowering project and is consistent with established Commission
precedent.See Order No.32910;Order No.31033.
22.The Company's request for binding ratemaking treatment is also consistent with
Commission precedent.The statute is relatively new;however,the Commission provided binding
ratemaking treatment under this statute when Idaho Power requested and received binding
ratemaking treatment related to its $427 million investment in the Langley Gulch gas-fired
generating plant.In the Matter of Idaho Power Co.s Application for a Certificate of Public
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Convenience andNecessityfor the Langley Gulch Power Plant,Case No.IPC-E-09-03,Order No.
30892 (Sept.1,2009).
23.In a subsequentcase,Idaho Power requested a certificate for public convenience and
necessity ("CPCN")and binding ratemaking treatment for the investment in selective catalytic
reduction systems ("SCR")at the Jim Bridgerplant.Inthe Matter ofIdaho Power Co.s Application
for a Certificate of Public Convenience and Necessity for the Investment in Selective Catalytic
Reduction Controls on Jim Bridger Units 3 and4,Case No.IPC-E-13-16,Order No.32929 (Dec.2,
2013).In that case,the Commission granted the CPCN,but denied bindingratemaking treatment.In
doing so,the Commission explained that it providedbinding ratemaking treatment for the Langley
Gulch because the "economy and financial markets were risk averse to large investments when
Idaho Power was attempting to raise capital to build LangleyGulch,"the LangleyGulch investment
was "exponentially larger than what is required for the Bridger upgrades,"and the "balance of
interests weighed in favor of partial pre-approval because,in addition to the assurances that pre-
approval providedfor the Company,favorable financing terms ultimately inured to the benefit of the
ratepayers."Id.at 12.In balancing customer and utility interests,the Commission found that
granting a CPCN,while denying bindingratemaking treatment,"maintains a fair,just and reasonable
balance of interests between the Company and the Company's ratepayers."Id.
24.Here,the Company's proposed investment is "exponentiallylarger"than the Langley
Gulch investment that received binding ratemaking treatment,which was,in turn,roughly three
times greater than Jim Bridger SCRs.The cost of the Company's proposed wind repowering project
is more than double the Langley Gulch investment,and,when coupled with the new wind and
transmission investment (discussed in the concurrently filed application),the Company's anticipated
capital investment for these facilities alone in the next three years is substantially greater than the
LangleyGulch investment.The magnitude andtime-limited opportunityof this investment supports
the need for binding ratemaking treatment.
25.In addition,approval of binding ratemaking treatment provides important regulatory
O support for the Company's current credit rating while it makes the significant capital investments set
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forth in the 2017 IRP.Ratings agencies consider the Company's regulatory treatment when
establishing its credit rating,and particularly focus on the treatment of capital investments.
Supportive treatment through preapproval of an investment of this magnitude provides assurance to
ratings agencies and helps maintain the Company's credit rating.A solid credit rating directly
benefits customers by ensuring access to capital markets and reducing immediate and future
borrowing costs related to the financing neededto support regulatory operations,and strong ratings
will often help the Company avoid costly collateral requirements that are typically imposed on
lower-rated companies when securing power in the market.If the Company does not have consistent
access to the capital markets at reasonable costs,its debt issuances and the resulting costs of
constructing the new facilities become more expensive than they otherwise would be.
26.When balancing customer and utility interests in the Jim Bridger SCR case,the
Commission also found that granting a CPCN,while denying binding ratemaking treatment,
"maintains a fair,just and reasonable balance of interests between the Company and the Company's
ratepayers."Order No.32929 at 12.A CPCN provides assurances that "in the ordinary course of
events,prudently incurred costs of construction ...will later be recognized in the Company's
revenue requirement."In the Matter of the Application ofIdaho Power Co.for a Certificate of
Public Convenience and Necessity for the Ratebasing ofthe Mountain Home GeneratingStation,
Case No.IPC-E-01-12,Order No.28773 at 13 (July 10,2001)(internal quotations omitted).The
Company did not file a CPCN for the wind repowering project,however,because the capacity
expansion of an existing plant is exempt from the CPCN statute.Idaho Code §61-526 (CPCN not
required to "increase the capacity of [an]existing plant").In this case,the binding ratemaking
treatment statute is the mechanism by which the Company can gain assurance of supportive
ratemaking treatment.
27.Binding ratemaking approval is warranted because of the magnitude of the proposed
investment and the significant customer benefits resulting from the wind repowering project.
Providing binding ratemaking treatment here "comports with the purpose of Idaho Code §61-541 to
O facilitate the acquisition and construction of major generation or transmission facilities while
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balancing the interests of the utility and ratepayers."In the Matter of the Application of Idaho
Power Co.for Authorityto Increase Rates and its Rate Base to Recover its Investment in the Langley
Gulch Power Plant,Case No.IPC-E-12-14,Order No.32585 at 16 (June 29,2012).
V.PROPOSED BINDING RATEMAKING TREATMENT
28.To match the annual investment and operating costs and benefits of the repowered
wind projects until the costs and benefits are fully included in base rates,the Company proposes to
track them using a ResourceTracking Mechanism ("RTM"),which will be included as a component
of the Company's approved Energy Cost Adjustment Mechanism ("ECAM").The benefits of
repowering the wind facilities include new PTCs for the projects and additionalzero-fuel cost energy
generation.The ECAM will capture 90 percent of the net power cost benefits associated with the
incremental energy production and 100 percent of the PTCs as each facility requalifies.The
Company proposes that there would be no sharing of the incremental energy generated from the
repowered wind projects.Customers would receive 100 percent of the benefit of the incremental
energy produced from these projects.Once the full costs and benefits are included in base rates,only
the incremental fluctuations associatedwith production levels of energy and PTCs would continue to
be tracked in the ECAM,as they are today,since these are entirely dependent on the variable output
of the facilities.The Company would begin deferring the costs and benefits associatedwith the wind
repowering activity for each repowered wind facility in the month of its in-service date.
The calculationof the ECAM deferral associated with the repowered wind facilities is described in
Mr.Larsen's testimony.
29.The Company's recommended rate treatment is consistent with the ratemaking
treatment of the Company's Lake Side II gas-fired generation plant,which was approved by the
Commission in Order No.32910.In the Matter of the Application of PacilìCorp dba Rocky
MountainPower to Initiate Discussions with Interested Parties on AlternativeRate Plan Proposals,
Case No.PAC-E-13-04,Order No.32910 (Oct.24,2013).It would also be consistent with the
renewable resource adder approved by the Commission in Order No.31033.In the Matter of the
O Application of PacifiCorp dba Rocky Mountain Power for Authorityto Implement Power Cost
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Adjustment Rates for Electric Service from April 1,2010 Through March 31,2011 Through the
Energy CostAdjustment Mechanisms,Case No.PAC-E-10-01,Order No.31033 (Mar.31,2010).In
that case,the resource adder "recognize[d]that the Company has made significant investments in
renewable generation projects that are not yet being recovered in Idaho rates,even though these
projects providesignificant benefits to customers."Id.at 2.The resource adder allowed the ECAM
to include a cost for renewable resources that had come on-line since base power costs were set in
the Company's last rate case.Id.at 6.By including the costs of new renewable resources in the
ECAM,the resource adder appropriatelymatched the costs with the benefits.
30.The Company intends to file new depreciation rates in 2019.At that time,the
Company will reset the 30-year depreciable life of the repowered wind facilities,effectively
extending the depreciable life of the facilities by 10 to 13 years.Mr.Larsen's testimony provides
additional detail on the proposed ratemaking treatment.
VI.PROPOSED PROCEDURAL SCHEDULE
31.To achieve commercial operation of the repowering project by 2020,the Company
requests the followingschedule,with a proposed decision by December 29,2017:
June 30,2017 Application Filed
July 10,2017 Staff Decision Memo to Commission
July 17,2017 Issue Public Notice
August 7,2017 Intervention Period Complete
August 10,2017 Technical/Scheduling Conference
September 18,2017 IntervenorTestimony Due
October 9,2017 RMP Rebuttal Testimony Due
October 30,2017 Hearings Begin
December 29,2017 Target Order Issued
VH.REQUEST FOR RELIEF
32.Rocky Mountain Power respectfully requests that the Commission issue an order:
(1)finding that the wind repowering project is prudent and in the public interest;(2)approvingthe
proposed binding ratemaking treatment for the wind repowering project;and (3)approving the
continued rate recovery of and on the replaced assets associatedwith the wind repowering project as
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described by Mr.Larsen.In this case,approval of the wind repowering project is reasonable and in
the public interest becauserepowering the existingwind resources by the end of 2020 will produce
significant net benefits to customers.
Respectfully submitted this 30*day of June,2017.
Jeff Richards
Yvonne R.Hogle
1407 West North Temple,Suite 320
Salt Lake City,Utah 84116
Telephone:[phone]
Facsimile;[phone]
Email:[e-mail]
Attorneys for Rocky Mountain Power
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